<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 January 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 206-867-1818
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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 February 7, 1997, the Registrant had 5,171,810 shares of Common Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SeaMED CORPORATION
FINANCIAL STATEMENTS
INDEX
Balance Sheets as of June 30, 1996 and December 31, 1996.......................3
Statements of Income for the Quarters and the Six Months
Ended December 31, 1995 and 1996......................................4
Statements of Cash Flows for the Six Months Ended December 31, 1995 and 1996 ..5
Notes to Financial Statements..................................................6
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SeaMED CORPORATION
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1996
-------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 2,912 $ 537,076
Investments............................................. ----- 7,960,269
Accounts receivable, net................................ 5,875,933 6,848,364
Inventories............................................. 6,697,248 8,572,212
Deferred income taxes................................... 625,221 625,221
Prepaid expenses........................................ 63,536 187,260
------------- -----------
Total current assets........................................ 13,264,850 24,730,402
Fixed assets................................................ 2,655,265 2,801,900
Deposits and other assets................................... 144,220 208,458
------------- -----------
Total assets................................................ $ 16,064,335 $27,740,760
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 2,688,160 $ 2,561,859
Accrued expenses and reserves........................... 3,301,064 3,822,146
Notes payable to bank................................... 1,817,000 -----
Current portion of long-term debt....................... 461,990 138,383
------------- -----------
Total current liabilities................................... 8,268,214 6,522,388
Long-term debt, less current portion........................ 1,285,782 580,075
Convertible redeemable preferred stock...................... 5,279,514 -----
Shareholders' equity:
Common stock............................................ 886,828 19,207,433
Note receivable from officer............................ (75,000) (75,000)
Retained earnings....................................... 418,997 1,505,864
------------- -----------
Total shareholders' equity.................................. 1,230,825 20,638,297
------------- -----------
Total liabilities and shareholders' equity.................. $ 16,064,335 $27,740,760
============= ===========
</TABLE>
See accompanying notes to financial statements.
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SeaMED CORPORATION
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------------------ -------------------------------------
December 31, December 31, December 31, December 31,
1995 1996 1995 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Manufacturing........................ $ 3,689,862 $ 7,289,418 $ 7,165,073 $ 14,013,136
Engineering.......................... 1,676,086 4,720,992 3,200,883 8,073,443
-------------- -------------- -------------- --------------
5,365,948 12,010,410 10,365,956 22,086,579
Costs of revenues:
Manufacturing........................ 2,888,854 5,805,689 5,618,420 11,244,456
Engineering.......................... 1,584,232 4,177,563 3,061,919 7,130,309
-------------- -------------- -------------- --------------
4,473,086 9,983,252 8,680,339 18,374,765
-------------- -------------- -------------- --------------
Gross margin............................ 892,861 2,027,158 1,685,616 3,711,813
Marketing, general and
administrative expenses.............. 559,303 1,075,420 1,050,201 1,922,090
-------------- -------------- -------------- --------------
Operating income........................ 333,558 951,738 635,415 1,789,724
Other expense, net:
Interest............................. 52,533 18,907 104,525 101,122
Other................................ 5,889 9,318 2,615 16,498
-------------- -------------- -------------- --------------
58,422 28,225 107,139 117,621
-------------- -------------- -------------- --------------
Income before income taxes.............. 275,136 923,512 528,276 1,672,103
Income tax provision.................... 93,546 323,229 179,614 585,236
-------------- -------------- -------------- --------------
Net income.............................. $ 181,590 $ 600,283 $ 348,662 $ 1,086,867
============== ============== ============== ==============
Net income per share data:
Primary.............................. $ 0.05 $ 0.15 $ 0.09 $ 0.31
============== ============== ============== ==============
Fully diluted........................ $ 0.05 $ 0.13 $ 0.09 $ 0.25
============== ============== ============== ==============
Weighted average common shares
and equivalents:
Primary.............................. 2,328,144 3,851,880 2,315,127 3,164,783
============== ============== ============== ==============
Fully Diluted........................ 3,885,614 4,705,530 3,872,597 4,390,966
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
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SeaMED CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------
1995 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 348,662 $ 1,086,867
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation............................................... 310,196 488,029
Provision for bad debts.................................... (14,669) 54,739
Deferred tax benefit....................................... (30,203) ---
Changes in operating assets and liabilities:
Increase in accounts receivable.......................... (172,939) (1,027,170)
Increase in inventories.................................. (129,745) (1,874,964)
Increase (decrease) in accounts payable, accrued expenses,
and deferred revenue................................... (269,802) 394,980
Increase in other assets and prepaid expenses............ (75,284) (187,962)
------------ ------------
Net cash used in operating activities......................... (33,784) (1,065,681)
INVESTING ACTIVITIES
Purchases of equipment........................................ (254,740) (634,664)
Maturity of short-term investments............................ 200,000 ---
Purchase of investments....................................... --- (7,960,269)
------------ ------------
Net cash used in investing activities......................... (54,740) (8,594,933)
FINANCING ACTIVITIES
Proceeds from sale of common stock (net of cost).............. --- 14,799,036
Payment of preferred dividend................................. --- (1,765,100)
Proceeds from stock option exercised.......................... 81,340 7,156
Net payments of credit line................................... (503,826) (1,817,000)
Proceeds from notes payable................................... 600,000 ---
Principal payments on notes payable .......................... (156,518) (1,029,314)
------------ ------------
Net cash provided by financing activities..................... 20,996 10,194,778
------------ ------------
Net increase (decrease) in cash............................... (67,528) 534,164
Cash and cash equivalents at beginning of period.............. 70,383 2,912
------------ ------------
Cash and cash equivalents at end of period.................... $ 2,855 $ 537,076
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
ITEM 1. NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Description of Business
SeaMED Corporation (the "Company") 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 December 31, 1996 and for the periods
ended December 31, 1995 and 1996 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 periods ended December 31, 1996 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, 1996, included in its Registration Statement on Form
S-1 (No. 333-13455) filed with the Securities and Exchange Commission.
2. INITIAL PUBLIC OFFERING
On November 19, 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 $14,799,000. 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
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preferred stock outstanding immediately prior to the offering was converted into
3,934,029 shares of common stock.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1996
-------- ------------
<S> <C> <C>
Work-in-process $ 2,490,710 $ 2,719,953
Purchased and manufactured parts 4,206,538 5,852,259
------------- ------------
$ 6,697,248 $ 8,572,212
============= ============
</TABLE>
4. INVESTMENTS
Investments to be held to maturity at December 31, 1996 net of
premium or discount consist of the following:
<TABLE>
<CAPTION>
Maturity Date
- -------------
<S> <C>
Up to one year $ 6,965,113
One to two years 995,156
-------------
$ 7,960,269
=============
</TABLE>
-7-
<PAGE> 8
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 Registration Statement on Form S-1 (No. 333-13455) 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
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instruments not yet approved for commercial use (known as "preproduction
revenues"), the gross 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.
SeaMED has historically designed, developed and manufactured certain
proprietary instruments. SeaMED expects that fiscal year 1997 will be the last
year in which it derives revenues from such instruments. SeaMED thereafter will
derive its revenues exclusively by manufacturing instruments for its customers.
SeaMED's revenues from its proprietary instruments were $425,000 and $876,000,
respectively, in the quarter and six months ended December 31, 1996. SeaMED's
revenues from its proprietary instruments were $1.2 million, $923,000 and $1.4
million in fiscal years 1994, 1995 and 1996.
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.
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<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth statement of income data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
---------------------------------------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.4 83.1 83.7 83.2
----- ----- ----- -----
Gross margin 16.6 16.9 16.3 16.8
Marketing, general and administrative 10.4 9.0 10.1 8.7
----- ----- ----- -----
Operating income 6.2 7.9 6.2 8.1
Other expenses, net 1.1 0.2 1.0 .5
----- ----- ----- -----
Income before income taxes 5.1 7.7 5.2 7.6
Income tax provision 1.7 2.7 1.8 2.6
----- ----- ----- -----
Net income 3.4% 5.0% 3.4% 4.9%
===== ===== ===== =====
</TABLE>
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 December 31, Six Months Ended December 31,
------------------------------------------------- -----------------------------------------------------
1995 1996 1995 1996
------------------ ------------------ ------------------- -------------------
% of % of % of % of
Total Total % Total Total %
Revenues Revenues Revenues Revenues Increase Revenues Revenues Revenues Revenues Increase
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing $3,690 68.8% $ 7,289 60.7% 97.6% $ 7,165 69.2% $14,013 63.5% 95.6%
Engineering 1,676 31.2 4,721 39.3 181.7% 3,201 30.8 8,073 36.5 152.2%
------ ----- ------- ----- ------- ----- ------- -----
Total Revenues $5,366 100.0% $12,010 100.0% 123.8% $10,366 100.0% $22,086 100.0% 113.1%
====== ===== ======= ===== ======= ===== ======= =====
</TABLE>
Manufacturing revenues increased by approximately $3.6 million from the
second quarter of fiscal year 1996 to the second quarter of fiscal year 1997 and
approximately $6.8 million from the first six months of fiscal year 1996 to the
first six months of fiscal year 1997, due primarily to a new nonmedical product
manufactured for Coinstar under a nonexclusive contract adding approximately
$2.2 million in revenues for the second quarter and $4.4 million for the first
six months of fiscal year 1997, new instruments adding approximately $649,000 in
revenues for the second quarter and $1.3 million for the first six months, and
increased revenues from existing instruments adding approximately $1.5 million
for the second quarter and $3.0 million for the first six months. SeaMED began
sales to Coinstar in the fourth quarter of fiscal year 1996. Sales to Coinstar
in the second quarter of fiscal year 1997 represented approximately 21.0% of
total revenues and approximately 29.8% of manufacturing revenues and in the
first six months of fiscal year 1997 represented approximately 22.4% of total
revenues and 31.6% of manufacturing revenues. Increases in manufacturing
revenues were offset by decreased volume of certain existing instruments and the
phase-out of other instruments. Significant manufacturing revenues were
generated by 11 instruments and one nonmedical product in the second quarter of
fiscal
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year 1996 and 13 instruments and one nonmedical product in the second quarter of
fiscal year 1997.
Engineering revenues increased by approximately $3.0 million from the
second quarter of fiscal year 1996 to the second quarter of fiscal year 1997 and
increased by approximately $4.9 million from the first six months of fiscal year
1996 to the first six months of fiscal year 1997, due primarily to new projects
adding approximately $2.5 million in revenues for the second quarter and $4.0
million for the first six months, and increased time and hourly rates being
billed on existing projects adding approximately $1.1 million in revenues for
the second quarter and $1.9 million for the first six months. Increases in
engineering revenues were offset by the transition of certain projects from
engineering to manufacturing and other projects being delayed or cancelled.
SeaMED intends to maintain as its primary focus the design and
manufacturing of advanced medical instruments for medical technology companies.
Management expects the percentage of the Company's revenues derived from
nonmedical products to continue to decline in subsequent quarters unless SeaMED
undertakes to manufacture another high-volume nonmedical product.
Gross Margin
The following table sets forth gross margin, both in dollar amounts and
as a percentage of the corresponding revenue figure for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended December 31, Six Months Ended December 31,
---------------------------------------------------- -------------------------------------------------
1995 1996 1995 1996
----------------------- ------------------------- ---------------------- -----------------------
Gross Gross Gross Gross Gross Gross Gross Gross
Margin ($) Margin (%) Margin ($) Margin (%) Margin ($) Margin (%) Margin ($) Margin (%)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manufacturing $801 21.7% $1,484 20.4% $1,547 21.6% $2,769 19.8%
Engineering 92 5.5% 543 11.5% 139 4.3% 943 11.7%
---- ------ ------ ------
Total gross margin $893 16.6% $2,027 16.9% $1,686 16.3% $3,712 16.8%
==== ====== ====== ======
</TABLE>
Manufacturing gross margin decreased from 21.7% of manufacturing
revenues in the second quarter of fiscal year 1996 to 20.4% in the second
quarter of fiscal year 1997, due primarily to losses on a medical instrument
that was phased out of full production in the second quarter of fiscal year 1997
and on an instrument in preproduction. The decrease in the manufacturing gross
margin percentage from 21.6% to 19.8% in the first six months of fiscal year
1997 was primarily attributable to the same losses. Management expects the
fiscal year 1997 manufacturing gross margin percentage to be lower than the
fiscal year 1996 manufacturing gross margin percentage of 23.6%. Engineering
gross margin increased from 5.5% of engineering revenues in the second quarter
of fiscal year 1996 to 11.5% in the second quarter of fiscal year 1997. This
increase reflects a trend of increasing engineering gross margin percentages,
due primarily to (i) spreading certain fixed engineering costs over a higher
revenue base, (ii) better utilization of engineers, and (iii) increased hourly
rates for engineering services.
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<PAGE> 12
The increase in the engineering gross margin percentage from 4.3% for the first
six months of fiscal year 1996 to 11.7% for the first six months of fiscal year
1997 was primarily attributable to the same factors. Management expects the
fiscal year 1997 engineering gross margin percentage to be near 11%.
Marketing, General and Administrative Expenses
Marketing, general and administrative expenses increased from $559,000
in the second quarter of fiscal year 1996 to $1.1 million in the second quarter
of fiscal year 1997, but as a percentage of revenues decreased from 10.4% to
9.0% for the respective quarters. Marketing, general and administrative expenses
increased from $1.1 million in the first six months of fiscal year 1996 to $1.9
million in the first six months of fiscal year 1997, but as a percentage of
revenues decreased from 10.1% to 8.7% for the respective six month periods. The
decrease in marketing, general and administrative expenses as a percentage of
revenues is due to increased revenues without a proportionate increase in
marketing, general and administrative resources.
Operating Income
Operating income increased 185.3% from $334,000 (6.2% of revenues) in
the second quarter of fiscal year 1996 to $952,000 (7.9% of revenues) in the
second quarter of fiscal year 1997 and increased 183.5% from $635,000 (6.1% of
revenues) in the first six months of fiscal year 1996 to $1.8 million (8.1% of
revenues) in the first six months of fiscal year 1997, due primarily to
increased revenues and a decrease in marketing, general and administrative
expenses as a percentage of revenues, offset in part by the lower gross margin
percentage.
LIQUIDITY AND CAPITAL RESOURCES
SeaMED has historically financed its operations through earnings, debt
and sales of securities. In the first six months of fiscal year 1996 and in the
first six months of fiscal year 1997, SeaMED's operating activities resulted in
net uses of cash of $33,800 and $1.1 million, respectively. These net uses of
cash have occurred despite increased earnings, because SeaMED's growth has
required substantial infusions of working capital primarily to support increased
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 $14,799,000. 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 Pacific Northwest Bank (the
"Bank") to zero and $1,296,000 to pay off in full three notes payable to the
Bank.
SeaMED expects to use 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. The
Company, if the opportunity arises, may use a portion of the net proceeds to
acquire other manufacturing or engineering businesses or assets
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<PAGE> 13
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.
SeaMED has a fixed-balance cash management arrangement with the Bank.
Under this arrangement, the amount outstanding under SeaMED's cash investments
or line of credit fluctuates daily based on the Company's receipts and
disbursements. Under the line of credit, SeaMED can borrow up to 80% of eligible
accounts receivable (less than 60 days outstanding) to a maximum of $4.0
million. Borrowings under the line bear interest at the Bank's prime rate plus
.25% (8.5% at January 31, 1997) and are secured by receivables and inventories.
SeaMED is currently reviewing the adequacy of its line of credit, which expires
on March 5th.
SeaMED also has an unsecured subordinated note payable to Cordis
Corporation, with an interest rate adjustment on each July 1 to the prime rate
plus 2% (10% at January 31, 1997), with a maximum rate of 10% and a minimum rate
of 7%. The note is due in monthly payments of $17,000 through May 2001. At
January 31, 1997, the balance outstanding on this note was approximately
$707,000.
SeaMED believes that the remaining net proceeds, together with existing
capital resources and amounts available under its existing line of credit with
the Bank, will satisfy the Company's anticipated capital needs for the next 12
to 24 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.
SeaMED recently accelerated its timetable for occupying additional
space in a new building so that it will occupy 60,000 new square feet of space
during May 1997. SeaMED currently has approximately 88,000 square feet of space.
SeaMED anticipates a significant increase in capital expenditures during the
second six months of fiscal year 1997, as it has budgeted $1.0 million for
furniture and equipment, communication and information systems, leasehold
improvements and other items needed to occupy the 60,000 additional square feet
of space. Total capital expenditures were approximately $635,000 through the
first six months of fiscal year 1997. Capital expenditures were $876,000 in
fiscal year 1994, $1.2 million in fiscal year 1995 and $1.5 million in fiscal
year 1996.
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<PAGE> 14
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6(A). EXHIBITS.
<S> <C>
Exhibit 3.1+ Articles of Incorporation of the Registrant
Exhibit 3.2+ Bylaws of the Registrant
Exhibit 10.1 Promissory Note dated December 5, 1996 made by SeaMED
Corporation payable to Pacific Northwest Bank, in the amount
of $4,000,000
Exhibit 10.2 Commercial Security Agreement dated December 5, 1996 between
SeaMED Corporation and Pacific Northwest Bank
Exhibit 10.3+ Amended and Restated Promissory Note dated September
1, 1993, made by SeaMED Corporation payable to Cordis
Corporation, in the amount of $1,107,065
Exhibit 10.4+ Lease Agreement dated December 8, 1993, by and between
Med Willos, successor in interest to Jack Marin, and SeaMED
Corporation
Exhibit 10.5+ Industrial Real Estate Lease (Building 1) dated September
10, 1996, between Washington Capital management, Inc. and
SeaMED Corporation
Exhibit 10.6+ Industrial Real Estate Lease (Building 2) dated September
10, 1996, between Washington Capital Management, Inc. and
SeaMED Corporation
Exhibit 10.7+ Option Agreement dated September 10, 1996, by and between
Washington Capital Management, Inc. and SeaMED Corporation
Exhibit 10.8+ SeaMED Corporation 1988 Stock Option Plan
Exhibit 10.9+ SeaMED Corporation 1995 Employee Stock Option and Incentive
Plan
Exhibit 10.10+ SeaMED Corporation 1996 Employee Stock Purchase Plan
Exhibit 10.11+ Manufacturing Agreement dated as of September 1, 1996, made
and entered into by SeaMED Corporation and Coinstar, Inc.
Exhibit 10.12+ Promissory Note dated October 11, 1995, made by W. Robert
Berg payable to SeaMED Corporation, in the amount of $75,000
Exhibit 10.13+ Form of Director and Officer Indemnification Agreement
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.
-14-
<PAGE> 15
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 2/18/97
__________________________________________ _________________________
W. Robert Berg Date
Principal Executive Officer
By /S/ Edgar F. Rampy 2/18/97
_________________________________________ _________________________
Edgar F. Rampy Date
Principal Financial Officer
-15-
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
Exhibit 3.1+ Articles of Incorporation of the Registrant.............................................
Exhibit 3.2+ Bylaws of the Registrant................................................................
Exhibit 10.1 Promissory Note dated December 5, 1996, made by SeaMED Corporation
payable to Pacific Northwest Bank, in the amount of $4,000,000..........................
Exhibit 10.2 Commercial Security Agreement dated December 5, 1996 between
SeaMED Corporation and Pacific Northwest Bank...........................................
Exhibit 10.3+ Amended and Restated Promissory Note dated September 1, 1993,
made by SeaMED Corporation payable to Cordis Corporation,
in the amount of $1,107,065.............................................................
Exhibit 10.4+ Lease Agreement dated December 8, 1993, by and
between Med Willos, successor in interest to Jack Marin,
and SeaMED Corporation..................................................................
Exhibit 10.5+ Industrial Real Estate Lease (Building 1) dated September 10, 1996,
between Washington Capital management, Inc. and SeaMED Corporation......................
Exhibit 10.6+ Industrial Real Estate Lease (Building 2) dated September 10, 1996,
between Washington Capital Management, Inc. and SeaMED Corporation......................
Exhibit 10.7+ Option Agreement dated September 10, 1996, by and
between Washington Capital Management, Inc. and SeaMED Corporation......................
Exhibit 10.8+ SeaMED Corporation 1988 Stock Option Plan...............................................
Exhibit 10.9+ SeaMED Corporation 1995 Employee Stock Option and Incentive Plan........................
Exhibit 10.10+ SeaMED Corporation 1996 Employee Stock Purchase Plan....................................
Exhibit 10.11+ Manufacturing Agreement dated as of September 1, 1996, made and
entered into by SeaMED Corporation and Coinstar, Inc....................................
Exhibit 10.12+ Promissory Note dated October 11, 1995, made by W. Robert Berg
payable to SeaMED Corporation, in the amount of $75,000.................................
Exhibit 10.13+ Form of Director and Officer Indemnification Agreement..................................
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 10.1
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,000,000.00 12-05-1996 02-05-1997 1-3895-6 0400 AR, IN MHD
- ----------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO
ANY PARTICULAR LOAN OR ITEM.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: SEAMED CORPORATION LENDER: PACIFIC NORTHWEST BANK
(TIN: 91-1002092) BELLEVUE FINANCIAL CENTER
14500 N.E. 87TH ST. 11100 N.E. 8TH
REDMOND, WA 98052-3431 BELLEVUE, WA 98004
================================================================================
PRINCIPAL AMOUNT: INITIAL RATE: 8.500% DATE OF NOTE: DECEMBER 5, 1996
$4,000,000.00
PROMISE TO PAY. SEAMED CORPORATION ("BORROWER") PROMISES TO PAY TO PACIFIC
NORTHWEST BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA, THE PRINCIPAL AMOUNT OF FOUR MILLION & 00/100 DOLLARS ($4,000,000.00)
OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID
OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED
FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN
ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
DECEMBER 5, 1996. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING JULY 5, 1996, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this
Note is computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each DAY. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 0.250 PERCENTAGE POINTS
OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 8.500% PER ANNUM. NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay
without penalty all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, they will reduce the principal balance due.
<PAGE> 2
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $50.00,
WHICHEVER IS LESS.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f) Any
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse
change occurs in Borrowers financial condition, or Lender believes the prospect
of payment or performance of the indebtedness is impaired. (h) Lender in good
faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including
failure to pay upon final maturity, Lender, at its option, may also, if
permitted under applicable law, increase the variable interest rate on this
Note to 5.250 percentage points over the Index. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorneys' fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE SLATE OF WASHINGTON. IF
THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF KING COUNTY, THE STATE OF WASHINGTON. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
WASHINGTON.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $18.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by A SECURITY AGREEMENT DATED DECEMBER 5,
1996 FROM SEAMED CORPORATION TO LENDER CONVERING ALL ACCOUNTS, INVENTORY AND
GENERAL INTANGIBLES.
-2-
<PAGE> 3
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's accounts,
may be requested orally or in writing by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. The following party or parties are authorized 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: W. ROBERT
BERG, PRESIDENT; and EDGAR F. RAMPY, V.P. - FINANCE. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if: (a) Borrower or any guarantor is in default under the terms of
this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower
has applied funds provided pursuant to this Note for purposes other than those
authorized by Lender; or (e) Lender in good faith deems itself insecure under
this Note or any other agreement between Lender and Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect 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.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETE COPY OF THE NOTE.
BORROWER:
SEAMED CORPORATION
BY BY /S/ EDGAR F. RAMPY
---------------------------- ----------------------------
W. ROBERT BERG, PRESIDENT EDGAR F. RAMPY, V.P. - FINANCE
-3-
<PAGE> 1
EXHIBIT 10.2
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,000,000.00 12-05-1996 02-05-1997 1-3895-6 0400 AR/IN MHD S
- ---------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT
TO ANY PARTICULAR LOAN OR ITEM
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: SEAMED CORPORATION (TIN: 91-1002092) LENDER: PACIFIC NORTHWEST BANK
14500 NE 87TH STREET BELLEVUE FINANCIAL CENTER
REDMOND, WA 98052-3431 11100 NE 8TH
BELLEVUE, WA 98004
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN SEAMED CORPORATION
(REFERRED TO BELOW AS "GRANTOR"); AND PACIFIC NORTHWEST BANK (REFERRED TO BELOW
AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and whenever located:
ALL INVENTORY, ACCOUNTS AND GENERAL INTANGIBLES
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools,
parts, supplies, increases, and additions to and all
replacements of and substitutions for any property described
above.
(b) All products and produce of any of the property
described in this Collateral section.
(c) All accounts, general intangibles, instruments,
rents, monies, payments, and all other rights, arising out of
a sale, lease or other disposition of any of the property
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
-1-
<PAGE> 2
GRANTOR. The word "Grantor" means SEAMED CORPORATION, its successors
and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
INDEBTEDNESS. The word "indebtedness means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related
Documents.
LENDER. The word "Lender" means Pacific Northwest Bank, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated
December 5, 1996, in the principal amount of $4,000,000.00 from SEAMED
CORPORATION to Lender, together with all renewals of, extensions of,
modifications of, refinancing of, consolidations of and substitutions
for the note or credit agreement.
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.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be prohibited
by law. Grantor authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Washington. Grantor has its chief executive office at 14500 NE 87TH
STREET, REDMOND, WA 98052-3431. Grantor will notify Lender of any
change in the location of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by Grantor 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 Grantor or (b) any law, governmental
regulation, court decree, or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as its irrevocable attorney-in-fact for
the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. Lender may
at any time, and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement
or of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a
<PAGE> 3
continuing Security Agreement and will continue in effect even though
all or any part of the indebtedness is paid in full and even though
for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists
of accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated
on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral. At the time
any account becomes subject to a security interest in favor of Lender,
the account shall be a good and valid account representing an
undisputed, bona fide indebtedness incurred by the account debtor, for
merchandise held subject to delivery instructions or theretofore
shipped or delivered pursuant to a contract of sale, or for services
theretofore performed by Grantor with or for the account debtor; there
shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall
have been made with the account debtor except those disclosed to
Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property being
rented or leased by Grantor; (c) all storage facilities owned, rented,
leased, or being used by Grantor; and (d) all other properties where
Collateral is or may be located. Except in the ordinary course of its
business, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's address
shown above, or at such other locations as are acceptable to Lender.
Except in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Washington, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to
any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior
written consent of Lender. This includes security interests even if
junior in right to the security interests granted under this
Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for
Lender and shall not be commingled with any other funds; provided
however, this requirement shall not constitute consent by Lender to
any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good
and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons.
<PAGE> 4
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require,
and insofar as the Collateral consists of accounts and general
intangibles, Grantor shall deliver to Lender schedules of such
Collateral, including such information as Lender may require,
including without limitation names and addresses of account debtors
and agings of accounts and general intangibles. Insofar as the
Collateral consists of inventory, Grantor shall deliver to Lender, as
often as Lender shall require, such lists, descriptions, and
designations of such Collateral as Lender may require to identify the
nature, extent, and location of such Collateral. Such information
shall be submitted for Grantor and each of its subsidiaries or related
companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any
part of the Collateral. Lender and its designated representatives and
agents shall have the right at all reasonable times to examine,
inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising
with respect to the Collateral; and generally of all happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender
as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to
the ownership, production, disposition, or use of the Collateral.
Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral,
in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation,
manufacture, storage, transportation, treatment, disposal, release or
threatened release of any hazardous waste or substance, as those terms
are defined in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reathorization Act of 1986,
Pub. L. No. 99-499 ("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. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's
due diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all
claims and losses resulting from a breach of this provision of this
Agreement. This obligation to indemnify shall survive the payment of
the indebtedness and the satisfaction of this Agreement.
<PAGE> 5
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender and issued by a company or
companies reasonably acceptable to Lender. Grantor, upon request of
Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished
without at least thirty (30) days' prior written notice to Lender and
not including any disclaimer of the insurer's liability for failure to
give such a notice. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any
other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will
provide Lender with such loss payable or other endorsements as Lender
may require. If Grantor at any time fails to obtain or maintain any
insurance as required under this Agreement, Lender may (but shall not
be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will
cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make proof
of loss if Grantor fails to do so within fifteen (15) days of the
casualty. All proceeds of any insurance on the Collateral, including
accrued proceeds thereon, shall be held by Lender as part of the
Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory proof
of expenditure, pay or reimburse Grantor from the proceeds for the
reasonable cost of repair or restoration. If Lender does not consent
to repair or replacement of the Collateral, Lender shall retain a
sufficient amount of the proceeds to pay all of the indebtedness, and
shall pay the balance to Grantor. Any proceeds which have not been
disbursed within six (6) months after their receipt and which Grantor
has not committed to the repair or restoration of the Collateral shall
be used to prepay the indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with
Lender reserves for payment of insurance premiums, which reserves
shall be created by monthly payments from Grantor of a sum estimated
by Lender to be sufficient to produce, at least fifteen (15) days
before the premium due date, amounts at least equal to the insurance
premiums to be paid. If fifteen (15) days before payment is due, the
reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account
which Lender may satisfy by payment of the insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the
reserve funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums required to be paid by
Grantor. The responsibility for the payment of premiums shall remain
Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on
the basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest
in such Collateral. Until otherwise notified by Lender, Grantor may collect
any of the Collateral consisting of accounts. At any time and even though no
Event of Default exists, Lender may exercise its rights to collect the accounts
and to notify account debtors to make payments directly to Lender for
application to the Indebtedness. If
<PAGE> 6
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole
discretion, shall deem appropriate under the circumstances, but failure to
honor any request by Grantor shall not of itself be deemed to be a failure to
exercise reasonable care. Lender shall not be required to take any steps
necessary to preserve any rights in the Collateral against prior parties, nor
to protect, preserve or maintain any security interest given to secure the
indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment payments to become
due during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when
due on the indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as
a going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor'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 Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor
dies or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment or
performance of the indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
<PAGE> 7
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Washington Uniform Commercial Code. In addition and
without limitation, Lender may exercise any one or more of the following rights
and remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of repossession, Grantor agrees
Lender may take such other goods, provided that Lender makes
reasonable efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and
selling the Collateral, shall become a part of the indebtedness
secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter
of right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date
of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the
indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, choses in action, or
similar property, Lender may demand, collect receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral
as Lender may determine, whether or not indebtedness or Collateral is
then due. For these purposes, Lender may, on behalf of and in the
name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be sent;
and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to
Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the indebtedness due to Lender after
application of all amounts received from the exercise of the rights
provided in this Agreement. Grantor shall be liable for a deficiency
even if the transaction described in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender
<PAGE> 8
shall have and may exercise any or all other rights and remedies it
may have available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Washington. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of the State of Washington. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Washington.
ATTORNEY'S FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this
Agreement, and Grantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and
legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (and including
efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services.
Grantor also shall pay all court costs and such additional fees as may
be directed by the court.
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 Grantor
under this Agreement shall be joint and several, and all references to
Grantor shall mean each and every Grantor. This means that each of
the Borrowers signing below is responsible for all obligations in this
Agreement.
NOTICES. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor will keep Lender informed at all times of Grantor's current
address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for,
sue and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in
<PAGE> 9
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such wavier 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
wavier 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
Argument. No prior wavier by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated
for the indebtedness, Borrower irrevocably waives, disclaims and
relinquishes all claims against such other person which Borrower has
or would otherwise have by virtue of payment of the indebtedness or
any part thereof, specifically including but not limited to all rights
of indemnity, contribution or exoneration.
<PAGE> 10
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED DECEMBER
5, 1996.
GRANTOR:
SEAMED CORPORATION
BY BY /S/ EDGAR F. RAMPY
------------------------------- -------------------------------------
W. ROBERT BERG, PRESIDENT EDGAR F. RAMPY, VICE PRESIDENT-FINANCE
<PAGE> 1
EXHIBIT 11.1
SeaMED CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
--------------------- ---------------------
1995 1996 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary
Weighted average common shares
outstanding............................................. 591,793 2,724,175 571,541 1,697,986
Class B and C convertable redeemable
preferred stock classified as common
stock equivalents....................................... 1,376,559 744,466 1,376,559 1,060,512
Net effect of dilutive stock options based
on the treasury stock method using avg.
market price............................................ 253,506 363,869 260,741 342,222
Net effect of dilutive stock warrants based
on the treasury stock method using avg.
market price............................................ 0 19,365 0 14,535
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 ipc,
calculated using the treasury stock method at
an offering price of $11 per share...................... 106,286 4 106,286 49,528
--------- --------- --------- ---------
Total weighted average shares outstanding................. 2,328,144 3,851,880 2,315,127 3,164,783
========= ========= ========= =========
Net income................................................ 181,590 600,283 348,662 1,086,867
Less accretion of cumulative preferred
stock dividends......................................... -65,763 -35,314 -131,526 -101,077
--------- --------- --------- ---------
Adjusted income for computation of
primary earnings per share.............................. 115,827 564,959 217,136 985,790
========= ========= ========= =========
Primary net income per share.............................. $0.05 $0.15 $0.09 $0.31
========= ========= ========= =========
Fully diluted:
Weighted average common shares
outstanding............................................. 591,793 2,724,175 571,541 1,697,986
Weighted average of all convertible
redeemable preferred stock outstanding.................. 2,934,209 1,586,771 2,934,119 2,260,400
Net effect of dilutive stock options based
on the treasury stock method using the
greater of avg. or ending market price.................. 253,506 373,742 260,741 365,064
Net effect of dilutive stock warrants based
on the treasury stock method using the
greater of avg. or ending market price.................. 0 20,836 0 18,820
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 ipc,
calculated using the treasury stock method at
an offering price of $11 per share...................... 106,106 6 106,196 48,687
--------- --------- --------- ---------
Total weighted average shares outstanding................. 3,885,614 4,705,530 3,872,597 4,390,966
========= ========= ========= =========
Net income................................................ 181,590 600,283 348,662 1,086,867
========= ========= ========= =========
Fully diluted net income per share........................ $0.05 $0.13 $0.09 $0.25
========= ========= ========= =========
</TABLE>
Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> OCT-01-1996 JUL-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 537,076 537,076
<SECURITIES> 7,960,269 7,960,269
<RECEIVABLES> 7,155,329 7,155,329
<ALLOWANCES> 306,965 306,965
<INVENTORY> 8,572,212 8,572,212
<CURRENT-ASSETS> 24,730,402 24,730,402
<PP&E> 5,885,776 5,885,776
<DEPRECIATION> 3,083,876 3,083,876
<TOTAL-ASSETS> 27,740,760 27,740,760
<CURRENT-LIABILITIES> 6,522,388 6,522,388
<BONDS> 580,075 580,075
0 0
0 0
<COMMON> 19,207,433 19,207,433
<OTHER-SE> 1,430,864 1,430,864
<TOTAL-LIABILITY-AND-EQUITY> 27,740,760 27,740,760
<SALES> 12,010,410 22,086,579
<TOTAL-REVENUES> 12,010,410 22,086,579
<CGS> 9,983,252 18,374,765
<TOTAL-COSTS> 9,983,252 18,374,765
<OTHER-EXPENSES> 1,075,420 1,922,090
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 18,907 101,122
<INCOME-PRETAX> 923,512 1,672,103
<INCOME-TAX> 323,229 585,236
<INCOME-CONTINUING> 600,283 1,086,867
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 600,283 1,086,867
<EPS-PRIMARY> .15 .31
<EPS-DILUTED> .13 .25
</TABLE>
