-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BrXNeduDof6Y5Stq1Z7IW57pJ34Jja1WMbvfnPzttk6HH2gONF4mLg6IPGxBO6Af ep3r+noQG4+LW0N1Xk+Juw== 0000912057-96-004637.txt : 19960319 0000912057-96-004637.hdr.sgml : 19960319 ACCESSION NUMBER: 0000912057-96-004637 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960318 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOSERV TECHNOLOGIES INC CENTRAL INDEX KEY: 0000746072 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS REPAIR SERVICES [7600] IRS NUMBER: 963619990 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13608 FILM NUMBER: 96535715 BUSINESS ADDRESS: STREET 1: 4330 BELTWAY STREET 2: STE 300 CITY: ARLINGTON STATE: TX ZIP: 76018- BUSINESS PHONE: (800)-848- MAIL ADDRESS: STREET 1: 1611 POMONA RD CITY: CORONA STATE: CA ZIP: 91720 FORMER COMPANY: FORMER CONFORMED NAME: MMI MEDICAL INC DATE OF NAME CHANGE: 19920703 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------- For Quarter Ended Commission File No. January 31, 1996 0-13608 INNOSERV TECHNOLOGIES, INC. California 95-3619990 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 320 Westway, Suite 520, Arlington, Texas 76018 (Address of principal executive offices) Registrant's telephone number including area code (817) 468-3377. 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. X --- YES NO Shares of Registrant's common stock, $.01 par value, outstanding at March 14, 1996 - 5,035,833 INNOSERV TECHNOLOGIES, INC. FORM 10-Q JANUARY 31, 1996 TABLE OF CONTENTS PAGE PART I - FINANCIAL INFORMATION ---- Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II - OTHER INFORMATION Item 2. Changes in Securities 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17 INDEX TO EXHIBITS 18 2 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ($000's, except par value amount)
January 31, 1996 April 30,1995 (Unaudited) (Reclassified) ----------- -------------- ASSETS Current assets Cash and cash equivalents $ 612 $ 1,827 Receivables 6,266 7,284 Inventory 10,095 9,199 Deferred income taxes 1,249 1,192 Prepaid expenses 624 532 -------------------------------- Total current assets 18,846 20,034 Equipment, net 5,710 6,056 Deferred income taxes 2,155 2,155 Goodwill, net 3,583 3,698 Long-term notes receivable & other assets 1,728 1,310 -------------------------------- $ 32,022 $ 33,253 -------------------------------- -------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 3,922 $ 2,916 Accrued liabilities 3,280 4,258 Deferred revenues 6,395 5,521 Current portion of long-term debt 728 3,262 -------------------------------- Total current liabilities 14,325 15,957 Long-term debt 1,010 141 Shareholders' equity Common stock, $.01 par value: authorized shares - 10,000; issued and outstanding shares - 5,036 51 51 Paid-in capital 17,303 17,303 Retained deficit (667) (199) -------------------------------- Total shareholder's equity 16,687 17,155 -------------------------------- $ 32,022 $ 33,253 -------------------------------- --------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 3 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ($000's, except per share data)
Three Months Ended ------------------ January 31, 1996 January 27, 1995 ---------------- ---------------- Revenues $ 11,062 $ 12,343 Costs and expenses Cost of operations 9,263 9,575 Depreciation 493 610 Selling and administrative 2,222 1,844 Interest expense (income) (14) 115 -------------------------------- Total costs and expenses 11,964 12,144 -------------------------------- Income (loss) before income taxes (902) 199 Provision (benefit) for income taxes (362) 78 -------------------------------- Net income (loss) $ (540) $ 121 -------------------------------- -------------------------------- Net income (loss) per share $ (.11) $ .02 -------------------------------- -------------------------------- Weighted average shares 5,037 5,058 -------------------------------- --------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 4 INNOSERV TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) ($000's, except per share data)
Nine Months Ended ----------------- January 31, 1996 January 27, 1995 ---------------- ---------------- Revenues $ 34,928 $ 34,398 Costs and expenses Cost of operations 27,976 28,422 Depreciation 1,479 1,748 Selling and administrative 6,185 5,825 Interest expense 70 116 -------------------------------- Total costs and expenses 35,710 36,111 -------------------------------- Loss before income taxes (782) (1,713) Benefit for income taxes (313) (686) -------------------------------- Net loss $ (469) $ (1,027) -------------------------------- -------------------------------- Net loss per share $ (.09) $ (.24) -------------------------------- -------------------------------- Weighted average shares 5,037 4,340 -------------------------------- --------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 5 INNOSERV TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ($000's)
Nine Months Ended ----------------- January 31, 1996 January 27, 1995 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (469) $ (1,027) Adjustments to reconcile net loss to net cash flows from operations: Depreciation and amortization 1,479 1,748 Deferred income taxes (57) (8) Changes in assets and liabilities: Receivables 1,019 (2,873) Inventory (896) 544 Prepaid expenses (92) (189) Accounts payable 1,006 441 Accrued liabilities (1,101) (1,404) Other assets (342) - Deferred revenues 876 33 -------------------------------- Net cash provided by (used in) operating activities 1,423 (2,735) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business operations - (296) Net book value of equipment sold 112 223 Purchase of equipment (1,085) (248) -------------------------------- Net cash used in investing activities (973) (321) CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from line of credit 800 4,005 Proceeds from long-term debt 1,500 -- Principal payments of long-term debt (3,965) (1,333) Exercise of stock options - 218 Payment of dividends - (767) -------------------------------- Net cash provided by (used in) financing activities (1,665) 2,123 -------------------------------- Decrease in cash (1,215) (933) Cash at beginning of period 1,827 1,341 -------------------------------- Cash at end of period $ 612 $ 408 -------------------------------- --------------------------------
See accompanying Notes to Condensed Consolidated Financial Statements. 6 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1996 (UNAUDITED) 1. GENERAL The condensed consolidated financial statements included herein have been prepared by the Company without audit, include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the three and nine months ended January 31, 1996 and January 27, 1995, pursuant to the rules and regulations of the Securities and Exchange Commission, and include the accounts of the Company and its consolidated subsidiaries. All significant intercompany accounts and transactions have been eliminated. Any and all adjustments made are of a normal and recurring nature in accordance with Rule 10-01(b)(8) of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulation, however, the Company believes that the disclosures in such financial statements are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended April 30, 1995, filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended January 31, 1996 and January 27, 1995, are not necessarily indicative of the results for the full year. 2. RECLASSIFICATIONS The fiscal 1996 presentation includes reclassifications from that previously presented. Such reclassifications are comprised of advance billings, previously classified as a reduction in receivables, which are presently classified as deferred revenues as well as the classification of the Company's Advanced Imaging Technologies, Inc. subsidiary ("AIT") as a continuing operation (see Note 3). 3. DISCONTINUED OPERATION In October 1994, the Company announced the adoption by the Company's Board of Directors of a plan to dispose of the operations of AIT. Thereafter, the Company actively marketed AIT but was unable to locate a buyer. At January 27, 1995 and April 30, 1995, AIT was classified as a discontinued operation in the Company's financial statements. Concurrent with the election to dispose of AIT, the Company made certain changes in the operations of AIT including closing certain offices and warehouse facilities, reducing personnel approximately 50 percent, and raising the price of x-ray film sold to customers, all of which resulted in improved profitability. Additionally, as InnoServ's Asset Management service program continues to grow, AIT's capability to repair and maintain a variety of x-ray film processors, which are serviced under the Asset Management program, enables AIT to play a strategic role in support of such growth. In the first quarter of fiscal 1996, as a result of both improved profitability and the strategic capabilities of AIT, the Company's Board of Directors elected not to dispose of AIT. Accordingly, AIT has been reclassified back to continuing operations in the Company's financial statements included with this report. 7 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1996 (UNAUDITED) Summarized results of operations of AIT for the three and nine months ended January 27, 1995 were:
Three Months Ended Nine Months Ended January 27, 1995 January 27,1995 ---------------- --------------- Revenues $ 1,751,000 $ 5,837,000 Income (loss) before income taxes $ 25,000 $ (396,000)
The following summarizes the net assets of AIT as of April 30, 1995:
April 30, 1995 -------------- Current assets $ 1,544,000 Current liabilities (527,000) Equipment (net) 114,000 -------------- Total net assets $ 1,131,000 -------------- --------------
A loss on the disposition of AIT was not expected and, therefore, no loss provision was recorded. 4. LONG-TERM DEBT The Company entered into a loan agreement with a bank effective December 15, 1995 to borrow up to $4,500,000. The loan agreement contains a $1,500,000 term loan expiring January 30, 1999, a $1,500,000 revolving credit line for working capital expiring August 15, 1996 and a $1,500,000 note, which was not funded by the bank at January 31, 1996, to acquire inventory and equipment. As a result of the loss recorded for the three months ended January 31, 1996, the Company does not expect the bank to fund the remaining $1,500,000 until the Company returns to profitability. The loan agreement contains financial covenants including maintenance of certain financial ratios, net worth requirements and restrictions on future borrowings and payment of dividends with which the Company was in compliance at January 31, 1996. Obligations under the loan agreement are secured by a security interest in the Company's accounts receivable, inventory and equipment. Interest is payable quarterly on all obligations under the loan agreement based on varying interest rates above the prime rate and the term loan requires quarterly principal payments of $125,000. The interest rate at January 31, 1996 on the term loan was 9.0 percent. No borrowings were outstanding on the revolving credit line at January 31, 1996. The Company has terminated its former $2,000,000 line of credit agreement with another bank. The outstanding obligations of $2,000,000 were repaid principally from the proceeds of the $1,500,000 term loan. 8 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1996 (UNAUDITED) 5. SUPPLEMENTAL CASH FLOW DISCLOSURE Interest and income taxes paid in the nine months ended January 31, 1996 and January 27, 1995 were as follows:
Nine Months Ended --------------------------- January 31, January 27, 1996 1995 --------------------------- Interest $ 111,000 $185,000 Income taxes $ 17,000 $ --
6. NAME CHANGE On October 6, 1995, the Company changed its name from MMI Medical, Inc. to InnoServ Technologies, Inc. 7. INTERIM PRO FORMA FINANCIAL INFORMATION On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment and Maintenance Services, Inc. ("MEMS"), a wholly owned subsidiary of MEDIQ Incorporated in exchange for 2,006,438 shares of the Company's common stock and a warrant to purchase 325,000 shares thereof at an exercise price of $6.25 per share exercisable through August 3, 1998. An additional 20,000 shares of the Company's common stock was issued to MEDIQ in connection with a noncompetition agreement which became effective as of the closing of the Acquisition. The estimated aggregate purchase price, including expenses of the Acquisition, was approximately $6,565,000. Following the Acquisition, the Company combined the operations of its R Squared subsidiary with those of MEMS and changed the name of R Squared to InnoServ Technologies Maintenance Services, Inc. The Acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired based on their appraised fair market values. Costs in excess of net assets acquired related to the Acquisition of approximately $1,637,000 is being amortized on a straight-line basis over 20 years. The results of operations of MEMS have been reflected in the Consolidated Financial Statements of the Company since the date of the Acquisition. The following Pro Forma Consolidated Statements of Operations for the nine months ended January 27, 1995 give effect to the Acquisition as if it occurred as of April 30, 1994. The Pro Forma Consolidated Statements of Operations for the nine months ended January 27, 1995 are unaudited, but in the opinion of the Company include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operation for the periods presented. 9 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1996 (UNAUDITED) The historical data of the Company included in the pro forma financial statements is as of the periods presented. The historical data of MEMS included in Pro Forma Consolidated Statements of Operations is for the three months ended August 2, 1994. The Pro Forma Consolidated Statements of Operations for the nine months ended January 27, 1995 are not necessarily indicative of the results of operations that actually would have taken place had the Acquisition been consummated as of the date indicated, or that may be achieved in the future and should be read in conjunction with the notes in such statements.
Nine Months Ended January 27, 1995 (In $000's, except per share amounts) ------------------------------------------------------------- Pro Forma Consolidated INNOSERV MEMS (1) Adjustments Total ------------------------------------------------------------- Revenues $34,398 $4,576 $ $38,974 Costs and expenses Cost of operations 28,422 4,023 (606) (2) 31,839 Depreciation and amortization 1,748 360 (201) (3) 1,907 Selling and administrative 5,825 494 (166) (4) 6,153 Interest expense, net 116 54 -- 170 ------------------------------------------------------------- Total costs and expenses 36,111 4,931 (973) 40,069 ------------------------------------------------------------- Income (loss) before taxes (1,713) (355) 973 (1,095) Provision (benefit) for income taxes (686) (101) 348 (5) (439) Net income (loss) $(1,027) $ (254) $ 625 $ (656) ------------------------------------------------------------- ------------------------------------------------------------- Net loss per share $ (.24) N/A $ (.15) ------------------------------------------------------------- -------------------------------------------------------------
- -------------------------------------- NOTES: (1) Historical data of MEMS is for the three months ended August 2, 1994. (2) Reflects the elimination of certain duplicate positions, resulting in a reduction in cost of operations of approximately $482,000 in salaries and benefits for the period. Amortization of the spare parts inventory over a seven year period, consistent with that of InnoServ, is expected to result in reduced amortization expenses of $495,000, annually. (3) As a result of purchase accounting adjustments, depreciation and amortization expense will change. Depreciating the new basis over a five year period will result in a reduction to such expense of $922,000 annually. Amortization of the additional goodwill and covenant not to compete will result in increased amortization expense of $117,000 annually. (4) Reflects the elimination of certain duplicate positions, resulting in a reduction in selling and administrative expense of approximately $166,000 in salaries and benefits for the period. (5) Consolidated provision for income taxes is calculated at 40%. 10 INNOSERV TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1996 (UNAUDITED) 8. RESTRUCTURING In the third quarter of fiscal 1996, the Company relocated its headquarters operations from Corona, California to Arlington, Texas. As a result of the relocation, the Company recorded restructuring charges of $411,000 in the quarter of which $98,000 were included in cost of operations and $313,000 were included in selling and administrative expenses. The major components of these charges, the amount paid to date and the remaining payments are:
Amounts Paid at Total January 31, Payments Charges 1996 Remaining ---------- ------------ --------- Employee termination benefits $ 115,000 $ 39,000 $ 76,000 Employee relocation 169,000 103,000 66,000 Employee training 67,000 67,000 -- Office equipment relocation 30,000 30,000 -- Facility closing costs 30,000 -- 30,000 ---------- ------------ --------- $ 411,000 $ 239,000 $ 172,000 ---------- ------------ --------- ---------- ------------ ---------
The termination benefits relate to 12 employees, all of whom were terminated as of January 31, 1996. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL ACQUISITION OF MEDIQ EQUIPMENT & MAINTENANCE SERVICES, INC. On August 3, 1994, the Company acquired (the "Acquisition") MEDIQ Equipment and Maintenance Services, Inc. ("MEMS"), a wholly owned subsidiary of MEDIQ Incorporated in exchange for 2,006,438 shares of the Company's common stock and a warrant to purchase 325,000 shares thereof at an exercise price of $6.25 per share exercisable through August 3, 1998. An additional 20,000 shares of the Company's common stock were issued to MEDIQ in connection with a noncompetition agreement which became effective as of the closing of the Acquisition. The estimated aggregate purchase price, including expenses of the Acquisition, was approximately $6,565,000. Following the Acquisition, the Company combined the operations of its R Squared subsidiary with those of MEMS and changed the name of R Squared to InnoServ Technologies Maintenance Services, Inc. DISCONTINUED OPERATION In October 1994, the Company announced the adoption by the Company's Board of Directors of a plan to dispose of the operations of Advanced Imaging Technologies ("AIT"). Thereafter, the Company actively marketed AIT but was unable to locate a buyer. At January 27, 1995 and April 30, 1995, AIT was classified as a discontinued operation in the Company's financial statements. Concurrent with the election to dispose of AIT, the Company made certain changes in the operations of AIT including closing certain offices and warehouse facilities, reducing personnel approximately 50 percent, and raising the price of x-ray film sold to customers, all of which resulted in improved profitability. Additionally, as InnoServ's Multi-vendor Asset Management Service Program ("Asset Management") continues to grow, AIT's capability to repair and maintain a variety of x-ray film processors, which are serviced under Asset Management, enables AIT to play a strategic role in support of such growth. In the first quarter of fiscal 1996, as a result of both improved profitability and the strategic capabilities of AIT, the Company's Board of Directors elected not to dispose of AIT. Accordingly, AIT has been reclassified back to continuing operations in the Company's financial statements included with this report (see Note 3 to the Notes to Condensed Consolidated Financial Statements). NAME CHANGE Effective October 6, 1995, the Company changed its name from MMI Medical, Inc. to InnoServ Technologies, Inc. 12 REALIZATION OF ASSETS The Company hired a new chief executive officer and a new chief financial officer in late December, 1995 and late January, 1996, respectively. A complete evaluation of the business is currently being performed to determine the future strategic direction of the Company. The realization of assets, in particular inventory, goodwill, equipment and the net deferred tax asset, will be assessed as they relate to the new strategy. The evaluation and the adjustments to the book value of the assets, if any, is expected to be completed in the fourth quarter of fiscal 1996. RESULTS OF OPERATIONS THIRD QUARTER FISCAL 1996 COMPARED TO THIRD QUARTER FISCAL 1995 Consolidated revenues decreased $1,281,000 to $11,062,000 from $12,343,000 as a result of strategic changes at both AIT and the Company's diagnostic imaging operation, as well as the continued declines in the number and average contract amount of Computed Tomography ("CT") maintenance agreements in effect as older equipment is being upgraded or removed from service. Revenues at AIT declined $279,000, primarily from lower sales of x-ray film, chemistry and related accessories as a result of AIT's planned exit from the traditionally low-margin institutional x-ray film market. Revenues at the Company's diagnostic imaging operation declined $439,000 resulting from the discontinuance of its fee-for- service operations, decreased utilization of rental equipment and fewer rental units in the fleet. The decline in revenues related to CT maintenance agreements was $2,268,000. These declines were offset by an increase in revenues from Asset Management of $898,000, or 116 percent, and revenues from Magnetic Resonance Imaging ("MRI") maintenance agreements increased $247,000, or 30 percent. Additionally, the Company recorded $612,000 in revenues from the sale of equipment in the third quarter of fiscal 1996, while no such sales occurred in the third quarter of fiscal 1995 due to the timing of the sales. Complete implementation of the Company's Asset Management service program at the 24 hospitals of Intermountain Health Care, Inc. in Salt Lake City, Utah, began on January 1, 1996. Partial implementation of the program began on October 1, 1995. The Company also began providing its Asset Management program for biomedical and laboratory repair services to Children's Hospital in Columbus, Ohio, on January 1, 1996. Cost of operations decreased $312,000, or three percent, from the cost of operations for the same period in the prior fiscal year. The cost of parts, supplies and materials related to the provision of CT maintenance services and cost of x-ray film, chemistry and related accessories sold at AIT decreased $568,000. Cost of operations was favorably impacted in the quarter by a payment received against an insurance claim of $359,000, net of related costs. The claim was the result of damage to a MRI unit while it was being transported to a customer under a sale agreement. The replacement unit was fully costed at the time the sale was recorded in the second quarter of fiscal 1996. The Company recorded a $701,000 charge in the third quarter of fiscal 1996 for physical inventory adjustments and unfavorable production variances associated with the reloading and rework of its CT tube inventory. Additionally, there were $98,000 of restructuring expenses incurred in the quarter as a result of the relocation of the Company's headquarters operations from Corona, California to Arlington, Texas. 13 Depreciation costs decreased from the prior year $117,000 primarily as a result of purchase accounting adjustments recorded in the fourth quarter of fiscal 1995 associated with the Acquisition. Selling and administrative expenses increased $378,000 from the third quarter of fiscal 1995 primarily as a result of $313,000 in restructuring costs associated with relocation of the Company's headquarters operations. The Company recorded $14,000 in net interest income in the quarter compared to net interest expense of $115,000 for the same period of the previous fiscal year as a result of lower debt outstanding during the period. The interest income for the quarter relates primarily to interest earned on receivables from sales-type leases. The effective tax rate remained at 40 percent and the benefit from income taxes increased $440,000 from a provision of $78,000 in the third quarter of fiscal 1995 to a benefit of $362,000 in fiscal 1996 as a result of the loss before income taxes. NINE MONTHS FISCAL 1996 COMPARED TO NINE MONTHS FISCAL 1995 The net increase in consolidated revenues of $530,000 to $34,928,000 from $34,398,000 resulted primarily from the Acquisition. Revenues from Asset Management and MRI service agreements increased $4,456,000 and $1,063,000, respectively. The Company experienced a decrease in revenues from CT maintenance service agreements of $3,736,000. Revenues at the Company's diagnostic imaging operation decreased $561,000 due to the discontinuance of its fee-for-service operations, decreased utilization of rental equipment and fewer rental units in the fleet. Revenues at AIT declined $1,129,000 resulting primarily from lower sales of x-ray film, chemistry and related accessories to institutional customers. On a pro forma basis (see Note 7 to the Notes to Condensed Consolidated Financial Statements), consolidated revenues decreased $4,046,000 primarily from a substantial decline in the number and average contract amount of CT maintenance agreements in effect in the first nine months of fiscal 1996 compared to the total of such agreements in effect for R Squared and MEMS combined in the first nine months of fiscal 1995. The Company continues to experience a decline in the number of such agreements in effect and expects this trend to continue primarily as a result of customer's older CT equipment being upgraded or removed from service and not replaced. Asset Management revenues increased on a pro forma basis by $3,102,000, or 65 percent, and revenues from MRI maintenance agreements increased $701,000, or 30 percent. Cost of operations decreased $446,000 as the costs for the first nine months of fiscal 1995 were 83 percent of revenues, declining to 80 percent of revenues for the same period of fiscal 1996. This decline as a percent of revenues is due primarily to the increase in Asset Management revenues which have higher operating margins than the operating margins of the declining revenues from CT maintenance agreements. Depreciation costs decreased from the prior year $269,000 primarily as a result of certain rental units operated by the imaging operations becoming fully depreciated at the end of fiscal 1995 as well as certain purchase accounting adjustments associated with the Acquisition. Selling and administrative expenses increased $360,000, or six percent, from the first nine months of fiscal 1995 primarily due to the inclusion of labor expense associated with the Acquisition for the full nine months in fiscal 1996 compared to only six months in fiscal 1995. Selling and administrative expenses also included $313,000 in restructuring costs associated with the relocation of the Company's headquarters operations. Interest expense declined $46,000 14 for the nine months of fiscal 1996 due to lower debt outstanding during the period than was outstanding during the same period of fiscal 1995. The loss before income taxes declined to $782,000, an improvement of $931,000 from the same period of the previous year as a result of improved operating margins as all operating units reduced operating infrastructure costs and the shift in revenues from CT maintenance agreements with lower operating margins to Asset Management and MRI service agreements which have higher operating margins. The effective tax rate remained at 40 percent and the benefit from income taxes decreased $373,000 from a benefit of $686,000 for the first nine months of fiscal 1995 to a benefit of $313,000 for fiscal 1996 as a result of the decline in the loss before income taxes. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents as of January 31, 1996 totaled $612,000. The principal source of cash for the first nine months of fiscal 1996 were operating activities which generated $1,423,000 due primarily to the noncash adjustment to the net loss for depreciation and amortization and the timing of cash collections and cash payments for accounts receivable and accounts payable, respectively. These funds financed $973,000 in purchases of new equipment, primarily diagnostic hardware and software to maintain customer's equipment. The Company also decreased its outstanding bank borrowings and obligations under capital leases by $1,665,000. The Company entered into a loan agreement with a bank effective December 15, 1995 to borrow up to $4,500,000. The loan agreement contains a $1,500,000 term loan expiring January 30, 1999, a $1,500,000 revolving line of credit for working capital expiring August 15, 1996 and a $1,500,000 note, which was not funded by the bank at January 31, 1996, to acquire inventory and equipment. As a result of the loss recorded for the three months ended January 31, 1996, the Company does not expect the bank to fund the remaining $1,500,000 until the Company returns to profitability. The Company was in compliance with all financial covenants required by such agreement at January 31, 1996. Interest is payable quarterly on all obligations under the loan agreement and the term loan requires quarterly principal payments of $125,000 beginning April 30, 1996. The interest rate on the term loan at January 31, 1996 was 9.0 percent No borrowings were outstanding on the revolving credit line at January 31, 1996. The Company has terminated its former $2,000,000 line of credit agreement with another bank. The outstanding obligations of $2,000,000 were repaid principally from the proceeds of the $1,500,000 term loan. The Company believes that internally generated funds and its existing credit facility will provide sufficient capital resources to finance operations and to make principal and interest payments on outstanding borrowings in both the short and long term. The Company does not expect to make any significant capital purchases in the foreseeable future. 15 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES In December, 1995 the Company entered into a $4,500,000 loan agreement. The loan agreement contains financial covenants including the maintenance of certain financial ratios, net worth requirements, and restrictions on future borrowings and payment of dividends. In addition, the obligations under the loan agreement are secured by a security interest in the Company's accounts receivable, inventory and equipment. The Company's former $2,000,000 line of credit agreement has been repaid and terminated. The agreement contained certain financial covenants relating to tangible net worth, profitability, future borrowings and the payment of dividends absent bank approval. The Company had pledged its assets as security for the line of credit. ITEM 5. OTHER INFORMATION. (a) Effective October 6, 1995, the Company changed its name from MMI Medical, Inc. to InnoServ Technologies, Inc. (b) On December 14, 1995, the Company announced the appointment of Michael G. Puls as President and Chief Executive Officer of the Company. Mr. Puls assumed his duties on December 27,1995. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Index to Exhibits included herewith at page 18. (b) Report on Form 8-K. On November 6, 1995 the Company filed a Report on Form 8-K dated October 30, 1995 to change its name from MMI Medical, Inc. to InnoServ Technologies, Inc. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: March 15, 1996 INNOSERV TECHNOLOGIES, INC. By: /s/ Thomas Hoefert -------------------------- Thomas Hoefert Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) 17 INDEX TO EXHIBITS ----------------- Exhibit PAGE - ------- ---- 10.1 Loan Agreement dated as of December 15, 1995 by and 19 between the Company and Overton Bank & Trust, N.A. 10.2 Term Loan Agreement dated as of January 12, 1996 in the 25 principal amount of $1,500,000 payable by the Company to Overton Bank & Trust, N.A. 10.3 Security Agreement dated as of January 12, 1996 by and 31 between the Company and Overton Bank & Trust, N.A. 10.4 Revolving Credit Agreement dated as of January 12, 1996 in 40 the principal amount of $1,500,000 payable by the Company to Overton Bank & Trust, N.A. 10.5 Security Agreement dated as of January 12, 1996 by and 46 between the Company and Overton Bank & Trust, N.A. 10.6 Indemnity Agreement dated as of January 25, 1996 by and 55 between the Company and Michael G. Puls 10.7 Indemnity Agreement dated as of January 25, 1996 by and 58 between the Company and Thomas E. Hoefert 11.1 Computation of Per Share Earnings 61 27.1 Financial Data Schedules (EDGAR filing only) -- 18 EX-10.1 2 EXHIBIT 10.1 LOAN AGREEMENT BORROWER BANK INNOSERV TECHNOLOGIES, INC. OVERTON BANK & TRUST, NATIONAL 4330 BELTWAY SUITE 300 ASSOCIATION ARLINGTON, TEXAS 76017 PO BOX 150049 ARLINGTON, TEXAS 76015 THIS LOAN AGREEMENT ("Agreement") is made and entered into this 15TH day of DECEMBER, 1995, by and between the Borrower and Bank named above. IN CONSIDERATION OF THE MUTUAL COVENANTS AND AGREEMENTS CONTAINED HEREIN, IT IS AGREED AS FOLLOWS: 1. THE LOAN. Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties of Borrower contained herein, Bank agrees to lend an amount not to exceed the sum of FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($4,500,000.00 ) (the "Loan"). The Loan will be evidenced by Borrower's note (the "Note") payable to the order of Bank, with interest and principal being payable as therein provided. 2. PURPOSE OF LOAN. Advances against the Note may only be requested and used by Borrower for the following purposes: WORKING CAPITAL AND EQUIPMENT PURCHASES. 3. COLLATERAL. The Note and all other obligations of Borrower to Bank shall be secured by, among other things, a first and superior security interest in the following property (collectively, the "Collateral") ACCOUNTS RECEIVABLE, INVENTORY AND EQUIPMENT Borrower shall execute such security agreements and other documents as Bank may require, from time to time, to further describe, create and perfect such security interests. 4. GUARANTIES. The Loan will be unconditionally guaranteed as evidenced by guaranties executed by N/A (collectively, "Guarantor", whether one or more). / / IF THIS BOX IS CHECKED, THE FOLLOWING PARAGRAPH 5 SHALL BE PART OF THIS AGREEMENT. 5. BORROWING BASE. The term "Borrowing Base" means an amount determined at any time as the sum of ______% of the Eligible Accounts Receivable of Borrower and ______% of Borrower's Eligible Inventory. As used herein, the term "Eligible Accounts Receivable" shall mean, at any particular time, all accounts receivable of Borrower which are subject to a perfected first priority security interest in favor of Bank, excluding (i) all accounts receivable that are greater than ______(____) days old from the original date of the invoice, and (ii) any account that is subject to any dispute, offset, counterclaim or other claim or defense on the part of the account debtor denying liability under such account, and (iii) the amount of all such accounts arising out of contracts or orders which, by their terms, forbid an assignment or which make such an assignment void and unenforceable, and (iv) any account receivable of Borrower from any officer, stockholder, director or related company of Borrower. As used herein, the term "Eligible Inventory" shall mean, at any particular time, all salable inventory then owned by Borrower and held for sale or disposition in the ordinary course of business, in which Bank has a perfected first priority security interest, valued at the lower of cost or market, EXCLUDING any work-in-process. For purposes of determining the Borrowing Base, the Eligible Inventory shall not exceed at any time the sum of $____________________. 19 Borrower shall at all times maintain a Borrowing Base of not less than the outstanding balance owing on the Note. If, as a result of Bank's determination, the Borrowing Base should ever become less than the outstanding balance owing under the Note, or any renewals or extensions thereof, Bank may notify Borrower of the insufficiency, and within _________(_____) days of Bank's giving notice, Borrower shall either pay the indebtedness down to the Borrowing Base or increase the Borrowing Base up to the amount of the outstanding balance of the Note. Bank's determination of the Borrowing Base and whether Collateral qualifies for inclusion in such Borrowing Base, will be final. 6. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement and to advance funds from time to time, and for Bank's reliance in so doing, Borrower warrants and represents to Bank as follows: A. GOOD STANDING. Borrower is a corporation duly organized and in good standing under the laws of the State of California, and has the power to own its properties and carry on its business in each jurisdiction in which Borrower operates. B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, to execute and deliver the Note and to incur the obligations provided for herein, all of which has been duly authorized by all proper and necessary corporate action. No consent or approval of stockholders or of any public authority is required as a condition to the validity of this Agreement or the Note, and Borrower is in compliance with all laws and regulatory requirements to which it is subject. C. BINDING AGREEMENT. This Agreement constitutes, and the Note when issued and delivered pursuant hereto for value received will constitute, valid and legally binding obligations of Borrower enforceable in accordance with their terms. D. LITIGATION. There are no proceedings pending or, to the knowledge of Borrower, threatened before any court or administrative agency which will or may have a material adverse effect on the financial condition or operations of Borrower or any subsidiary or any Guarantor, except as disclosed to Bank in writing prior to the date of this Agreement. E. NO CONFLICTING AGREEMENTS. There are no charter, bylaw or stock provisions of Borrower and no provisions of any existing agreement, mortgage, indenture or contract binding on Borrower or affecting its property, which would conflict with or in any way prevent the execution, delivery or carrying out of the terms of this Agreement and the Note. F. OWNERSHIP OF ASSETS. Borrower has good and marketable title to any Collateral pledged and the Collateral is owned free and clear of liens. Borrower will at all times maintain its tangible property, real and personal, in good order and repair taking into consideration reasonable wear and tear. G. TAXES. All income taxes and other taxes due and payable by Borrower to the date of this Agreement have been paid prior to becoming delinquent. H. FINANCIAL STATEMENTS. All financial statements and financial information of Borrower and Guarantor which have been delivered to Bank have been presented in conformity with generally accepted accounting principles and fairly and accurately represent the financial condition of the Borrower and Guarantor, as of the date of such financial statements or reports, and since such dates, there has been no material adverse changes in the financial condition of Borrower or Guarantor. I. NO DEFAULTS. Borrower and Guarantor are not in default with respect to any obligation to which Borrower or Guarantor is a party or by which Borrower or Guarantor, or any of Borrower's or Guarantor's properties is bound. 20 7. AFFIRMATIVE COVENANTS. In addition to the other agreements contained herein, Borrower covenants and agrees that from the date hereof and until payment in full of principal and interest owing under the Note, unless Bank shall otherwise consent in writing, Borrower will do the following: A. BORROWER'S FINANCIAL STATEMENTS. Borrower shall furnish to Bank: (i) as soon as available and in any event within ONE HUNDRED TWENTY (120) days after the end of each fiscal year of Borrower, a copy of Borrower's annual AUDITED financial statement consisting of at least a balance sheet and statement of income and retained earnings; (ii) on a QUARTERLY basis, financial statements, to include balance sheet and profit and loss statement, within FORTY FIVE (45) days after the end of each such accounting period; (iii) if Paragraph 5 above is applicable to this Agreement, furnish Bank on a monthly basis a Borrowing Base report in such form as Bank may require and an aging of accounts receivable of Borrower, such report and aging to be delivered to Bank not later than N/A (N/A) days after the end of each calendar quarter; and (iv) promptly upon request, such additional information, tax returns, officer's certificates, reports or statements respecting its business operations and financial condition as Bank may reasonably request from time to time. B. Omitted C. INSURANCE. Maintain insurance with responsible insurance companies on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses operating in the same vicinity, specifically to include a policy of fire and extended coverage insurance covering all assets, business interruption insurance and liability insurance, all to be with such companies and in such amounts satisfactory to Bank and to contain a mortgage clause naming Bank as its interest may appear. Evidence of such insurance shall be supplied to Bank. D. CORPORATE EXISTENCE AND COMPLIANCE. Maintain its corporate existence in good standing and comply with all laws, regulations and governmental requirements applicable to it or to any of its property, business operations and transactions. E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing of any condition, event or act which comes to its attention that would or might materially affect Borrower's or any Guarantor's financial condition, Bank's rights in or to the Collateral under this Agreement or the Loan documents, and of any litigation filed against Borrower or any Guarantor. F. TAXES. Pay all taxes as the same become due and payable. G. MAINTENANCE. Maintain all of its tangible property in good condition and repair and make all necessary replacements thereof, and preserve and maintain all licenses, privileges, franchises, certificates and the like necessary for the operation of its business. H. INSPECTION. Permit Bank, its officers, employees and agents, to inspect the Collateral and all records of Borrower pertaining to the Collateral, at Borrower's place of business as set forth above, and to make and remove copies of such records. Borrower shall promptly pay to Bank the reasonable costs and expenses of any Collateral audit performed by or for Bank. I. PAYMENT OF DEBTS. Pay all indebtedness and obligations of Borrower as the same become due in accordance with the terms of the instruments or documents evidencing the same. 21 J. FINANCIAL COVENANTS. In accordance with generally accepted accounting principles, Borrower shall: (a) maintain a tangible net worth of not less than $12,750,000; (b) maintain a ratio of current assets to current liabilities of not less than 1.10 to 1.0; (c) not permit the ratio of Borrower's total liabilities to tangible net worth to be more than N/A to 1.0; (d) maintain a ratio of after tax net income plus depreciation to current maturities of long-term debt of not less than N/A to 1.0; and (e) other financial covenants, if applicable: 1) No cash dividends dividends 2) No further notes receivable due from equipment sales, other than those that are on the books as of 12-15-95. 3) The balance on the operating line shall never exceed the level of net accounts receivable 8. NEGATIVE COVENANTS. In addition to the other agreements contained herein, Borrower agrees that, so long as the Loan pursuant to this Agreement is outstanding, Borrower will not, unless Bank shall otherwise consent in writing: A. Incur or suffer to exist any indebtedness except (i) indebtedness to Bank, (ii) indebtedness to trade creditors incurred in the ordinary course of its business, (iii) for purchase money on lease vehicles, all of which are necessary to conduct the normal course of Borrower's business, Above $500,000 on a cumulative basis per financial year; B. Enter into any merger or consolidation, or sell, lease, assign or otherwise dispose of or transfer any of its assets except in the ordinary course of its business; C. Become a guarantor, endorser or contingently liable on any debt; D. Make any advances or loans (directly or indirectly) to any director, officer, employee or shareholder of Borrower; E. Engage in any business which differs substantially or materially from the business which Borrower is presently engaged in; F. Create or permit to exist any mortgage, lien or other encumbrance, except as permitted herein, with respect to any assets now owned by Borrower or hereafter acquired, except purchase money liens on equipment and/or vehicles not currently owned by Borrower; G. Substantially change its present executive or management personnel. 22 9. EVENTS OF DEFAULT; REMEDIES. The occurrence of any of the following shall constitute an event of default hereunder: (i) the failure or refusal of Borrower to timely perform any term, covenant or agreement contained herein, (ii) any representation or warranty contained herein or in any financial statement, report or certificate submitted to Bank in connection with the Loan or pursuant to the requirements of this Agreement shall prove to have been incorrect or misleading in any material respect when made, (iii) default shall occur under the terms of the Note or any security document now or hereafter securing payment of the Note or under any other promissory note executed by Borrower and held by Bank, or (iv) if Bank, in good faith believes that the prospect of payment or the prospect of performance by Borrower hereunder or under the Note or security documents is impaired. Likewise, a default hereunder shall constitute a default under the Note and all security documents securing payment of the Note and all other promissory notes executed by Borrower and held by Bank. Upon the occurrence of any such default, Bank shall have the option to declare immediately due and payable all outstanding principal plus unpaid interest on the Note, and Bank shall have no further obligation to fund under this Agreement. Upon the occurrence of a default, Bank shall be entitled to exercise any and all remedies (i) under the Note and any security document securing payment of the Note, and (ii) available to Bank at law or in equity. 10. MISCELLANEOUS. A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to Bank hereunder or under any other document delivered hereunder or in connection herewith, or allowed by law or equity shall be cumulative of and may be exercised in addition to any and all other rights of Bank, and no delay in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Bank of any right preclude any other or future exercise thereof, or the exercise of any other right. Any of the foregoing covenants and agreements may be waived by Bank, but only in writing, signed by a vice president or higher level officer of Bank. Borrower expressly waives any presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind. No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or further notice or demand in similar or other circumstances. B. GOVERNING LAW. THIS AGREEMENT IS BEING DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. ALL OBLIGATIONS HEREUNDER ARE PERFORMABLE IN TARRANT COUNTY, TEXAS. C. BINDING EFFECT. This Agreement shall inure to the benefit of and be enforceable by Bank and any assignee or participant of Bank, and shall bind Borrower and its successors and assigns; provided, however, that Borrower may not assign its rights or obligations hereunder without the prior written approval of Bank. D. TEXAS CREDIT CODE. Chapter 15 of the Texas Credit Code shall not apply to the Loan contemplated hereby. E. EXPENSES. Borrower agrees to pay all out-of-pocket expenses of Bank in connection with this Agreement and the collection of the Note. F. RENEWAL. While the Bank is under no obligation to renew any indebtedness incurred pursuant to the terms of this Agreement at maturity (or any renewal or extension term), in the event the Note is renewed, this Agreement shall apply to said renewal and the representations and warranties made by Borrower herein shall be deemed to be made again as of the date of any such renewal. The term "Note" shall include any renewal note. G. TIME OF ESSENCE. Time is of the essence of this Agreement. H. NO FIDUCIARY RELATIONSHIP. Borrower acknowledges and agrees that the relationship between Borrower and Bank is solely that of debtor/creditor and in no event shall Bank be considered as a partner of Borrower or otherwise have any fiduciary duties to Borrower or Guarantor. I. USURY SAVINGS. The parties hereto intend to comply with all usury laws applicable to national banks and the subject Loan. Nothing contained herein, in the Note or in any of the security documents shall authorize the collection or constitute charging of interest in excess of that permitted by applicable law. 23 J. INDEMNIFICATION OF BANK. BORROWER SHALL INDEMNIFY AND HOLD BANK HARMLESS AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES AND DISBURSEMENTS OR ANY KIND OR NATURE WHATSOEVER, WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST BANK, IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY INSTRUMENT EXECUTED PURSUANT HERETO, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, TO THE EXTENT THAT ANY SUCH INDEMNIFIED MATTERS RESULT, DIRECTLY OR INDIRECTLY, FROM ANY CLAIMS MADE OR ACTIONS, SUITS OR PROCEEDINGS COMMENCED BY OR ON BEHALF OF ANY PERSON OR ENTITY OTHER THAN BANK; PROVIDED, THAT BANK SHALL NOT HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. K. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. L. ADDITIONAL PROVISIONS (WHICH SHALL CONTROL IN THE EVENT OF ANY CONFLICT WITH THE PRECEDING PROVISIONS): EXECUTED as of the day and year first above written. BANK: BORROWER: OVERTON BANK & TRUST, INNOSERV TECHNOLOGIES,INC. NATIONAL ASSOCIATION By: /s/ CURTIS F. VON DER AHE By: /s/ MICHAEL G. PULS ---------------------------- ------------------------ Name Printed: CURTIS F. VON DER AHE Name Printed: MICHAEL PULS ---------------------- -------------- Title: PRESIDENT Title: PRESIDENT -------------------------- ---------------------- EX-10.2 3 EXHIBIT 10.2 Exhibit 10.2 INNOSERV TECHNOLOGIES, INC OVERTON BANK & TRUST, N.A. ACCOUNT #: CFV/JF 4330 BELTWAY, SUITE 300 SOUTH ARLINGTON Loan Number 78000411 ARLINGTON, TX 76018 PO BOX 150049 Date: January 12, 1996 ARLINGTON, TX 76015 Maturity Date: January 30,1999 BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Loan Amount: $1,500,000.00 "I" includes each borrower "You" means the lender, its Renewal of________________ above, joint and severally. successors and assigns.
For value received, I promise to pay to you, or your order, at your address listed above the PRINCIPAL sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100****Dollars $1,500,000.00 /XX/ SINGLE ADVANCE: I will receive all of this principal sum on January 12, 1996. No additional advances are contemplated under this note. MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of / / principal I can borrow under this note. On _________ I will receive the amount of $____________ and future principal advances are contemplated. CONDITIONS: The conditions for future advances are___________. / / OPEN END CREDIT: You and I agree that I may borrow up to the maximum amount of principal more than one time. This feature is subject to all other conditions and expire on _____. / / CLOSED END CREDIT: You and I agree that I may borrow up to the maximum only one time (and subject to all other conditions). INTEREST: I agree to pay interest on the outstanding principal balance from Jan. 12, 1996 at the rate of 9.500% per year until FIRST CHANGE DATE. /XX/ VARIABLE RATE: This rate may then change as stated below. /X/ INDEX RATE: The future rate will be 1.000% OVER the following index rate: WALL STREET JOURNAL BASE RATE AS ESTABLISHED BY THE MINIMUM PRIME LENDING RATE FOR LARGE U.S. MONEY CENTER COMM. BANKS AS PUBLISHED IN MONEY RATES SEC. OF W.S.J. /X/ CEILING RATE: The interest rate ceiling for this note is the - WEEKLY ceiling rate announced by the Credit Commissioner from time to time. /X/ FREQUENCY AND TIMING: The rate on this note may change as often as DAILY. A change in the interest rate will take effect ON THE SAME DAY / / LIMITATIONS: During the term of this loan, the applicable annual interest rate will not be more than ________________% or less than ___%. 25 EFFECT OF VARIABLE RATE: A change in the interest rate will have the following effect on the payments: /XX/ The amount of each scheduled payment will change. /XX/ The amount of the final payment will change. ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis. POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note owing after maturity, and until paid in full, as stated below: /X/ on the same fixed or variable rate basis in effect before maturity (as indicated above). / / at a rate equal to__________________________. / / LATE CHARGE: If a payment is made more than _______ days after it is due, I agree to pay a late charge of____________. /XX/ ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which / / are /XX/ are not included in the principal amount above:_________________________________ PAYMENTS: I agree to pay this note as follows: /XX/ INTEREST: I agree to pay accrued interest QUARTERLY BEGINNING APRIL 30, 1996 AND ON JANUARY 30, 1999. /XX/ PRINCIPAL: I agree to pay the principal $125,000.00 QUARTERLY BEGINNING APRIL 30, 1996, BALANCE DUE JANUARY 30, 1999 / / INSTALLMENTS: I agree to pay this note in _____ payments. The first payment will be in the amount of $_________ and will be due ___________. A payment of $_______________will be due ____________________ thereafter. The final payment of the entire unpaid balance of principal and interest will be due ___________________. ADDITIONAL TERMS: SEE SEPARATE SECURITY AGREEMENT DATED SAME THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT PURPOSE: The purpose of this loan BETWEEN THE PARTIES AND MAY BUSINESS: PROVIDE FUNDS PAY OFF NOT BE CONTRADICTED BY EVIDENCE BANK OF AMERICA. OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. SIGNATURES: I agree to the terms of this note (including those on Page 2).I have Received a copy on today's date. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Signature for Lender INNOSERV TECHNOLOGIES, INC. /s/ CURTIS F. VON DER AHE BY: /s/ MICHAEL G. PULS - ------------------------------- ----------------------------------- CURTIS F. VON DER AHE MICHAEL PULS, PRESIDENT 26 APPLICABLE LAW: The law of the state of Texas will govern this note. Any term of this note which is contrary to applicable law will not be effective, unless the law permits you and me to agree to such a variation. If any provision of this agreement cannot be enforced according to its terms, this fact will not affect the enforceability of the remainder of this agreement. No modification of this agreement may be made without your express written consent. Time is of the essence in this agreement. PAYMENTS: Each payment I make on this not will first reduce the amount I owe you for charges which are neither interest nor principal. The remainder of each payment will then reduce accrued unpaid interest, and then unpaid principal. If you and I agree to a different application of payments, we will describe our agreement on this note. I may prepay a part of, or the entire balance of this loan without penalty, unless we specify to the contrary on this note. I may prepay a part of, or the entire balance of the loan without penalty, unless we specify to the contrary on this note. Any partial prepayment will not excuse or reduce any later scheduled payment until this note is paid in full (unless, when I make the prepayment, you and I agree in writing to the contrary) INTEREST: If I receive the principal in more than one advance, each advance will start to earn interest only when I receive the advance. The interest rate in effect on this note at any given time will apply to the entire principal advanced at that time. Notwithstanding anything to the contrary, I do not agree to pay and you do not intend to charge any rate of interest that is higher than the maximum rate of interest you could charge under applicable law for the extension of credit that is agreed to here (either before or after maturity). If any notice of interest accrual is sent and is in error, we mutually agree to correct it, and if you actually collect more interest than allowed by law and this agreement, you agree to refund it to me. INDEX RATE: The index will serve only as a device for setting the rate on this note. You do not guarantee by selecting this index, or the margin, that the rate on this note will be the same rate you charge on any other loans or class of loans to me or other borrowers. ACCRUAL METHOD: The amount of interest that I will pay on this loan will be calculated using the interest rate and accrual method stated on page 1 of this note. For the purpose of interest calculation, the accrual method will determine the number of days in a "year." If no accrual method is stated, then you may use any reasonable accrual method for calculating interest. POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate" (shown on page 1) applies, the term "maturity" means the date of the last scheduled payment indicated on page 1 of this note or the date you accelerate payment on the note, whichever is earlier. SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that you will make only one advance of principal. However, you may add other amounts to the principal if you make any payments described in the "PAYMENTS BY LENDER" paragraph below. MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect that you will make more than one advance of principal. If this is closed and credit, repaying a part of the principal will not entitle me to additional credit. 27 PAYMENT BY LENDER: If you are authorized to pay, on my behalf, charges I am obligated to pay (such as property insurance premiums), then you may treat those payments made by you as advances and add them to the unpaid principal under this note, or you may demand immediate payment of the charges. SET-OFF: I agree that you may set off any amount due and payable under this note against any right I have to receive money from you. "Right to receive money from you" means: (1) any deposit account balance I have with you; (2) any money owed to me on an item presented to you or in your possession for collection or exchange; and (3) any repurchase agreement or other non deposit obligation. "Any amount due and payable under this note" means the total amount of which you are entitled to demand payment under the terms of this note at the time you set off. This total includes any balance the due date for which you properly accelerate under this note. If my right to receive money from you is also owned by someone who has not agreed to pay this note, your right of set-off will apply to my interest in the obligation and to any other amounts I could withdraw on my sole request or endorsement. Your right of set-off does not apply to an account or other obligation where my rights are only as a representative. It also does not apply to any Individual Retirement Account or other tax-deferred retirement account. You will not be liable for the dishonor of any check when the dishonor occurs because you set off this debt against any of my accounts. I agree to hold you harmless from any such claims arising as a result of your exercise of your right of set-off. REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a residence that is personal property, the existence of a default and your remedies for such a default will be determined by applicable law, by the terms of any separate instrument creating the security interest and, to the extent not prohibited by the law and not contrary to the terms of the separate security instrument, by the "Default" and "Remedies" paragraph herein. DEFAULT: I will be in default on this loan and any agreement securing this loan if any one or more of the following occurs: (1) I fail to perform any obligation which I have undertaken in this note or any agreement securing this note; or **(2) you, in good faith, believe that the prospect of payment or the prospect of my performance of any other of my obligations under this note or any agreement securing this note is implied. If any of us are in default on this note or any security agreement, you may exercise your remedies against any or all of us. REMEDIES: If I am in default on this note you have, but are not limited to the following remedies: (1) You may demand immediate payment of my debt under this note (principal, accrued unpaid interest and other accrued charges). (2) You may set off this debt against any right I have to the payment of money from you, subject to the terms of the "Set-Off" paragraph herein. (3) You may demand security, additional security, or additional parties to be obligated to pay this note as a condition for not using any other remedy. 28 (4) You may refuse to make advances to me or allow purchases on credit by me. (5) You may use any remedy you have under state or federal law. By selecting any one or more of these remedies you do not give up your right to later use any other remedy. By waiving you right to declare an event to be a default, you do not waive your right to later consider the event as a default if it continues or happens again. COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection, replevin or any other similar type of cost if I am in default. In addition, if you hire an attorney to collect this note, I also agree to pay any fee you incur with such attorney plus court costs (except where prohibited by law). To the extent permitted by the United States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and costs you incur to collect this debt as awarded by any court exercising jurisdiction under the Bankruptcy Code. WAIVER: I give up my rights to require you to do certain things. I will not require you to: (1) demand payment of amounts due (presentment); (2) obtain official certification of nonpayment (protest); (3) give notice that amounts due have not been paid (notice of dishonor); (4) give notice of intent to accelerate; or (5) give notice of acceleration. OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone else has also agreed to pay it (by, for example, signing this form or a separate guarantee or endorsement). You may sue me alone, or anyone else who is obligated on this note, or any number of us together, to collect this note. You may without notice release any party to this agreement without releasing any other party. If you give up any of your rights, with or without notice, it will not affect my duty to pay this note. Any extension of new credit to any of us, or renewal of this note by all or less than all of us will not release me from my duty to pay it. (Of course, you are entitled to only one payment in full.) I agree that you may at your option extend this note or the debt represented by this note, or any portion of the note or debt, from time to time without limit or notice and for any term without affecting my liability for payment of the note. I will not assign my obligation under this agreement without your prior written approval. CREDIT INFORMATION: I agree and authorize you to obtain credit information about me from time to time (for example, by requesting a credit report) and to report to others your credit experience with me (such as a credit reporting agency). I agree to provide you, upon request, any financial statement or information you may deem necessary. I warrant that the financial statements and information I provide to you are or will be accurate, correct and complete. NOTICE: Unless otherwise required by law, any notice to me shall be given by delivering it or by mailing it by first class mail addressed to me at my last known address. My current address is on page 1. I agree to inform you in writing of any change in my address. I will give any notice to you by mailing it first class to your address stated on page 1 of this agreement, or to any other address that you have designated. 29 **(2) you, after due inquiry and ten days' opportunity to cure following prior written notice to me by you of the basis of your good faith belief, in good faith, believe that the prospect of payment or the prospect of my performance of any other of my obligations under this note or any agreement securing this note impaired. 30 EX-10.3 4 EXHIBIT 10.3 Exhibit 10.3 INNOSERV TECHNOLOGIES, INC. OVERTON BANK AND TRUST, N.A. 4330 BELTWAY, SUITE 300 ARLINGTON, TX 76018 SOUTH ARLINGTON PO BOX 150049 TAXPAYER I.D. NUMBER: 95-3619990 ARLINGTON, TX 76015 DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ("I" MEANS EACH DEBTOR WHO SIGNS.) ADDRESS ("YOU" MEANS THE SECURED PARTY, ITS SUCCESSORS AND ASSIGNS.) I am entering into this security agreement with you on JANUARY 12, 1996 (date). SECURED DEBTS. I agree that this security agreement will secure the payment and performance of the debts, liabilities or obligations described below that (Check one) ___ I XX (name) INNOSERV TECHNOLOGIES, INC. owe(s) to you now or in the future: (Check one below): ___ Specific Debt(s). The debt(s), liability or obligations evidenced by (describe):____________________________and all extensions, renewals, refinancing, modifications and replacement of the debt, liability or obligation. XX All Debt(s). Except in those cases listed in the "LIMITATIONS" paragraph on page 2, each and every debt, liability and obligation of every type and description (whether such debt, liability or obligation now exists or is incurred in the future and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several). SECURITY INTEREST. To secure the payment and performance of the above described Secured Debts, liabilities and obligations, I give you a security interest in all of the property described below that I now own and that I may own in the future (including, but not limited to, all parts, accessories, repairs, improvements, and accessions to the property), wherever the property is or may be located, and all proceeds and products from the property. /XX/ INVENTORY: All inventory which I hold for ultimate sale or lease, or which has been or will be supplied under contracts of service, or which are raw materials, work in process, or materials used or consumed in my business. /XX/ EQUIPMENT: All equipment including, but not limited to, all machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and recordkeeping equipment, and parts and tools. All equipment described in a list or schedule which I give to you will also be included in the secured property, but such a list is not necessary for a valid security interest in my equipment. 31 / / FARM PRODUCTS: All farm products including, but not limited to: (a) all poultry and livestock and their young, along with their products, produce and replacements; (b) all crops, annual or perennial, and all products of the crops; and (c) all feed, seed, fertilizer, medicines, and other supplies used or produced in my farming operations. /XX/ ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO PAYMENT: All right I have now and that I may have in the future to the payment of money including, but not limited to: (a) payment for goods and other property sold or leased or for services rendered, whether or not I have earned such payment by performance; and (b) rights to payment arising out of all present and future debt instruments, chattel paper and loans and obligations receivable. The above include any right and interests (including all liens and security interests) which I may have by law or agreement against any account debtor or obligor of mine. / / GENERAL INTANGIBLES: All general intangibles including, but not limited to, tax refunds, applications for patents, patents, copyrights, trademarks, trade secrets, good will, trade names, customer lists, permits and franchises, and the right to use my name. / / GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general intangibles, or other benefits (including, but not limited to, payments in kind, deficiency payments, letters of entitlement, warehouse receipts, storage payments, emergency assistance payments, diversion payments, and conservation reserve payments) in which I now have and in the future may have any rights or interest and which arise under or as a result of any preexisting, current or future Federal or state governmental program (including, but not limited to, all programs administered by the Commodity Credit Corporation and the ASCS. / / The secured property includes, but is not limited by, the following: If this agreement covers timber to be cut, minerals (including oil and gas), fixtures or crops growing or to be grown, the legal description is: _______________________________________________________________________________ 32 I am a (n)/ / individual / / partnership I AGREE TO THE TERMS SET OUT /XX/ corporation ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I HAVE / / If checked, file this agreement in RECEIVED A COPY OF THIS the real estate record. DOCUMENT ON TODAY'S DATE. Record Owner (if not me): ____________ The property will be used for / / personal /XX/ business / / agricultural ___________reasons. INNOSERV TECHNOLOGIES, INC. --------------------------- (Debtor's Name) By: /s/ Michael G. Puls --------------------------- MICHAEL PULS OVERTON BANK AND TRUST, N.A. - ----------------------------- SOUTH ARLINGTON Title: PRESIDENT - ----------------------------- --------------------- (secured party's name) By: /s/ CURTIS VON DER AHE -------------------------- CURTIS VON DER AHE, PRESIDENT 33 GENERALLY - "You" means the Secured Party identified on page 1 of this agreement. "I", "me" and "my" means each person who signs this security agreement as Debtor and who agrees to give the property described in this agreement as security for the Secured Debts. All terms and duties under this agreement are joint and individual. No modification of this security agreement is effective unless made in writing and signed by you and me. This security agreement remains in effect, even if the note is paid and I owe no other debt to you, until discharged in writing. Time is of the essence in this agreement. APPLICABLE LAW - I agree that this security agreement will be governed by the law of the state in which you are located. If property described in this agreement is located in another state, this agreement may also, in some circumstances, be governed by the law of the state in which the property is located. To the extent permitted by law, the terms of this agreement may vary applicable law. If any provision of applicable law may not be varied by agreement, any provision of this agreement that does not comply with the law will not be effective. If any provision of this agreement cannot be enforced according to its terms, this fact will not affect the enforceability of the remainder of this agreement. OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the property, or to the extend this is a purchase money security interest I will acquire ownership of the property with the proceeds of the loan. I will defend it against any other claim. Your claim to the property is ahead of the claims of any other creditor. I agree to do whatever you require to protect your security interest and to keep your claim in the property ahead of the claims of other creditors. I will not do anything to harm your position. I will keep books, records and accounts about the property and my business in general. I will let you examine these records at any reasonable time. I will prepare any report or accounting you request, which deals with the property. I will keep the property in my possession and will keep it in good repair and use it only for the purpose(s) described on page 1 of this agreement. I will not change this specified use without your express written permission. I represent that I am the original owner of the property and, if I am not, that I have provided you with a list of prior owners of the property. I will keep the property at my address listed on page 1 of this agreement, unless we agree I may keep it at another location. If the property is to be used in another state, I will give you a list of those states. I will not try to sell the property unless it is inventory or I receive your written permission to do so. If I sell the property I will have the payment made payable to the order of you and me. You may demand immediate payment of the debt(s) if the debtor is not a natural person and without your prior written consent (1) a beneficial interest in the debtor is sold or transferred or (2) there is a change in either the identity or number of members of a partnership or (3) there is a change in ownership of more than 25 percent of the voting stock of a corporation. I will pay all taxes and charges on the property as they become due. You have the right of reasonable access in order to inspect the 34 property. I will immediately inform you of any loss or damage to the property. LIMITATIONS - This agreement will not secure a debt described in the section entitled "Secured Debts" on page 1: 1) if you fail to make any disclosure of the existence of this security interest required by law for such other debt; 2) if this security interest is in my principal dwelling and you fail to provide (to all persons entitled) any notice of right of rescission required by law for such other debt; 3) to the extent that this security interest is in "household goods" and the other debt to be secured is a "consumer" loan (as those terms are defined in applicable federal regulations governing unfair and deceptive credit practices); 4) if this security interest is in margin stock subject to the requirements of 12 C.F.R. Section 207 or 221 and you do not obtain a statement of purpose if required under these regulations with respect to that debt; or 5) if this security interest is unenforceable by law with respect to that debt. PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the extent of a purchase money security interest arising under this security agreement: (a) payments on any non-purchase money loan also secured by this agreement will not be deemed to apply to the purchase money loan, and (b) payments on the purchase money loan will be deemed to apply first to the non- purchase money portion of the loan, if any, and then to the purchase money obligations in the order in which the items of collateral were acquired or if acquired at the same time, in the order selected by you. No security interest will be terminated by application of this formula. "Purchase money loan" means any loan the proceeds of which, in whole or in part, are used to acquire any collateral securing the loan and all extensions, renewals, consolidations and refinancings of such loans. AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to pay you on demand any sums you advanced on my behalf including, but not limited to, expenses incurred in collecting, insuring, conserving, or protecting the property or in any inventories, audits, inspections or other examinations by you in respect to the property. If I fail to pay such sums, you may do so for me, adding the amount paid to the other amounts secured by this agreement. All such sums will be due on demand and will bear interest at the highest rate provided in any agreement, note or other instrument evidencing the Secured Debt(s) and permitted by law at the time of the advance. If I fail to perform any of my duties under this security agreement, or any mortgage, deed of trust, lien or other security interest, you may without notice to me perform the duties or cause them to be performed. I understand that this authorization includes, but is not limited to, permission to: (1) prepare, file, and sign my name to any necessary reports or accountings; (2) notify any account debtor of your interest in this property and tell the account debtor to make the payments to you or someone else you name, rather than me; (3) place on any chattel paper a note indicating your interest in the property; (4) in my name, demand, collect, receive and give a receipt for compromise, 35 settle, and handle any suits or other proceedings involving the collateral; (5) take any action you feel is necessary in order to realize on the collateral, including performing any part of a contract or endorsing it in my name; and (6) make an entry on my books and records showing the existence of the security agreement. Your right to perform for me shall not create an obligation to perform and your failure to perform will not preclude you from exercising any of your rights under the law of this security agreement. THESE SAME PARTIES WILL CONTROL THE INSURANCE. INSURANCE WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not settle any account for less than its full value without your written permission. I will collect all accounts until you tell me otherwise. I will keep the proceeds from all the accounts and any goods which are returned tome or which I take back in trust for you, I will not mix them with any other property of mine. I will deliver them to you at your request. If you ask me to pay you the full price on any returned items or items retaken by myself, I will do so. If this agreement covers inventory, I will not dispose of it except in my ordinary course of business at the fair market value for the property, or at a minimum price established between you and me. If this agreement covers farm products I will provide you, at your request, a written list of the buyers, commission merchants or selling agents to or through whom I may sell my farm products. In addition to those parties named on this written list, I authorize you to notify at your sole discretion any additional parties regarding your security interest in my farm products. I remain subject to all applicable penalties for selling my farm products in violation of my agreement with you and the Food Security Act. In this paragraph the terms farm products, buyers, commission merchants and selling agents have the meanings given to them in the Federal Food Security Act of 1985. DEFAULT - I will be in default if any one or more of the following occur: (1) I fail to make a payment on time or in the amount due; (2) I fail to keep the property insured, if required; (3) I fail to pay, or keep any promise, on any debt or agreement I have with you; (4) any other creditor of mine attempts to collect any debt I owe him through court proceedings; (5) I die, am declared incompetent, make an assignment for the benefit of creditors, or become insolvent (either because my liabilities exceed my assets or I am unable to pay my debts as they become due); (6) I make any written statement or provide any financial information that is untrue or inaccurate at the time it was provided; (7) I do or fail to do something which causes you to believe that you will have difficulty collecting the amount I owe you; (8) I change my name or assume an additional name without first notifying you before making such a change; (9) failure to plant, cultivate and harvest crops in due season; (10) if any loan proceeds are used for a purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M. 36 REMEDIES - If I am in default on this agreement, you have the following remedies: 1) You may demand immediate payment of all I owe you under any obligation secured by this agreement. 2) You may set off any obligation I have to you against any right I have to the payment of money from you. 3) You may demand more security or new parties obligated to pay any debt I owe you as a condition of giving up any other remedy. 4) You may make use of any remedy you have under state or federal law. 5) If I default by failing to pay taxes or other charges, you may pay them (but you are not required to do so). If you do, I will repay to you the amount you paid plus interest at the highest contract rate. 6) You may require me to gather the property and make it available to you in a reasonable fashion. 7) You may repossess the property and sell it as provided by law. You may repossess the property so long as the repossession does not involve a breach of the peace or an illegal entry onto my property. You may sell the property as provided by law. You may apply what you receive from the sale of the property to: your expenses; your reasonable attorney's fees and legal expenses (where not prohibited by law); any debt I owe you. If what you receive from the sale of the property does not satisfy the debts, you may take me to court to recover the difference (where permitted by law). I agree that 10 days written notice sent to my address listed on page 1 by first class mail will be reasonable notice to me under the Uniform Commercial Code. If any items not otherwise subject to this agreement are contained in the property when you take possession, you may hold these items for me at my risk and you will not be liable for taking possession of them. 8) In some cases, you may keep the property to satisfy the debt. You may enter upon and take possession of all or any part of my property, so long as you do not breach the peace or illegally enter onto the property, including lands, plants, buildings, machinery, and equipment as may be necessary to permit you to manufacture, produce, process, store or sell or complete the manufacture, production, processing, storing or sale of any of the property and to use and operate the property for the length of time you feel is necessary to protect your interest, all without payment or compensation to me. By choosing any one or more of these remedies, you do not waive your right to later use any other remedy. You do not waive a default if you choose not to use any remedy, and, by electing not to use any remedy, you do not waive your right to later consider the event a default and to immediately use any remedies if it continues or occurs again. FILING - A carbon, photographic or other reproduction of this security agreement or the financing statement covering the property described in this agreement may be used as a financing statement where allowed by law. Where permitted by law, you may file a financing statement which 37 does not contain my signature, covering the property secured by this agreement. CO-MAKERS - If more than one of us has signed this agreement, we are all obligated equally under the agreement. You may sue any of one of us or any of us together if this agreement is violated. You do not have to tell me if any term of the agreement has not been carried out. You may release any co-signer and I will still be obligated under this agreement. You may release any of the security and I will still be obligated under this agreement. Waiver by you of any of your rights will not affect my duties under this agreement. Extending this agreement or new obligations under this agreement, will not affect my duty under the agreement. 38 INNOSERV TECHNOLOGIES, OVERTON BANK AND Loan File Number 78000411 INC. TRUST, N.A. Date JANUARY 12, 1996 4330 BELTWAY SUITE 300 SOUTH ARLINGTON Loan Amount $1,500,000.00 ARLINGTON, TX 76018 PO BOX 150049 Maturity Date JANUARY 30, ARLINGTON, TX 76015 1999 Renewal of ______________ BORROWER'S NAME AND LENDER'S NAME AND ADDRESS ADDRESS INCLUDES EACH BORROWER INCLUDES THE LENDER, ABOVE, JOINTLY AND ITS SUCCESSORS AND SEVERALLY. ASSIGNS. DISCLAIMER OF ORAL AGREEMENTS The Borrower and Lender, hereinafter the Parties, have entered into a transaction generally described as $1,500,000 LOAN TO PAY OFF BANK OF AMERICA. In conjunction with this transaction the Parties have executed one or more promissory notes, assignments, security agreements, mortgages, deeds of trust or other documents. It is the intention of the Parties that this Disclaimer be incorporated by reference into each of the documents so executed for this transaction. The Parties warrant and represent that the entire agreement made between the Parties is contained within the executed documents, as amended and supplemented hereby, and that no agreements or promises exist between the Parties that are not reflected in the language of the various documents executed in conjunction with this transaction. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES INNOSERV TECHNOLOGIES, INC. BY: /s/ MICHAEL G. PULS - ---------------------------- MICHAEL PULS, PRESIDENT Borrower /s/ CURTIS F. VON DER AHE ----------------------------- Lender CURTIS F. VON DER AHE OVERTON BANK AND TRUST, N.A. SOUTH ARLINGTON 39 EX-10.4 5 EXHIBIT 10.4 INNOSERV TECHNOLOGIES, INC OVERTON BANK & TRUST, N.A. ACCOUNT #: CFV/JF 4330 BELTWAY, SUITE 300 SOUTH ARLINGTON Loan Number 78000415 ARLINGTON, TX 76018 PO BOX 150049 Date: January 12, 1996 ARLINGTON, TX 76015 Maturity Date: August 12,1996 BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Loan Amount: $1,500,000.00 "I" includes each borrower "You" means the lender, its Renewal of________________ above, joint and severally. successors and assigns.
For value received, I promise to pay to you, or your order, at your address listed above the PRINCIPAL sum of ONE MILLION FIVE HUNDRED THOUSAND AND NO/100****Dollars $1,500,000.00 / / SINGLE ADVANCE: I will receive all of this principal sum on ________________. No additional advances are contemplated under this note. /XX/ MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of principal I can borrow under this note. On January 12, 1996 I will receive the amount of $____________ and future principal advances are contemplated. CONDITIONS: The conditions for future advances are___________. /XX/ OPEN END CREDIT: You and I agree that I may borrow up to the maximum amount of principal more than one time. This feature is subject to all other conditions and expire on August 12, 1996. CLOSED END CREDIT: You and I agree that I may borrow up to the maximum / / only one time (and subject to all other conditions). INTEREST: I agree to pay interest on the outstanding principal balance from Jan. 12, 1996 at the rate of 9.000% per year until FIRST CHANGE DATE. /XX/ VARIABLE RATE: This rate may then change as stated below. /X/ INDEX RATE: The future rate will be .500% OVER the following index rate: WALL STREET JOURNAL BASE RATE AS ESTABLISHED BY THE MINIMUM PRIME LENDING RATE FOR LARGE U.S. MONEY CENTER COMM. BANKS AS PUBLISHED IN MONEY RATES SEC. OF W.S.J. /X/ CEILING RATE: The interest rate ceiling for this note is the - WEEKLY ceiling rate announced by the Credit Commissioner from time to time. /X/ FREQUENCY AND TIMING: The rate on this note may change as often as DAILY. A change in the interest rate will take effect ON THE SAME DAY / / LIMITATIONS: During the term of this loan, the applicable annual interest rate will not be more than ________________% or less than ___%. 40 EFFECT OF VARIABLE RATE: A change in the interest rate will have the following effect on the payments: /XX/ The amount of each scheduled payment will change. /XX/ The amount of the final payment will change. ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis. POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note owing after maturity, and until paid in full, as stated below: /X/ on the same fixed or variable rate basis in effect before maturity (as indicated above). / / at a rate equal to__________________________. LATE CHARGE: If a payment is made more than _______ days after it is due, / / I agree to pay a late charge of____________. /XX/ ADDITIONAL CHARGES: In addition to interest, I agree to pay the following charges which / / are /XX/ are not included in the principal amount above:_________________________________ PAYMENTS: I agree to pay this note as follows: /XX/ INTEREST: I agree to pay accrued interest QUARTERLY BEGINNING FEBRUARY 12, 1996. /XX/ PRINCIPAL: I agree to pay the principal AUGUST 12, 1996 INSTALLMENTS: I agree to pay this note in _____ payments. The first payment will be in the amount of $_________ and will be due ___________. A payment of $_______________will be due ____________________ thereafter. The final payment of the entire unpaid balance of principal and interest will be due ___________________. ADDITIONAL TERMS: SEE SEPARATE SECURITY AGREEMENT DATED SAME THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT PURPOSE: The purpose of this loan BETWEEN THE PARTIES AND MAY BUSINESS: PROVIDE FUNDS PAY OFF NOT BE CONTRADICTED BY EVIDENCE BANK OF AMERICA. OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. SIGNATURES: I agree to the terms of this note (including those on Page 2).I have Received a copy on today's date. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Signature for Lender INNOSERV TECHNOLOGIES, INC. /s/ CURTIS F. VON DER AHE BY: /s/ MICHAEL G. PULS - ------------------------------- ----------------------------------- CURTIS F. VON DER AHE MICHAEL PULS, PRESIDENT 41 APPLICABLE LAW: The law of the state of Texas will govern this note. Any term of this note which is contrary to applicable law will not be effective, unless the law permits you and me to agree to such a variation. If any provision of this agreement cannot be enforced according to its terms, this fact will not affect the enforceability of the remainder of this agreement. No modification of this agreement may be made without your express written consent. Time is of the essence in this agreement. PAYMENTS: Each payment I make on this not will first reduce the amount I owe you for charges which are neither interest nor principal. The remainder of each payment will then reduce accrued unpaid interest, and then unpaid principal. If you and I agree to a different application of payments, we will describe our agreement on this note. I may prepay a part of, or the entire balance of this loan without penalty, unless we specify to the contrary on this note. I may prepay a part of, or the entire balance of the loan without penalty, unless we specify to the contrary on this note. Any partial prepayment will not excuse or reduce any later scheduled payment until this note is paid in full (unless, when I make the prepayment, you and I agree in writing to the contrary) INTEREST: If I receive the principal in more than one advance, each advance will start to earn interest only when I receive the advance. The interest rate in effect on this note at any given time will apply to the entire principal advanced at that time. Notwithstanding anything to the contrary, I do not agree to pay and you do not intend to charge any rate of interest that is higher than the maximum rate of interest you could charge under applicable law for the extension of credit that is agreed to here (either before or after maturity). If any notice of interest accrual is sent and is in error, we mutually agree to correct it, and if you actually collect more interest than allowed by law and this agreement, you agree to refund it to me. INDEX RATE: The index will serve only as a device for setting the rate on this note. You do not guarantee by selecting this index, or the margin, that the rate on this note will be the same rate you charge on any other loans or class of loans to me or other borrowers. ACCRUAL METHOD: The amount of interest that I will pay on this loan will be calculated using the interest rate and accrual method stated on page 1 of this note. For the purpose of interest calculation, the accrual method will determine the number of days in a "year." If no accrual method is stated, then you may use any reasonable accrual method for calculating interest. POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate" (shown on page 1) applies, the term "maturity" means the date of the last scheduled payment indicated on page 1 of this note or the date you accelerate payment on the note, whichever is earlier. SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that you will make only one advance of principal. However, you may add other amounts to the principal if you make any payments described in the "PAYMENTS BY LENDER" paragraph below. MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect that you will make more than one advance of principal. If this is closed and credit, repaying a part of the principal will not entitle me to additional credit. 42 PAYMENT BY LENDER: If you are authorized to pay, on my behalf, charges I am obligated to pay (such as property insurance premiums), then you may treat those payments made by you as advances and add them to the unpaid principal under this note, or you may demand immediate payment of the charges. SET-OFF: I agree that you may set off any amount due and payable under this note against any right I have to receive money from you. "Right to receive money from you" means: (1) any deposit account balance I have with you; (2) any money owed to me on an item presented to you or in your possession for collection or exchange; and (3) any repurchase agreement or other non deposit obligation. "Any amount due and payable under this note" means the total amount of which you are entitled to demand payment under the terms of this note at the time you set off. This total includes any balance the due date for which you properly accelerate under this note. If my right to receive money from you is also owned by someone who has not agreed to pay this note, your right of set-off will apply to my interest in the obligation and to any other amounts I could withdraw on my sole request or endorsement. Your right of set-off does not apply to an account or other obligation where my rights are only as a representative. It also does not apply to any Individual Retirement Account or other tax-deferred retirement account. You will not be liable for the dishonor of any check when the dishonor occurs because you set off this debt against any of my accounts. I agree to hold you harmless from any such claims arising as a result of your exercise of your right of set-off. REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a residence that is personal property, the existence of a default and your remedies for such a default will be determined by applicable law, by the terms of any separate instrument creating the security interest and, to the extent not prohibited by the law and not contrary to the terms of the separate security instrument, by the "Default" and "Remedies" paragraph herein. DEFAULT: I will be in default on this loan and any agreement securing this loan if any one or more of the following occurs: (1) I fail to perform any obligation which I have undertaken in this note or any agreement securing this note; or **(2) you, in good faith, believe that the prospect of payment or the prospect of my performance of any other of my obligations under this note or any agreement securing this note is implied. If any of us are in default on this note or any security agreement, you may exercise your remedies against any or all of us. REMEDIES: If I am in default on this note you have, but are not limited to the following remedies: (1) You may demand immediate payment of my debt under this note (principal, accrued unpaid interest and other accrued charges). (2) You may set off this debt against any right I have to the payment of money from you, subject to the terms of the "Set-Off" paragraph herein. (3) You may demand security, additional security, or additional parties to be obligated to pay this note as a condition for not using any other remedy. 43 (4) You may refuse to make advances to me or allow purchases on credit by me. (5) You may use any remedy you have under state or federal law. By selecting any one or more of these remedies you do not give up your right to later use any other remedy. By waiving you right to declare an event to be a default, you do not waive your right to later consider the event as a default if it continues or happens again. COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection, replevin or any other similar type of cost if I am in default. In addition, if you hire an attorney to collect this note, I also agree to pay any fee you incur with such attorney plus court costs (except where prohibited by law). To the extent permitted by the United States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and costs you incur to collect this debt as awarded by any court exercising jurisdiction under the Bankruptcy Code. WAIVER: I give up my rights to require you to do certain things. I will not require you to: (1) demand payment of amounts due (presentment); (2) obtain official certification of nonpayment (protest); (3) give notice that amounts due have not been paid (notice of dishonor); (4) give notice of intent to accelerate; or (5) give notice of acceleration. OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone else has also agreed to pay it (by, for example, signing this form or a separate guarantee or endorsement). You may sue me alone, or anyone else who is obligated on this note, or any number of us together, to collect this note. You may without notice release any party to this agreement without releasing any other party. If you give up any of your rights, with or without notice, it will not affect my duty to pay this note. Any extension of new credit to any of us, or renewal of this note by all or less than all of us will not release me from my duty to pay it. (Of course, you are entitled to only one payment in full.) I agree that you may at your option extend this note or the debt represented by this note, or any portion of the note or debt, from time to time without limit or notice and for any term without affecting my liability for payment of the note. I will not assign my obligation under this agreement without your prior written approval. CREDIT INFORMATION: I agree and authorize you to obtain credit information about me from time to time (for example, by requesting a credit report) and to report to others your credit experience with me (such as a credit reporting agency). I agree to provide you, upon request, any financial statement or information you may deem necessary. I warrant that the financial statements and information I provide to you are or will be accurate, correct and complete. NOTICE: Unless otherwise required by law, any notice to me shall be given by delivering it or by mailing it by first class mail addressed to me at my last known address. My current address is on page 1. I agree to inform you in writing of any change in my address. I will give any notice to you by mailing it first class to your address stated on page 1 of this agreement, or to any other address that you have designated. 44 **(2) you, after due inquiry and ten days' opportunity to cure following prior written notice to me by you of the basis of your good faith belief, in good faith, believe that the prospect of payment or the prospect of my performance of any other of my obligations under this note or any agreement securing this note impaired. 45 EX-10.5 6 EXHIBIT 10.5 Exhibit 10.5 INNOSERV TECHNOLOGIES, INC. OVERTON BANK AND TRUST, N.A. 4330 BELTWAY, SUITE 300 ARLINGTON, TX 76018 SOUTH ARLINGTON PO BOX 150049 TAXPAYER I.D. NUMBER: 95-3619990 ARLINGTON, TX 76015 DEBTOR'S NAME, ADDRESS AND SSN OR TIN SECURED PARTY'S NAME AND ("I" MEANS EACH DEBTOR WHO ADDRESS SIGNS.) ("YOU" MEANS THE SECURED PARTY, ITS SUCCESSORS AND ASSIGNS.) I am entering into this security agreement with you on JANUARY 12, 1996 (DATE). SECURED DEBTS. I agree that this security agreement will secure the payment and performance of the debts, liabilities or obligations described below that (Check one) / / I / XX/ (name) INNOSERV TECHNOLOGIES, INC. owe(s) to you now or in the future: (Check one below): _____Specific Debt(s). The debt(s), liability or obligations evidenced by (describe):____________________________and all extensions, renewals, refinancing, modifications and replacement of the debt, liability or obligation. /XX/ All Debt(s). Except in those cases listed in the "LIMITATIONS" paragraph on page 2, each and every debt, liability and obligation of every type and description (whether such debt, liability or obligation now exists or is incurred in the future and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several). SECURITY INTEREST. To secure the payment and performance of the above described Secured Debts, liabilities and obligations, I give you a security interest in all of the property described below that I now own and that I may own in the future (including, but not limited to, all parts, accessories, repairs, improvements, and accessions to the property), wherever the property is or may be located, and all proceeds and products from the property. /XX/ INVENTORY: All inventory which I hold for ultimate sale or lease, or which has been or will be supplied under contracts of service, or which are raw materials, work in process, or materials used or consumed in my business. /XX/ EQUIPMENT: All equipment including, but not limited to, all machinery, vehicles, furniture, fixtures, manufacturing equipment, farm machinery and equipment, shop equipment, office and recordkeeping equipment, and parts and tools. All equipment described in a list or schedule which I give to you will also be included in the secured property, but such a list is not necessary for a valid security interest in my equipment. 46 / / FARM PRODUCTS: All farm products including, but not limited to: (a) all poultry and livestock and their young, along with their products, produce and replacements; (b) all crops, annual or perennial, and all products of the crops; and (c) all feed, seed, fertilizer, medicines, and other supplies used or produced in my farming operations. /XX/ ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO PAYMENT: All right I have now and that I may have in the future to the payment of money including, but not limited to: (a) payment for goods and other property sold or leased or for services rendered, whether or not I have earned such payment by performance; and (b) rights to payment arising out of all present and future debt instruments, chattel paper and loans and obligations receivable. The above include any right and interests (including all liens and security interests) which I may have by law or agreement against any account debtor or obligor of mine. / / GENERAL INTANGIBLES: All general intangibles including, but not limited to, tax refunds, applications for patents, patents, copyrights, trademarks, trade secrets, good will, trade names, customer lists, permits and franchises, and the right to use my name. / / GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general intangibles, or other benefits (including, but not limited to, payments in kind, deficiency payments, letters of entitlement, warehouse receipts, storage payments, emergency assistance payments, diversion payments, and conservation reserve payments) in which I now have and in the future may have any rights or interest and which arise under or as a result of any preexisting, current or future Federal or state governmental program (including, but not limited to, all programs administered by the Commodity Credit Corporation and the ASCS. / / The secured property includes, but is not limited by, the following: If this agreement covers timber to be cut, minerals (including oil and gas), fixtures or crops growing or to be grown, the legal description is: - -------------------------------------------------------------------------------- 47 I am a (n)/ / individual / / partnership I AGREE TO THE TERMS SET OUT /XX/ corporation ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I HAVE / / If checked, file this agreement in RECEIVED A COPY OF THIS the real estate record. DOCUMENT ON TODAY'S DATE. Record Owner (if not me): ____________ The property will be used for __ personal /XX/ business / / agricultural ___________reasons. INNOSERV TECHNOLOGIES, INC. ----------------------------- (Debtor's Name) By: /s/ Michael G. Puls ----------------------- MICHAEL PULS OVERTON BANK AND TRUST, N.A. SOUTH ARLINGTON Title: PRESIDENT - ---------------------------- --------------------------- (secured party's name) By: /s/ CURTIS VON DER AHE -------------------------- CURTIS VON DER AHE, PRESIDENT 48 GENERALLY - "You" means the Secured Party identified on page 1 of this agreement. "I", "me" and "my" means each person who signs this security agreement as Debtor and who agrees to give the property described in this agreement as security for the Secured Debts. All terms and duties under this agreement are joint and individual. No modification of this security agreement is effective unless made in writing and signed by you and me. This security agreement remains in effect, even if the note is paid and I owe no other debt to you, until discharged in writing. Time is of the essence in this agreement. APPLICABLE LAW - I agree that this security agreement will be governed by the law of the state in which you are located. If property described in this agreement is located in another state, this agreement may also, in some circumstances, be governed by the law of the state in which the property is located. To the extent permitted by law, the terms of this agreement may vary applicable law. If any provision of applicable law may not be varied by agreement, any provision of this agreement that does not comply with the law will not be effective. If any provision of this agreement cannot be enforced according to its terms, this fact will not affect the enforceability of the remainder of this agreement. OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the property, or to the extend this is a purchase money security interest I will acquire ownership of the property with the proceeds of the loan. I will defend it against any other claim. Your claim to the property is ahead of the claims of any other creditor. I agree to do whatever you require to protect your security interest and to keep your claim in the property ahead of the claims of other creditors. I will not do anything to harm your position. I will keep books, records and accounts about the property and my business in general. I will let you examine these records at any reasonable time. I will prepare any report or accounting you request, which deals with the property. I will keep the property in my possession and will keep it in good repair and use it only for the purpose(s) described on page 1 of this agreement. I will not change this specified use without your express written permission. I represent that I am the original owner of the property and, if I am not, that I have provided you with a list of prior owners of the property. I will keep the property at my address listed on page 1 of this agreement, unless we agree I may keep it at another location. If the property is to be used in another state, I will give you a list of those states. I will not try to sell the property unless it is inventory or I receive your written permission to do so. If I sell the property I will have the payment made payable to the order of you and me. You may demand immediate payment of the debt(s) if the debtor is not a natural person and without your prior written consent (1) a beneficial interest in the debtor is sold or transferred or (2) there is a change in either the identity or number of members of a partnership or (3) there is a change in ownership of more than 25 percent of the voting stock of a corporation. I will pay all taxes and charges on the property as they become due. You have the right of reasonable access in order to inspect the 49 property. I will immediately inform you of any loss or damage to the property. LIMITATIONS - This agreement will not secure a debt described in the section entitled "Secured Debts" on page 1: 1) if you fail to make any disclosure of the existence of this security interest required by law for such other debt; 2) if this security interest is in my principal dwelling and you fail to provide (to all persons entitled) any notice of right of rescission required by law for such other debt; 3) to the extent that this security interest is in "household goods" and the other debt to be secured is a "consumer" loan (as those terms are defined in applicable federal regulations governing unfair and deceptive credit practices); 4) if this security interest is in margin stock subject to the requirements of 12 C.F.R. Section 207 or 221 and you do not obtain a statement of purpose if required under these regulations with respect to that debt; or 5) if this security interest is unenforceable by law with respect to that debt. PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the extent of a purchase money security interest arising under this security agreement: (a) payments on any non-purchase money loan also secured by this agreement will not be deemed to apply to the purchase money loan, and (b) payments on the purchase money loan will be deemed to apply first to the non- purchase money portion of the loan, if any, and then to the purchase money obligations in the order in which the items of collateral were acquired or if acquired at the same time, in the order selected by you. No security interest will be terminated by application of this formula. "Purchase money loan" means any loan the proceeds of which, in whole or in part, are used to acquire any collateral securing the loan and all extensions, renewals, consolidations and refinancings of such loans. AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to pay you on demand any sums you advanced on my behalf including, but not limited to, expenses incurred in collecting, insuring, conserving, or protecting the property or in any inventories, audits, inspections or other examinations by you in respect to the property. If I fail to pay such sums, you may do so for me, adding the amount paid to the other amounts secured by this agreement. All such sums will be due on demand and will bear interest at the highest rate provided in any agreement, note or other instrument evidencing the Secured Debt(s) and permitted by law at the time of the advance. If I fail to perform any of my duties under this security agreement, or any mortgage, deed of trust, lien or other security interest, you may without notice to me perform the duties or cause them to be performed. I understand that this authorization includes, but is not limited to, permission to: (1) prepare, file, and sign my name to any necessary reports or accountings; (2) notify any account debtor of your interest in this property and tell the account debtor to make the payments to you or someone else you name, rather than me; (3) place on any chattel paper a note indicating your interest in the property; (4) in my name, demand, collect, receive and give a receipt for compromise, 50 settle, and handle any suits or other proceedings involving the collateral; (5) take any action you feel is necessary in order to realize on the collateral, including performing any part of a contract or endorsing it in my name; and (6) make an entry on my books and records showing the existence of the security agreement. Your right to perform for me shall not create an obligation to perform and your failure to perform will not preclude you from exercising any of your rights under the law of this security agreement. THESE SAME PARTIES WILL CONTROL THE INSURANCE. INSURANCE WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not settle any account for less than its full value without your written permission. I will collect all accounts until you tell me otherwise. I will keep the proceeds from all the accounts and any goods which are returned tome or which I take back in trust for you, I will not mix them with any other property of mine. I will deliver them to you at your request. If you ask me to pay you the full price on any returned items or items retaken by myself, I will do so. If this agreement covers inventory, I will not dispose of it except in my ordinary course of business at the fair market value for the property, or at a minimum price established between you and me. If this agreement covers farm products I will provide you, at your request, a written list of the buyers, commission merchants or selling agents to or through whom I may sell my farm products. In addition to those parties named on this written list, I authorize you to notify at your sole discretion any additional parties regarding your security interest in my farm products. I remain subject to all applicable penalties for selling my farm products in violation of my agreement with you and the Food Security Act. In this paragraph the terms farm products, buyers, commission merchants and selling agents have the meanings given to them in the Federal Food Security Act of 1985. DEFAULT - I will be in default if any one or more of the following occur: (1) I fail to make a payment on time or in the amount due; (2) I fail to keep the property insured, if required; (3) I fail to pay, or keep any promise, on any debt or agreement I have with you; (4) any other creditor of mine attempts to collect any debt I owe him through court proceedings; (5) I die, am declared incompetent, make an assignment for the benefit of creditors, or become insolvent (either because my liabilities exceed my assets or I am unable to pay my debts as they become due); (6) I make any written statement or provide any financial information that is untrue or inaccurate at the time it was provided; (7) I do or fail to do something which causes you to believe that you will have difficulty collecting the amount I owe you; (8) I change my name or assume an additional name without first notifying you before making such a change; (9) failure to plant, cultivate and harvest crops in due season; (10) if any loan proceeds are used for a purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M. 51 REMEDIES - If I am in default on this agreement, you have the following remedies: 1) You may demand immediate payment of all I owe you under any obligation secured by this agreement. 2) You may set off any obligation I have to you against any right I have to the payment of money from you. 3) You may demand more security or new parties obligated to pay any debt I owe you as a condition of giving up any other remedy. 4) You may make use of any remedy you have under state or federal law. 5) If I default by failing to pay taxes or other charges, you may pay them (but you are not required to do so). If you do, I will repay to you the amount you paid plus interest at the highest contract rate. 6) You may require me to gather the property and make it available to you in a reasonable fashion. 7) You may repossess the property and sell it as provided by law. You may repossess the property so long as the repossession does not involve a breach of the peace or an illegal entry onto my property. You may sell the property as provided by law. You may apply what you receive from the sale of the property to: your expenses; your reasonable attorney's fees and legal expenses (where not prohibited by law); any debt I owe you. If what you receive from the sale of the property does not satisfy the debts, you may take me to court to recover the difference (where permitted by law). I agree that 10 days written notice sent to my address listed on page 1 by first class mail will be reasonable notice to me under the Uniform Commercial Code. If any items not otherwise subject to this agreement are contained in the property when you take possession, you may hold these items for me at my risk and you will not be liable for taking possession of them. 8) In some cases, you may keep the property to satisfy the debt. You may enter upon and take possession of all or any part of my property, so long as you do not breach the peace or illegally enter onto the property, including lands, plants, buildings, machinery, and equipment as may be necessary to permit you to manufacture, produce, process, store or sell or complete the manufacture, production, processing, storing or sale of any of the property and to use and operate the property for the length of time you feel is necessary to protect your interest, all without payment or compensation to me. By choosing any one or more of these remedies, you do not waive your right to later use any other remedy. You do not waive a default if you choose not to use any remedy, and, by electing not to use any remedy, you do not waive your right to later consider the event a default and to immediately use any remedies if it continues or occurs again. FILING - A carbon, photographic or other reproduction of this security agreement or the financing statement covering the property described in this agreement may be used as a financing statement where allowed by law. Where permitted by law, you may file a financing statement which 52 does not contain my signature, covering the property secured by this agreement. CO-MAKERS - If more than one of us has signed this agreement, we are all obligated equally under the agreement. You may sue any of one of us or any of us together if this agreement is violated. You do not have to tell me if any term of the agreement has not been carried out. You may release any co-signer and I will still be obligated under this agreement. You may release any of the security and I will still be obligated under this agreement. Waiver by you of any of your rights will not affect my duties under this agreement. Extending this agreement or new obligations under this agreement, will not affect my duty under the agreement. 53 INNOSERV OVERTON BANK AND Loan File Number 78000415 TECHNOLOGIES, INC. TRUST, N.A. Date JANUARY 12, 1996 4330 BELTWAY SUITE SOUTH ARLINGTON Loan Amount $1,500,000.00 300 PO BOX 150049 Maturity Date AUGUST 12, ARLINGTON, TX 76018 ARLINGTON, TX 76015 1996 Renewal of ______________ BORROWER'S NAME AND LENDER'S NAME AND ADDRESS ADDRESS INCLUDES THE INCLUDES EACH LENDER, ITS BORROWER ABOVE, SUCCESSORS AND JOINTLY AND ASSIGNS. SEVERALLY. DISCLAIMER OF ORAL AGREEMENTS The Borrower and Lender, hereinafter the Parties, have entered into a transaction generally described as $1,500,000 LINE OF CREDIT FOR INNOSERV TECHNOLOGIES, INC. In conjunction with this transaction the Parties have executed one or more promissory notes, assignments, security agreements, mortgages, deeds of trust or other documents. It is the intention of the Parties that this Disclaimer be incorporated by reference into each of the documents so executed for this transaction. The Parties warrant and represent that the entire agreement made between the Parties is contained within the executed documents, as amended and supplemented hereby, and that no agreements or promises exist between the Parties that are not reflected in the language of the various documents executed in conjunction with this transaction. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES INNOSERV TECHNOLOGIES, INC. BY: /s/ MICHAEL G. PULS - --------------------------- MICHAEL PULS, PRESIDENT Borrower /s/ CURTIS F. VON DER AHE -------------------------- Lender CURTIS F. VON DER AHE OVERTON BANK AND TRUST, N.A. SOUTH ARLINGTON 54 EX-10.6 7 EXHIBIT 10.6 Exhibit 10.6 INDEMNITY AGREEMENT This Indemnity Agreement ("Agreement") is made and entered into as of the 25th day of January, 1996, by and between INNOSERV Technologies, Inc. - Registered Trademark-, a California corporation (the "Corporation"), and Michael G. Puls (the "Agent"). WHEREAS, the Agent is currently serving as a Director and Officer of the Corporation and the Corporation wishes the Agent to continue in such capacity; NOW, THEREFORE, in consideration of the foregoing recital and the mutual agreements set forth herein, and in order to induce the Agent to continue to serve as a Director and Officer of the Corporation and in consideration of his continued service, the parties hereto hereby agree as follows: 1. The corporation will pay on behalf of the Agent, and his executors, administrators or assigns, any amount which the Agent is or becomes legally obligated to pay in connection with any claim or claims made against the Agent because of any act or omission or neglect or breach of duty, including any actual or alleged error or misstatement or misleading statement, which the Agent commits or suffers while acting in his capacity as a Director and Officer of the Corporation and solely because of being a Director and Officer. The payments which the Corporation will be obligated to make hereunder shall include, INTER ALIA, damages, judgments, settlements and costs, cost of investigation (excluding salaries of officers or employees of the Corporation) and costs of defense of legal actions, claims or proceedings and appeals therefrom, and costs of attachment or similar bonds; provided however, that the Corporation shall not be obligated to pay fines or other obligations or fees imposed by law or otherwise make any payments hereunder which it is prohibited by applicable law from paying as indemnity or for any other reason. 2. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within 90 days after a written claim has been received by the Corporation, the claimant may at anytime thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, the claimant also shall be entitled to be paid the expense of prosecuting such claim. 3. In the event of payment under this Agreement, the Corporation shall be surrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary or appropriate to secure such rights, including the execution of such documents necessary or appropriate to enable the Corporation effectively to bring suit to enforce such rights. 55 4. The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against the Agent: (a) for which payment is actually made to the Agent under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; (b) for which the Agent is entitled to indemnity and/or payment by reason of having given notice of any circumstance which might give rise to a claim under any policy of insurance, the terms of which have expired prior to the effective date of this Agreement; (c) for which the Agent is indemnified by the Corporation otherwise than pursuant to this Agreement; (d) based upon or attributed to the Agent gaining in fact any personal profit or advantage to which the Agent was not legally entitled; (e) for an accounting of profits made from the purchase or sale by the Agent of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory law or common law; or (f) brought about or contributed to by the dishonesty of the Agent seeking payment hereunder; however, notwithstanding the foregoing, the Agent shall be protected under this Agreement to the fullest extent permitted under law as to any claims upon which suit may be brought against the Agent by reason of any alleged dishonesty on his part, unless a judgment or other final adjudication thereof adverse to the Agent shall establish that the Agent committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated. 5. No costs, charges or expenses for which indemnity shall be sought hereunder shall be incurred without the Corporation's consent, which shall not be unreasonably withheld. 6. The Agent, as a condition precedent to indemnification under this Agreement, shall give to the Corporation notice in writing as soon as practicable of any claim made against the Agent for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to INNOSERV Technologies, Inc., 320 Westway, Suite 520, Arlington, Texas 76018, Attention: President and Chief Executive Officer (or such other address as the Corporation shall designate in writing to the Agent); notice shall be deemed received I sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, the Agent shall give the Corporation such information and cooperation as it may reasonably require and as shall be within the Agent's power. 56 7. Costs and expenses (including attorneys' fees) incurred by the Agent in defending or investigating any action, suit, proceeding or investigation shall be paid by the Corporation in advance of the final disposition of such matter, if the Agent shall undertake in writing to repay any such advances in he event that it is ultimately determined that the Agent is not entitled to indemnification under the terms of this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, no advance shall be made by the Corporation if a determination is reasonable and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel, that, based upon the facts known to the Board of Directors or counsel at the time such determination is made, (a) the Agent acted in bad faith or deliberately breached his duty to the Corporation or its stockholders, and (b) as a result of such actions by the Agent, it is more likely than not that it will ultimately be determined that the Agent is not entitled to indemnification under the terms of this Agreement. 8. Nothing herein shall be deemed to diminish or otherwise restrict the Agent's right to indemnification under any provision of the articles of incorporation or bylaws of the Corporation or under California law. 9. This Agreement shall be governed by and construed in accordance with in internal laws of the State of California. 10. This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall and inure to the benefit of the heirs, personal representatives and estate of the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first written. INNOSERV TECHNOLOGIES, INC. By: /s/ Samuel Salen ------------------------------ Title: Vice Chairman AGENT: /s/ Michael G. Puls --------------------------------- Michael G. Puls, CEO 57 EX-10.7 8 EXHIBIT 10.7 Exhibit 10.7 INDEMNITY AGREEMENT This Indemnity Agreement ("Agreement") is made and entered into as of the 25th day of January, 1996, by and between INNOSERV Technologies, Inc. - Registered Trademark-, a California corporation (the "Corporation"), and Thomas E. Hoefert (the "Agent"). WHEREAS, the Agent is currently serving as an Officer of the Corporation and the Corporation wishes the Agent to continue in such capacity; NOW, THEREFORE, in consideration of the foregoing recital and the mutual agreements set forth herein, and in order to induce the Agent to continue to serve as an Officer of the Corporation and in consideration of his continued service, the parties hereto hereby agree as follows: 1. The corporation will pay on behalf of the Agent, and his executors, administrators or assigns, any amount which the Agent is or becomes legally obligated to pay in connection with any claim or claims made against the Agent because of any act or omission or neglect or breach of duty, including any actual or alleged error or misstatement or misleading statement, which the Agent commits or suffers while acting in his capacity as an Officer of the Corporation and solely because of being an Officer. The payments which the Corporation will be obligated to make hereunder shall include, INTER ALIA, damages, judgments, settlements and costs, cost of investigation (excluding salaries of officers or employees of the Corporation) and costs of defense of legal actions, claims or proceedings and appeals therefrom, and costs of attachment or similar bonds; provided however, that the Corporation shall not be obligated to pay fines or other obligations or fees imposed by law or otherwise make any payments hereunder which it is prohibited by applicable law from paying as indemnity or for any other reason. 2. If a claim under this Agreement is not paid by the Corporation, or on its behalf, within 90 days after a written claim has been received by the Corporation, the claimant may at anytime thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, the claimant also shall be entitled to be paid the expense of prosecuting such claim. 3. In the event of payment under this Agreement, the Corporation shall be surrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary or appropriate to secure such rights, including the execution of such documents necessary or appropriate to enable the Corporation effectively to bring suit to enforce such rights. 4. The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against the Agent: 58 (a) for which payment is actually made to the Agent under a valid and collectible insurance policy, except in respect of any excess beyond the amount of payment under such insurance; (b) for which the Agent is entitled to indemnity and/or payment by reason of having given notice of any circumstance which might give rise to a claim under any policy of insurance, the terms of which have expired prior to the effective date of this Agreement; (c) for which the Agent is indemnified by the Corporation otherwise than pursuant to this Agreement; (d) based upon or attributed to the Agent gaining in fact any personal profit or advantage to which the Agent was not legally entitled; (e) for an accounting of profits made from the purchase or sale by the Agent of securities of the Corporation within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state statutory law or common law; or (f) brought about or contributed to by the dishonesty of the Agent seeking payment hereunder; however, notwithstanding the foregoing, the Agent shall be protected under this Agreement to the fullest extent permitted under law as to any claims upon which suit may be brought against the Agent by reason of any alleged dishonesty n his part, unless a judgment or other final adjudication thereof adverse to the Agent shall establish that the Agent committed acts of active and deliberate dishonesty with actual dishonest purpose and intent, which acts were material to the cause of action so adjudicated. 5. No costs, charges or expenses for which indemnity shall be sought hereunder shall be incurred without the Corporation's consent, which shall not be unreasonably withheld. 6. The Agent, as a condition precedent to indemnification under this Agreement, shall give to the Corporation notice in writing as soon as practicable of any claim made against the Agent for which indemnity will or could be sought under this Agreement. Notice to the Corporation shall be directed to INNOSERV Technologies, Inc., 320 Westway, Suite 520, Arlington, Texas 76018, Attention: President and Chief Executive Officer (or such other address as the Corporation shall designate in writing to the Agent); notice shall be deemed received I sent by prepaid mail properly addressed, the date of such notice being the date postmarked. In addition, the Agent shall give the Corporation such information and cooperation as it may reasonably require and as shall be within the Agent's power. 7. Costs and expenses (including attorneys' fees) incurred by the Agent in defending or investigating any action, suit, proceeding or 59 investigation shall be paid by the Corporation in advance of the final disposition of such matter, if the Agent shall undertake in writing to repay any such advances in he event that it is ultimately determined that the Agent is not entitled to indemnification under the terms of this Agreement. Notwithstanding the foregoing or any other provision of this Agreement, no advance shall be made by the Corporation if a determination is reasonable and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel, that, based upon the facts known to the Board of Directors or counsel at the time such determination is made, (a) the Agent acted in bad faith or deliberately breached his duty to the Corporation or its stockholders, and (b) as a result of such actions by the Agent, it is more likely than not that it will ultimately be determined that the Agent is not entitled to indemnification under the terms of this Agreement. 8. Nothing herein shall be deemed to diminish or otherwise restrict the Agent's right to indemnification under any provision of the articles of incorporation or bylaws of the Corporation or under California law. 9. This Agreement shall be governed by and construed in accordance with in internal laws of the State of California. 10. This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall and inure to the benefit of the heirs, personal representatives and estate of the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first written. INNOSERV TECHNOLOGIES, INC. By: /s/ Samuel Salen ------------------------------- Title: Vice Chairman AGENT: /s/ Thomas Hoefert ------------------------------- Thomas E. Hoefert, CFO 60 EX-11.1 9 EXHIBIT 11.1 EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS ($000's, except per share data)
Three Months Ended Nine Months Ended ------------------------------ ----------------------------- January 31, January 27, January 31, January 27, 1996 1995 1996 1995 ------------------------------ ----------------------------- PRIMARY Average shares outstanding 5,036 5,058 5,036 4,340 Net effect of dilutive stock options, based upon the treasury stock method using average market price 1 -- 1 -- ----------------------------- ---------------------------- Total 5,037 5,058 5,037 4,340 ----------------------------- ---------------------------- ----------------------------- ---------------------------- Net income (loss) $ (540) $ 121 $ (469) $(1,027) ----------------------------- ---------------------------- ----------------------------- ---------------------------- Per share amount $ (.11) $ .02 $ (.09) $ (.24) ----------------------------- ---------------------------- ----------------------------- ---------------------------- FULLY DILUTED Average shares outstanding 5,036 5,058 5,036 4,340 Net effect of dilutive stock options, based upon the treasury stock method using closing market price 3 -- 3 -- ----------------------------- ---------------------------- Total 5,039 5,058 5,039 4,340 ----------------------------- ---------------------------- ----------------------------- ---------------------------- Net income (loss) $ (540) $ 121 $ (469) $(1,027) ----------------------------- ---------------------------- ----------------------------- ---------------------------- Per share amount $ (.11) $ .02 $ (.09) $ (.24) ----------------------------- ---------------------------- ----------------------------- ----------------------------
61 EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS APR-30-1996 NOV-01-1995 JAN-31-1996 612 0 7,784 1,518 10,095 18,846 28,853 23,143 32,022 14,325 1,010 0 0 51 16,636 32,022 911 11,062 691 9,263 2,684 31 (10) (902) (362) (540) 0 0 0 (540) (.11) (.11)
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