-----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, D7YtNmhiRaBZFJ47WGkJb2WfjgPIO/dycfiuodH1Hvzp9n5i7bKOSOlBsNzl5CGA VMcN2CfC7vwIke4hnblLww== 0000795551-96-000002.txt : 19960329 0000795551-96-000002.hdr.sgml : 19960329 ACCESSION NUMBER: 0000795551-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERAGENICS CORP CENTRAL INDEX KEY: 0000795551 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 581528626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15443 FILM NUMBER: 96539807 BUSINESS ADDRESS: STREET 1: 5325 OAKBROOK PKWY CITY: NORCROSS STATE: GA ZIP: 30093 BUSINESS PHONE: 7703818338 MAIL ADDRESS: STREET 1: 5325 OAKBROOD PKWY CITY: NORCROSS STATE: GA ZIP: 30093 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission File No. 0-15443 December 31, 1995 THERAGENICS CORPORATION (Exact name of registrant as specified in its charter) Delaware 58-1528626 (State of incorporation) (I.R.S. Employer Identification Number) 5325 Oakbrook Parkway Norcross, Georgia 30093 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(770) 381-8338 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Title of Class Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of March 20, 1996, the aggregate market value of the common stock of the registrant held by non-affiliates of the registrant, as determined by reference to the average of the closing price of the common stock as reported by the National Association of Securities Dealers Automated Quotation National Market system, was $90,601,512.75. As of March 20, 1996, the number of shares of common stock, $.01 par value, outstanding was 11,504,954. Part I Item 1. Business Theragenics Corporation ("Theragenics" or the "Company") was incorporated in November 1981 to commercially engage in the development, manufacture, and marketing of therapeutic radiological pharmaceuticals and devices for use primarily in the treatment of cancer. The Company's products are intended to permit a physician to introduce short-range, short-lived radioactive material directly into cancerous tissue, thereby concentrating the impact of the radiation on the cancerous tissue to be destroyed while minimizing the effect on surrounding healthy tissue. To date the Company has internally developed two products - TheraSeed, a radioactive implant designed for the treatment of localized tumors, and TheraSphere, radioactive microspheres for the treatment of liver cancer. TheraSeed is being commercially distributed in the United States while TheraSphere is being commercially distributed in Canada. General The conventional treatments for cancer to date have been surgery, radiation and chemotherapy. The treatments which have been most successful are those which remove or kill all of the cancerous tissue while avoiding excessive damage to the surrounding healthy, normal tissue. When the cancerous tissue cannot be completely removed or killed, the cancer usually returns to the primary site often with metastases to other areas. The Company's products are intended to permit a physician to place short-range, short-lived radioactive material near or into a cancerous tumor, thereby concentrating the impact of the radiation on the cancerous tissue to be destroyed. The Company's products are most effective on encapsulated, confined tumors. Each of the Company's products is based on established physical principles and has the simple objective of delivering sufficient radiation to the target cancer to kill it while minimizing the radiation to surrounding tissue. Products TheraSeed, radioactive "seeds" approximately the size of a grain of rice which are implanted directly into a tumor, is presently marketed in the United States. TheraSphere, microscopic radioactive glass spheres used to treat liver cancer, is presently marketed in Canada by Nordion International Inc. ("Nordion") under sublicense from Theragenics. Additionally, Theragenics has granted to Nordion an exclusive worldwide sublicense to manufacture, distribute and sell Page 2 TheraSphere for any application. Palladium-103 ("Palladium" or "Pd-103") is the radioactive isotope providing the therapeutic benefit in the Company's TheraSeed product. The Company will be exploring and investigating opportunities to use this isotope in other potential products as they are identified. TheraSeed Implants Prostate cancer is expected to strike 317,100 men in the United States in 1996. The National Cancer Institute estimates that one in three men over 50 years of age have microscopic cancer of the prostate. This ratio is greater than the odds (one in eight, as estimated by the American Cancer Society) for a woman getting breast cancer. A projected 41,400 men in the United States will die of this disease in 1996. Not including experimental treatment options, treatments for prostate cancer include prostatectomy (surgical removal of the prostate gland), external beam radiation, radioactive implants, watchful waiting, hormone manipulation and castration. Not all of these treatments are for early stage disease. The Company's TheraSeed product is usually classified as a treatment for early stage disease. TheraSeed is best suited for solid localized tumors. To date the most prevalent use of TheraSeed has been in the treatment of prostate cancer, although it has been used to treat cancers of the pancreas, lung, head and neck, oral cavity, base of the skull, brain and eye. Treatment of early stage prostate cancer with TheraSeed is a one-time, minimally-invasive technique, usually performed under local anesthesia in an outpatient setting. The seeds are loaded into long hollow needles which are inserted through the perineum and into the prostate gland. This procedure is facilitated by the recent developments of imaging equipment such as CT scanning or transrectal ultrasound. While visualizing the gland, the physician can facilitate placement of the seeds allowing for a homogeneous distribution of the radiation. While providing equivalent success rates to external beam radiation and surgery, TheraSeed offers the advantage of a much lower incidence of impotence and incontinence. Because no major surgery is involved, many TheraSeed patients are up and around within 48 to 72 hours, compared to recovery periods as long as four to six weeks for radical surgery. TheraSeed treatment also offers a cost advantage to the patient (or insurance company) over both surgery and external beam radiation. Cost of the TheraSeed procedure is about one-half of the cost of surgical removal and two-thirds that of external radiation. TheraSeed does not represent the only currently available radioactive isotope for cancer treatment, but does offer a much Page 3 shorter half-life and a significantly greater dose rate when compared to other isotopes. It is an objective of the Company to explore and develop other potential uses for TheraSeed in addition to the treatment of prostate cancer whether oncological or non-oncological in application. Theragenics hopes to identify and pursue opportunities for TheraSeed use either through internal resources or partnering where significant synergies can be exploited. TheraSphere Liver cancer, either primary or secondary to colorectal cancer, incidence has changed very little from 1995 when it was expected to afflict approximately 5,200 Canadians and approximately ten times as many Americans. Associated deaths were estimated at approximately 4,200 Canadians and 43,000 Americans in 1995. Management estimates these North American statistics represent about one-third of the world wide incidence of primary liver cancer and liver cancer secondary to colorectal cancer in areas which would present marketing opportunities to the Company. From the point of diagnosis the average survival time for a liver cancer patient using conventional therapies is one year. TheraSphere is used to treat both primary liver cancer and secondary liver cancer in cases where the primary cancer has been or can be arrested. Before the Canadian approval of TheraSphere, treatments for liver cancer were primarily limited to surgery, external radiation, and chemotherapy. Unfortunately surgery is indicated for only 25% of the cases mentioned above and only 25% of that number live for five years or more. External beam radiation has the drawback that the amount of radiation deliverable to the liver tumor is limited by the damage that can be done to healthy liver tissue as radiation passes from outside of the body to the tumor. Finally, chemotherapy, which is the indicated treatment for the majority of liver cancer patients, offers life extension (usually measured in months) but not without the nausea and other side effects commonly associated with it. Also, chemotherapy must be administered in a number of treatments over an extended period of time. A TheraSphere treatment dose (less than one-tenth of a teaspoonful of material) contains approximately five million yttrium-90 glass spheres which are each about half the diameter of a human hair. Here again as in the TheraSeed treatment, the key to effectiveness lies in the ability to get the radiation dose in closest proximity to the tumor in order to sufficiently irradiate the cancerous tissue while leaving healthy tissue unaffected. This is done by inserting a catheter into the hepatic artery which carries arterial blood to the liver and injecting the TheraSphere microspheres into this bloodstream. Because of Page 4 greater blood flow to tumors compared to healthy liver tissue, the microspheres concentrate in the capillaries feeding the tumor. The concentration of microspheres in healthy tissue is much lower. Because of the ability to place the radiation source in such close proximity to the tumor, TheraSphere can deliver a radiation dose to the tumor cells five-times as strong as that which can be delivered via external beam radiation. Although it is impossible to predict the number of liver cancer patients who might benefit from treatment with TheraSphere, the Company estimates that approximately 50% of the liver cancer patients identified above could be candidates for treatment with TheraSphere. Based on clinical data, TheraSphere offers life extension similar to the data for chemotherapy while producing less severe side effects. TheraSphere has the additional advantage of requiring only a single treatment. A series of chemotherapy treatments equivalent to a single TheraSphere treatment would cost $8,000 to $12,000 per patient. Production TheraSeed Implants The Company's TheraSeed devices have substantially the same external envelopes as other seeds in use today and thus supplies of the external envelope are readily available. The production of TheraSeed is dependent upon the availability of Pd-103. In January 1993, Theragenics completed construction of a manufacturing facility to house its first cyclotron. This cyclotron produces Pd-103 and ended the Company's dependence on unreliable outside vendors. In February 1995, a second cyclotron and a facility addition to house the cyclotron were completed. As reported in Theragenics' Form 8-K dated June 29, 1995, the Company entered into two agreements dated June 29 ,1995, each for the purchase of one cyclotron. These third and fourth cyclotrons are expected to be put into service in the late third quarter of 1996 and the mid to late first quarter of 1997, respectively. Cyclotron operations constitute only one component of the TheraSeed manufacturing processes performed at the Buford and Norcross facilities. Significant attention and effort are being focused on improving all aspects of the Company's manufacturing processes with the goal to improve efficiency and provide additional capacity for TheraSeed. Long lead-times (in excess of 18 months) associated with the purchase of a cyclotron and the specially designed facilities to house the equipment creates suboptimal conditions requiring order of this equipment long in advance of its need. This lead-time factor naturally places additional burden on the Company's ability to accurately forecast sales growth. Also at issue is the fact that very rapid sales growth may necessitate multiple purchases of equipment which would then place strain on the Company's ability to finance this type of growth. It is anticipated that if TheraSeed demand continues to expand rapidly, additional cyclotrons will be Page 5 ordered. TheraSphere Production of TheraSphere requires the services of a number of outside vendors - all of which provide services which can be provided through alternative sources. Theragenics, through its exclusive worldwide sublicense of the TheraSphere product to Nordion, has given Nordion worldwide manufacturing responsibility for the product. Marketing TheraSeed Implants Increased awareness of the TheraSeed product is the primary focus of Theragenics' Marketing program. In June of 1994, results of a five-year clinical study conducted by Dr. John Blasko, Director of the Northwest Tumor Institute in Seattle, Washington, showed seed therapy to be comparable if not superior to surgery or external beam radiation for early stage prostate cancer. In 1995 Theragenics continued its work to see that this data was available to the medical and lay communities. Theragenics continues to support the expansion of this study. The Company continues to distribute patient information booklets to physician customers, patient support groups and any person calling the Company's Cancer Information Center. In 1995, marketing efforts increased dramatically. A higher volume of advertising placements aimed at men over the age of 50 and retirement communities yielded significant benefits as indicated by increased sales and increased calls to the Company's Cancer Information Center. Theragenics continues to support the writing of scholarly articles by doctors using TheraSeed and the placement of these articles in prestigious medical journals. Attendance at small and large meetings of medical clinicians remains a top priority as physician acceptance continues to grow. The Company is pleased that it was able to play a part in providing more equitable Medicare reimbursement for urologists and radiation oncologists who perform the seed implant procedure. TheraSphere The Company does not directly market its TheraSphere product. Under a manufacturing and marketing licensing agreement with Nordion International, Inc. ("Nordion"), a Canadian company, Nordion has the right to produce and market the TheraSphere Page 6 product worldwide for all applications. Also under the agreement, Nordion has substantially all responsibility for seeking regulatory approval of the product in the United States and other countries as it chooses. Nordion is a leading worldwide producer, marketer and supplier of radioisotope products and related equipment. Under a prior licensing agreement, Nordion has distributed the TheraSphere product in Canada since 1991. Patents and Licenses TheraSeed Implants Theragenics holds patents for certain TheraSeed technologies in the United States, Canada, South Africa, Japan and the ten countries of the European patent convention. Theragenics also holds patents in the United States and South Africa for additional TheraSeed technologies and has a PCT patent application on file for Japan, Australia, New Zealand, Canada, and Europe (representing 16 European countries) as well as a direct filing in Mexico. TheraSphere The Company holds a worldwide exclusive license from the University of Missouri for the use of technology required for producing TheraSphere. Theragenics also holds the rights to all improvements developed by the University of Missouri on this technology. The Company, in turn, sublicenses exclusive worldwide rights to this technology and all improvements to Nordion International. The University of Missouri holds patents for the TheraSphere technology in several countries including the United States, Canada, Australia, South Africa, Japan and the ten countries of the European patent convention. Pursuant to its license agreement with the University of Missouri, the Company is obligated to pay the University the greater of a fixed annual amount or a percentage of the gross sales amount derived from the sale of TheraSphere. Theragenics holds patents for technology concerning methods for delivery of the product in several countries including the United States, Canada, Australia, Argentina, South Africa and the ten countries of the European patent convention and has patent applications on file in other countries including Japan. The Company licenses this technology to Nordion for worldwide use. Other Theragenics holds patents related to another product used in the treatment of brain cancer. Because of the significant investment required and the uncertain return, this product is not being commercially developed by Theragenics. Therefore, the Company is unable to determine the value of these patents, if any. Page 7 The Company may file additional patent applications from time-to-time and considers the ownership of patents important, but not necessarily essential, to its operations. In general, the Company will rely upon its personnel, trade secrets, and its products' current position in a highly regulated industry, as well as patent protection, to establish barriers-to-entry and to maintain its industry position. It is possible that others may independently develop similar technology or otherwise obtain access to the Company's know-how. It is not certain that any patents which may be granted to the Company will be valid and enforceable or will withstand a challenge by litigation. Competition In general, competition to TheraSeed stems from conventional methods of treating localized cancer such as surgery, chemotherapy, and external beam radiation. Presently, surgery and external beam radiation comprise the vast majority of the prostate cancer treatment market, and those methods are viewed as Theragenics' main competition. In addition, Iodine (I-125) ("Iodine") is commercially available as a permanent implant and also competes with TheraSeed. However, TheraSeed utilizes Palladium-103 (Pd-103) ("Palladium") as the isotope for its permanent implant whose properties are very different from Iodine. Iodine's dose rate is one-third that of Palladium and its half-life is three times longer than Palladium's. Such properties represent competitive advantages for Palladium in treating certain kinds of cancer. The Company is aware of no other similar radioactive products competing directly with TheraSeed. Theragenics is the only company in the world, known to management, that commercially produces Pd-103. Liver Cancer, which TheraSphere treats, can also be treated by surgery, external beam radiation, and chemotherapy. TheraSphere does not represent a cure for liver cancer but has been shown to prolong life expectancy of the patient and enhance the quality of life during that period. Theragenics is not aware of any other implant available for this type treatment. There are many companies, both public and private, engaged in research on new and innovative methods of treating cancer. Also, there are many companies both public and private, including many large, well-known pharmaceutical, medical and chemical companies, engaged in radiological pharmaceutical and device research. Significant developments by any of these companies could lessen or eliminate the demand for any or all of the Company's products. Governmental Regulation The Company's present and intended future activities in the development, manufacture and sale of cancer therapy products are Page 8 subject to various laws and regulations, regulatory approvals and guidelines. Within the U.S., the Company's therapeutic radiological devices must comply with the United States Federal Food, Drug and Cosmetic Act which is enforced by the Food and Drug Administration (FDA). The Company's handling of radioactive materials is governed by the state of Georgia in agreement with the Nuclear Regulatory Commission of the United States Government. TheraSeed has regulatory approval for commercial distribution in the United States and Canada, while TheraSphere has regulatory approval for commercial distribution only in Canada. The Company to the best of its knowledge is in compliance with all its licenses for handling radioactive material. The effect of various governments' regulations can delay the marketing of products for a considerable period of time or impose costly procedures upon the Company's activities. The Company is not currently conducting any clinical trial of TheraSphere; but under the terms of the current licensing agreement with Theragenics, Nordion will attempt to obtain regulatory approvals in the United States, Europe, and other areas of the world at its expense and discretion. Regulatory approval of the TheraSphere product has been granted in Canada and the product is presently being marketed in that jurisdiction by Nordion. Most countries require approval for the sale of pharmaceuticals and medical devices. These approvals are time-consuming and expensive and can delay or discourage the marketing and development of a company's products in those areas. Employees As of March 20, 1996, the Company had 44 full-time employees (including executive personnel). Of this total, twenty-eight are engaged in development and/or production of the Company's products. The balance of the Company's employees is engaged in marketing and general corporate activities. The Company's ability to market its products and services, to develop marketable products and to establish and then maintain its competitive position in light of technological developments will depend, to a significant extent, upon its ability to attract and retain qualified personnel. In recognition of this, the Company has granted many of its employees stock options which are contingent on their continued employment. Competition for such personnel is, and should continue to be, intense. Item 2. Properties The Company owns a 10,500 square foot, single story, Page 9 prefabricated building in Buford, Georgia, leases a 10,752 square foot, single story, brick building in Norcross, Georgia and leases a 2,692 square foot, suite of offices in a four-story office building in Norcross, Georgia. The 10,752 square foot Norcross facility houses the Company's assembly, shipping, marketing and administrative operations. The 2,692 square foot Norcross facility provides executive office space while the Buford facility houses the Company's two cyclotrons and its raw material processing operations. The Buford facility is currently being expanded to house two additional cyclotrons. It is anticipated that the Buford facility and neighboring land will provide the core for expansion as manufacturing expands to meet increasing sales demand and will eventually be expanded to include all functions currently housed in the leased Norcross facility. Item 3. Legal Proceedings There are currently no material legal proceedings pending or, to the knowledge of the Company, threatened against the Company. Item 4. Submission of Matters to a Vote of Security Holders The Company did not submit any matter to a vote of its security holders during the fourth quarter of calendar 1995. Page 10 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock is traded over the counter and reported on the National Association of Securities Dealers Automated Quotation ("NASDAQ") National Market System. The trading symbol for the Company's Common Stock is "THRX." The high and low prices as reported by NASDAQ for the Company's Common Stock for each quarterly period in 1994 and 1995 are as follows:
1994 High Low 1st Quarter ................ 4 3/8 3 1/4 2nd Quarter ................ 4 3/4 3 1/2 3rd Quarter ................ 4 5/8 3 3/8 4th Quarter ................ 3 7/8 2 1/4 1995 1st Quarter ................ 3 3/4 2 1/4 2nd Quarter ................ 6 1/2 3 1/8 3rd Quarter ................ 6 3/8 4 7/8 4th Quarter ................ 12 1/2 4 7/8
As of March 20, 1996, the closing price of the Company's Common Stock was $7-7/8 per share. Also, as of that date, there were approximately 681 holders of record of the Company's Common Stock. The number of record holders does not reflect the number of beneficial owners of the Company's Common Stock for whom shares are held by depositary trust companies, brokerage firms and others. Dividend Policy The Company has not paid cash dividends in the past and does not currently plan to do so. It is the present policy of the Company's Board of Directors to retain future earnings to finance the growth and development of the Company's business. Any change in current policy will depend upon the financial condition, capital requirements and earnings of the Company as well as other factors which the Board of Directors may deem relevant. Page 11 Item 6. Selected Financial Data Set forth below are selected financial data derived from the statements of operations of the Company for the years ended December 31, 1991, 1992, 1993, 1994 and 1995 and the balance sheets of the Company at December 31, 1991, 1992, 1993, 1994 and 1995.
For the Fiscal Years Ended December 31, 1991 1992 1993 1994 1995 Net sales $2,469,413 $4,379,300 $4,090,803 $4,723,107 $7,781,962 Licensing Fee 300,000 - - - 85,431 Costs and expenses: Cost of sales 818,184 1,227,154 1,677,631 1,790,450 2,645,730 Selling, general and administrative 1,254,821 1,639,334 1,607,288 1,844,239 2,395,846 Research and development 84,903 62,632 36,181 15,268 17,954 Other income (expense) 113,865 67,831 (85,959) 110,215 64,462 Taxes 280,000 582,000 254,000 453,000 1,100,000 Net profit/(loss) before extraordinary credit and change in accounting method 445,370 936,011 429,744 730,365 1,772,325 Extraordinary credit 270,000 556,000 - - - Change in accounting method - - 2,860,000 - - Net profit/(loss) 715,370 1,492,011 3,289,744 730,365 1,772,325 Net profit/(loss) per common share before extraordinary credit and change in accounting method .04 .08 .04 .06 .15 Net profit/(loss) per common share .07 .13 .28 .06 .15 Weighted average number of common shares outstanding 10,759,230 11,431,149 11,709,218 11,582,793 11,759,178 Total assets $3,299,375 $7,851,056 $12,618,869 $14,168,658 $16,878,182 Page 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Company's financial condition, results of operations and liquidity is intended to clarify and highlight the Company's operating trends, liquidity and capital resources. It should be read in conjunction with the financial statements and related notes contained in the financial section of this Report. RESULTS OF OPERATIONS 1995 Compared to 1994 1995 Revenues - With increased production capacity, consistent supply of product, enhanced marketing programs and favorable clinical data, 1995 revenues increased substantially (66.6%) to $7.9 million versus $4.7 million in 1994. Along with the factors already noted, increased acceptance of its prostate cancer treatment in the medical community and increased public awareness of the medical advantages of the TheraSeed treatment method versus other existing methods of treating prostate cancer were major factors in driving the substantial sales increase. Additionally, the Company believes sales were positively affected in 1995 by further publication of supportive data from the clinical study of patients treated with TheraSeed. This study had shown no local recurrence of prostate cancer and low rates of incontinence and impotence within the study group. 1995 Costs and Expenses - As a result of the increase in sales, cost of sales rose. However, cost of sales as a percent of sales fell to 34% versus 38% in 1994. This percentage improvement was primarily attributable to increased utilization of production capacity and economics of scale partially offset by increased depreciation. Although management believes that cost of sales as a percentage of revenue may continue to decline should sales in future periods exceed those achieved in 1995, no assurances can be given with respect to the operating margins in future periods. In particular, continued improvements in manufacturing operations and optimization of the production process may cause smaller improvements in net margin. Selling, General and Administrative ("SG&A") expenses also increased in dollar amount but declined as a percent to sales in 1995 to 30% versus 39% in 1994. In particular, advertising and public relations expenses increased significantly from 1994 to 1995 to support activities associated with increased sales. Also, headcount expenses increased in response to the additional workload created by the higher sales. The addition of a cyclotron and facilities caused depreciation and amortization to increase 45$ or $828,000 from 1994 to 1995. Page 13 Operating margins increased to 36% in 1995 versus 23% in 1994 due to increased sales and a reduction in SG&A expenses as a percent of sales reflecting efficiency gains from increased volumes. Other income and expense was slightly higher in 1995 versus 1994 due to a lower level of construction in progress in 1995 that, in turn, limited the amount of interest expense capitalizable. 1995 Earnings - Earnings increased more than 142% to $1,772,000 or $.15 per share in 1995 from 1994's earnings of $730,000 or $.06 per share. Such increase again was primarily due to increased sales and a reduction in SG&A expenses as a percent of sales reflecting efficiency gains from increased volumes. At December 31, 1995, the Company's deferred tax asset balance was $1,810,000. Since emerging from its development stage in 1989, the Company has utilized approximately $3,900,000 of operating loss carryforwards through December 31, 1995 and has achieved twenty consecutive profitable quarters since 1991. To realize income benefit from its remaining operating loss carryforwards at December 31, 1995, it will be necessary for the Company to generate future taxable income of approximately $5,900,000, prior to the expiration of the operating loss carryforward periods. Based on the Company's results of operations subsequent to receiving FDA clearance in 1986 for its product, and on expected future results of operations, management currently strongly believes these net operating loss carryforwards will be fully utilized prior to their statutory expiration. Historical Comparison 1994 Revenues - 1994 revenues increased more than 15% to $4.7 million versus $4.1 million for 1993. In 1994, Theragenics emerged from a two year manufacturing changeover that distanced the Company from unreliable outside vendors. As the Company's experience with cyclotron operations and subsequent radioactive processes grew, the realities of these operations became clear. No single cyclotron can be expected to run at full power for 52 weeks a year. In addition to the need for regular maintenance, these operations require a "cool down" period before maintenance can be performed. These "cool down" periods are imperative as safety of the Company's employees (i.e., minimizing radiation exposure) is among the Company's highest priorities. During the first part of 1994, production dependability of the #1 cyclotron dictated the pace of sales growth. Once consistent supply was demonstrated, the Company began reclaiming marketing momentum. Fueling this momentum were favorable five-year clinical data (July 1994) and the dedication of Page 14 additional financial resources to marketing. 1994 Costs and Expenses - As a result of the increase in sales, cost of sales rose. However, cost of sales as a percent of sales fell from 41% in 1993 to 38% in 1994. This decrease in percent of cost of sales to sales reflected the economies of scale associated with the large fixed cost component of the Company's expense base. Selling, General and Administrative ("SG&A") expenses increased more than would have been expected if operations had continued under the same structure as existed in 1993. Changes were made in the advertising, public relations and investor relations areas in 1994 which increased SG&A costs. These changes proved to have significant success in increasing sales and investor awareness. Other income and expense improved by $196,000 due to reduced interest expense. Both the higher level of construction in progress in 1994 that increased the amount of interest expense capitalizable and the replacement of an existing loan at 10.25% interest with a new loan at 8.47% were the causes of this reduced interest expense. 1994 Earnings - In 1994, the Company recorded a net profit of $730,000 or $.06 per share. In 1993, the Company recorded a net profit of $3,290,000, or $.28 per share. Included in the 1993 profit number is a one-time positive earnings adjustment of $2,860,000, or $.24 per share due to the mandated implementation of FASB-109, "Accounting for Income Taxes." This booking which appears on the balance sheet as an asset titled "Deferred Income Tax Asset" primarily represents the tax benefit which arises from the carryforward of prior years' operating losses. Because of the differing accounting principles applied between years, to accurately compare results of 1994 and 1993 requires that "Net Earnings Before Cumulative Effect of Change in Accounting Principle" be the basis for comparison. Using this method, 1994's earnings were $730,000, or $.06 per share and 1993's $430,000, or $.04 per share. LIQUIDITY AND CAPITAL RESOURCES Theragenics had cash, cash equivalents, short-term investments and marketable securities of $3.3 million at December 31, 1995, compared to $2.4 million at year end 1994 and $3.4 million at year end 1993. Cash flows from operating activities were $3.4 million in 1995 compared to $1.6 million in 1994 and $1.1 million in 1993. Capital spending was $2.4 million in 1995, $3.4 million in 1994 and $2.7 million in 1993. Spending in each of these years relates to construction of Theragenics' cyclotron facility. Page 15 Spending in 1993 primarily represented a continuation of payments began in 1992 for initial construction of the facility and the installation of the first cyclotron. Spending in 1994 primarily represented progress payments on a project to add a second cyclotron to the facility. This project began in 1993 and was completed in 1995. Spending in 1995 represents the beginning of a project to add cyclotrons three and four to the facility. The expansion project for addition of cyclotrons three and four which began in 1995 is estimated to cost approximately $9,000,000 when completed. As of February 15, 1996, approximately $3,000,000 has already been expended on this project with the remainder scheduled for expenditure before the second quarter of 1997. Management believes that funding for the remainder of this project should be available from current cash balances, cash from future operations and Theragenics' credit facility. In the last three years, the Company's working capital has been obtained from internally generated funds and borrowings from banks. Working capital totaled $3.7 million at December 31, 1995, including $500,000 representing the current portion of an outstanding long-term obligation. This compares to $2.5 million at year end 1994 which also included $500,000 representing the current portion of outstanding long-term obligations. In the first quarter of 1993, Theragenics received funding on a $1.9 million loan secured by the Company's cyclotron facility (the "1993 Term Loan"). The 1993 Term Loan was to mature in 1995 and bore interest at 10.25% per annum. In the third quarter of 1994, Theragenics received funding on a $2.1 million loan secured by the Company's cyclotron facility including a second cyclotron (the "1994 Term Loan"). The 1994 Term Loan matures in 1998 and bears interest at 8.47% per annum. Of the $2.1 million loan, $1.4 million was used to pay off the outstanding balance under the existing long-term financing while the remainder was used to provide partial financing for the purchase of the second cyclotron and the facility expansion to house it. As of December 31, 1995, $1,500,000 remained outstanding on the 1994 Term Loan. In December 1995, the Company amended and restated its other existing bank credit facility (the "Bank Credit Facility"). The Bank Credit Facility, as amended and restated, initially consisted of a $1 million receivables credit facility and an additional $2 million revolving credit facility. Based on the Company meeting specified financial thresholds, the Bank Credit Facility will be increased to $5,000,000 upon receipt by the bank of the Company's Form 10-K for the year ended December 31, 1995. Borrowings under the Bank Credit Facility are secured by substantially all of the Company's assets. The Bank Credit Facility contains certain covenants all of which the Company was in compliance with at year end. Borrowings under the Bank Credit Facility may be made, at the Company's option, at an interest rate equal to the London Interbank Offered Rate ("LIBOR") plus 2% or the lender's prime rate as defined. At year-end, $3,000,000 of the Bank Credit Facility was available but unused. Although internal forecasts had indicated that there would be a need to access the credit facility in the fourth quarter of 1995, strong Page 16 fourth quarter results did not require the Company to do so. Management believes that cash flow from operations, the availability of funds under its bank credit agreements and the availability of other forms of financing should permit the Company to meet its anticipated capital expenditures and working capital needs as well as to service its debt and fund future growth as new business opportunities arise. INFLATION AND CHANGING PRICES Management does not believe that inflation has had an abnormal or unanticipated effect on the Company's operations. Item 8. Financial Statements and Supplementary Data See Index to Financial Statements (page F-1) and following pages. Item 9. Disagreements on Accounting and Financial Disclosure Not Applicable PAge 17 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. a) The following documents are filed as part of this Report. 1. Financial Statements See index to financial statements on page F-1 2. Financial Schedules See the index to financial schedules on page G-1 3. Exhibits 3.1 - Certificate of Incorporation (1) 3.2 - Certificate of Amendment to Certificate of Incorporation (1) 3.3 - Certificate of Amendment to Certificate of Incorporation (1) 3.4 - By-Laws (1) 4.1 - See Exhibits 3.1 - 3.4 for provisions in the Company's Certificate of Incorporation and By-Laws defining the rights of holders of the Company's Common Stock. 4.2 - Form of Warrant issued to the Representatives of the Underwriters of the Company's Public Offering (1) 4.3 - Warrant Agreements dated May 1, 1989 between the Company and James Devas (4) 4.4 - Warrant Agreement dated May 8, 1993 between the Company and James Devas 10.1 - License Agreement with University of Missouri, as amended (1) 10.2 - Agreement with Atomic Energy of Canada, Ltd. (1) 10.3 - Reassignment and Release Agreement among the Company, John L. Russell, Jr., and Georgia Tech Research Institute (1) 10.4 - 1986 Incentive and Non-Incentive Stock Option Plan (1) 10.5 - Letter of Agreement between the Company and Yale-New Haven Hospital (2) 10.6 - Lease between the Company and T. Rowe Price Realty Income Fund II dated July 14, 1988(2) 10.7 - Form of Purchase Agreement between the Company and ten institutional investors (3) 10.8 - Form of Custody Agreement between the Company and IBJ Schroder Bank & Trust Company (3) 10.9 - 1990 Incentive and Non-Incentive Stock Option Plan (5) 10.10 - Employment Agreement of John V. Herndon dated June 4, 1990 (5) Page 18 10.11 - Employment Agreement of Bruce W. Smith (5) 10.12 - Purchase Agreement between Theragenics Corporation and Production Equipment Manufacturer (6) 10.13 - Term Loan and Security Agreement between Theragenics Corporation and Heller Financial, Inc. (7) 10.14 - Purchase Agreement between Theragenics Corporation and Production Equipment Manufacturer (8) 10.15 - Amendment to Purchase Agreement between Theragenics Corporation and Production Equipment Manufacturer (9) 10.16 - Employment Agreement of John V. Herndon dated August 1, 1993 (9) 10.17 - Employment Agreement of M. Christine Jacobs (9) 10.18 - Lease between the Company and T. Rowe Price Realty Income Fund II dated January 1, 1994 (9) 10.19 - Term Loan and Security Agreement between Theragenics Corporation and Bank South, N.A. (10) 10.20 - Agreement with Nordion International Inc. (11) 10.21 - Purchase Agreements between Theragenics Corporation and Production Equipment Manufacturer (12) 10.22 - Line of Credit Facility and Revolving Credit Facility between Theragenics Corporation and Bank South, N.A. 24.1 - Consent of Independent Public Accountants for Incorporation by Reference of Audit Statement into Registration Statement (1) Incorporated by reference to the exhibits filed with the Company's registration statement on Form S-1, File No. 33-7097, and post-effective amendments thereto. (2) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1988. (3) Incorporated by reference to the exhibits to the report on Form 10-Q for the period ended June 30, 1989. (4) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1989. (5) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1990. (6) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1991. (7) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1992. (8) Incorporated by reference to the exhibits to the report on Form 10-Q for the period ended June 30, 1993. Page 19 (9) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1993. (10) Incorporated by reference to the exhibits to the report on Form 10-K for the period ended December 31, 1994. (11) Incorporated by reference to the exhibits to the report on Form 8-K dated March 23, 1995. (12) Incorporated by reference to the exhibits to the report on Form 8-K dated June 29, 1995. (b) Reports on Form 8-K The Company filed a report on Form 8-K dated December 13, 1995, reporting the signing of an agreement for a Line of Credit Facility and Revolving Credit Facility between Theragenics Corporation and Bank South, N.A. Page 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THERAGENICS CORPORATION (Registrant) By:/s/ M. Christine Jacobs M. Christine Jacobs Chief Executive Officer Dated: March 27, 1996 Norcross, Georgia Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ M. Christine Jacobs Chief Executive Officer 3/27/96 M. Christine Jacobs (Principal Executive Officer); Director /s/ Bruce W. Smith Chief Financial Officer, 3/27/96 Bruce W. Smith Treasurer (Principal Financial Officer) and Secretary /s/ Charles Klimkowski Director, Chairman 3/27/96 Charles Klimkowski /s/ John V. Herndon Director 3/27/96 John V. Herndon /s/ Orwin L. Carter Director 3/27/96 Orwin L. Carter /s/ Peter A.A. Saunders Director 3/27/96 Peter A.A. Saunders /s/ Otis W. Brawley Director 3/27/96 Otis W. Brawley Page 21 THERAGENICS CORPORATION TABLE OF CONTENTS Page REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ................23 (For the periods ended December 31, 1993, 1994 and 1995) FINANCIAL STATEMENTS Balance Sheets - December 31, 1994 and 1995 .............24 Statements of Earnings for the Three Years Ended December 31, 1995 .......................................26 Statement of Shareholders' Equity for the Three Years Ended December 31, 1995 .................28 Statements of Cash Flows for the Three Years Ended December 31, 1995 .......................................29 NOTES TO FINANCIAL STATEMENTS ...........................32 Page 22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Theragenics Corporation We have audited the balance sheets of Theragenics Corporation (a Delaware corporation) as of December 31, 1994 and 1995, and the related statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Theragenics Corporation as of December 31, 1994 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As described in Note E, the Company changed its method of accounting for income taxes in 1993, as required by Statement of Financial Accounting Standards No. 109. GRANT THORNTON LLP Atlanta, Georgia January 17, 1996 Page 23
THERAGENICS CORPORATION BALANCE SHEETS DECEMBER 31 ASSETS 1994 1995 CURRENT ASSETS Cash and short-term investments (Note B-8) $ 2,317,463 $3,266,338 Marketable securities (Note B-9) 50,000 - Trade accounts receivable (Note B-2) 732,424 1,335,645 Inventories (Notes B-3 and C) 192,161 166,955 Prepaid expenses and other current assets 91,801 67,521 Total current assets 3,383,849 4,836,459 PROPERTY AND EQUIPMENT (Notes B-4 and F) Building and improvements 899,760 1,690,045 Leasehold improvement 138,978 138,978 Machinery and equipment 5,167,815 8,203,256 Office furniture and equipment 44,721 44,721 6,251,274 10,077,000 Less accumulated depreciation and amortization (1,445,206) (2,194,164) 4,806,068 7,882,836 Land 49,485 49,485 Construction in progress (Note D) 3,602,825 2,140,894 8,458,378 10,073,215 OTHER ASSETS Deferred tax asset (Note E) 2,179,000 1,810,000 Patent costs (Note B-5) 94,982 90,704 Other 52,449 67,804 2,326,431 1,968,508 $14,168,658 $16,878,182
Page 24
THERAGENICS CORPORATION BALANCE SHEETS (Continued) DECEMBER 31 LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1995 CURRENT LIABILITIES: Current portion of long-term debt (Note F) $ 469,765 $ 511,362 Trade accounts payable 226,209 348,191 Accrued salaries, wages, and payroll taxes 110,132 225,138 Income taxes payable (Note E) 113 3,255 Other current liabilities 33,036 12,680 Total current liabilities 839,255 1,100,626 LONG-TERM DEBT: (Note F) 1,519,354 1,008,135 COMMITMENTS AND CONTINGENCIES: (Note G) SHAREHOLDERS' EQUITY: (Note I) Common stock, authorized 50,000,000 shares of $.01 par value; issued and outstanding 10,961,887 in 1994 and 11,394,785 in 1995. 109,618 113,948 Additional paid-in capital 15,207,453 16,390,170 Accumulated deficit (3,507,022) (1,734,697) Total shareholders' equity 11,810,049 14,769,421 $14,168,658 $16,878,182
The accompanying notes are an integral part of these statements. Page 25
THERAGENICS CORPORATION STATEMENTS OF EARNINGS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 Year Ended December 31, 1993 1994 1995 REVENUES (Notes G and J) Product sales $ 4,090,803 $ 4,723,107 $ 7,781,962 Licensing fees - - 85,431 4,090,803 4,723,107 7,867,393 COSTS & EXPENSES: Cost of sales 1,677,631 1,790,450 2,645,730 Selling, general, and administrative 1,607,288 1,844,239 2,395,846 Research and development 36,181 15,268 17,954 3,321,100 3,649,957 5,059,530 OTHER INCOME (EXPENSE): Interest income 114,905 135,888 143,424 Interest expense (Note F) (195,035) - (51,967) Other (5,829) (25,673) (26,995) (85,959) 110,215 64,462 NET EARNINGS BEFORE INCOME TAXES, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 683,744 $ 1,183,365 $ 2,872,325 Income tax expense (Note E) 254,000 453,000 1,100,000 NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ 429,744 $ 730,365 $1,772,325 Cumulative effect on prior years of change in accounting for income taxes (Note E) 2,860,000 - - NET EARNINGS $ 3,289,744 $ 730,365 $ 1,772,325
Page 26
THERAGENICS CORPORATION STATEMENTS OF EARNINGS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 Year Ended December 31, 1993 1994 1995 NET EARNINGS PER COMMON SHARE (Note B-7) NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ .04 $ .06 $ .15 Cumulative effect on prior years of change in method of accounting for income taxes .24 - - NET EARNINGS PER COMMON SHARE $ .28 $ .06 $ .15 WEIGHTED AVERAGE SHARES 11,709,218 11,582,793 11,759,178
The accompanying notes are an integral part of these statements. Page 27
THERAGENICS CORPORATION STATEMENT OF SHAREHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1995 Common Stock Additional Number of Par value paid-in Accumulated shares $.01 capital deficit Total BALANCE, December 31, 1992 10,583,635 $105,836 $14,866,040 $(7,527,131) $ 7,444,745 Exercise of warrants 200,000 2,000 173,000 - 175,000 Exercise of stock options, net 129,302 1,293 122,902 - 124,195 Net earnings for the year - - - 3,289,744 3,289,744 BALANCE, December 31, 1993 10,912,937 $109,129 $15,161,942 $(4,237,387) $11,033,684 Exercise of stock options, net 48,950 489 45,511 - 46,000 Net earnings for the year - - - 730,365 730,365 BALANCE, December 31, 1994 10,961,887 $109,618 $15,207,453 $(3,507,022) $11,810,049 Exercise of stock options, net 432,898 4,330 469,717 - 474,047 Income tax benefit from stock options exercised - - 713,000 - 713,000 Net earnings for the year - - - 1,772,325 1,772,325 BALANCE, December 31, 1995 11,394,785 $113,948 $16,390,170 $(1,734,697) $14,769,421
The accompanying notes are an integral part of these statements. Page 28
THERAGENICS CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDING DECEMBER 31, 1993 1994 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $3,289,744 $ 730,365 $ 1,772,325 Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of change in accounting for income taxes (2,860,000) - - Deferred income tax expense 248,000 433,000 1,082,000 Depreciation and amortization 515,831 571,615 828,072 Loss on disposal of property and equipment 3,458 1,571 1,677 Change in assets and liabilities: Accounts receivable (18,347) (197,133) (603,221) Inventories 84,737 (32,834) 25,206 Prepaid expenses and other current assets (17,228) 22,448 24,280 Other assets 17,526 (200) - Trade accounts payable (102,239) 78,402 121,982 Accrued salaries, wages and payroll taxes (7,938) 21,400 115,006 Income tax payable (20,387) (1,500) 3,142 Other current liabilities (21,001) 16,442 (20,356) Total adjustments (2,177,588) 913,211 1,577,788 Net cash provided by operating activities 1,112,156 1,643,576 3,350,113 Page 29
THERAGENICS CORPORATION STATEMENTS OF CASH FLOWS - CONTINUED FOR THE THREE YEARS ENDING DECEMBER 31, 1993 1994 1995 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase and construction of property and equipment (2,740,263) (3,376,967) (2,426,961) Maturities of marketable securities 205,127 309,765 50,000 Patent costs (51,346) (587) (3,632) Net cash used by investing activities (2,586,482) (3,067,789) (2,380,593) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 1,900,000 2,100,000 - Repayment of long-term debt (569,561) (1,441,320) (469,622) Proceeds from exercise of stock options and warrants, net 299,195 46,000 474,047 Other assets - (46,025) (25,070) Net cash (used) provided by financing activities 1,629,634 658,655 (20,645) NET INCREASE (DECREASE)IN CASH AND SHORT-TERM INVESTMENTS 155,308 (765,558) 948,875 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR 2,927,713 3,083,021 2,317,463 CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 3,083,021 $ 2,317,463 $ 3,266,338
Page 30 THERAGENICS CORPORATION STATEMENTS OF CASH FLOWS - CONTINUED FOR THE THREE YEARS ENDING DECEMBER 31, Supplemental Schedule of Non Cash Financing Activities During 1995, the Company realized an income tax benefit from the exercise and early disposition of certain stock options, resulting in an increase in the deferred tax asset and additional paid in capital of $713,000. Supplementary Cash Flow Disclosure:
1992 1993 1994 Interest paid, net of amounts capitalized $ 195,035 $ - $ 53,843 Interest received $ 120,032 $ 144,452 $ 139,693 Income taxes paid $ 26,387 $ 21,500 $ 14,858
The accompanying notes are an integral part of these statements. Page 31 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 1994 and 1995 NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS Theragenics Corporation (the "Company") was organized in November 1981 to develop, manufacture, and market radiological pharmaceuticals and devices used in the treatment of cancer. The Company manufactures and markets primarily one product, which is used in the treatment of cancer. Use of the Company's product is regulated by the U.S. Food and Drug Administration (FDA). The Company sells its product primarily to hospitals, physicians and other health service providers in the United States. The Company therefore is directly affected by FDA regulations and the well being of the health care industry. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: 1. Use of Estimates in Preparation of Financial Statements In preparing financial statements in conformity with Generally Accepted Accounting Principles ("GAAP"), management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Accounts Receivable The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made. 3. Inventories Inventories are stated at the lower of cost or market. Cost is determined using the specific identification method. Inventory costs consist primarily of costs incurred in the extraction, purification and irradiation processes of an isotope which is the basic component of the Company's primary product. Page 32 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued 4. Depreciation Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. Estimated service lives are as follows: Building 30 years Machinery, leasehold improvements, furniture and equipment 5-10 years A significant portion of the Company's depreciable assets are utilized in the production of its product. Management periodically evaluates the realizability of its depreciable assets in light of its current industry environment. Management believes that no impairment of depreciable assets exists at December 31, 1995. It is possible, however, that management's estimates concerning the realizability of the Company's depreciable assets could change in the near term due to changes in the Company's technological and regulatory environment. 5. Patent Costs The Company capitalizes the costs of patent applications for its products. Amortization is computed on a straight line basis over the estimated economic lives of the patents, commencing at the date of grant of the related patent. Patent costs are net of accumulated amortization of $29,366 and $37,276 at December 31, 1994 and 1995, respectively. 6. Research and Development Costs The costs of research and development and consumable supplies and materials to be used for the development of the Company's intended products are expensed when incurred. 7. Net Earnings Per Common Share The net earnings per common share is based on the weighted average number of common shares and common equivalent shares outstanding during each period (11,709,218 in 1993, 11,582,793 in 1994 and 11,759,178 in 1995). Page 33 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Fully diluted information is not presented, as fully diluted earnings per share is not materially different from the primary earnings per share presented. 8. Statements of Cash Flows For purposes of reporting cash flows, cash and short-term investments include cash on hand, cash in banks and commercial paper with original maturities of less than 90 days. 9. Marketable Securities The Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), effective January 1, 1994. The adoption of SFAS 115 had no effect upon prior periods. At December 31, 1994, marketable securities are categorized as available for sale and as a result are stated at fair value, which approximated cost. The Company held no marketable securities at December 31, 1995. 10. Stock Based Compensation The Company stock option plans are accounted for under APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. NOTE C - INVENTORIES Inventory consists of the following:
December 31, 1994 1995 Raw material $ 17,361 $ 17,361 Work in process 79,820 92,887 Finished goods 33,361 56,707 Raw material to be recovered 61,619 - $192,161 $166,955
Page 34 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE C - INVENTORIES - CONTINUED "Raw material to be recovered" includes finished products which cannot be sold due to loss of radiation. The irradiated isotope contained in these products can be recovered and reused through a purification process. NOTE D - CONSTRUCTION IN PROGRESS At December 31, 1995, construction in progress represented payments made for the construction of manufacturing equipment and facility expansion. Total cost of this project is expected to be approximately $9,000,000, and is expected to be completed in February 1997. At December 31, 1994, construction in progress represented payments made for the construction of manufacturing equipment which was completed and placed in service during 1995. NOTE E - INCOME TAXES The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS" and "FASB") No. 109, Accounting for Income Taxes, which requires a change from the deferred method to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company implemented SFAS 109 as of January 1, 1993. The deferred tax asset recorded is primarily a result of the recognition of the Company's net operating loss carryforward. The cumulative effect on prior years of the change in accounting principle increased net earnings by $2,860,000 ($.24 per share) and is included in earnings for 1993. The effect of the change on 1993 was to decrease net earnings before cumulative effect of a change in accounting principle by $248,000 ($.02 per share) and increase net earnings by $2,612,000 ($.22 per share). Page 35 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE E - INCOME TAXES - Continued The provision for income tax is summarized as follows:
1993 1994 1995 Current tax expense $ 6,000 $ 20,000 $ 18,000 Deferred tax expense 248,000 433,000 1,082,000 $ 254,000 $ 453,000 $1,100,000
Significant components of the deferred tax asset are as follows:
December 31, 1994 1995 Loss carryforwards $2,455,000 $2,240,000 Depreciation (370,000) (565,000) Other 94,000 135,000 $2,179,000 $1,810,000
The significant portions of the operating loss carryforwards were incurred while the Company was in the development stage. Upon receiving clearance to market its "TheraSeed " product from the U.S. Food and Drug Administration (FDA) in 1986, the Company commenced manufacturing and distribution of its product in 1987. Since emerging from the development stage in 1989, the Company has utilized approximately $3,900,000 of these operating loss carryforwards through December 31, 1995 by generating taxable income. In order to realize income benefit from the remaining operating loss carryforwards at December 31, 1995, it will be necessary for the Company to generate future taxable income of approximately $5,900,000, prior to the expiration of the operating loss carryforward periods. Based on the Company's results of operations subsequent to receiving FDA clearance to market for its product, and on expected future results of operations, management believes that currently it is more likely than not that the income tax benefits of the operating loss carryforwards will be realized within the carryforward period. The amount of deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. Page 36 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1993 and 1994 NOTE E - INCOME TAXES - Continued The provision for income taxes differs from the amount of income tax determined by applying the applicable federal rates due to the following: 1993 1994 1995 Tax at applicable federal rate of 34% $ 232,000 $ 402,000 $ 977,000 State tax, net 22,000 47,000 115,000 Other - 4,000 8,000 $ 254,000 $ 453,000 $1,100,000
For income tax purposes only, the Tax Reform Act of 1986 enacted an alternative minimum tax system for corporations (the "AMT"). AMT is imposed at a 20% rate on the Company's AMT income which is determined by making statutory adjustments to regular taxable income. A company pays the greater of the taxes computed under the "regular" tax system or the AMT system. Because AMT net operating loss carryforwards may only be utilized to offset 90% of the AMT income, the Company was subject to the AMT in 1993, 1994 and 1995, resulting in an alternative minimum tax of $6,000, $20,000 and $18,000, respectively. These amounts will be allowed as a credit carryover to reduce the regular tax liability in future years, but not below the AMT of such years. At December 31, 1995, the Company had approximate net federal operating loss carryforwards for regular tax and AMT purposes as follows:
Net operating Net operating loss (regular) loss (AMT) Year of expiration 2002 $1,013,000 $ - 2003 2,485,000 2,254,000 2004 1,806,000 1,765,000 2005 590,000 555,000 $5,894,000 $4,574,000
Page 37 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE F - NOTES PAYABLE In December 1995, the Company entered into an amended and restated loan and security agreement (the "loan agreement") with a financial institution. This loan agreement incorporated and restated the Company's existing term loan and line of credit facility. A summary of the applicable terms follows. Term Loan The term loan is payable in monthly installments of $51,862, including interest at 8.47%. $1,989,119 and $1,519,497 were outstanding under the term loan at December 31, 1994 and 1995, respectively. Interest expense of approximately $140,000 and $106,000 was capitalized with expansion of the manufacturing facility and construction of certain manufacturing equipment during 1994 and 1995, respectively. Line of Credit The loan agreement provides for a line of credit of up to $1,000,000. Interest on outstanding borrowings is payable monthly at the prime rate or, at the Company's option, may be payable at the LIBOR rate plus 2%. There was no outstanding borrowings under the line of credit at December 31, 1994 or 1995. Revolving Credit Facility The loan agreement also provides for a revolving credit facility of up to $2,000,000. The maximum borrowings under the revolving credit facility can be increased to $4,000,000 under certain conditions. These conditions include, among other things, that the Company achieve certain minimum earnings levels, as defined, for four consecutive quarters. The Company has met the minimum earnings requirements as of December 31, 1995, and management expects that the revolving credit facility will be increased to $4,000,000 during 1996. Interest on outstanding borrowings is payable monthly at the prime rate or, at the Company's option, may be payable at the LIBOR plus 2%. No amounts were outstanding under the revolving credit facility at December 31, 1995. All outstanding borrowings under the revolving credit facility are due in April 1997. However, the outstanding borrowings can be repaid in sixty equal and consecutive monthly installments commencing in May 1997 if the Company meets certain minimum earnings levels, as defined, and certain other financial ratios Page 38 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE F - NOTES PAYABLE - Continued for the year ending December 31, 1996. Additionally, certain mandatory repayments based on "excess cash flow", as defined, would be required commencing in May 1998 and annually thereafter. All outstanding borrowings under the loan agreement are collateralized by substantially all of the Company's assets. Provisions of the loan agreement limit the amount of annual capital expenditures, the incurrence of additional debt and, among other things, require the maintenance of certain minimum financial ratios. As of December 31, 1995, the Company was in compliance with the provisions of the loan agreement. NOTE G - COMMITMENTS AND CONTINGENCIES Licensing Agreement The Company holds a worldwide exclusive license from the University of Missouri for the use of technology, patented by the University, used in the Company's "TheraSphere" product. The licensing agreement provides for the payment of royalties based on the level of sales and on lump sum payments received pursuant to a licensing agreement with Nordion International, Inc. (see below). The Company has granted certain of its geographical rights under the licensing agreement with the University of Missouri to Nordion International, Inc., a Canadian company which is a producer, marketer and supplier of radioisotope products and related equipment. Under the Nordion agreement, the Company will receive a licensing fee for each geographic area in which Nordion receives new drug approval. The Company will also be entitled to a percentage of future revenues earned by Nordion as royalties under he agreement. Royalties from this agreement for each of the three years in the period ended December 31, 1995 were not significant. In March 1995, the Company received approximately $85,000 from Nordion for the right to use certain patents and to manufacture, distribute, and sell TheraSphere for all applications worldwide. Letter of Credit The Company has a letter of credit outstanding for approximately $315,000 relating to regulatory requirements. Page 39 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE G - COMMITMENTS AND CONTINGENCIES - Continued Lease Commitment The Company leases office space under a noncancelable lease which expires in December 1998. Approximate minimum lease payments under the lease are as follows: 1996, $64,000; 1997, $67,000; 1998, $69,000. Rent expense was approximately $70,000, $61,000 and $61,500 for the years ended December 31, 1993, 1994 and 1995, respectively NOTE H - TRANSACTIONS WITH RELATED PARTIES Certain shareholders and directors provide consulting services to the Company. Total consulting fees paid to shareholders and directors were approximately $77,500, $5,500 and $1,000 during the years ended December 31, 1993, 1994 and 1995, respectively. NOTE I - STOCK OPTIONS AND WARRANTS The Company's board of directors has approved three stock option plans which in aggregate cover up to 2,200,000 shares of common stock. The plans provide for the expiration of options ten years from the date of grant and requires the exercise price of the options granted to be at least equal to 100% of market value on the date granted. Stock option transactions for the three years ended December 31, 1995 are summarized below:
Option Shares 1993 1994 1995 Outstanding, beginning of year 1,188,316 1,258,116 1,226,716 Granted 200,000 40,000 221,000 Exercised (130,200) (49,900) (450,000) Canceled - (21,500) - Outstanding, end of year 1,258,116 1,226,716 997,716 Option Price $1.00-$6.38 $1.00-$6.38 $1.00-$6.38
As of December 31, 1995, options covering approximately 773,000 Page 40 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE I - STOCK OPTIONS AND WARRANTS - Continued shares were exercisable. Expiration dates for these options range from 1996-2005. Two hundred thousand warrants (200,000) were exercised during 1993, resulting in proceeds to the Company of $175,000. The Company also has warrants outstanding at December 31, 1995, covering 100,000 shares of common stock. The warrants are exercisable at a price of $7.50 per share and expire in May 1999. The Company follows the practice of recording amounts received upon the exercise of options by crediting common stock and additional capital. No changes are reflected in the statements of operations as a result of the grant or exercise of options. The Company realizes an income tax benefit from the exercise or early disposition of certain stock options. This benefit results in an increase to the deferred tax asset and an increase in additional paid-in capital. NOTE J - MAJOR CUSTOMERS During 1994, there were sales to one major customer that equaled approximately ten percent of sales. During 1993 and 1995, there were no customers which individually comprised ten percent of sales. NOTE K - EMPLOYEE BENEFIT PLAN The Company sponsors a defined contribution 401(k) Plan covering all employees with at least six months of service and at least 21 years of age. The Plan permits participants to defer a portion of their compensation through payroll deductions. The Company may, at its discretion, contribute to the Plan on behalf of participating employees. No such Company discretionary contributions have been made during any of the three years ended December 31, 1995. Note L - RECENTLY ISSUED ACCOUNTING STANDARD The Company currently accounts for the issuance of stock options to employees in accordance with Accounting Principles Board Opinion ("APB") Number 25, "Accounting for Stock Issued to Employees." In October 1995, the FASB issued SFAS Number 123 ("SFAS 123"), "Accounting for Stock Based Compensation." SFAS 123 allows for the continued use of the method prescribed by APB 25, referred to as intrinsic value method. SFAS 123 also provides an Page 41 THERAGENICS CORPORATION NOTES TO FINANCIAL STATEMENTS - CONTINUED December 31, 1994 and 1995 NOTE L - RECENTLY ISSUED ACCOUNTING STANDARD - Continued alternative method, referred to as the fair value method. If the intrinsic value method of accounting for the issuance of stock options is used, then SFAS 123 requires disclosure of pro forma net income and earnings per share, as if the fair value method had been used. Management anticipates that the Company will continue to account for the issuance of stock options to employees in accordance with APB 25. Therefore, the only effect of adopting SFAS 123 will be the new disclosure requirements. These disclosure requirements are effective for the year ending December 31, 1996. Page 42 File No. 0-15443 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 under The Securities Exchange Act of 1934 THERAGENICS CORPORATION (Exact Name of Registrant as specified in its charter) Page 43 THERAGENICS CORPORATION INDEX TO EXHIBITS Page No. 10.22 Line of Credit Facility and Revolving Credit 45 Facility between Theragenics Corporation and Bank South, N.A. 24.1 Consent of Independent Certified Public 89 Accountant for Incorporation by Reference of Audit Statement into Registration Statement Page 44 EX-10 2 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT by and between THERAGENICS CORPORATION and BANK SOUTH dated as of December 13, 1995 Page 45 TABLE OF CONTENTS Page SECTION 1. GENERAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . .1(48) 1.1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . .1(48) 1.2. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 10(57) 1.3. Other Terms. . . . . . . . . . . . . . . . . . . . . . . . . 11(58) 1.4. Certain Matters of Construction. . . . . . . . . . . . . . . 11(58) SECTION 2. LINE OF CREDIT FACILITY; TERM LOAN . . . . . . . . . . . . 11(58) 2.1. Line of Credit Loans.. . . . . . . . . . . . . . . . . . . . 11(58) 2.2. Manner of Borrowing Line of Credit Loans . . . . . . . . . . 12(59) 2.3. Loan Account . . . . . . . . . . . . . . . . . . . . . . . . 12(59) 2.4. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 12(59) 2.5 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 13(60) SECTION 3. REVOLVING CREDIT FACILITY. . . . . . . . . . . . . . . . . 13(60) 3.1. Revolving Credit Loans.. . . . . . . . . . . . . . . . . . . 13(60) 3.2. Manner of Borrowing Revolving Credit Loans . . . . . . . . . 15(62) 3.3. Loan Account . . . . . . . . . . . . . . . . . . . . . . . . 15(62) 3.4. Interest.. . . . . . . . . . . . . . . . . . . . . . . . . . 15(62) SECTION 4. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . 16(63) 4.1. Amounts, Terms and Issuance of Letters of Credit.. . . . . . 16(63) 4.2 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16(63) SECTION 5. TERMINATION; PAYMENTS; FEES AND COSTS. . . . . . . . . . . 16(63) 5.1. Termination. . . . . . . . . . . . . . . . . . . . . . . . . 16(63) 5.2. Costs, Fees and Expenses . . . . . . . . . . . . . . . . . . 17(64) 5.3. Application of Payments and Collections. . . . . . . . . . . 17(64) 5.4 Statements of Account. . . . . . . . . . . . . . . . . . . . 17(64) 5.5. All Loans and Obligations to Constitute One Obligation . . . 18(65) SECTION 6. COLLATERAL: GENERAL TERMS . . . . . . . . . . . . . . . . 18(65) 6.1. Security Interest in Collateral. . . . . . . . . . . . . . . 18(65) 6.2. Representations, Warranties and Covenants -- Collateral. . . 19(66) 6.3. Financing Statements . . . . . . . . . . . . . . . . . . . . 19(66) 6.4. Cash Collateral Account. . . . . . . . . . . . . . . . . . . 20(67) 6.5. Additional Collateral. . . . . . . . . . . . . . . . . . . . 20(67) SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 20(67) Page 46 7.1. General Representations and Warranties . . . . . . . . . . . 21(68) 7.2. Reaffirmation. . . . . . . . . . . . . . . . . . . . . . . . 25(72) 7.3. Survival of Representations and Warranties . . . . . . . . . 25(72) SECTION 8. COVENANTS AND CONTINUING AGREEMENTS. . . . . . . . . . . . 25(72) 8.1. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . 25(72) 8.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . 29(76) SECTION 9. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . 32(79) 9.1. Documentation. . . . . . . . . . . . . . . . . . . . . . . . 32(79) 9.2. Other Conditions . . . . . . . . . . . . . . . . . . . . . . 33(80) SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT . . . . 34(81) 10.1. Events of Default . . . . . . . . . . . . . . . . . . . . . 34(81) 10.2. Acceleration of the Obligations . . . . . . . . . . . . . . 36(83) 10.3. Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . 36(83) 10.4. Remedies Cumulative; No Waiver. . . . . . . . . . . . . . . 37(84) SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 37(84) 11.1. Power of Attorney . . . . . . . . . . . . . . . . . . . . . 37(84) 11.2. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 38(85) 11.3. Modification of Agreement; Sale of Interest . . . . . . . . 38(85) 11.4. Reimbursement of Expenses . . . . . . . . . . . . . . . . . 39(86) 11.5. Indulgences Not Waivers . . . . . . . . . . . . . . . . . . 39(86) 11.6. Severability. . . . . . . . . . . . . . . . . . . . . . . . 40(87) 11.7. Successors and Assigns. . . . . . . . . . . . . . . . . . . 40(87) 11.8. Cumulative Effect; Conflict of Terms. . . . . . . . . . . . 40(87) 11.9. Execution in Counterparts . . . . . . . . . . . . . . . . . 40(87) 11.10. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 40(87) 11.11. Lender's Consent . . . . . . . . . . . . . . . . . . . . . 41(88) 11.12. Demand Obligations . . . . . . . . . . . . . . . . . . . . 41(88) 11.13. Time of Essence. . . . . . . . . . . . . . . . . . . . . . 41(88) 11.14. Entire Agreement . . . . . . . . . . . . . . . . . . . . . 41(88) 11.15. Reliance on Telecopies . . . . . . . . . . . . . . . . . . 42(89) 11.16. Governing Law; Consent To Forum. . . . . . . . . . . . . . 42(89) 11.17. Waivers By Borrower. . . . . . . . . . . . . . . . . . . . 42(89) SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42(89) Page 47 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AGREEMENT is made as of this 13th day of December, 1995, by and between BANK SOUTH, formerly known as Bank South, N.A. ("Lender"), a Georgia banking corporation having its main office at 55 Marietta Street, N.W., Atlanta, Fulton County, Georgia 30303, and THERAGENICS CORPORATION ("Borrower"), a Delaware corporation having its chief executive office and principal place of business at 5325 Oakbrook Parkway, Norcross, Gwinnett County, Georgia 30093. Statement of Facts Lender and Borrower are parties to that certain Loan and Security Agreement dated as of June 29, 1992, pursuant to which Lender provides to Borrower on the terms and conditions stated therein a $500,000 receivables credit facility, and they are also parties to that certain Loan and Security Agreement dated as of September 14, 1994, pursuant to which Lender provided to Borrower a term loan facility in the amount of $2,100,000 for, inter alia, the purchase of equipment and the construction of a facility located at 4875 Newton Terrace, Buford, Gwinnett County, Georgia, to house such equipment (such loan and security agreements are collectively called the "Prior Loan Agreements"). Borrower desires that Lender increase the amount of credit available to Borrower under the $500,000 receivables credit facility to $1,000,000 and to provide to Borrower an additional revolving credit facility of up to $4,000,000, and Lender is willing to do so, all in accordance with and subject to the terms and conditions of this Agreement. Lender and Borrower hereby desire to amend and restate in their entireties the Prior Loan Agreements. NOW, THEREFORE, for and in consideration of the premises, the mutual covenants herein set forth, the sum of $10.00 in hand paid by each party hereto to the other, and in order to induce Lender to continue to make loans from time to time to Borrower, as well as for other good and valuable consideration, the receipt and adequacy of all of the foregoing as legally sufficient consideration being hereby acknowledged, Borrower and Lender do hereby agree to amend and restate the Prior Loan Agreements as follows: Statement of Terms SECTION 1. GENERAL DEFINITIONS 1.1. Defined Terms. When used herein, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Page 48 Account Debtor - any Person who is or may become obligated under or on account of an Account. Accounts - all accounts, contract rights, chattel paper, instruments and documents, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has or hereafter acquires any interest. Affiliate - a Person: (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Borrower; (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of Borrower; or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held, directly or indirectly, by Borrower. For purposes hereof, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. Agreement - this Amended and Restated Loan and Security Agreement, as the same may be modified or amended from time to time. Business Day - a day on which the Federal Reserve Bank of Atlanta is open for business in Atlanta, Georgia. Capital Expenditures - in respect of any Person, expenditures for the purchase of assets of long-term use which are capitalized in accordance with GAAP. Capitalized Lease Obligation - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. Cash Collateral Account - the investment account no. 018522219 established by Borrower with Lender together with any and all monies now or hereafter on deposit therein or credited thereto as well as all certificates of deposit, saving certificates, commercial paper, government obligations, money market fund shares, repurchase agreement, and other investments or securities in which any such monies or funds may be now or hereafter invested from time to time, together with any and all certificates or other instruments representing said investments or securities, and all interest, distributions and dividends (whether in cash, stock, warrants, options or other securities), and all other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of said investments or securities, and all cash and non-cash proceeds of any of the foregoing. Page 49 Cash Collateral Account Agreement - the Cash Collateral Account Agreement dated as of June 29, 1992 entered into between Borrower and Lender in connection with the Letter of Credit Agreement, and any amendment, modification or replacement thereof. Cash-Secured Letters of Credit - any letter of credit which Borrower has requested to be a "Cash-Secured Letter of Credit" and which has been issued by Lender for the account of the Borrower pursuant to a Letter of Credit Agreement and which shall not be counted against Borrower's maximum availability under the Line of Credit Facility or the Revolving Credit Facility. CERCLA - the meaning ascribed thereto in the definition of Environmental Laws. Closing Date - the date on which all of the conditions precedent in Section 9 are satisfied and the initial Loan is made hereunder. Code - the Uniform Commercial Code as adopted and in force in the State of Georgia, as from time to time in effect. Collateral - all of the Property and interests in Property described in Section 6 hereof, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Obligations. Deed to Secure Debt - the Deed to Secure Debt, Assignment of Rents and Leases and Security Agreement dated as of September 14, 1992 between Borrower and Lender, and any amendment, modification or replacement thereof. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. EBITDA - for any period, the Net Income of the Borrower for such period, plus, without duplication and to the extent reflected as charges in the statement of Net Income for such period, the sum of (i) taxes measured by income, (ii) Interest Expense and (iii) depreciation and amortization expense. Environmental Claims - any written notice of any Governmental Authority alleging potential liability for damage to the environment or by any Person alleging potential liability for personal injury (including sickness, disease or death), in either case resulting from or based upon (a) the presence or Release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental, leaks or spills) of any Hazardous Substance at, in or from the property, whether or not owned or leased by Borrower or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Laws. Page 50 Environmental Laws - all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidance, orders and consent decrees relating to health, safety and environmental matters, including, but not limited to, the Resource Conservation and Recovery Act, as amended; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"); the Toxic Substances Control Act, as amended; the Clean Water Act, as amended; the Clean Air Act, as amended; the Superfund Amendments and Reauthorization Act of 1986, as amended; state and federal superlien and environmental cleanup programs and laws; and U.S. Department of Transportation regulations. Equipment - equipment, cyclotrons, machinery, computers and computer hardware, vehicles, tools, dies and jigs, furniture, trade fixtures and fixtures, all attachments, accessories and property now or hereafter affixed thereto or used in connection therewith, substitutions and replacements thereof wherever located, whether now owned or hereafter acquired by Borrower. ERISA - the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules and regulations from time to time promulgated thereunder. Event of Default - as defined in Section 10.1 of this Agreement. Excess Cash Flow -for any fiscal year of Borrower, Borrower's EBITDA for such period minus the Borrower's Unbudgeted Capital Expenditures for such fiscal year minus Borrower's income tax expense for such fiscal year minus Borrower's Interest Expense for such fiscal year and minus the Borrower's scheduled principal debt service payments for such fiscal year for its Indebtedness for Money Borrowed. GAAP - generally accepted accounting principles in the United States of America in effect from time to time. Governmental Authority - any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. Hazardous Substances - any toxic, radioactive, caustic or otherwise hazardous substance, material or waste, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics, including without limitation, polychlorinated biphenyls ("PCBs"), asbestos or asbestos-containing material, and any substance, waste or material regulated under Environmental Laws. Indebtedness - as applied to a Person means, without duplication (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all Page 51 obligations of other Persons which such Person has guaranteed and (iii) in the case of Borrower (without duplication), the Obligations. Interest Expense - for any period, interest payments accrued in respect to Indebtedness for Money Borrowed, together with fees associated therewith (other than fees payable on or prior to the Closing Date), and shall include the interest payments for such period in respect of Capitalized Lease Obligations, all as determined in accordance with GAAP. Inventory - raw materials, work in process, finished goods, and all other inventory of whatsoever kind or nature, wherever located, whether now owned or hereafter existing or acquired by Borrower, including, without limitation, all wrapping, packaging, advertising, shipping materials, and all of Borrower's right, title and interest therein and thereto. Letter of Credit - any standby letter of credit issued by Lender on the account of Borrower pursuant to a Letter of Credit Agreement for the purpose of guaranteeing cyclotron payments and decommissioning costs, for capital expenditures as outlined on Schedule 1.1 hereto, and for general corporate purposes. Letter of Credit Agreement - any letter of credit agreement between Borrower and Lender with respect to the issuance of the Letters of Credit, including without limitation, the Application and Agreement for Irrevocable Standby Letter of Credit dated June 29, 1992 between Borrower and Lender and any amendments, modifications or replacements of any of the foregoing. Leverage Ratio -as of the applicable calculation date, the ratio of Borrower's Indebtedness, excluding any obligations of other Persons which Borrower has guaranteed, to its Tangible Net Worth. Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including, but not limited to, the security interest, security title or lien arising from a security agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of this Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Page 52 Line of Credit Facility- the facility established pursuant to Section 2 of this Agreement pursuant to which Lender shall make Line of Credit Loans to Borrower. Line of Credit Loan - a Loan made by Lender as provided in Section 2.1 of this Agreement. Line of Credit Facility Expiration Date - April 15, 1997. Line of Credit Maximum Availability -$1,000,000. Line of Credit Note - the Line of Credit Note to be executed by Borrower on or about the Closing Date in favor of Lender to evidence the Line of Credit Loans, which shall be in the form of Exhibit A attached hereto, as the same may be modified, amended or replaced from time to time after execution and delivery thereof. Line of Credit Loan Account - the loan account established on the books of Lender pursuant to Section 2.3 hereof and in which Lender will record all Loans, payments made on such Loans and other appropriate debits and credits as provided by this Agreement. Loan Documents - this Agreement and the Other Agreements. Loans - all loans and advances made by Lender which are evidenced by the Term Note, and all loans and advances made by Lender pursuant to this Agreement, including, without limitation, all Revolving Credit Loans, Line of Credit Loans. Maturity Date - with respect to Indebtedness evidenced by the Term Note, September 15, 1998. Money Borrowed - as applied to Indebtedness, means (i) Indebtedness for borrowed money; (ii) Indebtedness, whether or not in any such case the same was for borrowed money, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; and (iv) Indebtedness under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. Net Income - for any period, net income determined in accordance with GAAP. Notes - the Line of Credit Note, the Revolving Credit Note and the Term Note. Page 53 Obligations - all loans and all other advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from Borrower to Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Loan Documents or otherwise, whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorney's fees and any other sums chargeable to Borrower under any of the Loan Documents. OSHA - the Occupational Safety and Health Act, as amended from time to time, and all rules and regulations from time to time promulgated thereunder. Other Agreements - the Notes, the Deed to Secure Debt, any Letter of Credit Agreement, the Cash Collateral Account Agreement and any and all agreements, instruments and documents (other than this Agreement), heretofore, now or hereafter executed by Borrower or delivered to Lender in respect of the transactions contemplated by this Agreement or the Letter of Credit Agreement. Permitted Liens - any other Lien of a kind specified in subparagraphs (i) through (viii) of Section 8.2(E) of this Agreement. Person - an individual, partnership, corporation, joint stock company, trust or unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. Prime Rate - the rate of interest announced or quoted by Lender from time to time as its Prime Rate, whether or not such rate is the lowest rate charged by Lender to its most preferred borrowers; and, if the Prime Rate is discontinued by Lender as a standard, a comparable reference rate designated by Lender as a substitute therefor shall be the Prime Rate. After the date hereof, such rate shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Prime Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Prime Rate becomes effective. The Prime Rate in effect on the date hereof shall be the Prime Rate effective as of the opening of business on the date hereof, but if this Agreement is executed on a day that is not a Business Day, the Prime Rate in effect on the date hereof shall be the Prime Rate effective as of the opening of business on the last Business Day immediately preceding the date hereof. Prohibited Transaction - any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. Page 54 Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness incurred at the time of or within ten (10) days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets which secure Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Release - Any discharge, emission, release, or threat thereof, including a "Release" as defined in CERCLA at 42 U.S.C. Section 9601(22); and the term "Released" has a meaning correlative thereto. Reportable Event - any of the events set forth in Section 4043(b) of ERISA. Restricted Investment - any investment in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) Property to be used in the ordinary course of business; (ii) Current Assets arising from the sale of goods and services in the ordinary course of business of Borrower; (iii) investments in the capital stock of the Borrower, not to exceed $10,000 in aggregate fair market value at any one time; (iv) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (v) investments in certificates of deposit or other time deposits maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undivided profits aggregating at least $100,000,000; (vi) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than two hundred seventy (270) days from the date of creation thereof; and (vii) other investments made through the Cash Collateral Account. Revolving Credit Facility Expiration Date - April 15, 1997. Revolving Credit Facility - the facility established pursuant to Section 3 of this Agreement pursuant to which Lender shall make Revolving Credit Loans to Borrower. Page 55 Revolving Credit Loan - a Loan made by Lender as provided in Section 3 of this Agreement. Revolving Credit Loan Account - the loan account established on the books of Lender pursuant to Section 3.3 hereof and in which Lender will record all Revolving Credit Loans, payments made on such Loans and other appropriate debits and credits as provided by this Agreement. Revolving Credit Note - the Revolving Credit Note to be executed by Borrower on or about the Closing Date in favor of Lender to evidence the Revolving Credit Loans, which shall be in the form of Exhibit B attached hereto, as the same may be modified or amended from time to time after execution and delivery thereof. Revolving Credit Maximum Availability - $2,000.000 (as such amount may be adjusted from time to time pursuant to Section 3.1(B) of this Agreement). Security - shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Solvent - as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Step-Up Event - the date (if any) on or prior to the Revolving Credit Facility Expiration Date on which Lender receives from Borrower financial statements for Borrower's fiscal year ending on December 31, 1995 or December 31, 1996 or any fiscal quarter during such fiscal years prepared in accordance with Section 8.1 (I) hereof, which financial statements show that Borrower's EBITDA is not less than $1,800,000 for the immediately preceding four quarters. Tangible Net Worth - with respect to the Borrower, (i) the aggregate book value of assets (after deduction therefrom of all applicable reserves and allowances), minus (ii) net book value of goodwill, patents, franchises, trademarks and tradename, research and development expenses and all other intangibles, minus (iii) total liabilities, all as determined in accordance with GAAP. Term Note - the $2,100,000 Term Note dated September 14, 1994 executed by Borrower in favor of Lender, as the same may be modified, amended or replaced from time to time after execution and delivery thereof. Term-Out Requirements - (i) Borrower's EBITDA shall be not less than $1,800,000 for Borrower's fiscal year ending December 31, 1996; (ii) Page 56 Borrower's EBITDA from its fiscal year ending December 31, 1996 divided by the total principal and interest payable on Indebtedness for Money borrowed during such fiscal year shall be at least 1.50 to 1.0; (iii) Lender receives from Borrower on or prior to the Revolving Credit Facility Expiration Date financial statements for Borrower's fiscal year ending on December 31, 1996 prepared in accordance with Section 8.1(I) hereof and demonstrating Borrower's compliance with the first two Term-Out Requirements set forth above and (iv) no Default or Event of Default shall exist or be continuing on the Revolving Credit Facility Expiration Date. Unbudgeted Capital Expenditures - for any fiscal year of Borrower, all capital expenditures of the Borrower for such period which are not listed on Schedule 1.1 hereof, but excluding capitalized interest expense and any portion of capital expenditures funded by new equity capital invested in Borrower other than retained earnings. Voluntary Principal Prepayments - as of any date of determination, the amount by which the outstanding principal balance of the Revolving Credit Note immediately prior to the mandatory prepayment date set forth below is less than the applicable threshold amount set forth below next to such mandatory prepayment date: If the Revolving Credit If the Revolving Credit Facility has Stepped-Up Facility has not Stepped- to $4,000,000 prior to Up to $4,000,000 prior to the Revolving Credit the Revolving Credit Facility Expiration Date, Facility Expiration Date, Mandatory Pre- then the Threshold Amount then the Threshold Amount Payment Date Shall Be: Shall Be: May 15, 1998 $3,200,000 $1,600,000 May 15, 1999 $2,400,000 $1,200,000 May 15, 2000 $1,600,000 $ 800,000 May 15, 2001 $ 800,000 $ 400,000 By way of example only, if the outstanding principal balance of the Revolving Credit Note is $3,000,000 immediately prior to May 15, 1998 and if the Revolving Credit Facility has stepped-up to $4,000,000 pursuant to the terms of this Agreement prior to the Revolving Credit Facility Expiration Date, then the Voluntary Principal Prepayment as of May 15, 1998 would be $200,000. 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in preparation of the financial statements referred to in Section Page 57 7.1(K), and all financial data pursuant to the Agreement shall be prepared in accordance with such principles. 1.3. Other Terms. All other terms contained in this Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. 1.4. Certain Matters of Construction. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of this Agreement. SECTION 2. LINE OF CREDIT FACILITY; TERM LOAN Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lender shall make a line of credit facility of up the Line of Credit Maximum Availability available upon Borrower's request therefor, as follows: 2.1. Line of Credit Loans. (A) Subject to the terms and conditions of this Agreement, Lender shall make Line of Credit Loans to Borrower from time to time prior to the Line of Credit Facility Expiration Date, as requested by Borrower in accordance with the terms of Section 2.2 hereof, up to a maximum principal amount at any time outstanding equal to the Line of Credit Maximum Availability. The Line of Credit Loans shall be evidenced by the Line of Credit Note. If the unpaid balance of the Line of Credit Loans should exceed the Line of Credit Maximum Availability or any other limitation set forth in this Agreement, such Line of Credit Loans shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all benefits thereof. In no event shall Borrower be authorized to request a Line of Credit Loan at any time that there exists a Default or an Event of Default or at any time on or after the Line of Credit Facility Expiration Date. Nothwithstanding anything herein to the contrary, the sum of the aggregate outstanding principal balance of the Line of Credit Loans and the Revolving Credit Loans at any one time plus the aggregate stated amount of all Letters of Credit (other than Cash-Secured Letters of Credit) then outstanding may not exceed the sum of the Line of Credit Maximum Availability plus the Revolving Credit Maximum Availability as then in effect (B) Insofar as Borrower may request and Lender may be willing in its sole and absolute discretion to make Line of Credit Loans to Borrower at a time when the unpaid balance of Line of Credit Loans exceeds, or would exceed with the making of such Line of Credit Loan, the Line of Credit Maximum Availability (any such Loan or Loans being herein referred to individually as a "Line of Credit Overadvance" and collectively as "Line of Credit Overadvances"), Lender shall enter such Line of Credit Overadvances as debits in the Loan Account. All Line of Credit Overadvances shall be Page 58 repaid on demand and shall be evidenced by the Line of Credit Note. (C) The Line of Credit Loans shall be used solely for Borrower's general corporate needs, for capital expenditures as outlined on Schedule 1.1, all to the extent not inconsistent with the provisions of this Agreement. 2.2. Manner of Borrowing Line of Credit Loans. Borrowings under the Line of Credit Facility established pursuant to Section 2.1 shall be as follows: (A) A request for a Line of Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing, the proposed borrowing date and that such borrowing is to be a Line of Credit Loan; (ii) the becoming due of any other Obligation shall be deemed irrevocably, at Lender's discretion, to be a request for a Line of Credit Loan on the due date in the amount then so due and (iii) pursuant to the terms of Borrower's FOCUS account agreement or similar account agreement with Lender; (B) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Line of Credit Loan requested, or deemed to be requested, pursuant to this Section 2.2 as follows: (i) the proceeds of each Line of Credit Loan requested under Section 2.2(A)(i) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time; and (ii) the proceeds of each Line of Credit Loan requested under Section 2.2(A)(ii) shall be disbursed by Lender by way of direct payment of the relevant Obligation. 2.3. Loan Account. Lender shall enter all Line of Credit Loans as debits to the Line of Credit Loan Account and shall also record in the Line of Credit Loan Account all payments made by Borrower on Line of Credit Loans and all proceeds of Collateral which are finally paid to Lender, and may record therein, in accordance with customary accounting practice, all charges and expenses properly chargeable to Borrower hereunder. 2.4. Interest. (A) Interest shall accrue on the principal amount of the Line of Credit Loans in accordance with the terms of the Line of Credit Note. (B) Borrower may prepay the Line of Credit Note in whole or in part in accordance with the terms and conditions of the Line of Credit Note. (C) In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under the Line of Credit Note and charged or collected pursuant to the terms of this Agreement or pursuant to the Line of Credit Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, Page 59 deem applicable hereto. In the event that such a court determines that Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall promptly refund such excess interest to Borrower and such rate shall automatically be reduced to the maximum rate permitted by such law. 2.5 Term Loan. Lender has made a term loan to Borrower in the original principal amount of Two Million One Hundred Thousand and No/100 Dollars ($2,100,000). Such term loan is evidenced by the Term Note. The principal and interest on the Term Note shall be payable in accordance with the terms of the Term Note. SECTION 3. REVOLVING CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lender shall make a revolving credit facility of up to the Revolving Credit Maximum Availability available to Borrower upon Borrower's request therefor, as follows: 3.1. Revolving Credit Loans. (A) Subject to the terms and conditions of this Agreement, Lender shall make Revolving Credit Loans to Borrower from time to time prior to the Revolving Credit Facility Expiration Date in accordance with the terms of Section 3.2 hereof, up to a maximum principal amount at any time outstanding equal to the Revolving Credit Maximum Availability. The Revolving Credit Loans shall be evidenced by the Revolving Credit Note. It is expressly understood and agreed that the Revolving Credit Maximum Availability shall be the maximum ceiling on Revolving Credit Loans outstanding to Borrower at any time. No Revolving Credit Loans shall be requested by Borrower at any time that there exists a Default or an Event of Default or at any time on or after the Revolving Credit Facility Expiration Date. Nothwithstanding anything herein to the contrary, the sum of the aggregate outstanding principal balance of the Line of Credit Loans and the Revolving Credit Loans at any one time plus the aggregate stated amount of all Letters of Credit (other than Cash-Secured Letters of Credit) then outstanding may not exceed the sum of the Line of Credit Maximum Availability plus the Revolving Credit Maximum Availability as then in effect (B) Upon the occurrence on or prior to the Revolving Credit Facility Expiration Date of a Step-Up Event and provided that no Default or Event of Default shall have occurred and be continuing at the time of such occurrence, the Revolving Credit Maximum Availability shall increase from $2,000,000 to $4,000,000. In no event shall the Revolving Credit Maximum Availability exceed $4,000,000. (C) On the Revolving Credit Facility Expiration Date, the entire unpaid balance of the Revolving Credit Note shall be due and payable; provided, however, that if Borrower meets all of the Term-Out Requirements Page 60 on the Revolving Credit Facility Expiration Date, as of its fiscal year ending December 31, 1996, the outstanding principal balance of the Revolving Credit Note automatically shall term-out on the Revolving Credit Facility Expiration Date without any further action by Borrower or Lender and the outstanding principal balance of the Revolving Credit Note shall be payable (and interest shall accrue and be payable thereon) as follows: (i) Interest shall continue to accrue at the rates per annum set forth in the Revolving Credit Note; (ii) The outstanding principal balance on the Revolving Credit Facility Expiration Date shall be payable in sixty (60) equal consecutive installments, commencing on May 15, 1997 and continuing to be due on the same day of each succeeding month thereafter until the April 15, 2002, at which time all unpaid principal and accrued interest shall be due and payable in full; (iii) Accrued interest on the Revolving Credit Note shall be due and payable on the same dates indicated in clause (ii) above on which installments or other payments of principal are due hereunder. (iv) A mandatory principal prepayment on the Revolving Credit Note shall be made by Borrower, without penalty or premium, on May 15 of each year, commencing on May 15, 1998, in an amount equal to twenty-five percent (25%) of Borrower's Excess Cash Flow for its fiscal year ending December 31, 1997 minus one hundred percent (100%) of all Voluntary Principal Prepayments. (v) A mandatory principal payment shall be made by Borrower without penalty or premium on May 15, 1999 and each May 15 thereafter through and including May 15, 2001, in an amount equal to twenty-five percent (25%) of Borrower's Excess Cash Flow for its immediately preceding fiscal year minus one hundred percent (100%) of all Voluntary Principal Prepayments. (D) Borrower may prepay the Revolving Credit Note in whole or in part in accordance with the terms and conditions of the Revolving Credit Note. (E) If the unpaid balance of the Revolving Credit Loans should exceed the Revolving Credit Maximum Availability, or any other limitation set forth in this Agreement, such Revolving Credit Loans shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all benefits thereof. In no event shall Borrower be authorized to request a Revolving Credit Loan at any time that there exists a Default or an Event of Default. (F) Insofar as Borrower may request and Lender may be willing in its sole and absolute discretion to make Revolving Credit Loans to Borrower at a time when the unpaid balance of Revolving Credit Loans exceeds, or would exceed with the making of such Revolving Credit Loan, the Revolving Credit Maximum Availability (any such Loan or Loans being herein referred Page 61 to individually as a "Revolving Credit Overadvance" and collectively as "Revolving Credit Overadvances"), Lender shall enter such Revolving Credit Overadvances as debits in the Loan Account. All Revolving Credit Overadvances shall be repaid on demand and shall be evidenced by the Revolving Credit Note. (G) The Revolving Credit Loans shall be used solely for Borrower's general corporate needs and for the capital expenditures as outlined in Schedule 1.1 hereto, all to the extent not inconsistent with the provisions of this Agreement. 3.2. Manner of Borrowing Revolving Credit Loans. Borrowings under the Revolving Credit Facility established pursuant to Section 3.1 shall be as follows: (A) A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing, the proposed borrowing date and that such borrowing is to be a Revolving Credit Loan; (ii) the becoming due of any other Obligation shall be deemed, at Lender's discretion, irrevocably to be a request for a Revolving Credit Loan on the due date in the amount then so due and (iii) pursuant to the terms of Borrower's FOCUS account or similar account with Lender; (B) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to this Section 3.2 as follows: (i) the proceeds of each Revolving Credit Loan requested under Section 3.2(A)(i) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time; and (ii) the proceeds of each Revolving Credit Loan requested under Section 3.2(A)(ii) shall be disbursed by Lender by way of direct payment of the relevant Obligation. 3.3. Loan Account. Lender shall enter all Revolving Credit Loans as debits to the Revolving Credit Loan Account and shall also record in the Revolving Credit Loan Account all payments made by Borrower on Revolving Credit Loans and all proceeds of Collateral which are finally paid to Lender, and may record therein, in accordance with customary accounting practice, all charges and expenses properly chargeable to Borrower hereunder. 3.4. Interest. (A) Interest shall accrue and be payable on the principal amount of the Revolving Credit Loans in accordance with the terms of the Revolving Credit Note. (B) In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under the Revolving Credit Note and charged or collected pursuant to the terms of this Agreement or Page 62 pursuant to the Revolving Credit Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall promptly refund such excess interest to Borrower and such rate shall automatically be reduced to the maximum rate permitted by such law. SECTION 4. LETTERS OF CREDIT 4.1. Amounts, Terms and Issuance of Letters of Credit. If requested to do so by Borrower, Lender may, in its discretion, issue one or more Letters of Credit for the account of Borrower; provided, however that the sum of the aggregate outstanding principal balance of the Line of Credit Loans and the Revolving Credit Loans at any one time plus the aggregate stated amount of all Letters of Credit (other than Cash-Secured Letters of Credit) then outstanding may not exceed the sum of the Line of Credit Maximum Availability plus the Revolving Credit Maximum Availability as then in effect and any amounts paid by Lender with respect to any draw under any such Letter of Credit shall be deemed to be, at Lender's election, a Line of Credit Loan or a Revolving Credit Loan and shall bear interest and shall be repayable in accordance with the terms hereof and of the Line of Credit Note or the Revolving Credit Note (as the case may be) unless such amount is immediately reimbursed by Borrower on demand therefor by Lender. If requested to do so by Borrower, Lender may, in its discretion, issue one or more Cash-Secured Letters of Credit for the account of Borrower. 4.2 Fees. Borrower shall pay to Lender for the issuance of each Letter of Credit on or after the date hereof a fee in the amount of one percent (1.0%) per annum of the face amount of such Letter of Credit, which fee shall be payable in full on the issuance of such Letter of Credit. SECTION 5. TERMINATION; PAYMENTS; FEES AND COSTS 5.1. Termination. (A) Upon at least thirty (30) days prior written notice to Lender, Borrower may, at its option, terminate this Agreement; provided, however, no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds and there are no Letters of Credit still issued and outstanding. (B) Lender may terminate this Agreement at any time upon written notice to Borrower upon the occurrence and during the continuation of an Event of Default. (C) All of the Obligations arising hereunder or evidenced by the Notes shall be forthwith due and payable upon any termination of this Agreement. Except as otherwise expressly provided for in this Agreement or the other Loan Documents, no termination or cancellation (regardless of Page 63 cause or procedure) of this Agreement or any of the other Loan Documents shall in any way affect or impair the powers, obligations, duties, rights, and liabilities of Borrower or Lender in any way relating to (i) any transaction or event occurring prior to such termination or cancellation, including without limitation any Letters of Credit which may be still outstanding, or (ii) any of the undertakings, agreements, covenants, warranties or representations of Borrower contained in this Agreement, or any of the other Loan Documents. All such undertakings, agreements, covenants, warranties and representations shall survive such termination or cancellation and Lender shall retain its Liens in the Collateral, and all of its rights and remedies under this Agreement and the other Loan Documents notwithstanding such termination or cancellation until Borrower has paid the Obligations to Lender, in full, in immediately available funds. (D) It is understood that Borrower may elect to terminate this Agreement in its entirety only; no section or lending facility may be terminated singly. 5.2. Costs, Fees and Expenses. (A) On the date of this Agreement, Borrower shall pay Lender a non-refundable closing fee for the Revolving Credit Facility and the Line of Credit Facility in the amount of $20,000, which closing fee shall be deemed fully earned upon the parties' execution and delivery of this Agreement. (B) Costs, fees and expenses payable pursuant to this Agreement shall be payable by Borrower, on demand, to Lender or to any other Person designated by Lender in writing. 5.3. Application of Payments and Collections. Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or its agent against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records. If as the result of collections of Accounts as authorized by this Agreement a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Default or Event of Default exists. Lender may offset such credit balance upon or after the occurrence of an Event of Default. 5.4 Statements of Account. Lender will account to Borrower monthly with a statement of Loans, Letters of Credit, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall (absent manifest error) be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each account was sent to Borrower at its address set forth herein for notices. Such notice shall only be deemed an Page 64 objection to those items specifically objected to therein. 5.5.All Loans and Obligations to Constitute One Obligation. The Loans (including without limitation any and all Line of Credit Overadvances and Revolving Credit Overadvances) shall constitute one general obligation of Borrower, and shall be secured by Lender's security interest in and Lien upon all of the Collateral, and by all other security interests and Liens heretofore, now or at any time or times hereafter granted by Borrower to Lender. 5.6 Capital Adequacy. Without limiting any other provisions of this Agreement, in the event that the Lender determines after the date hereof that the introduction or change after the date of this Agreement of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, or any change therein or in the interpretation or application thereof after the date of this Agreement, or compliance by the Lender with any request or directive regarding capital adequacy (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) from a central bank or governmental authority or body having jurisdiction which is introduced or changed after the date of this Agreement, does or shall have the effect of reducing the rate of return on the Lender's capital as a consequence of its obligations hereunder to a level below that which the Lender could have achieved but for such law, treaty, rule, regulation, guideline or order or such change or compliance (taking into consideration the Lender's policies with respect to capital adequacy and assuming the full utilization of the Lender's capital immediately before such adoption, change or compliance) by an amount reasonably deemed by the Lender to be material, then the Lender shall promptly after its determination of such occurrence notify the Borrower thereof. The Borrower agrees to pay to the Lender as an additional fee from time to time, within ten (10) days after written notice and demand by the Lender, such amount as the Lender certifies to be the amount that will compensate it for such reduction in connection with its obligations hereunder. A certificate of the Lender claiming compensation under this Section shall be conclusive in the absence of manifest error or fraud and shall set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to it hereunder and the method by which such amounts were determined. In determining such amount, the Lender may use reasonable averaging and attribution methods. SECTION 6. COLLATERAL: GENERAL TERMS 6.1. Security Interest in Collateral. To secure the prompt payment and performance to Lender of the Obligations, Borrower hereby grants to Lender a continuing security interest in and Lien upon all the following Property and interests in Property of Borrower, whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (A) All Accounts; (B) All monies and other Property of any kind, now or at any time or times hereafter, in the possession or under the control of Lender or a bailee of Lender, including, without limitation the Cash Collateral Account; Page 65 (C) All Equipment, including, without limitation, the Equipment described on Schedule 6.1(C) attached hereto; (D) All Inventory including, without limitation, the Inventory described on Schedule 6.1(D) attached hereto; (E) All of the real property, including, without limitation, all easements, tenements, all buildings, structures and improvements now or hereafter placed on the real property, and all fixtures now or hereafter installed, located therein, and all appurtenances thereto, thereon or therein described on Schedule 6.1(E) attached hereto; (F) All substitutions for and all replacements, products and cash and non-cash proceeds of any of the Collateral described in (A), (B), (C), (D) or (E) above, including, without limitation, proceeds of any of such Collateral; and (G) All books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of Borrower pertaining to any of the Collateral described in (A), (B), (C), (D), (E) or (F) above. 6.2. Representations, Warranties and Covenants -- Collateral. To induce Lender to enter into this Agreement, Borrower represents, warrants, and covenants to Lender: (A) The Collateral is now, and will be and so long as the Obligations are outstanding, owned solely by Borrower. No other Person has or will have any right, title, interest, claim, or Lien therein, thereon or thereto other than a Permitted Lien. (B) The Liens granted to Lender shall be first and prior on the Collateral and as to the Accounts and proceeds, including insurance proceeds, resulting from the sale, disposition, or loss thereof. Except for the filing of appropriate financing statements, no further action need be taken to perfect the Liens granted to Lender, other than the filing of continuation statements under the Code or other applicable law at appropriate times and continued possession by Lender of that portion of the Collateral constituting instruments or documents. (C) Borrower shall pay and discharge when due or within any period when payment may be made without penalty all taxes, levies, and other charges upon said Collateral and upon the goods evidenced by any documents constituting Collateral and shall defend Lender against and save it harmless from all claims of any Person with respect to the Collateral except that Borrower's failure to pay any such taxes shall not be deemed an Event of Default so long as Borrower's failure to pay any such taxes has not given rise to a Lien other than a Permitted Lien. This indemnity shall include reasonable attorneys' fees and legal expenses. 6.3. Financing Statements. Borrower agrees to execute the financing statements provided for by the Code together with any and all other instruments, assignments or documents and shall take such other action as may be required to perfect or to continue the perfection of Lender's Page 66 security interest in the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes Lender to execute and file any such financing statement on Borrower's behalf. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 6.4. Cash Collateral Account. The Obligations also shall be secured by the Cash Collateral Account pursuant to the Cash Collateral Account Agreement. 6.5 Additional Collateral Prior to Lender making any Revolving Credit Loan or Line of Credit Loan to Borrower to finance Borrower's acquisition of any real estate which is not described on Schedule 6.1(E) hereof, Borrower shall (i) execute and deliver any and all other documents, instruments and agreements as Lender may from time to time request in order to perfect and maintain the perfection of Lender's Lien in such real estate, (ii) deliver or cause to be delivered to Lender, at Borrower's expense, a mortgagee title insurance policy issued by a title insurance company acceptable to Lender, and insuring Lender's Lien in such real estate, which policy shall be in form and substance satisfactory to Lender and shall insure a valid first priority Lien in favor of Lender in such real estate (subject only to such exceptions as may be acceptable to Lender and its counsel) and (iii) deliver, or cause to be delivered such opinion letters, appraisals, surveys, record examination reports and environmental audit reports as Lender may request, all at Borrower's expense. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1. General Representations and Warranties. To induce Lender to enter into this Agreement and to make advances hereunder, Borrower warrants, represents and covenants to Lender that: (A) Organization and Qualification. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Borrower has duly qualified and is authorized to do business and is in good standing as a foreign corporation in each state or jurisdiction listed on Schedule 7.1(A) attached hereto and made a part hereof and in all other states and jurisdictions where the character of its Properties or the nature of its activities make such qualification necessary and in which the failure to be so qualified would have a material adverse affect on Borrower's business operations or financial condition. (B) Corporate Names. During the preceding five (5) years, Borrower has not been known as or used any corporate, fictitious or trade names except as disclosed on Schedule 7.1(B) attached hereto and made a part hereof. Except as set forth on Schedule 7.1(B), Borrower has not, during the preceding five (5) years, been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. (C) Corporate Power and Authority. Borrower has the right and power and is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it Page 67 is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders of Borrower; (ii) contravene Borrower's charter, articles of incorporation or by-laws; (iii) violate, or cause Borrower to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Borrower; (iv) result in a breach of or constitute a default under any material indenture or loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by Borrower. (D) Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of Borrower enforceable against it in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally or by principles of equity pertaining to the availability of equitable remedies. (E) Use of Proceeds. Borrower's uses of the proceeds of any advances made by Lender to Borrower pursuant to this Agreement are, and will continue to be, legal and proper corporate uses, duly authorized by its Board of Directors, and such uses are consistent with all applicable laws and statutes, as in effect as of the date hereof. (F) Margin Stock. Borrower is not engaged principally, or as one of its important activities, in the business of purchasing or carrying "margin stock" (within the meaning of Regulation G or U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loans to Borrower will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or be used for any purpose which violates or is inconsistent with the provisions of Regulation G, T, U or X of said Board of Governors. (G) Governmental Consents. Borrower has, and is in good standing with respect to, all governmental consents, approvals, authorizations, permits, certificates, inspections, and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it. (H) Solvent Financial Condition. Borrower is now and, after giving effect to the initial Loans to be made hereunder, at all times will be, Solvent. (I) Litigation. Except as set forth on Schedule 7.1(I) attached hereto and made a part hereof, there are no actions, suits, proceedings or investigations pending, or to the knowledge of Borrower, threatened, against or affecting Borrower, or the business, operations, Properties, prospects, profits or condition of Borrower, in any court or before any governmental authority or arbitration board or tribunal, and no action, Page 68 suit, proceeding or investigation shown on Schedule 7.1(I) involves the possibility of materially and adversely affecting the Properties, business, profits or condition (financial or otherwise) of Borrower or the ability of Borrower to perform this Agreement. Borrower is not in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal which might materially and adversely affect the Properties, business, profits or condition (financial or otherwise) of Borrower. (J) Title to Properties. Borrower has good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its real Property, and good title to all of its other Property, including, without limitation, the Accounts, Inventory and Equipment, in each case, free and clear of all Liens except Permitted Liens. (K) Financial Statements. The balance sheet of Borrower as of September 30, 1995, and the related statements of income, changes in stockholder's equity, and changes in financial position for the periods ended on such dates, have been prepared in accordance with GAAP (except for changes in application in which Borrower's independent certified public accountants concur), and present fairly the financial position of Borrower at such dates and the results of Borrower's operations for such periods. Since September 30, 1995, there has been no material adverse change in the condition, financial or otherwise, of Borrower, except changes in the ordinary course of business, which individually or in the aggregate has been materially adverse. (L) Full Disclosure. The financial statements referred to in Section 7.1(K) above, do not, nor does this Agreement or any other written statement of Borrower to Lender (including, without limitation, Borrower's filings, if any, with the Securities and Exchange Commission), contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which Borrower has failed to disclose to Lender in writing which materially affects adversely or, so far as Borrower can now foresee, will materially affect adversely the Properties, business, profits, or condition (financial or otherwise) of Borrower or the ability of Borrower to perform this Agreement. (M) Pension Plans. Except as disclosed on Schedule 7.1(M) attached hereto and made a part hereof, Borrower has no Plan. Borrower has not received any notice to the effect that it is not in full compliance with any of the requirements of ERISA and the regulations promulgated thereunder. No fact or situation, including, but not limited to, any Reportable Event, or Prohibited Transaction exists in connection with any Plan which would create a liability of the Borrower. Borrower does not have any withdrawal liability in connection with a Multiemployer Plan. (N) Taxes. Borrower has filed all federal, state and local tax returns and other reports it is required by law to file and has paid, or made provision for the payment of, all taxes, assessments, fees and other governmental charges that are due and payable, except such taxes, if any, as are being actively contested in good faith and as to which adequate Page 69 reserves have been provided. The provision for taxes on the books of Borrower is adequate for all years not closed by applicable statutes, and for its current fiscal year. (O) Compliance With Laws. Except with respect to Environmental Laws, which are covered in Section 7.1(P) below, Borrower has duly complied with, and its Properties, business operations and leaseholds are in compliance with, in all material respects, the provisions of all federal, state and local laws, rules and regulations applicable to Borrower, its Properties or the conduct of its business, including, without limitation, OSHA and all Environmental Laws, and there have been no citations, notices or orders of noncompliance issued to Borrower under any such law, rule or regulation. (P) Environmental Laws. (i) Borrower is in compliance with all Environmental Laws, with the exceptions of instances that will not in the aggregate result in any material liability on the part of Borrower. (ii) Except as described in Schedule 7.1(P), Borrower has not received notice of any failure to comply with, nor has any such notice been issued that has not been satisfied so as to bring any property of Borrower into compliance with, all Environmental Laws. All licenses, permits or registrations (or any extensions thereof) required under any Environmental Laws for the business of Borrower as proposed to be conducted have been obtained, and Borrower is in compliance therewith. Borrower is in compliance with, and is not in breach of or default under applicable order of any Governmental Authority and no event has occurred and is continuing that, with the passage of time or the giving of notice or both, would constitute compliance, breach or default thereunder. (iii) Except as described in Schedule 7.1(P), (a) no Hazardous Substance has been Released (and no oral or written notification of such Release has been filed) or is present (whether or not in a reportable or threshold planning quantity) at, on or under any property owned or leased by Borrower during the period of Borrower's ownership or lease, under conditions that required substantial remedial action under applicable Environmental Laws, and (b) no property now or previously owned or leased by Borrower has, directly or indirectly, transported or arranged for the transportation of any Hazardous Substances to any site listed, or proposed for listing, on the National Priorities List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar Federal, state or foreign list of sites requiring investigation or cleanup. Borrower is not aware of any event, condition or circumstances involving environmental pollution or contamination, or employee safety or health relating to the use or handling of, or exposure to, Hazardous Substances, that could reasonably be expected to materially adversely effect the operations, Properties, business, prospects, profits or financial condition of Borrower. Borrower and Lender acknowledge and agree that certain Inventory consists of radioactive isotopes, which shall be handled in compliance with all Environmental Laws. Page 70 (Q) No Defaults. No event has occurred and no condition exists which would, upon the execution and delivery of this Agreement or Borrower's performance hereunder, constitute a Default or an Event of Default. Borrower is not in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness of Borrower to any Person for Money Borrowed. (R) Brokers. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. (S) Investment Company Act. Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.2. Reaffirmation Each request for a Loan made by Borrower pursuant to this Agreement or any of the other Loan Documents shall constitute (i) an automatic representation and warranty by Borrower to Lender that there does not then exist any Default or Event of Default and (ii) a reaffirmation as of the date of said request of all of the representations and warranties of Borrower contained in this Agreement and the other Loan Documents except as to those changes otherwise consented to by Lender or contemplated herein. 7.3. Survival of Representations and Warranties. Borrower covenants, warrants and represents to Lender that all representations and warranties of Borrower contained in this Agreement or any of the other Loan Documents shall be true at the time of Borrower's execution of this Agreement and the other Loan Documents in all material respects, and shall survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1. Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless otherwise consented to by Lender in writing, it shall: (A) Taxes and Liens. Pay and discharge all taxes, assessments and governmental charges upon it, its income and Properties as and when such taxes, assessments and charges are due and payable, or within any period prior to the imposition of penalties, except and to the extent only that such taxes, assessments and charges are being actively contested in good faith and by appropriate proceedings, Borrower maintains adequate reserves on its books therefor and the nonpayment of such taxes, assessments and charges does not result in a Lien upon any Properties or Borrower other than a Permitted Lien. Borrower shall also pay and discharge any lawful claims which, if unpaid, might become a Lien against any of Borrower's Properties except for Permitted Liens. Page 71 (B) Tax Returns. File all federal, state and local tax returns and other reports Borrower is required by law to file, and maintain adequate reserves for the payment of all taxes, assessments, governmental charges, and levies imposed upon it, its income, or its profits, or upon any Property belonging to it. (C) Business and Existence. Preserve and maintain its separate corporate existence and all rights, privileges, and franchises in connection therewith, and maintain its qualification and good standing in all states in which such qualification is necessary and in which the failure to so qualify would materially and adversely affect its business operations or financial condition. (D) Maintain Properties. Maintain its Properties in good condition and make all necessary renewals, repairs, replacements, additions and improvements thereto to the extent permitted hereby and except as caused by ordinary wear and tear, obsolescence, loss or damage. (E) Compliance with Laws. Comply with all laws, ordinances, governmental rules and regulations, in all material respects, to which it is subject, and obtain and keep in force any and all governmental licenses, permits, franchises, or other governmental authorizations necessary to the ownership of its Properties or to the conduct of its business. (F) ERISA Compliance. (i) At all times make prompt payment of contributions required to meet the minimum funding standards set forth in ERISA with respect to each Plan; (ii) promptly after the filing thereof, furnish to Lender copies of any annual report required to be filed pursuant to ERISA in connection with each Plan and any other employee benefit plan of it and its Affiliates; (iii) notify Lender as soon as practicable of any Reportable Event and of any additional act or condition arising in connection with any Plan which Borrower believes might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States district court of a trustee to administer the Plan; and (iv) furnish to Lender, promptly upon Lender's request therefor, such additional information concerning any Plan or any other such employee benefit plan as may be reasonably requested. (G) Business Records. Keep adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions. (H) Visits and Inspections. Permit representatives of Lender, from time to time, as often as may be reasonably requested, but only during normal business hours, to visit and inspect the Properties of Borrower, inspect and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, Borrower's business, assets, liabilities, financial condition, business prospects and results of operations. Provided there shall be no ongoing and uncured Event of Default, (i) Lender shall give Borrower at least one Business Day's notice of any such inspection and (ii) Borrower may impose reasonable limitations on Lender's inspection of Borrower's business operations Page 72 involving Hazardous Substances to ensure compliance with Environmental Laws and the safe handling of such Hazardous Substances. (I) Financial Statements. Cause to be prepared and furnished to Lender the following: (i) as soon as possible, but not later than ninety (90) days after the close of each fiscal year of Borrower audited financial statements (accompanied by an unqualified report from Borrower's certified public accountants) of Borrower as of the end of such year prepared in accordance with GAAP applied on a consistent basis, unless Borrower's certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with GAAP, certified by a firm of independent certified public accountants of recognized standing selected by Borrower but acceptable to Lender, which acceptance shall not be unreasonably withheld; (ii) as soon as possible, but not later than forty-five (45) days after the end of each fiscal quarter, unaudited interim financial statements of Borrower as of the end of such quarter and of the portion of Borrower's fiscal year then elapsed, certified by the chief financial officer of Borrower as prepared in accordance with GAAP consistently applied and fairly presenting the financial position and results of operations of Borrower for such quarter and period (subject to normal recurring year end adjustments); (iii) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (iv) such other data and information (financial and otherwise) as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral, Borrower's financial condition or results of operations, including, without limitation, federal income tax returns of Borrower, accounts payable ledgers, and bank statements. Concurrently with the delivery of the financial statements described in clauses (i) and (ii) of this Section 8.1(I), Borrower shall cause to be prepared and furnished to Lender a certificate of the chief financial officer of Borrower in the form of Exhibit D attached hereto duly completed. (J) Notices to Lender. Notify Lender in writing: (i) promptly after Borrower's learning thereof, of the commencement of any litigation affecting Borrower or any of its Properties, whether or not the claim is considered by Borrower to be covered by insurance, and of the institution of any administrative proceeding which may materially and adversely affect Borrower's operations, financial condition, Properties or business or Lender's Lien upon any of the Collateral; (ii) at least thirty (30) days prior thereto, of Borrower's opening of any new office or place of business Page 73 or Borrower's closing of any existing office or place of business; (iii) promptly after Borrower's learning thereof, of any labor dispute to which Borrower may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which it is a party or by which it is bound; (iv) promptly after Borrower's learning thereof, of any material default by Borrower under any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other similar agreement relating to any Indebtedness of Borrower exceeding $25,000; (v) promptly after Borrower's learning thereof, of any Default or Event of Default; (vi) promptly after the occurrence thereof, of any default by any obligor under any note or other evidence of Indebtedness payable to Borrower in excess of $25,000; (vii) promptly after the rendition thereof, of any judgment rendered against Borrower in excess of $25,000 and (viii) promptly after the occurrence thereof, any resignation, retirement, termination, appointment or substitution, whether permanent or temporary, of the chief executive officer, chief operating officer or chief financial officer of Borrower. (K) Environmental Laws. Borrower will: (i) comply with any and all licenses, approvals, registrations or permits required by Environmental Laws; (ii) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions, required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings; and (iii) promptly notify Lender of any of the following: (a) any Environmental Claim that Borrower receives, including one to take or pay for any remedial, removal, response or cleanup or other action with respect to any Hazardous Substance contained on any property owned or leased by Borrower; (b) any notice of any alleged violation of or knowledge by Borrower of Environmental Law; and (c) any commencement or threatened commencement of any judicial or administrative proceeding or investigation alleging a violation or potential violation of any requirement of any Environmental Law by Borrower. Borrower agrees to indemnify Lender and its directors, officers, employees, agents and Affiliates (each such person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses (including attorneys' fees, charges and disbursements) of whatever Page 74 kind or nature arising out of , or in any way relating to, the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of Borrower or to the Collateral, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorneys' and consultants' fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Indemnitee seeking indemnification therefor. The obligations of Borrower under this Section shall survive the termination of this Agreement indefinitely. (L) Further Assurances. At Lender's request, promptly execute or cause to be executed and deliver to Lender any and all documents, instruments and agreements deemed reasonably necessary by Lender to give effect to or carry out the terms or intent of this Agreement or any of the other Loan Documents. Without limiting the generality of the foregoing, if any of the Accounts, the face value of which exceeds $5,000, arises out of a contract with the United States of America, or any department, agency, subdivision or instrumentality thereof, Borrower shall promptly notify Lender thereof in writing and shall execute any instruments and take any other action required or requested by Lender to comply with the provisions of the Federal Assignment of Claims Act. (M) Insurance. Borrower will maintain, with financially sound and reputable insurers, insurance with respect to its Properties and business and against such casualties, liabilities and contingencies of such type (including, without limitation, public liability, product liability, larceny, embezzlement or other criminal misappropriation) and in such amounts as is customary for similarly situated Persons engaged in businesses similar to those of Borrower. (N) Primary Banking Relationships. To the maximum extent permitted by applicable law, Borrower shall maintain its primary banking relationships with Lender. (P) Title Policy Endorsement. Within thirty (30) days after the date hereof, Borrower agrees to deliver or cause to be delivered to Lender, at Borrower's expense, a title insurance endorsement to Lender's existing title insurance policy in form and substance satisfactory to Lender. 8.2. Negative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless Lender has first consented thereto in writing, it will not: (A) Mergers; Consolidations; Acquisitions. Merge or consolidate with any Person or acquire all or any substantial part of the Properties of any Person. Page 75 (B) Loans. Make any loans or other advances of money (other than for salary, travel advances, advances against commissions and other similar advances in the ordinary course of business) to any Person, including, without limitation, any of Borrower's Affiliates, officers or employees, except that Borrower may have loans or other advances of money outstanding to its employees so long as the aggregate outstanding principal balance thereof does not exceed $150,000 at any one time. (C) Affiliate Transactions. Enter into, or be a party to any transaction with any Affiliate or stockholder, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to Borrower than would obtain in a comparable arm's length transaction with a Person not an Affiliate or stockholder of Borrower. (D) Guaranties. Guarantee, assume, endorse or otherwise, in any way, become directly or contingently liable with respect to the Indebtedness of any Person except by endorsement of instruments or items of payment for deposit or collection in the ordinary course of business. (E) Limitation on Liens. Create or suffer to exist any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of Lender; (ii) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due or being contested as permitted by Section 8.1(A) hereof, but only if in Lender's judgment such Lien does not affect adversely Lender's rights or the priority of Lender's Lien in the Collateral; (iii) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons for labor, materials, supplies or rentals incurred in the ordinary course of Borrower's business, but only if the payment thereof is not at the time required (or if payment is required, only if and for so long as the execution or other enforcement of such Liens is and continues to be effectively stayed and bonded in a manner satisfactory to Lender for the full amount thereof, the validity and amount of the claims secured thereby are being actively contested in good faith and by appropriate lawful proceedings and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business) and only if such Liens are junior to the Liens in favor of Lender; (iv) liens incurred or deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance, social security and other like laws; (v) attachment, judgment and other similar non-tax Liens arising in connection with court proceedings, but only if and for so long as the execution or other enforcement of such Liens is and continues to be effectively stayed and bonded on appeal in a manner satisfactory to Lender for the full amount thereof, the validity and amount of the claims secured thereby are being actively contested in good faith and by appropriate lawful proceedings and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business; (vi) Purchase Money Liens not otherwise inconsistent with the terms of this Agreement; (vii) reservations, exceptions, easements, rights of way, and other similar Page 76 encumbrances affecting real Property, provided that, in Lender's sole judgment, they do not in the aggregate materially detract from the value of said Properties or materially interfere with their use in the ordinary conduct of Borrower's business and, if said real Property constitutes Collateral, Lender has consented thereto; and (viii) such other Liens as may be expressly disclosed on Schedule 8.2(E) attached hereto. (F) Subsidiaries. Hereafter create or acquire any subsidiary. (G) Business Locations. Transfer its principal place of business or chief executive office or maintain records with respect to its Accounts at any locations other than those at which the same are presently kept or maintained except upon at least thirty (30) days prior written notice to Lender and after the delivery to Lender of financing statements, if required by Lender, in form satisfactory to Lender to perfect or continue the perfection of Lender's Lien and security interest hereunder. (H) Change of Business. Enter into any new business or make any material change in any of Borrower's business objectives and purposes. (I) Disposition of Assets. Sell, lease or otherwise dispose of any of its Properties except for sales in the ordinary course of its business. (J) Restricted Investment. Make or have any Restricted Investment. (K) Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness evidenced by or arising under this Agreement, the Letter of Credit Agreement or any of the other Loan Documents; (ii) unsecured current liabilities (other than those for Money Borrowed) incurred in the ordinary course of business for current purposes and which are not represented by a promissory note or other evidence of indebtedness and are not more than thirty (30) days past due; (iii) Indebtedness described on Schedule 8.2(K) hereto; (iv) Purchase Money Indebtedness not otherwise inconsistent with the terms of this Agreement; and (v) renewals or extensions of any of the Indebtedness described in items (i) through (iv) above (but only so long as any indebtedness described in items (ii), (iii) or (iv) above is not increased after the date hereof). (L) Minimum Tangible Net Worth. Borrower's Tangible Net Worth shall not be less than $9,200,000 at any time during the period from the date hereof through the end of its fiscal year ending on December 31, 1995, and Borrower shall maintain a Tangible Net Worth at all times during each fiscal year ending after December 31, 1995 which is not less than the sum of the minimum Tangible Net Worth of Borrower required hereunder for the immediately preceding fiscal year plus fifty percent (50%) of Borrower's Net Income after taxes for such prior year (rounded up to the nearest one hundred thousand dollars but such sum shall not be reduced if Borrower suffers a net loss in any one year). (M) Leverage Ratio. Borrower's Leverage Ratio shall not be more than .5 to 1.0 as of the end of any fiscal quarter or fiscal year ending on or after the date hereof. Page 77 (N) Debt Service Coverage Ratio. As of the end of each fiscal quarter, Borrower shall not permit (a) Borrower's EBITDA for the Borrower's most recently completed four (4) quarters, divided by (b) total principal and interest payable on Indebtedness for Money Borrowed during such four (4) quarters, to be less than 1.25 to 1.0. (O) Unbudgeted Capital Expenditures. Borrower's Unbudgeted Capital Expenditures shall not exceed $500,000 during any fiscal year ending on or after December 31, 1995. (P) Dividends, Distributions, Etc. Borrower shall not declare or pay any dividend on its capital stock (other than stock dividends) or make any payment to purchase, redeem, retire or acquire any of its capital stock or any option, warrant or other right to acquire such capital stock if such declaration or payment would cause a Default or Event of Default under any of the financial covenants set forth in this Section 8.2. SECTION 9. CONDITIONS PRECEDENT Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other Sections of this Agreement, it is understood and agreed that Lender will not be obligated to make any Loan under Section 2 or Section 3 of this Agreement unless and until each of the following conditions has been and continues to be satisfied, all in form and substance satisfactory to Lender and its counsel: 9.1. Documentation. Lender shall have received the following documents, each to be in form and substance satisfactory to Lender and its counsel: (A) The Loan Documents duly executed, completed and delivered by Borrower, including the First Modification of Deed to Secure Debt, Assignment of Rents and Security Agreement in the form of Exhibit C attached hereto; (B) Certified copies of Borrower's liability insurance policies, together with endorsements naming Lender as a co-insured; (C) Copies of all filing receipts or acknowledgments issued by any governmental authority to evidence any filing or recordation necessary to perfect the Liens of Lender in the Collateral and evidence in a form acceptable to Lender that such Liens constitute valid and perfected security interests and Liens, having the Lien priority specified in Section 6.2(B) hereof; (D) A copy of the Certificate of Incorporation of Borrower, and all amendments thereto, certified as of a recent date by the Secretary of State of Delaware; Page 78 (E) Current good standing certificates (or certificates of existence) for Borrower, issued by the Secretary of State of each of Delaware and Georgia; (F) A closing certificate signed by the Chief Financial Officer and the Assistant Secretary of Borrower dated as of the date hereof, and in the form of Exhibit E attached hereto, duly completed; (G) An opinion of Borrower's counsel in the form of Exhibit F attached hereto and a written report of a recent examination under Borrower's name of the Uniform Commercial Code financing statement, federal and state tax lien and judgment lien records of Gwinnett County, Georgia; (H) Lien Subordination Agreements executed by all contractors listed on Exhibit C to the Borrower's Affidavit dated as of the date hereof executed by Bruce W. Smith; and (I) A First Modification of Cash Collateral Account Agreement dated as of the date hereof from Borrower; and (J) Such other documents, instruments and agreements as Lender shall reasonably request in connection with the foregoing matters. 9.2. Other Conditions. The following conditions have been and shall continue to be satisfied, in the sole judgment of Lender as of the date of and after giving effect to such Loan or the issuance of such Letter of Credit: (A) No Default or Event of Default shall exist; (B) Each of the conditions precedent set forth in the other Loan Documents shall have been satisfied; (C) Since September 30, 1995, there shall not have occurred any material adverse change in the business, financial condition or results of operations of Borrower, or the existence or value of any Collateral, or any event, condition or state of facts which would reasonably be expected materially and adversely to affect the business, financial condition or results of operations of Borrower; and (D) No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby or which, in Lender's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents; and Page 79 SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 10.1. Events of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default": (A) Payment of Obligations. Borrower shall fail to pay any of the Obligations on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise). (B) Misrepresentations. Any warranty, representation, or other statement made or furnished to Lender by or on behalf of Borrower or in any instrument, certificate or financial statement furnished in compliance with or in reference to this Agreement or any of the other Loan Documents proves to have been false or misleading in any material respect when made or furnished. (C) Breach of Covenants. Borrower shall fail or neglect to perform, keep or observe (i) any covenant contained in Sections 6.2, 6.3 or 8.2 of this Agreement or (ii) any other covenant contained in this Agreement (other than a covenant a default in the performance or observance of which is dealt with specifically elsewhere in this Section 10.1) and the breach of such other covenant is not cured to Lender's satisfaction within thirty (30) days after the sooner to occur of Borrower's receipt of notice of such breach from Lender or the date on which such failure or neglect becomes known to any officer of Borrower. (D) Default Under Other Loan Documents. Any event of default shall occur under, or Borrower shall default in the performance or observance of any term, covenant, condition or agreement contained in, any of the other Loan Documents and such default shall continue beyond any applicable period of grace. (E) Other Defaults. There shall occur any default or event of default on the part of Borrower (including specifically, but without limitation, due to non-payment) under any agreement, document or instrument to which Borrower is a party or by which Borrower or any of its Property is bound, creating or relating to any Indebtedness if the payment or maturity of such Indebtedness is accelerated in consequence of such event of default or demand for payment of such Indebtedness is made and the amount at issue exceeds $25,000. (F) [Intentionally omitted]. (G) Adverse Changes. There shall occur any material adverse change in the financial condition of Borrower or the ability of Borrower to pay or perform its Obligations. (H) Insolvency, etc. Borrower shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against Borrower under the Bankruptcy Code (if against Borrower, the continuation of such proceeding for more than thirty (30) days), or Borrower shall make any Page 80 PAGE offer of settlement, extension or composition to its unsecured creditors generally. (I) Business Disruption; Condemnation. There shall occur a cessation of a substantial part of the business of Borrower for a period which significantly affects Borrower's capacity to continue its business, on a profitable basis; or Borrower shall suffer the loss or revocation of any governmental license or permit now held or hereafter acquired by Borrower which is necessary to the continued or lawful operation of its business; or Borrower shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs; or any material lease or agreement pursuant to which Borrower leases, uses or occupies any Property shall be cancelled or terminated prior to the expiration of its stated term; or any material part of the Collateral shall be taken through condemnation or the value of such Property shall be impaired through condemnation unless said proceeds are remitted to Lender. (J) ERISA. A Reportable Event shall occur which Lender, in its sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if Borrower is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's complete or partial withdrawal from such Plan. (K) Litigation. Borrower shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender. (L) Change in Control. The acquisition after the date of this Agreement by any Person or, by any two or more Persons, acting in concert, of beneficial ownership (within the meaning of Rule 13-d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of either (a) twenty percent (20%) or more of the outstanding voting stock of the Borrower or (b) the power to direct or cause the direction of the management and policies of the Borrower whether through the ownership of voting securities, by contract or otherwise. (M) Change in Management. Any material change in the executive management of the Borrower unless such person is replaced by a person possessing executive, financial, managerial, scientific and technical knowledge reasonably comparable to such person. (N) Lender Insecurity. Lender shall in good faith deem itself insecure as to the prospect of Borrower's ability to pay or perform its Obligations. Page 81 10.2. Acceleration of the Obligations. Without in any way limiting the right of Lender to demand payment of any portion of the Obligations payable on demand in accordance with this Agreement, upon and after the occurrence of an Event of Default as above provided, all or any portion of the Obligations due or to become due from Borrower to Lender, whether under this Agreement, or any of the other Loan Documents or otherwise, shall, at the option of Lender and without notice or demand by Lender, become at once due and payable and Borrower shall forthwith pay to Lender, in addition to any and all sums and charges due, the entire principal of and interest accrued on the Obligations. 10.3. Remedies. Upon the occurrence of an Event of Default and during the continuation thereof, Lender shall have and may exercise from time to time the following rights and remedies: (A) By written notice to the Borrower, terminate the Lender's remaining commitment hereunder to make any further loans to Borrower whereupon any such commitment shall terminate immediately. (B) All of the rights and remedies of a secured party under the Code or under other applicable law, and all other legal and equitable rights to which Lender may be entitled, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents. (C) The right to take immediate possession of the Collateral, and (i) to require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Lender at a place designated by Lender which is reasonably convenient to both parties, and (ii) to enter any of the premises of Borrower or wherever any of the Collateral shall be located, and to keep and store the same on said premises until sold (and if said premises be the Property of Borrower, Borrower agrees not to charge Lender for storage thereof). (D) The right to sell or otherwise dispose of all or any Inventory in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or in credit, all as Lender in its sole discretion, may deem advisable. Borrower agrees that ten (10) days' prior written notice to Borrower of any public or private sale or other disposition of such Collateral shall be reasonable notice thereof and such sale shall be at such location as Lender may designate in said notice. Lender shall have the right to conduct such sales on Borrower's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Lender shall have the right to sell, lease or otherwise dispose of such Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of such collateral at public or, if permitted by applicable law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the obligations. Page 82 (E) Lender is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter or any Property of a similar nature as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit. (F) The proceeds realized from the sale of any Collateral may be applied, after allowing two (2) Business Days for collection, first to the reasonable costs, expenses and attorneys' fees and expenses incurred by Lender for collection and for acquisition, completion, protection, removal, storage, sale and delivery of the Collateral; secondly, to interest due upon any of the Obligations; and thirdly, to the principal of the Obligations. If any deficiency shall arise, Borrower and the Guarantor shall remain liable to Lender therefor; and any surplus shall be paid to Borrower. 10.4. Remedies Cumulative; No Waiver. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule given to Lender or contained in any other agreement between Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Lender to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such Liens, rights, powers and remedies, but all such Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied, and all Liens, rights, powers, and remedies herein provided for are cumulative and none are exclusive. SECTION 11. MISCELLANEOUS 11.1. Power of Attorney. Borrower hereby irrevocably designates, makes, constitutes and appoints Lender (and all Persons designated by Lender) as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's agent, may, without notice to Borrower and in either Borrower's or Lender's name, but at the cost and expense of Borrower: (A) At such time or times hereafter as Lender or said agent, in its sole discretion, may determine, endorse Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Lender or under Lender's control; and (B) At such time or times upon or after the occurrence of an Event of Default as Lender or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Page 83 Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Lender deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to Borrower and to notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (vii) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Lender on account of the Obligations; (viii) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use Borrower's stationery and sign the name of Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory and any other Collateral and to which Borrower has access; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement. 11.2. Indemnity. Borrower hereby agrees to indemnify Lender and hold Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Lender as the result of Borrower's failure to observe, perform or discharge Borrower's duties hereunder. Without limiting the generality of the foregoing, this indemnity shall extend to any claims asserted against Lender by any Person under any Environmental Laws or similar laws by reason of Borrower's or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. 11.3. Modification of Agreement; Sale of Interest. This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Borrower and Lender. Borrower may not sell, assign or transfer any interest in this Agreement or any of the other Loan Documents, or any portion thereof, including, without limitation, Borrower's rights, title, interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby consents to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, Lender's rights, title, interests, remedies, powers, and duties hereunder or thereunder. 11.4. Reimbursement of Expenses. If, at any time or times prior or subsequent to the date hereof, regardless of whether or not an Event of Default then exists or any of the transactions contemplated hereunder are concluded, Lender employs counsel for advice or other representation, or incurs legal expenses or other costs or out-of-pocket expenses in connection with: (A) the negotiation and preparation of this Agreement or Page 84 any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents; or (B) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby; (C) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's affairs; (D) any attempt to enforce any rights of Lender against Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (E) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then, in any such event, the attorneys' fees arising from such services and all expenses, costs, charges and other fees of such counsel or of Lender or relating to any of the events or actions described in this Section shall be payable, on demand, by Borrower to Lender, and shall be additional Obligations hereunder secured by the Collateral. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include accountant' fees, costs and expenses; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial over-time charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal services. Additionally, if any taxes (excluding taxes imposed upon or measured by the net income of Lender) shall be payable on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any of the other Loan Documents, or the creation of any of the Obligations hereunder, by reason of any existing or hereafter enacted federal or state statute, Borrower will pay all such taxes, including, but not limited to, any interest and penalties thereon, and will indemnify and hold Lender harmless from and against liability in connection therewith. 11.5. Indulgences Not Waivers. Lender's failure, at any time or times hereafter, to require strict performance by Borrower of any provision of this Agreement shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of an Event of Default by Borrower under this Agreement or any of the other Loan Documents shall not suspend, waive or affect any other Event of Default by Borrower under this Agreement or any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default by Borrower under this Agreement or any of the other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrower. 11.6. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be Page 85 ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.7. Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Lender. This provision, however, shall not be deemed to modify Section 11.3 hereof. 11.8. Cumulative Effect; Conflict of Terms. The provisions of the other Loan Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.9. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 11.10. Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto to be effective shall be in writing (and, if sent by mail, shall be sent by certified or registered mail, return receipt requested) or by telegraph or telex or telecopy and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered when delivered against receipt or one Business Day after deposit in the mail, postage prepaid, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answer back received, or, in the case of telecopy notice, when telecopied, addressed as follows: (A) If to Lender: Bank South 55 Marietta Street, N.W. Atlanta, Georgia 30303 Attn: Regional Corporate Banking Telecopy: (404) 529-4698 (B) If to Borrower: Theragenics Corporation 5325 Oakbrook Parkway Norcross, Georgia 30093 Attn: Bruce Smith Telecopy: (770) 381-8447 With a copy to: Smith, Gambrell & Russell Suite 3100, Promenade II 1230 Peachtree Street, N.E. Atlanta, Georgia 30309 Attn: David J. Harris Telecopy: (404) 815-3509 Page 86 or to such other address as each party may designate for itself by like notice given in accordance with this Section 11.10; provided, however, that any notice, request or demand to or upon Lender pursuant to Sections 2.2 or 3.2 shall not be effective until received by Lender. 11.11. Lender's Consent. Whenever Lender's consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, Lender shall be authorized to give or withhold such consent in its sole and absolute discretion and to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 11.12. Demand Obligations. Nothing in this Agreement shall affect or abrogate the demand nature of any portion of the Obligations expressly made payable on demand by this Agreement or by any instrument evidencing or securing same, and the occurrence of an Event of Default shall not be a prerequisite for Lender's requiring payment of such Obligations. 11.13. Time of Essence. Time is of the essence of this Agreement and the other Loan Documents. 11.14. Entire Agreement. This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede the Prior Loan Agreements and all other prior agreements, understandings and inducements, whether express or implied, oral or written. Nothing contained herein is intended (or shall be construed) to be a novation of any indebtedness evidenced by the Prior Loan Agreements or to affect or modify the perfection or priority of Lender's security interests in, security titles to or other liens on any Collateral. 11.15. Reliance on Telecopies. Each of Borrower and Lender may transmit to the other any and all notices, reports or other communications required or permitted to be given under this Agreement by way of telecopy to such other party at its telecopy number shown in Section 11.10 above (or at such other telecopy number as such other party may designate by written notice given pursuant to Section 11.10 above), and in that case the party to whom any such telecopy is transmitted shall be entitled to rely on any such telecopied notice, report or other communication as an original thereof unless and until such party receives an executed original thereof. 11.16. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN ATLANTA, GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN GEORGIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE Page 84 ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF GEORGIA. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN FULTON COUNTY OF THE STATE OF GEORGIA AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED IN SECTION 11.10 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. 11.17. WAIVERS BY BORROWER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES, INCLUDING THE ISSUANCE OF AN IMMEDIATE WRIT OF [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Page 88 POSSESSION; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) ANY RIGHT BORROWER MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWER ARE USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY LENDER FROM BORROWER OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS. IN WITNESS WHEREOF, this Agreement has been duly executed in Atlanta, Georgia, on the day and year specified at the beginning hereof. ATTEST: THERAGENICS CORPORATION /s/ Lynn M. Rogers By:/s/ Bruce W. Smith Title: Assistant Secretary Title: Chief Financial Officer (CORPORATE SEAL) BANK SOUTH By:/s/ W. Brad Davis Title: Corporate Banking Officer Page 89 EX-24 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors Theragenics Corporation We hereby consent to the incorporation by reference of our report dated January 17, 1996, appearing in your Annual Report on Form 10-K for the fiscal year ended December 31, 1995, in your Registration Statement on Form S-8. Grant Thornton LLP March 28,1996 EX-27 4
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1995 DEC-31-1995 3,266,338 0 1,335,645 0 166,955 4,836,459 12,267,379 2,194,164 16,878,182 1,100,626 1,008,135 0 0 16,504,118 (1,734,697) 16,878,182 7,781,962 8,010,817 2,645,730 5,059,530 26,995 0 51,967 2,872,325 1,100,000 1,772,325 0 0 0 1,772,325 .15 .15
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