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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 For the fiscal year ended June 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-10728
GISH BIOMEDICAL, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3046028
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2681 Kelvin Avenue
Irvine, California 92714
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (714) 756-5485
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
No par value common stock
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__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
On September 20, 1996 the aggregate market value of the registrant's voting
common stock held by non-affiliates of the registrant was approximately
$22,356,937 (computed using the closing price of $6.625 per share of Common
Stock as of September 20, 1996 as reported by NASDAQ).
There were 3,374,632 shares of the registrant's common stock, no par value,
outstanding on September 20, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT WHERE INCORPORATED
Portions of Proxy Statement for the Part III, Items 10, 11, 12 and 13
1996 Annual Meeting of Shareholders
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GISH BIOMEDICAL, INC.
INDEX
<TABLE>
<CAPTION>
Part I: Page
<S> <C> <C> <C>
Item 1. Business 3 -9
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II:
Item 5. Market for Registrant's Common Equity and Related 10
Shareholder Matters
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on 25
Accounting and Financial Disclosure
Part III:
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and 25
Management
Item 13. Certain Relationships and Related Transactions 25
Part IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on 26 - 28
Form 8-K
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Gish Biomedical, Inc. ("Gish" or the "Company"), a California corporation, was
founded in 1976 to design, produce and market innovative specialty surgical
devices. The Company develops and markets its innovative and unique devices for
various applications within the medical community. The Company operates in one
industry segment, the manufacture of medical devices, which are marketed
principally through domestic and international distributors. All of Gish's
products are single use disposable products or have a disposable component. The
Company's primary markets include products for use in cardiac surgery,
myocardial management, infusion therapy, and post operative blood salvage.
In May 1992, Gish entered the orthopedic blood salvage market. The device, known
as the Orthofuser(TM), is used post surgically for high blood loss procedures
such as hip and knee replacements. The Company is currently exploring other
blood salvage applications for its technology.
ACQUISITIONS
On September 13, 1995, the Company entered into an agreement to acquire the
assets and technology of Creative Medical Development, Inc. ("CMD") a
manufacturer of ambulatory infusion pumps and began to operate the business
under a management agreement whereby Gish assumed the risks and rewards of the
operation of the aquired assets until the closing date of the aquisition. The
agreement provided for a payment of $600,000 in cash and $2,000,000 of Gish
Biomedical, Inc. common stock for these assets. The Company has included revenue
and costs related to the product lines acquired for the period September 13,
1995 through April 16, 1996 in the Company's financial statements. The Company
assumed ownership of the net assets and technology aquired from CMD on April 17,
1996, and entered into a one-year lease for the building CMD currently occupies.
In May 1992, Gish acquired a line of transducer protectors and pressure
isolators from McGaw, Inc. This acquisition has enhanced the Company's profit
margin on custom blood handling systems and the Company's sales to other device
manufacturers.
PRODUCTS
Following is a brief description of Gish's present principal products.
CUSTOM CARDIOVASCULAR TUBING SYSTEMS - During open-heart surgery, the patient's
blood is diverted from the heart through sterile plastic tubing and various
other devices to a heart-lung machine which oxygenates the blood and returns it
to the patient. Each hospital performing open-heart surgery specifies the
components to be included in its custom tubing sets, based on the particular
needs of its surgical team. The complexity of the sets varies from simple tubing
systems to all-inclusive operating packs. The packs usually include blood
filters, gas filters, reservoirs used to collect blood lost during surgery and
other components. Gish produces custom tubing sets using clear Mediflex(TM)
tubing. Such components are assembled in the Gish clean room, sterilized and
then shipped either to the hospital or to one of Gish's specialty distributors
which service such hospitals. The Company also assembles custom tubing sets for
several competitive medical device manufacturers under private label agreements.
Custom tubing set sales were approximately $9,643,200, $8,254,500 and $8,369,400
in fiscal 1996, 1995, and 1994 respectively (equal to 42%, 38% and 40% of net
sales respectively, in each of such years).
ARTERIAL FILTERS - The arterial filter is the last device the blood passes
through in the cardiovascular bypass circuit as it is being returned to the
patient. The purpose of the filter is to remove gaseous micro emboli and debris,
which are generated by the oxygenation system, from the patient's blood.
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The Company introduced its first arterial filters in 1985. The Company's first
design contained a safety bypass loop incorporated into the filter housing. The
Company received FDA approval to market an improved design which became
available for sale during the second quarter of fiscal 1994. The Company expects
that use of the new arterial filters in the custom tubing sets will improve
profitability of these systems.
CARDIOTOMY AND VENOUS RESERVOIRS - Cardiac suction is a technique employed in
open-heart surgery to recover shed blood in the chest cavity and return it to
the patient. The use of this technique reduces the requirements for whole blood
replacement from donor sources, thereby reducing risk of blood compatibility
problems and blood-borne viral diseases such as AIDS and hepatitis.
Gish's cardiotomy reservoir systems consist of a polycarbonate reservoir,
defoaming and filtration cartridge, and mounting bracket. This enables the
perfusion team to recover high volumes of shed blood, then defoam and filter it
prior to returning it to the patient's circulatory system.
In addition to the cardiotomy reservoirs' use in the operating room, Gish has
developed several systems which allow the cardiotomy reservoir to be used as a
pleural drainage or autotransfusion system during recovery.
A venous reservoir is a device used to pool, filter and defoam blood prior to
its introduction to the oxygenator. Gish offers a variety of venous reservoirs,
including some which incorporate the capacity for autologous transfusion post
surgically. The Company also has several products which incorporate the
functions of a cardiotomy, venous reservoir, post surgical blood collection and
blood reinfusion devices. This functional bundling is usually cost effective for
the hospital.
Cardiotomies and venous reservoir sales were approximately $1,971,100,
$2,439,100 and $2,566,900 for fiscal years ended June 30, 1996, 1995 and 1994
respectively (equal to 9%, 11% and 12% of net sales respectively in each such
years).
CARDIOPLEGIA DELIVERY SYSTEMS - Cardioplegia encompasses several techniques
employed in open-heart surgery to preserve, protect and manage the heart tissue.
The technique typically involves the use of a chilled solution which is infused
into the heart through the coronary arteries to cool the heart and reduce heart
activity and metabolism. However, there are many different techniques utilized
depending on the physician and patient needs. The use of these techniques
significantly reduces damage to heart tissue during surgery, enhances
restoration of heart function and helps return the patient to a normal heartbeat
when the surgical procedure is complete.
Gish has developed a complete line of cardioplegia delivery systems. Multiple
systems are required for this technique due to physician preference. Gish's
original offerings for this procedure were a series of reservoirs with a
recirculation valve (CPS) and a series of cooling coils (CCS series). The
Company has since developed a line of cardioplegia systems and heat exchangers
designed to utilize a blood and potassium mixture and allow the surgeon to
quickly change the temperature delivered to the patient.
Gish upgraded its CPS series of reservoirs with the CPS Plus(R) which was
introduced in fiscal 1993. Cardioplegia system sales were approximately
$4,611,200, $4,979,500 and $4,687,000 for fiscal year 1996, 1995, and 1994
respectively (equal to 20%, 23% and 22% of net sales respectively, in each of
such years).
OXYGEN SATURATION MONITOR - In February 1992, the Company introduced a digital
blood saturation monitor for open-heart surgery, the StatSat(TM). The
StatSat(TM) is an electronic device which measures the oxygen content of the
patient's blood during surgery. These readings are taken continuously and the
StatSat(TM) plots the course of the blood oxygen saturation during the surgery.
Although the StatSat(TM) is reusable, it uses a disposable sensor for each
surgery which is only provided by Gish in its custom tubing systems.
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CRITICAL CARE CENTRAL VENOUS ACCESS CATHETERS AND PORTS - Gish's Hemed(TM)
central venous access catheter systems have applications in hyper-alimentation,
chemotherapy, and long-term vascular access. These long-term indwelling
catheters are surgically implanted to provide direct access to the central
venous system for high protein intravenous solutions needed by patients having
nonfunctional digestive systems and for rapid dilution and dispersion of highly
concentrated drug administration in chemotherapy for cancer.
The product line includes sterile catheters and accessories sold in kits. A dual
lumen catheter which permits two substances to be administered through the same
catheter, and a dry method repair kit were introduced during fiscal 1985. In
1993, the Company introduced an enhancement to its Hemed catheter line, the
CathCap(TM). The CathCap(TM) reduces the risk of infection at the injection site
by continually bathing the injection cap in an antimicrobial solution between
injections.
Gish has enhanced the Hemed(TM) line with the Vasport(R) Implantable Ports and
the Vastack(R) Needle Support System. The Vasport(R) consists of a silicone
catheter with an implantable injection port, allowing vascular access through
small needle sticks with the skin acting as a natural barrier to infection. This
access method eliminates the need for a cumbersome external catheter. The
Company introduced a detachable port/catheter system in fiscal 1994. The Company
also introduced a dual Vasport(R) in July 1996 to meet the needs of patients
requiring multiple infusions. The Vastack(R) consists of a specially designed
needle and positioning system for use with the Vasport(R) . The needle extends
the life of the implanted injection port and the positioning system gives the
nursing staff a sure, safe method for accessing the Vasport(R).
The Hemed VasPort(R) and VasTack(R) are alternative vascular access products
used for extended long-term infusion management and are designed to complement
the Hemed catheter lines. The VasPort is a device implanted entirely under the
skin and consists of a small reservoir with a diaphragm and catheter. The
VasPort is accessed by the VasTack, a small patented non-coring needle system,
which penetrates the skin and the diaphragm of the VasPort reservoir. Drugs are
readily infused through the VasTack, into the reservoir and then into the
catheter. When the infusion is complete the VasTack is removed and the skin acts
as a natural barrier against infection. Single and double reservoir VasPorts are
available in both titanium and lightweight engineering plastics.
INFUSION PUMPS - The acquisition of the EZ-Flow infusion pump technology from
CMD in fiscal 1996, complements the Company's line of vascular access devices.
The EZ Flow 480's unique microprocessor-based design accommodates continuous,
intermittent, total parenteral nutrition ("TPN") and patient controlled
analgesia therapies ("PCA"). The EZ Flow 480's menu-driven software features
multi-view programming screens, lending itself to simple operation. The pump's
automatic calculation software automatically verifies and corrects infusion rate
and dosage intervals. The EZ Flow 480 performs complex dosage requirements such
as tapered TPN administration, time delayed antibiotic therapy, and PCA with
continuous basal infusion.
ORTHOFUSER -The patented Orthofuser(TM) is designed for post-operative use in
orthopedic surgeries such as hip and knee replacements and provides for the safe
recovery and transfusion of the patient's own blood. This product is well suited
for orthopedic procedures, as it is portable and incorporates its own internal
vacuum source. Salvaging and reusing as little as 500 cc's of blood post
surgically may be enough to avoid the use of donor blood in these types of
surgeries.
GOVERNMENT REGULATIONS
Gish's products are subject to the Federal Food, Drug and Cosmetic Act (the
"Act") and regulations issued thereunder. The Act is administered by the Federal
Food and Drug Administration ("FDA"), which has authority to regulate the
marketing, manufacturing, labeling, packaging and distribution of products
subject to the Act. In addition, there are requirements under other federal laws
and under state, local and foreign statutes which may apply to the manufacturing
and marketing of Gish products.
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Following the enactment of the Medical Device Amendments of 1976 to the Act,
("Amendments") the FDA classified medical devices in commercial distribution at
the time of enactment into one of three classes --Class I, II, or III. This
classification is based on the controls necessary to reasonably ensure the
safety and effectiveness of medical devices. Class I devices are those whose
safety and effectiveness can reasonably be ensured through general controls,
such as labeling, the pre-market notification ("510(k)") process, and adherence
to FDA-mandated good manufacturing practices ("GMP"). Class II devices are those
whose safety and effectiveness can reasonably be ensured through the use of
general controls together with special controls, such as performance standards,
post- market surveillance, patient registries, and FDA guidelines. Generally,
Class III devices are devices that must receive pre-market approval by the FDA
to ensure their safety and effectiveness. They are typically life-sustaining,
life-supporting, or implantable devices, and also include most devices that were
not on the market before May 28, 1976 and for which the FDA has not made a
finding of substantial equivalence based upon a 510(k).
If a manufacturer or distributor of medical devices can establish to the FDA's
satisfaction that a new device is substantially equivalent to a legally marketed
Class I or Class II medical device or to a Class III device for which the FDA
has not yet required pre-market approval, the manufacturer or distributor may
market the device. In the 510(k), a manufacturer or distributor makes a claim of
substantial equivalence, which the FDA may require to be supported by various
types of information showing that the device is as safe and effective for its
intended use as the legally marketed predicate device. Following submission of
the 510(k), the manufacturer or distributor may not place the new device into
commercial distribution until an order is issued by the FDA finding the new
device to be substantially equivalent.
Gish is also registered as a medical device manufacturer with the FDA and state
agencies, such as the California Department of Health Services ("CDHS") and
files a listing of its products semi-annually. The Company is inspected on a
routine basis by both the FDA and the CDHS for compliance with the FDA's GMP and
other requirements including the medical device reporting regulation and various
requirements for labeling and promotion. The FDA's GMP regulation requires,
among other things, that (i) the manufacturing process be regulated and
controlled by the use of written procedures, and (ii) the ability to produce
devices which meet the manufacturer's specifications be validated by extensive
and detailed testing of every aspect of the process. The regulation also
requires investigation of any deficiencies in the manufacturing process or in
the products produced and detailed record keeping. The FDA has proposed changes
to the GMP regulation that would, if finalized, likely increase the cost of
complying with GMP requirements. The medical device reporting regulation
requires that the device manufacturer provide information to the FDA on deaths
or serious injuries alleged to have been associated with the use of its marketed
devices, as well as product malfunctions that would likely cause or contribute
to a death or serious injury if the malfunction were to recur. Changes in
existing requirements or interpretations (on which regulations heavily depend)
or adoption of new requirements or policies could adversely affect the ability
of the Company to comply with regulatory requirements. Failure to comply with
regulatory requirements could have a material adverse effect on the Gish's
business.
Gish believes all of its present products are Class I or Class II products and
that it is in compliance in all material respects with all applicable
performance standards as well as good manufacturing practices, record keeping
and reporting requirements in the production and distribution of such products.
Several products of Gish have been determined by the FDA to be devices
substantially similar to devices marketed by others prior to May 28, 1976, the
effective date of the Amendments, and marketing of them has been authorized
pending the classification by the FDA of such products. Gish does not anticipate
any significant difficulty or material cost increases in complying with
applicable performance standards if any such products were to be classified in
Class II by the FDA. If the FDA were to classify use of Gish's cardiovascular or
catheter products as Class III products, pre-marketing clinical testing and
evaluation would be required in order to obtain FDA approval for the sale of
such products.
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Regulations under the Act permit export of products which comply with the laws
of the country to which they are exported. The Company relies upon its foreign
distributors for the necessary certifications and compliances in their
countries.
RESEARCH AND DEVELOPMENT
Gish is actively engaged in research and development programs. The objectives of
this program are to develop new products in the areas of the medical device
industry in which it is already engaged, to enhance its competitive position and
to develop new products for other medical device markets. Gish's major projects
currently under development include a myocardial management system, the
MyoManager(TM), an oxygenator, and a unique vascular access port, the
Trans-Q-Port. Additionally, the Company is working on the next generation
infusion pump and enhancements to existing products.
The Company received FDA market approval for the MyoManager(TM) myocardial
management system in June 1995, then released the MyoManager(TM) for clinical
trials during the third quarter of fiscal 1996. The initial trials of the device
indicated a need for a modest redesign of certain portions of the system. The
Company expects this redesign and the related clinical trials to be completed
before calendar 1997.
An oxygenator enables gas exchange of oxygen and carbon dioxide and also
regulates the temperature of the patient's blood. Gish has invested significant
resources in the development of its first oxygenator, which is due to be
released upon receipt of FDA market approval. The development process of this
project was delayed when the Company increased the acceptable performance
standards for its design in October 1995.
The Trans-Q-Port is a vascular access port which eliminates the need for needles
during infusion. The Company has submitted an application to the FDA for market
approval of this device. After market approval, the Company expects to conduct
extensive clinical trials and studies before general market release of this
product.
Gish's research and development expenditures for the years ended June 30, 1996,
1995, and 1994 were $1,407,500, $1,124,700 and $1,325,600 respectively.
MARKETING AND DISTRIBUTION
Gish distributes its products primarily through a network of domestic and
international distributors. In fiscal 1993 the Company undertook a review of
each of its distributor's territory and product mix. Based upon this analysis,
the Company is in the process of renegotiating territories and performance goals
with each distributor. Where appropriate, the Company has elected to hire direct
sales personnel. In July 1995, Gish terminated its relationship with its
distributor along the Eastern seaboard and hired an additional six direct
salespersons, in order to provide the Company with greater control of sales and
participation in the selling process.
Gish has increased its marketing support of its distribution system over the
past few years through increased sales management personnel, technical support,
trade advertising, collateral materials and participation in medical
conferences. The Company has not experienced, and does not expect, sales of the
Company's products to be subject to seasonality in any material respects.
COMPONENTS AND PARTS
Gish purchases components for its various products from vendors who sell such
components generally to the medical device industry. Most components for the
Company's proprietary products are manufactured from tooling owned by the
Company. Other components are manufactured by outside suppliers to the Company's
specifications.
Certain components of the Company's custom tubing sets are purchased from
competitors. Gish has not experienced difficulty in obtaining such components in
the past and believes adequate sources of supply for such items are available
on reasonable terms.
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PATENTS AND LICENSE AGREEMENTS
Gish has been issued or has patents pending on several of its products. There
can be no assurance that any patents issued would afford the Company adequate
protection against competitors which sell similar inventions or devices. There
also can be no assurance that the Company's patents will not be infringed upon
or designed around by others. However, the Company intends to vigorously enforce
all patents it has been issued.
Gish is obligated to pay a royalty equal to 3% of the net sales of its reservoir
style cardioplegia delivery systems to Dr. Bradley Harlan.
Gish is obligated under agreements entered into in 1988 to pay a royalty equal
to 4% of the net sales of its thoracostomy kit, the Thoraguide, and to pay
royalties equal to 5% of the net sales of its dual use uterine monitoring
catheter, AmCath, and the Robiscek dual channel suction wand, RBS-2 to Dr. Neil
Semrad and to Dr's Levy and Rosenwieg respectively.
Gish is obligated to pay a royalty equal to 5% of the net sales of its
MyoManager(TM), myocardial management system to Cardio-Pulmonary Services.
The Company's aggregate royalty expenses were $55,800, $49,900, and $49,400 for
the years ended June 30, 1996, 1995 and 1994 respectively.
WORKING CAPITAL AND FINANCING OF OPERATIONS
Gish finances operations primarily through cash flow generated by sales of
Gish's products. Gish seeks to increase its sales by developing new products,
increasing market share for existing products and acquiring new products.
Gish entered into a Loan and Security Agreement, (the "Agreement") with Sanwa
Bank in 1995, providing for loans up to $2,000,000 in the form of short term
advances under a revolving credit arrangement. The Agreement is renewable on
October 31, 1997. Advances to Gish under the Agreement bear interest at the
bank's prime rate. Sanwa Bank has been granted a security interest in
substantially all of Gish's assets to secure repayment of amounts borrowed by
Gish under the Agreement.
The Agreement prohibits payment of dividends on Gish's common stock, mergers or
acquisitions and other material transactions without the Sanwa Bank's consent
and requires Gish to maintain (i) tangible net worth (net worth excluding
patents, goodwill and other intangible items) of not less than $15,000,000 (ii)
current assets at least equal to two times current liabilities other than
amounts due Sanwa Bank, (iii) working capital of not less than $10,000,000 and
(iv) debt to equity ratio of not less than 1 to 1.
At June 30, 1996 the Company had no funds borrowed under the revolving credit
line, nor did the Company utilize the line during fiscal 1996.
CUSTOMER INFORMATION
The Company performs ongoing credit evaluations and maintains allowances for
potential credit losses. As of June 30, 1996 the Company believes it has no
significant concentrations of credit risk.
The Company derived the following percentages of its net sales from its
significant distributors:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
- ---- ---- ----
2% 18% 18% Kol Bio Medical, Inc.
12% 13% 13% Specialized Medical Systems
7% 10% 10% CardioVascular Concepts, Inc.
</TABLE>
As of June 30, 1995 the company terminated its relationship with Kol Bio Medical
Inc..
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BACKLOG
Almost all of Gish's products are repetitive purchase, single use disposable
products, which are shipped shortly after receipt of a customer's purchase
order. Therefore, Gish believes that it and it's distributors generally maintain
an adequate finished goods inventory to fulfill the customer's needs on demand.
Therefore, Gish believes that the backlog of orders at any given point in time
is not indicative of the Company's future level of sales.
CONTRACTS
Gish has no contracts with customers where cancellation or renegotiation would
have a material impact on the Company's sales or profit margins.
COMPETITION
The market for medical devices of the type sold by the Company is extremely
competitive. The Company believes that product differentiation and performance,
client service, reliability, cost and ease of use are important competitive
considerations in the markets in which it competes. Most of Gish's competitors
are United States concerns. Many of them are larger and possess greater
financial and other resources than Gish. Gish has approximately eight
competitors within each of the hospital markets in which it competes. No one
competitor is a dominant force in any of these markets. Gish believes it has
achieved its position in the marketplace for its present principal products by
means of superior design, quality, and service, and Gish intends to continue to
utilize these means of competing.
ENVIRONMENTAL COMPLIANCE
The Company's direct expenditures for environmental compliance were not material
in the three most recent fiscal years. However, certain costs of manufacturing
have increased due to environmental regulations placed upon suppliers of
components and services.
EMPLOYEES
As of June 30, 1996, Gish had 264 full-time employees, of whom 20 were engaged
in field sales and sales management, 175 were engaged in manufacturing and the
remainder in marketing, research and development, administrative and executive
positions. The Company believes that its relationship with its employees is
excellent. None of the Company's employees are represented by a labor union.
INTERNATIONAL OPERATIONS
Sales to foreign customers, primarily in Europe and Asia, were approximately
$3,758,600, $3,481,100 and $3,166,000 in the years ended June 30, 1996, 1995,
and 1994, respectively (equal to 16%, 16% and 15% of net sales, respectively, in
each of such years). Operating profits as a percentage of sales on foreign sales
approximate operating profits on domestic sales. All international transactions
are conducted in U.S. dollars, thus reducing the risk of currency fluctuations.
Gish does not have any facilities, property or other assets, excepting sales
representative supplies, located in any geographic area other than California,
where its offices, manufacturing and warehousing premises are located.
ITEM 2. PROPERTIES
Gish's office and manufacturing facilities are located in Irvine, California in
a building containing approximately 150,000 square feet of space under a lease
which expires in December, 2002. Within this facility Gish has constructed four
clean rooms for the assembly of its products which meet all requirements under
applicable federal and state good manufacturing practice regulations.
The Company is subleasing approximately 40,000 square feet of the office and
manufacturing facility until such time as the Company needs the space. The
Company believes the Irvine facility will be adequate for its present and future
needs.
Additionally, in conjunction with its acquisition of the assets of Creative
Medical Development, Inc., the Company leases 8,450 square feet of space under a
lease which expires in April 1997 in Nevada City, California. The Nevada City
facility houses the manufacturing, marketing, and research and development for
the Company's recently acquired infusion pump.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than ordinary routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders during the fourth quarter of
the year ended June 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market System under
the symbol GISH. The table below sets forth the high and low per share closing
prices during each quarter of the last two fiscal years as reported on the
NASDAQ National Market System.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
QUARTER ENDED HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
September 30 $9.25 $7.13 $5.62 $4.75
December 31 9.25 7.38 7.13 5.00
March 31 8.38 6.25 7.50 5.88
June 30 7.38 5.75 7.50 6.13
</TABLE>
The Company has not previously paid any dividends on its common stock and does
not anticipate that it will do so in the foreseeable future. As of September 20,
1996, there were approximately 500 holders of record of the Company's common
stock.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended June 30,
In thousands, except per share data 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $23,022 $21,588 $21,114 $21,065 $21,070
Selling and marketing 3,688 2,575 1,962 1,739 1,479
Research and development 1,408 1,125 1,326 850 789
General and administrative 1,892 1,727 1,633 1,727 1,552
Distributor contract termination fee 701 -- -- -- --
Net income $ 329 $ 1,682 $ 1,267 $ 1,783 $ 1,709
PER SHARE AMOUNTS:
Primary net income per share $ .10 $ .52 $ .41 $ .54 $ .54
Primary weighted average shares 3,395 3,218 3,090 3,311 3,192
Fully dilutednet income per share .09 .51 .41 .54 .52
Fully diluted weighted average 3,597 3,290 3,094 3,318 3,277
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,314 $ 4,326 $ 6,125 $ 3,308 $ 4,466
Total assets 22,936 21,044 18,299 16,477 15,757
Working capital 14,886 14,807 13,206 11,376 12,091
Current ratio 10.2:1 7.7:1 9.5:1 10.3:1 6.6:1
Shareholders' equity 21,010 18,605 16,588 15,195 13,341
Book value per share 6.25 6.00 5.47 5.06 4.47
Return on average equity 2% 9% 8% 13% 14%
</TABLE>
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SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 30 Mar. 31 Dec. 31 Sept. 30
In thousands, except per share data Fiscal 1996 1996 1996* 1995 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 5,970 $ 6,000 $ 5,781 $ 5,271
Gross profit 2,089 2,018 2,015 1,838
Distributor contract termination fee -- -- -- 701
Income (loss) before income taxes 270 247 160 (138)
Net income (loss) 165 151 98 (84)
NET INCOME (LOSS) PER SHARE:
Primary .02 .05 .03 (.03)
Fully diluted .02 .05 .03 (.03)
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES:
Primary 3,484 3,330 3,364 3,373
Fully dilluted 3,530 3,331 3,371 3,373
</TABLE>
*Management discovered an error in the March 31, 1996 accrued liability for
employee benefits, vacation and sick pay in the course of preparing the
Company's consolidated financial statements for the year ended June 30, 1996. To
properly state the accrued liability, the March 31, 1996 financial statements
were restated from those originally issued by increasing employee related
expenses by $180,000. After income tax, the recalculation of employee costs
resulted in a decrease of $109,800 in net income for the three month period
ended March 31, 1996.
<TABLE>
<CAPTION>
June 30 Mar. 31 Dec. 31 Sept. 30
In thousands, except per share data Fiscal 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $5,242 $5,592 $5,406 $5,348
Gross profit 2,065 2,015 1,991 1,857
Income before income taxes 653 776 677 651
Net income 398 474 413 397
NET INCOME PER SHARE:
Primary .12 .14 .12 .12
Fully diluted .12 .14 .12 .12
AVERAGE COMMON AND COMMON EQUIVALENT
SHARES:
Primary 3,287 3,269 3,231 3,100
Fully diluted 3,308 3,271 3,288 3,138
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:On September 13, 1995, the Company entered into an
agreement to acquire the assets and technology of Creative Medical Development,
Inc. ("CMD") a manufacturer of ambulatory infusion pumps and began to operate
the business under a management agreement whereby Gish assumed the risks and
rewards of the operation of the aquired assets until the closing date of the
acquisition. The agreement provided for a payment of $600,000 in cash and
$2,000,000 of Gish Biomedical, Inc. common stock for these assets. The Company
has included revenue and costs related to the product lines acquired for the
period September 13, 1995 through April 16, 1996 in the Company's financial
statements. The Company assumed ownership of the net assets and technology
aquired from CMD on April 17, 1996 and
12
<PAGE> 13
entered into a one-year lease for the building CMD currently occupies. The
Company has also executed one-year employment agreements with four key employees
which include provisions for the issuance of up to 53,500 shares of the
Company's common stock to those employees upon completion of certain performance
criteria.
Sales for year ended June 30, 1996 increased by $1,434,800 or 7% over fiscal
1995. The increase was due primarily to increases in cardiovascular surgery
sales. Sales attributable to the EZ Flow infusion products were $719,600 for the
period ended June 30, 1996.
Sales for the year ended June 30, 1995 increased by $474,100 or 2% over fiscal
1994. The largest percentage sales gains were in the Company's
non-cardiovascular surgery product areas which offset declines in cardiotomy
sales.
Cost of sales for the year ended June 30, 1996 was 65% of sales as compared to
63% and 68% of sales for the years ended June 30, 1995 and 1994 respectively.
Current year costs increased due to increases in overhead related to the
maintenance of a separate manufacturing facility for the EZ Flow infusion pumps
and rework associated with that product line of $279,600. Cost of sales for the
year ended June 30, 1995 improved over fiscal 1994 due to increased productivity
and a reduction in certain components of overhead such as employee benefits.
Selling and marketing expenses for the year ended June 30, 1996 increased
$1,112,300 or 43% over fiscal 1995. Selling expenses related to the EZ Flow
infusion pumps accounted for approximately a third of the increase. The
remaining increase was due to the Company's recent direct sales force expansion
in the southeastern United States. The Company anticipates that its selling and
marketing expenses will continue to be approximately $1,000,000 per quarter for
the upcoming the fiscal year.
Selling and marketing expenses for the year ended June 30, 1995 increased
$613,700 or 31% over fiscal 1994. The increase was due to the Company's
commitment to increasing its direct sales force presence and preparation for the
direct sales force expansion in the southeastern United States which took effect
July 1, 1995.
Research and development expenses for the year ended June 30, 1996 was $282,800
over fiscal 1995. Costs associated with upgrading CMD's ambulatory infusion pump
product line represent the majority of the increase in expense over fiscal 1995.
The Company is actively engaged in several new product development projects,
including the oxygenator, finalizing the MyoManager(TM) and the next generation
infusion pump all of which will continue to require expenditures of
approximating $400,000 per quarter for the foreseeable future. Research and
development expenses in 1995 decreased $200,900 or 15% from fiscal 1994 due to
the completion of the outside development contract for the Company's Oxygenator.
General and administrative expenses were 8% of sales in 1996, 1995 and 1994. The
Company expects general and administrative expenses to remain relatively
constant at this level for the next fiscal year.
The Company also incurred a one-time expense of $701,200 during the first
quarter of fiscal 1996, which represents payments due to a former distributor as
compensation for the termination of its contract with the Company.
The provision for taxes is based upon a combined federal and state effective tax
rate of 39% for fiscal years 1996 and 1995 and 37% for fiscal 1994.
Quarterly earnings per share is not directly additive for the periods presented
due to fluctuations in weighted average shares outstanding. These fluctuations
are attributable to the issuance of shares for the purchase of the EZ Flow
infusion pump, the exercise of stock options and the use of the treasury stock
method for determining the number of outstanding options to be included as
common stock equivalents. These fluctuations are more significant when
13
<PAGE> 14
there are substantial variations in the market price of the Company's common
stock.
The effects of inflation have not been a significant factor in the results of
operations. The cardiovascular surgery market has been experiencing pricing
pressures which have precluded the Company from considering price increases.
Liquidity and capital resources: At June 30, 1996, the Company had $14,885,500
of working capital, an increase of $78,300 from working capital at June 30,
1995. The increase is primarily due to profitable operations offset by the use
of cash in operating activities.
For the period ended June 30, 1996 cash used in operations of $1,550,400 was
primarily due to increased inventories, increased accounts receivable and
payment of accrued taxes. Increases in inventories were primarily due to a
commitment to stocking higher levels of finished goods, related to our direct
sales efforts and acquisition of component inventory for new products such as
MyoManager(TM), the oxygenator, and the ambulatory infusion pumps. Increases in
accounts receivable were due to increases in sales and the timing of those sales
during the quarter. For the period ended June 30, 1995, cash provided by
operations of $1,755,100 was primarily due to profitable operations. For the
period ended June 30, 1994 cash provided by operating activities of $3,142,100
was primarily due to profitable operations and decreases in accounts receivable
and inventory.
For the period ended June 30, 1996 cash provided by investing activities of
$465,800 was primarily due to the sale of short-term investments offset by
purchases of property and equipment and the cash used for the acquisition of the
EZ Flow technology of $681,700. Purchases of property and equipment were
primarily tooling purchases to manufacture inventory associated with new
products such as the MyoManager(TM) and the oxygenator. For the periods ended
June 30, 1995 and June 30, 1994 cash used by investing activities of $3,876,200
and $438,000, respectively was primarily due to the purchase of property and
equipment and short-term investments.
For the periods ended June 30, 1996, 1995 and 1994 cash provided by financing
activities of $72,800, $322,200 and $113,100 was primarily due to proceeds from
the exercise of stock options.
The Company believes that cash generated from operations together with available
cash will be adequate to meet the Company's planned expenditures and liquidity
needs for fiscal 1997.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Gish Biomedical, Inc.
We have audited the accompanying consolidated balance sheets of Gish Biomedical,
Inc. as of June 30, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended June 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 that 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 consolidated financial position of Gish Biomedical,
Inc. at June 30, 1996 and 1995, and the consolidated results of its operations
and cash flows for each of the three years in the period ending June 30, 1996,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
-----------------------------
Ernst & Young LLP
Orange County, California
August 23, 1996
15
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,314,200 $ 4,326,000
Short-term investments 1,031,600 2,987,700
Accounts receivable, net of allowance for doubtful
accounts of $180,800 in 1996 and $168,800 in 1995 4,078,000 3,342,200
Inventories: 7,083,700 5,561,900
Deferred tax assets 748,900 625,000
Other assets 245,700 171,600
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 16,502,100 17,014,400
- -----------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 2,903,500 2,860,100
Machinery and equipment 1,662,400 1,417,300
Molds, dies and tooling 3,761,800 3,106,000
Office furniture and equipment 1,472,200 1,191,500
- -----------------------------------------------------------------------------------------------------------
Total property and equipment 9,799,900 8,574,900
Less accumulated depreciation (5,463,200) (4,661,700)
- -----------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 4,336,700 3,913,200
Other assets, net of accumulated patent amortization of $230,400 in 1996
and $200,400 in 1995 130,400 116,700
Goodwill, net of accumulated amortization of $41,800 in 1996 1,966,800 --
- -----------------------------------------------------------------------------------------------------------
$ 22,936,000 $ 21,044,300
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Account payable $ 984,500 $ 944,300
Accrued compensation and related items 571,800 563,400
Accrued income taxes -- 570,900
Other accured liabilities 60,300 128,600
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,616,600 2,207,200
Deferred rent 282,600 227,900
Deferred tax liabilities 27,000 4,500
Commitments
SHAREHOLDERS' EQUITY:
Preferred stock, 2,250,000 shares authorized; no shares outstanding
Common stock, no par value, 7,500,000 shares authorized;
3,363,444 shares issued and outstanding (3,101,129 shares in 1995) 9,828,000 7,761,800
Note receivable - officer stock purchase (50,000) (60,000)
Retained earnings 11,231,800 10,902,900
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 21,009,800 18,604,700
- -----------------------------------------------------------------------------------------------------------
$ 22,936,000 $ 21,044,300
===========================================================================================================
</TABLE>
See accompanying notes.
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $23,022,400 $21,587,600 $21,113,500
Cost of sales 15,062,400 13,659,300 14,287,300
- --------------------------------------------------------------------------------------------
GROSS PROFIT 7,960,000 7,928,300 6,826,200
- --------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling and marketing 3,687,500 2,575,200 1,961,500
Research and development 1,407,500 1,124,700 1,325,600
General and administrative 1,892,000 1,727,300 1,633,400
Distributor contract termination fee 701,200 -- --
- --------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 7,688,200 5,427,200 4,920,500
- --------------------------------------------------------------------------------------------
OPERATING INCOME 271,800 2,501,100 1,905,700
OTHER INCOME:
Interest income 267,400 256,300 105,200
- --------------------------------------------------------------------------------------------
Income before provision for taxes 539,200 2,757,400 2,010,900
Provision for taxes based on income 210,300 1,075,000 744,000
- --------------------------------------------------------------------------------------------
Net income $ 328,900 $ 1,682,400 $ 1,266,900
============================================================================================
NET INCOME PER SHARE:
Primary $ 0.10 $ 0.52 $ 0.41
Fully diluted $ 0.09 $ 0.51 $ 0.41
- --------------------------------------------------------------------------------------------
AVERAGE COMMON AND COMMON EQUIVALENT SHARES:
Primary 3,394,600 3,217,800 3,089,600
Fully diluted 3,597,400 3,290,300 3,094,000
============================================================================================
</TABLE>
See accompanying notes.
17
<PAGE> 18
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------
Number of Note Retained
Shares Amount Receivable Earnings TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 3,001,629 $ 7,341,400 $ (100,000) $ 7,953,600 $15,195,000
Exercise of options 28,500 93,100 -- -- 93,100
Tax benefit of options exercised -- 12,800 -- -- 12,800
Payment on note receivable from officer -- -- 20,000 -- 20,000
Net income -- -- -- 1,266,900 1,266,900
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 3,030,129 $ 7,447,300 $ (80,000) $ 9,220,500 $16,587,800
Exercise of options 71,000 302,200 -- -- 302,200
Tax benefit of options exercised -- 12,300 -- -- 12,300
Payment on note receivable from officer -- -- 20,000 -- 20,000
Net income -- -- -- 1,682,400 1,682,400
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 3,101,129 $ 7,761,800 $ (60,000) $10,902,900 $18,604,700
ISSUANCE OF STOCK FOR PURCHASE OF ASSETS, NET OF
ISSUANCE COST 240,240 1,995,200 -- -- 1,995,200
EXERCISE OF OPTIONS 22,075 62,800 -- -- 62,800
TAX BENEFIT OF OPTIONS EXERCISED -- 8,200 -- -- 8,200
PAYMENT ON NOTE RECEIVABLE FROM OFFICER -- -- 10,000 -- 10,000
NET INCOME -- -- -- 328,900 328,900
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 3,363,444 $ 9,828,000 $ (50,000) $11,231,800 $21,009,800
=================================================================================================================================
</TABLE>
See accompanying notes.
18
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 328,900 $ 1,682,400 $ 1,266,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 873,300 877,700 780,100
Deferred rent 54,700 74,400 93,300
Deferred income taxes assets (123,900) (79,000) (37,000)
Tax benefit of options exercised 8,200 12,300 12,800
Changes in operating assets and liabilities:
Accounts receivable (735,800) 355,500 418,800
Inventories (1,313,600) (1,833,400) 261,700
Other current assets (74,100) 10,900 12,000
Accounts payable 40,200 56,400 177,700
Deferred income taxes 22,500 -- --
Accrued compensation and related items 8,400 112,500 14,800
Accrued income taxes (570,900) 374,600 196,300
Other accrued liabilities (68,300) 110,800 (55,300)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,550,400) 1,755,100 3,142,100
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of short-term investments (1,031,600) (2,987,700) --
Sale of short-term investments 2,987,700 -- --
Purchases of property and equipment (765,000) (855,000) (417,600)
Proceeds from sales of equipment -- -- 2,400
Purchase of other long term assets (43,600) (33,500) (22,800)
Payment for acquisition (681,700) -- --
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 465,800 (3,876,200) (438,000)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of options 62,800 302,200 93,100
Payments on note receivable from officer 10,000 20,000 20,000
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 72,800 322,200 113,100
=========================================================================================================
Net increase (decrease) in cash and cash equivalents (1,011,800) (1,798,900) 2,817,200
Cash and cash equivalents at beginning of year 4,326,000 6,124,900 3,307,700
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,314,200 $ 4,326,000 $ 6,124,900
=========================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
=========================================================================================================
Fair value of assets acquired $ 668,200 -- --
Excess of purchase price over net assets acquired 2,008,700 -- --
- ---------------------------------------------------------------------------------------------------------
$ 2,676,900 -- --
Common stock issued, net of issuance cost (1,995,200) -- --
- ---------------------------------------------------------------------------------------------------------
Payment for acquisition 681,700 -- --
=========================================================================================================
</TABLE>
See accompanying notes.
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of Gish
Biomedical, Inc. and its wholly owned subsidiary, Gish International, Inc., a
foreign sales corporation. All significant intercompany accounts and
transactions have been eliminated.
Certain reclassifications have been made to amounts previously reported in order
to conform with the 1996 presentation on equipment, cash equivalents and other
income.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The accounting policies that affect the more significant elements of the
accompanying consolidated financial statements are summarized below:
SHORT-TERM INVESTMENTS
Short term investments consists of government backed securities and short term
certificates of deposit with a maturity date of less than one year.
FAIR VALUES OF FINANCIAL STATEMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value.
<TABLE>
<CAPTION>
Year ended June 30, 1996 June 30, 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Raw materials $4,166,000 $2,936,700
Work in progress 1,123,200 1,317,900
Finished goods 1,794,500 1,307,300
- ----------------------------------------------------------------------------
Total inventories $7,083,700 $5,561,900
============================================================================
</TABLE>
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided on the straight-line method over the
following estimated useful lives:
Leasehold improvements Term of lease
Machinery and equipment 5 years
Molds, dies and tooling 5 years
Office furniture and equipment 4 - 8 years
GOODWILL AND OTHER INTANGIBLES
Goodwill resulting from acquisitions is being amortized on a straight-line basis
over 10 years. The carrying value of goodwill is reviewed periodically if the
facts and circumstances suggest that it may be impaired. If such review
indicates that goodwill will not be recoverable, based on undiscounted estimated
cash flow over the remaining amortization period, the carrying value of goodwill
will be reduced by the estimated shortfalls of discounted cash flow. Other
intangible assets (patents) are being amortized on the straight-line method over
6 years.
20
<PAGE> 21
SHORT-TERM INVESTMENTS
Short-term investments of $1,031,600 reported in the balance sheet are held to
maturity and are recorded at cost which approximates fair market value.
REVENUE RECOGNITION
Revenue is recognized at the time of shipment to the customer. The customer's
right of return is limited to damaged or defective products.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to the development of new products and
improvements of existing products are expensed as incurred.
EARNING PER SHARE
Earnings per share is based on the weighted average number of common and common
equivalent shares outstanding during the year. Common equivalent shares include
the potential dilution from the exercise of stock options reduced by the number
of common shares which are assumed to have been purchased with the proceeds from
such exercise and the related income tax benefit. Fully diluted earnings per
share assumes common shares issued for the exercise of the stock options during
the period were outstanding at the beginning of the period.
STATEMENT OF CASH FLOWS
The Company paid $985,500, $781,800, and $488,000 in federal and state income
tax during the years ended June 30, 1996, 1995, and 1994, respectively.
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("FAS 121"), which becomes effective for fiscal years
beginning after December 15, 1995. FAS 121 requires impairment losses to be
recorded on long-lived assets used in operations, or to be disposed of, when
such impairment has been determined. The Company is in the process of evaluating
the statement. The potential impact on the Company of adopting the new standard
has not been quantified at this time.
In October 1995, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 123 "Accounting for Stock Based Compensation" which
must be implemented no later than fiscal 1997. The Company will elect not to
adopt the new valuation method of accounting for stock based compensation, but
will implement the new disclosure requirements.
2. NOTE PAYABLE
On June 30, 1996, the Company had available a secured $2,000,000 revolving
credit facility bearing interest at the bank's prime rate (8.25% at June 30,
1996). The loan is secured by substantially all of the Company's assets. The
line is renewable annually in October. At June 30, 1996, the revolving credit
facility had no outstanding balance.
The Company is restricted from the payment of dividends, mergers or acquisitions
and other material transactions without the bank's consent during the term of
the line of credit. The Company was in compliance with all covenants at June 30,
1996.
21
<PAGE> 22
3. TAXES BASED ON INCOME
The Company utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years the differences are
expected to reverse.
A summary of the provision for taxes based on income is shown below:
<TABLE>
<CAPTION>
Year ended June 30 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
State $ 96,000 $ 270,000 $ 190,000
Federal 215,700 884,000 591,000
- -------------------------------------------------------------------------------
311,700 1,154,000 781,000
DEFERRED:
State (41,100) (11,000) (2,000)
Federal (60,300) (68,000) (35,000)
- -------------------------------------------------------------------------------
(101,400) (79,000) (37,000)
$ 210,300 $ 1,075,000 $ 744,000
===============================================================================
</TABLE>
The provision for taxes based on income differs from the amount computed by
applying the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year ended June 30 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory rate $ 183,300 $ 938,000 $ 684,000
State tax, net of federal benefit 38,000 171,000 123,000
Other, net (11,000) (34,000) (63,000)
- -----------------------------------------------------------------------------------
$ 210,300 $ 1,075,000 $ 744,000
===================================================================================
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences between
the value of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company's
net deferred tax assets and liabilities as of June 30, 1996 and 1995 are:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable and inventory $287,000 $309,000
reserves 196,000 177,000
Inventory capitalization -- 43,000
California franchise taxes 12,000 --
Book over tax depreciation 254,000 96,000
Accrued expenses and others
- --------------------------------------------------------------------------------
Total deferred tax assets $749,000 $625,000
================================================================================
DEFERRED TAX LIABILITIES
Tax over book depreciation $ -- $ 4,500
California franchise tax 27,000 --
- --------------------------------------------------------------------------------
Total deferred tax liabilities $ 27,000 $ 4,500
================================================================================
</TABLE>
22
<PAGE> 23
4. OPERATING LEASES
The Company is committed to a ten year operating lease for its primary office
and manufacturing facilities, which commenced December 15, 1992. The Company
will not fully occupy the new facility for some time and is subleasing
approximately a third of the space. The Company's sublease income was $143,700,
$168,300 and $101,400 for the years ended June 30, 1996 and 1995 and 1994
respectively. Rent expense for financial statement purposes is computed on a
straight-line basis over the term of the initial lease. The excess of
straight-line expense over cash payments during the year is shown as a deferred
rent liability.
Aggregate future minimum rental payments on a cash basis required under
operating leases for office and manufacturing space which have initial or
remaining non-cancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 754,700
1998 729,900
1999 752,700
2000 778,600
2001 809,800
Thereafter 1,228,800
- --------------------------------------------------------------------------------
$5,048,500
================================================================================
</TABLE>
Rent expense charged to operations was $798,300, $609,000, and $608,900 for the
years ended June 30, 1996, 1995 and 1994, respectively.
5. ANALYSIS OF RESERVE ACCOUNTS
<TABLE>
<CAPTION>
Balance at Beginning Additions Charged to Balance at
of Year Expense Deductions End of Year
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
June 30, 1996 $168,800 $ 12,000 -- $180,800
June 30, 1995 $144,300 $ 24,500 -- $168,800
June 30, 1994 $120,000 $ 24,800 $ 500 $144,300
Reserve for inventory:
June 30, 1996 $545,400 -- $ 62,900 $482,500
June 30, 1995 $554,400 -- $ 9,000 $545,400
June 30, 1994 $513,800 $ 47,100 $ 6,500 $554,400
</TABLE>
6. BENEFIT PLANS
The Company has an Officers, Directors and Key Employee Incentive Plan (the
"1981 Plan") authorizing stock options, stock bonuses and cash incentive awards,
and an Incentive Stock Option, Nonqualified Stock Option and Restricted Stock
Purchase Plan - 1987 (the "1987 Plan") authorizing stock options and rights to
purchase restricted stock. Stock options granted under these Plans may be either
incentive stock options as defined in the Internal Revenue Code ("incentive
options"), or options that do not qualify as incentive options ("non-qualified
options"). The number of shares of the Company's common stock approved for
issuance under the 1981 Plan and the 1987 Plan is 487,500 and 1,000,000,
respectively.
The Company realized a tax benefit of $8,200 and $12,300 in 1996 and 1995,
respectively, from the exercise of non-qualified stock options and disqualifying
dispositions of incentive stock options. No charges have been made to income in
accounting for the options.
23
<PAGE> 24
During the year ended June 30, 1991 the Company loaned $100,000 to the President
and Chairman of the Board for the exercise of Gish common stock options. A
principal payment of $10,000 was made and the note was renewed during the year
ended June 30, 1996. The note is secured by Company stock, bears interest at
5.5% and is due within one year.
The following table sets forth the status of stock options granted at fair
market value at the date of grant under the 1981 and 1987 plans combined:
<TABLE>
<CAPTION>
Number of Shares Average Price Per Share
<S> <C> <C>
Options outstanding at June 30, 1994 689,012 $5.78
- -----------------------------------------------------------------------------------------------
Granted 398,625 5.68
Canceled (224,000) 9.34
Exercised (71,000) 4.25
- -----------------------------------------------------------------------------------------------
Options outstanding at June 30, 1995 792,637 4.85
Granted 25,000 5.75
Canceled (1,500) 6.38
Exercised (22,075) 2.85
- -----------------------------------------------------------------------------------------------
Options outstanding at June 30, 1996 794,062 $4.94
===============================================================================================
</TABLE>
As of June 30, 1996, 2,612,787 options had been granted of which 727,877 are
exercisable. Additionally, 10,035 options remain available for grant. As of June
30, 1995, 688,767 were exercisable and 33,535 were available for grant.
The Company has a Salary Reduction Profit Sharing Plan, ("the Plan"),
established under Section 401(k) of the Internal Revenue Code, in which all
employees are eligible to participate. The Company matches up to $250 of annual
contribution by each qualifying employee. Total Company contributions to the
Plan were $48,900, $48,800, and $45,400 for fiscal years ended June 30, 1996,
1995 and 1994, respectively.
7. SEGMENT INFORMATION
The Company operates in one industry segment, the manufacture of medical devices
which are marketed principally through domestic and international distributors.
The Company performs ongoing credit evaluations and maintains allowances for
potential credit losses. As of June 30, 1996 the Company believes it has no
significant concentrations of credit risk.
The Company derived the following percentages of its net sales from its
significant distributors:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------
<S> <C> <C>
2% 18% 18%
12% 13% 13%
7% 10% 10%
</TABLE>
As of July 1, 1995 the company terminated its relationship with the
distributorship to which sales were 18% in 1995 and paid a contract termination
fee of $701,200 during the first quarter of fiscal 1996.
Sales to foreign customers (primarily in Europe and Asia) aggregated
approximately $3,758,600 in 1996, $3,481,100 in 1995, and $3,166,000 in 1994.
All sales are transacted in United States dollars, accordingly the Company is
not subject to foreign currency risks.
24
<PAGE> 25
8. ACQUISITION
On September 13, 1995, the Company entered into an agreement to acquire the
assets and technology of Creative Medical Development, Inc. ("CMD") a
manufacturer of ambulatory infusion pumps and began to operate the business
under a management agreement whereby Gish assumed the risks and rewards of the
operation of the aquired assets until the closing date of the aquisition. The
agreement provided for a payment of $600,000 in cash and $2,000,000 of Gish
Biomedical, Inc. common stock for these assets. The Company has included revenue
and costs related to the product lines acquired for the period September 13,
1995 through April 16, 1996 in the Company's financial statements. The Company
assumed ownership of the net assets and technology aquired from CMD on April 17,
1996 and entered into a one-year lease for the building CMD currently occupies.
The Company has also executed one-year employment agreements with four key
employees which include provisions for the issuance of up to 53,500 shares of
the Company's common stock to those employees upon completion of certain
performance criteria.
This acquisition has been accounted for as a purchase and resulted in the
recognition of $2,008,700 of goodwill.
The following table presents the unaudited consolidated results of operations on
a pro forma basis as though the acquisitions made in 1996 had occurred on July
1, 1994.
<TABLE>
<CAPTION>
Years ended June 30
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $23,293,000 $23,394,000
Net income 42,000 319,000
Earnings per share $ .01 $ .09
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Election of Directors" and "Principal
Shareholders" contained in the Company's definitive proxy statement for its 1996
Annual Meeting of Shareholders ("Proxy Statement") is incorporated herein by
reference. The Proxy Statement will be filed with the Commission within the time
period specified by General Instruction G to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" contained in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders" contained in the
Proxy Statement is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Board of Directors' Affiliations" and
"Management Indebtedness" contained in the Proxy Statement is incorporated
herein by reference.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) Financial Statement Schedules
All financial statement schedules have been omitted because they
are inapplicable or the information required thereby is included in
the financial statements.
(2) Exhibits
The following Exhibits are filed as part of this Report:
Exhibit
Number Description
------ -----------
2.1 Asset Purchase Agreement dated September 12, 1995 between
Gish Biomedical, Inc. and Creative Medical Development,
Inc. Incorporated herein by reference to Exhibit 2.1 to
the Company's Report on Form 8-K dated May 2, 1996 (the
"Form 8-K").
3.1 Restated Articles of Incorporation as filed with the
California Secretary of State on November 9, 1981,
incorporated herein by this reference to Exhibit 2(a) to
the Company's Registration Statement on Form S-18, No.
2-73602LA (the "S-18 Registration Statement").
3.2 Certificate of Amendment of Articles of Incorporation as
filed with the California Secretary of State on May 19,
1982, incorporated herein by this reference to Exhibit
2(b) to the S-18 Registration Statement.
3.3 Certificate of Amendment of Articles of Incorporation as
filed with the California Secretary of State on December
19, 1988, incorporated herein by this reference to
Exhibit 3.3 to the Company's Report on Form 10-K for the
year ended June 30, 1990.
3.4 Certificate of Amendment of Articles of Incorporation as
filed with the California Secretary of State on June 13,
1990 incorporated herein by this reference to Exhibit 3.4
to the Company's Report on Form 10-K for the year ended
June 30, 1990.
3.5 Bylaws, incorporated herein by this reference to Exhibit
2 to the S-18 Registration Statement.
26
<PAGE> 27
2) Exhibits (continued)
Exhibit
Number Description
------ -----------
10.1* 401-K Salary Reduction Profit Sharing Plan, incorporated
herein by this reference to Exhibit 10(e) to the S-18
Registration Statement.
10.2* Officer, Director and Key Employee Incentive Plan, as
amended, incorporated herein by this reference to Exhibit
10(x) to the Company's Report on Form 10-K for the year
ended June 30, 1985.
10.3* Incentive Stock Option, Non-qualified Stock Option and
Restricted Stock Purchase Plan-1987, as amended (the
"Plan"), incorporated herein by this reference to Exhibit
4 to the Company's Registration Statement on Form S-8,
No. 33-36432.
10.4* Form of Incentive Stock Option Agreement for use with the
Plan, incorporated herein by this reference to Exhibit
4.3 to the Company's Registration Statement on Form S-8,
No. 33-19714 (the "S-8 Registration Statement")
10.5* Form of Non-qualified Stock Option Agreement for use with
the Plan, incorporated herein by this reference to
Exhibit 4.4 to the S-8 Registration Statement.
10.6* Form of Restricted Common Stock Purchase Agreement for
use with the Plan, incorporated herein by this reference
to Exhibit 4.5 to the S-8 Registration Statement.
10.7 Loan and Security Agreement dated November 30, 1995
between the Company and Sanwa Bank.
10.8* Form of Indemnification Agreement entered into by the
Company and its executive officers and directors,
incorporated herein by this reference to Exhibit 3(iv) to
the Company's report on Form 10-K for the year ended June
30, 1989.
10.9 Lease dated July 8, 1992 between the Company and ISCO -
Irvine North, Ltd. incorporated herein by this reference
to the Company's Report on Form 10K for the year ended
June 30, 1993.
10.10 Lease dated as of April 17, 1996, between the Company and
LBI, a California General Partnership.
10.11 Registration rights agreement dated April 17, 1996,
between the Company and Creative Medical Development,
Inc., a Delaware Corporation.
21.1 Subsidiaries of the Company.
- ----------------------
*Management contract or compensatory plan or arrangement.
27
<PAGE> 28
(2) Exhibits (continued)
Exhibit
Number Description
------ -----------
23 Consent of Ernst & Young LLP.
25 Power of Attorney (included on signature page of the
Annual Report on Form 10-K).
27 Financial Data Schedule
(B) Reports on Form 8-K
A Form 8-K was filed by Gish on May 2, 1996.
28
<PAGE> 29
SIGNATURES
Pursuant to the Requirements of Section 13 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, at Irvine, California this 27nd day
of September 1996.
GISH BIOMEDICAL, INC.
By: Jeanne M. Miller
----------------------------
Jeanne M. Miller
Executive Vice President
POWER OF ATTORNEY
We, the undersigned directors and officers of Gish Biomedical, Inc., do hereby
constitute and appoint Jack W. Brown and Jeanne M. Miller, or both of them, our
true and lawful attorneys and agents, each with power of substitution, to do any
and all acts and things in our name and behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents or any one of
them, may deem necessary or advisable to enable said corporation to comply with
the Securities Exchange Act of 1934, as amended and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Annual Report on Form 10-K, including specifically but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments hereto and we do hereby ratify and
confirm all that said attorneys and agents, or their substitute or substitutes,
or any one of them, shall do or cause to be done by virtue hereof.
29
<PAGE> 30
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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
JACK W. BROWN President, Chairman September 27, 1996
- ------------------- Chief Executive Officer
JACK W. BROWN
JEANNE M. MILLER Vice President, Chief September 27, 1996
- ------------------- Financial Officer, and
JEANNE M. MILLER Corporate Secretary
RICHARD A. BRAUN
- ------------------- Director September 27, 1996
RICHARD A. BRAUN
RAY R. COULTER
- ------------------- Director September 27, 1996
RAY R. COULTER
RICHARD W. DUTRISAC
- ------------------- Director September 27, 1996
RICHARD W. DUTRISAC
JAMES B. GLAVIN
- ------------------- Director September 27, 1996
JAMES B. GLAVIN
JOHN S. HAGESTAD
- ------------------- Director September 27, 1996
JOHN S. HAGESTAD
</TABLE>
30
<PAGE> 1
Exhibit 10.7
[SANWA BANK CALIFORNIA LOGO]
AMENDMENT OF COMMERCIAL CREDIT AGREEMENT
This Amendment of Commercial Credit Agreement ("Amendment") is made and entered
into this 30th day of November, 1995 by and between SANWA BANK CALIFORNIA (the
"Bank") and GISH BIOMEDICAL, INC. (the "Borrower") with respect to the
following:
This Amendment shall be deemed to be a part of and subject to that certain
commercial credit agreement between the parties hereto and dated as of October
31, 1994, as it may have been or be amended from time to time, and any and all
addenda, riders, exhibits and schedules thereto (collectively, the
"Agreement"). Unless otherwise defined herein, all terms used in this Amendment
shall have the same meanings as in the Agreement. To the extent that any of the
terms or provisions of this Amendment conflict with those contained in the
Agreement, the terms and provisions contained herein shall control.
WHEREAS, the Borrower and the Bank mutually desire to extend, amend and/or
modify the Agreement.
NOW, THEREFORE, for value received and hereby acknowledged, the Borrower and
the Bank agree as follows:
1. REVISED REPAYMENT OF PRINCIPAL. The date of "November 30, 1995" contained
in Section 2.02D of the Agreement (entitled "Repayment of Principal") is
modified and amended to be "October 31, 1997".
2. REVISED EXPIRATION OF THE LINE OF CREDIT FACILITY. The date of "November
30, 1995" contained in Section 2.02H of the Agreement (entitled "Expiration of
the Line of Credit Facility") is modified and amended to be "October 31, 1997".
3. REVISED INTERIM STATEMENTS. Section 6.08A of the Agreement (entitled
"Interim Statements") is hereby deleted in its entirety and replaced with the
following "6.08A. Interim Statements. Not later than 45 days after the end of
each fiscal quarter, the Borrower's financial statement and 10Q report as of
the end of such fiscal quarter.
4. REVISED RECEIVABLES AND PAYABLES AGINGS. Section 6.08B of the Agreement
(entitled "Receivables and Payables Agings") is hereby deleted in its entirety.
5. REVISED COMPENSATION OF EXECUTIVES, OFFICERS AND DIRECTORS. Section 6.17
of the Agreement (entitled "Compensation of Executives, Officers and
Directors") is hereby deleted in its entirety.
6. REVISED CAPITAL EXPENSES. Section 6.20 of the Agreement (entitled "Capital
Expenses") is hereby deleted in its entirety.
7. REVISED PERMITTED ACQUISITION. The year "1994" and the dollar amount of
"$2,000,000.00" contained in Section 6.21 of the Agreement (entitled "Permitted
Acquisition") are hereby amended to be the year "1996" and the dollar amount
of "$4,000,000.00".
8. OUT OF DEBT PERIOD. A new Section 6.24 is hereby added to the Agreement
which shall read as follows: "6.24. Out of Debt Period. During each fiscal year
of the Borrower, the Borrower shall not permit to be outstanding any
indebtedness under the Line of Credit provided for in Section 2.02 above for a
period of at least 30 consecutive calendar days".
9. INCORPORATION INTO AGREEMENTS. On and after the effective date of this
Amendment, each reference in the Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Agreement shall
mean and be referenced to the Agreement as amended by this Amendment.
10. NO WAIVER. The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Bank
under, the Agreement.
11. CONFIRMATION OF OTHER TERMS AND CONDITIONS. Except as specifically
provided in this Amendment, all other terms, conditions and covenants of the
Agreement which are unaffected by this Amendment shall remain unchanged and
shall continue in full force and effect and the Borrower hereby covenants and
agrees to perform and observe all terms, covenants and agreements provided for
in the Agreement, as hereby amended.
IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as
of the date first hereinabove written.
BANK: BORROWER:
SANWA BANK CALIFORNIA GISH BIOMEDICAL, INC.
By: /s/ Sandra Rush By: /s/ Jerome M. Miller
------------------------------- --------------------------------
Sandra Rush, Authorized Officer Jerome M. Miller, Vice President/
Chief Financial Officer
(1)
<PAGE> 2
[Sanwa Bank Logo]
LINE OF CREDIT AGREEMENT
This Line of Credit Agreement ("Agreement") is made and entered into this 31st
day of October, 1994 by and between SANWA BANK CALIFORNIA (the "Bank") and GISH
BIOMEDICAL, INC. (the "Borrower").
SECTION I
DEFINITIONS
1.01. CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement the
following terms shall have the following meanings (such meanings to be
generally applicable to the singular and plural forms of the terms defined):
A. "ADVANCE" shall mean an advance to the Borrower under any line of credit
facility or similar facility provided for in Section II of this Agreement
which provides for draws by the Borrower against an established credit
line.
B. "BUSINESS DAY" shall mean a day, other than a Saturday or Sunday, on
which commercial banks are open for business in California.
C. "COLLATERAL" shall mean the property in which the Bank is granted a
security interest pursuant to provisions of the section herein entitled
"Collateral", together with any other personal or real property in which
the Bank may be granted a lien or security interest to secure payment of
the Obligations.
D. "DEBT" shall mean all liabilities of the Borrower less Subordinated
Debt.
E. "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's stated net
worth plus Subordinated Debt but less all intangible assets of the Borrower
(i.e., goodwill, trademarks, patents, copyrights, organization expense and
similar intangible items).
F. "ENVIRONMENTAL CLAIMS" shall mean all claims, however asserted, by any
governmental authority or other person alleging potential liability or
responsibility for violation of any Environmental Law or for release or
injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type
of relief, resulting from or based upon (i) the presence, placement,
discharge, emission or release (including intentional and unintentional,
negligent and non-negligent, sudden or non-sudden, accidental or
non-accidental placement, spills, leaks, discharges, emissions or releases)
of any Hazardous Materials at, in, or from property owned, operated or
controlled by the Borrower, or (ii) any other circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
G. "ENVIRONMENTAL LAWS" shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
governmental authorities, in each case relating to environmental, health,
safety and land use matters; including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air
Act, the Federal Water Pollution Control Act of 1972, the Solid Waste
Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right-to-Know
Act, the California Hazardous Waste Control Law, the California Solid Waste
Management, Resource, Recovery and Recycling Act, the California Water Code
and the California Health and Safety Code.
H. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.
I. "EVENT OF DEFAULT" shall have the meaning set forth in the section
herein entitled "Events of Default".
J. "HAZARDOUS MATERIALS" shall mean all those substances which are
regulated by, or which may form the basis of liability under any
Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste.
K. "INDEBTEDNESS" shall mean, with respect to the Borrower, (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which the Borrower is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against loss and
(ii) obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported as
capital leases in respect of which the Borrower is liable, contingently or
otherwise, or in respect of which the Borrower otherwise assures a creditor
against loss.
L. "OBLIGATIONS" shall mean all amounts owing by the Borrower to the Bank
pursuant to this Agreement including, but not limited to, the unpaid
principal amount of Advances.
M. "PERMITTED LIENS" shall mean: (i) liens and security interests securing
indebtedness owed by the Borrower to the Bank; (ii) liens for taxes,
assessments or similar charges either not yet due or being contested in
good faith, provided proper reserves are maintained therefor in accordance
with generally accepted accounting procedure; (iii) liens of materialmen,
mechanics, warehousemen, or carriers or other like liens arising in the
ordinary course of business and securing obligations which are not yet
delinquent; (iv) purchase money liens or purchase money security interests
upon or in any property acquired or held by the Borrower in the ordinary
course of business to secure indebtedness outstanding on the date hereof or
permitted to be incurred pursuant to this Agreement; (v) liens and security
interests which, as of the date hereof, have been disclosed to and approved
by the Bank in writing; and (vi) those liens and security interests which
in the aggregate constitute an immaterial and insignificant monetary amount
with respect to the net value of the Borrower's assets.
N. "REFERENCE RATE" shall mean an index for a variable interest rate which
is quoted, published or announced from time to time by the Bank as its
reference rate and as to which loans may be made by the Bank at, below or
above such reference rate.
(1)
<PAGE> 3
O. "SUBORDINATED DEBT" shall mean such liabilities of the Borrower which
have been subordinated to those owed to the Bank in a manner acceptable to
the Bank.
1.02. ACCOUNTING TERMS. All references to financial statements, assets,
liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in
accordance with generally accepted accounting principles consistently applied
and, except where otherwise specified, all financial data submitted pursuant to
this Agreement shall be prepared in accordance with such principles.
1.03. OTHER TERMS. Other terms not otherwise defined shall have the meanings
attributed to such terms in the California Uniform Commercial Code.
SECTION II
CREDIT FACILITIES
2.01. COMMITMENT TO LEND. Subject to the terms and conditions of this Agreement
and so long as no Event of Default occurs, the Bank agrees to extend to the
Borrower the credit accommodations that follow.
2.02. LINE OF CREDIT FACILITY. The Bank agrees to make loans and Advances to
the Borrower, upon the Borrower's request therefor made prior to the Expiration
Date (as defined below in this Section 2.02), up to a total principal amount
from time to time outstanding of not more than $2,000,000.00. Within the
foregoing limits, the Borrower may borrow, partially or wholly prepay, and
reborrow under this Line of Credit facility.
A. PURPOSE. Advances made under this Line of Credit shall be used for
working capital purposes.
B. INTEREST RATE. Interest shall accrue on the outstanding principal
balance of Advances under this Line of Credit at a variable rate equal to
the Bank's Reference Rate, per annum as it may change from time to time.
(Such rate is referred to this Section 2.02 as the "Variable Rate".) The
Variable Rate shall be adjusted concurrently with any change in the
Reference Rate. Interest shall be calculated on the basis of 360 days per
year but charged on the actual number of days elapsed.
C. PAYMENT OF INTEREST. The Borrower hereby promises and agrees to pay
interest monthly on the last day of each month, commencing on November 30,
1994.
D. REPAYMENT OF PRINCIPAL. Unless sooner due in accordance with the terms
of this Agreement, on October 31, 1995 the Borrower hereby promises and
agrees to pay to the Bank in full the aggregate unpaid principal balance
of all Advances then outstanding, together with all accrued and unpaid
interest thereon.
Any payment received by the Bank shall, at the Bank's option, first be
applied to pay any late fees or other fees then due and unpaid, and then
to interest then due and unpaid and the remainder thereof (if any) shall
be applied to reduce principal.
E. LATE FEE. If any regularly scheduled payment of principal and/or
interest (exclusive of the final payment upon maturity), or any portion
thereof, under this Line of Credit is not paid within ten (10) calendar
days after it is due, a late payment charge equal to fine percent (5%) of
such past due payment may be assessed and shall be immediately payable.
F. MAKING LINE ADVANCES/NOTICE OF BORROWING. Each Advance made hereunder
shall be conclusively deemed to have been made at the request of and for
the benefit of the Borrower (i) when credited to any deposit account of
the Borrower maintained with the Bank or (ii) when paid in accordance with
the Borrower's written instructions. Subject to any other requirements set
forth in this Agreement, Advances shall be made by the Bank upon
telephonic or written notice received from the Borrower in form acceptable
to the Bank, which notice shall be received not later than 2:00 p.m.
(California Time) on the date specified for such Advance, which date shall
be a Business Day. Requests for Advances received after such time may, at
the Bank's option, be deemed to be a request for the Advance to be make on
the next succeeding Business Day.
G. AUTOMATIC PAYMENTS - AUTHORIZATION TO CHARGE ACCOUNT. The Borrower
hereby authorizes and instructs the Bank to charge regularly scheduled
payments of interest under this Line of Credit facility against the
undersigned's checking account number 1095-00017 on a monthly basis
commencing on November 30, 1994, and to credit such amounts towards
payments due under this Line of Credit facility. In the event there are
not sufficient funds in such account on the day of the charge, the Bank is
hereby authorized, at any time thereafter, to deduct, in additional to the
amount indicated above, a late charge in accordance with the terms of this
Line of Credit facility. This authorization shall remain in full force and
effect until revoked by the undersigned in writing, or until all amounts
due the Bank under this Line of Credit facility are paid in full;
provided however that the Bank reserves the right, at any time, to
discontinue or suspend the taking of automatic payments hereunder.
H. EXPIRATION OF THE LINE OF CREDIT FACILITY. Unless earlier terminated in
accordance with the terms of this Agreement, the Bank's commitment to make
Advances to the Borrower hereunder shall automatically expire on October
31, 1995 (the "Expiration Date"), and the Bank shall be under no further
obligation to advance any monies thereafter.
I. LINE ACCOUNT. The Bank shall maintain on its books a record of account
in which the Bank shall make entries for each Advance and such other
debits and credits as shall be appropriate in connection with the Line of
Credit facility (the "Line Account"). The Bank shall provide the Borrower
with a monthly statement of the Borrower's Line Account, which statement
shall be considered to be correct and conclusively binding on the Borrower
unless the Bank is notified by the Borrower to the contrary within thirty
(30) days after the Borrower's receipt of any such statement which is
deemed to be incorrect.
J. AMOUNTS PAYABLE ON DEMAND. If the Borrower fails to pay on demand any
amount so payable under this Agreement, the Bank may, at its option and
without any obligation to do so and without waiving any default occasioned
by the Borrower's failure to pay such amount, create an Advance in an
amount equal to the amount so payable, which Advance shall thereafter bear
interest as provided under this Line of Credit facility.
In addition, the Borrower hereby authorizes the Bank, if and to the extent
payment owed to the Bank under this Line of Credit facility is not made
when due, to charge, from time to time, against any or all of the deposit
accounts maintained by the Borrower with the Bank any amount so due.
(2)
<PAGE> 4
SECTION III
COLLATERAL
3.01. GRANT OF SECURITY INTEREST. To secure payment and performance of all of
the Borrower's Obligations under this Agreement and the performance of all the
terms, covenants and agreements contained in this Agreement (and any and all
modifications, extensions and renewals of the Agreement) and in any other
document, instrument or agreement evidencing or related to the Obligations or
the Collateral, and also to secure all other liabilities, loans, guarantees,
covenants and duties owned by the Borrower to the Bank, whether or not evidenced
by this or by any other agreement, absolute or contingent, due or to become due,
now existing or hereafter and howsoever created, the Borrower hereby grants to
the Bank a security interest in and to all of the following property:
A. EQUIPMENT. All goods and equipment ("Equipment") now owned or
hereafter acquired by the Borrower or in which the Borrower now has or
may hereafter acquire any interest including, but not limited to, all
machinery, furniture, furnishings, fixtures, tools, supplies and motor
vehicles of every kind and description and all additions, accessions,
improvements, replacements and substitutions thereto and thereof.
B. INVENTORY. All inventory ("Inventory") now owned or hereafter
acquired by the Borrower including, but not limited to, all raw
materials, work in process, finished goods, merchandise, parts and
supplies of every kind and description, including inventory temporarily
out of the Borrower's custody or possession, together with all returns
on accounts.
C. ACCOUNTS AND CONTRACT RIGHTS. All accounts and contract rights now
owned or hereafter created or acquired by the Borrower, including but
not limited to, all receivables and all rights and benefits due to the
Borrower under any contract or agreement.
D. GENERAL INTANGIBLES. All general intangibles now owned or hereafter
created or acquired by the Borrower, including but not limited to,
goodwill, trademarks, trade styles, trade names, patents, patent
applications, software, customer lists and business records.
E. CHATTEL PAPER AND DOCUMENTS. All documents, instruments and chattel
paper now owned or hereafter acquired by the Borrower.
F. MONIES AND OTHER PROPERTY IN POSSESSION. All monies; and property of
the Borrower now or hereafter in the possession of the Bank or the
Bank's agents, or any one of them, including but not limited to, all
deposit accounts, certificates of deposit, stocks, bonds, indentures,
warrants, options and other negotiable and non-negotiable securities and
instruments, together with all stock rights, rights to subscribe,
liquidating dividends, cash dividends, payments, dividends paid in
stock, new securities or other property to which the Borrower may become
entitled to receive on account of such property.
3.02. CONTINUING LIEN & PROCEEDS. The Bank's security interest in the
Collateral shall be a continuing lien and shall include all proceeds and
products of the Collateral including, but not limited to, the proceeds of any
insurance thereon as well as all accounts, contract rights, documents,
instruments and chattel paper resulting from the sale or disposition of any
Equipment.
3.03. EXCLUSION OF CONSUMER DEBT. The Obligations and performance secured
hereby shall not include any indebtedness of the Borrower incurred for
personal, family or household purposes except to the extent any disclosure
required under any consumer protection law (including but not limited to
the Truth in Lending Act) or any regulation thereto, as now existing or
hereafter amended, is or has been given.
SECTION IV
CONDITIONS PRECEDENT
4.01. CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT AND/OR FIRST
ADVANCE. The obligation of the Bank to make the initial extension of credit
and/or the first Advance hereunder is subject to the conditions precedent that
the Bank shall have received before the date of such extension of credit and/or
the first Advance all of the following, in form and substance satisfactory to
the Bank.
A. AUTHORITY TO BORROWER. Evidence relating to the duly given approval
and authorization of the execution, delivery and performance of this
Agreement, all other documents, instruments and agreements required
under this Agreement and all other actions to be taken by the Borrower
hereunder or thereunder.
B. LOAN FEES. Evidence that any required loan fees and expenses as set
forth above with respect to each credit facility have been paid or
provided for by the Borrower.
C. AUDIT. The opportunity to conduct an audit of the Borrower's books,
records and operations and the Bank shall be satisfied as to the
condition hereof.
D. MISCELLANEOUS DOCUMENTS. Such other documents, instruments,
agreements and opinions as are necessary, or as the Bank may reasonably
require, to consummate the transactions contemplated under this
Agreement, are fully executed.
4.02 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT AND/OR ADVANCES. The
obligation of the Bank to make any extensions of credit and/or each Advance to
or on account of the Borrower (including the initial extension of credit and/or
the first Advance) shall be subject to the further conditions precedent that,
as of the date of each extension of credit or Advance and after the making of
such extension of credit or Advance.
A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
set forth in the Section entitled "Representations and Warranties"
herein and in any other document, instrument, agreement or certificate
delivered to the Bank hereunder are true and correct.
B. COLLATERAL. The security interest in the Collateral has been duly
authorized, created and perfected with first priority and is in full
force and effect and the Bank has been provided with satisfactory
evidence of all filings necessary to establish such perfection and
priority.
C. EVENT OF DEFAULT. No event has occurred and is continuing which
constitutes, or, with the lapse of time or giving of notice or both,
would constitute an Event of Default.
D. SUBSEQUENT APPROVALS, ETC. The Bank shall have received such
supplemental approvals, opinions or documents as the Bank may reasonably
request.
4.03. REAFFIRMATION OF STATEMENTS. For the purposes hereof, the Borrower's
acceptance of the proceeds of any extension of credit and the Borrower's
execution of any document or instrument evidencing or creating any Obligation
hereunder shall each be deemed to constitute the Borrower's representation and
warranty that
(3)
<PAGE> 5
the statements set forth above in this Section are true and correct.
SECTION V
REPRESENTATIONS AND WARRANTIES
The Borrower hereby makes the following representations and warranties to the
Bank, which representations and warranties are continuing:
5.01. STATUS. The Borrower is a corporation duly organized and validly
existing under the laws of the State of California and is properly licensed,
qualified to do business and in good standing in, and, where necessary to
maintain the Borrower's rights and privileges, has complied with the fictitious
name statute of every jurisdiction in which the Borrower is doing business.
5.02. AUTHORITY. The execution, delivery and performance by the Borrower of
this Agreement and any instrument, document or agreement required hereunder
have been duly authorized and do not and will not: (i) violate any provision of
any law, rule, regulation, writ, judgment or injunction presently in effect
affecting the Borrower; (ii) require any consent or approval of the
stockholders of the Borrower or violate any provision of the articles of
incorporation or by-laws of the Borrower; or (iii) result in a breach of or
constitute a default under any material agreement to which the Borrower is a
party or by which it or its properties may be bound or affected.
5.03. LEGAL EFFECT. This Agreement constitutes, and any document, instrument
or agreement required hereunder when delivered will constitute, legal, valid
and binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms.
5.04. FICTITIOUS TRADE STYLES. The Borrower currently uses no fictitious
trade styles in connection with its business operations. The Borrower shall
notify the Bank within thirty (30) days of the use of any fictitious trade
style at any future date, indicating the trade style and state(s) of its use.
5.05. FINANCIAL STATEMENTS. All financial statements, information and other
data which may have been and which may hereafter be submitted by the Borrower
to the Bank are true, accurate and correct and have been and will be prepared
in accordance with generally accepted accounting principles consistently
applied and accurately represent the Borrower's financial condition and, as
applicable, the other information disclosed therein. Since the most recent
submission of any such financial statement, information or other data to the
Bank, the Borrower represents and warrants that no material adverse change in
the Borrower's financial condition or operations has occurred which has not
been fully disclosed to the Bank in writing.
5.06. LITIGATION. Except as have been disclosed to the Bank in writing, there
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or the Borrower's
properties before any court or administrative agency which, if determined
adversely to the Borrower, would have a material effect on the Borrower's
financial condition, operations or the Collateral.
5.07. TITLE TO ASSETS. The Borrower has good and marketable title to all of
its assets (including, but not limited to, the Collateral) and the same are not
subject to any security interest, encumbrance, lien or claim of any third
person except for Permitted Liens.
5.08. ERISA. If the Borrower has a pension, profit sharing or retirement plan
subject to ERISA, such plan has been and will continue to be funded in
accordance with its terms and otherwise complies with and continues to comply
with the requirements of ERISA.
5.09. TAXES. The Borrower has filed all tax returns required to be filed and
paid all taxes shown thereon to be due, including interest and penalties, other
than taxes which are currently payable without penalty or interest or those
which are being duly contested in good faith.
5.10. ENVIRONMENTAL COMPLIANCE. The operations of the Borrower comply, and
during the term of this Agreement will at all times comply, in all respects with
all Environmental Laws; the Borrower has obtained licenses, permits,
authorizations and registrations required under any Environmental Law
("Environmental Permits") and necessary for its ordinary operations, all such
Environmental Permits are in good standing, and the Borrower is in compliance
with all material terms and conditions of such Environmental Permits; neither
the Borrower nor any of its present properties or operations are subject to any
outstanding written order from or agreement with any governmental authority nor
subject to any judicial or docketed administrative proceeding, respecting any
Environmental Law, Environmental Claim or Hazardous Material; there are no
Hazardous Materials or other conditions or circumstances existing, or arising
from operations prior to the date of this Agreement, with respect to any
property of the Borrower that would reasonably be expected to give rise to
Environmental Claims; provided however, that with respect to property leased
from an unrelated third party, the foregoing representation is made to the best
knowledge of the Borrower. In addition, (i) the Borrower does not have or
maintain any underground storage tanks which are not properly registered or
permitted under applicable Environmental Laws or which are leaking or disposing
of Hazardous Materials off-site, and (ii) the Borrower has notified all of its
employees of the existence, if any, of any health hazard arising from the
conditions of their employment and have met all notification requirements under
Title III of CERCLA and all other Environmental Laws.
SECTION VI
COVENANTS
The Borrower covenants and agrees that, during the term of this Agreement, and
to long thereafter as the Borrower is indebted to the Bank under this
Agreement, the Borrower shall, unless the Bank otherwise consents in writing:
6.01. PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain
and preserve its existence and all rights and privileges now enjoyed; not
liquidate or dissolve, merge or consolidate with or into, or acquire any other
business organization; and conduct its business in accordance with all
applicable laws, rules and regulations.
6.02. MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower operates and maintain such other insurance and coverages as may be
required by the Bank. All such insurance shall be in form and amount and with
companies satisfactory to the Bank. With respect to insurance covering
properties in which the Bank maintains a security interest or lien, such
insurance shall be in an amount not less than the full replacement value
thereof, at the Bank's request, shall name the Bank as loss payee pursuant to a
loss payable endorsement satisfactory to the Bank and shall not be altered or
canceled except upon ten (10) days' prior
(4)
<PAGE> 6
written notice to the Bank. Upon the Bank's request, the Borrower shall
furnish the Bank with the original policy or binder of all such insurance.
6.03. MAINTENANCE OF COLLATERAL AND OTHER PROPERTIES. Except for Permitted
Liens, the Borrower shall keep and maintain the Collateral free and clear of
all levies, liens, encumbrances and security interests (including but not
limited to, any lien of attachment, judgement or execution) and defend the
Collateral against any such levy, lien, encumbrance or security interest;
comply with all laws, statutes and regulations pertaining to the Collateral and
its use and operation; execute, file and record such statements, notices and
agreements, take such actions and obtain such certificates and other documents
as necessary to perfect, evidence and continue the Bank's security interest in
the Collateral and the priority thereof; maintain accurate and complete records
of the Collateral which show all sales, claims and allowances; and properly
care for, house, store and maintain the Collateral in good condition, free of
misuse, abuse and deterioration, other than normal wear and tear. The Borrower
may also maintain and preserve all its properties in good working order and
condition in accordance with the general practice of other businesses of
similar character and size, ordinary wear and tear excepted.
6.04. LOCATION AND MAINTENANCE OF EQUIPMENT.
A. LOCATION. The Equipment shall at all times be in the Borrower's
physical possession, shall not be held for sale or lease and shall be
kept only at the following location(s): 2681 Kelvin Avenue, Irvine, CA
92714.
The Borrower shall not secrete, abandon or remove, or permit the removal
of, the Equipment, or any part thereof, from the location(s) shown above
or remove or permit to be removed any accessories now or hereafter
placed upon the Equipment.
B. EQUIPMENT SCHEDULES. Upon the Bank's demand, the Borrower shall
immediately provide the Bank with a complete and accurate description of
the Equipment, including, as applicable, the make, model,
identification number and serial number of each item of Equipment. In
addition, the Borrower shall immediately notify the Bank of the
acquisition of any new or additional Equipment or the replacement of any
existing Equipment and shall supply the Bank with a complete description
of any such additional or replacement Equipment.
C. MAINTENANCE OF EQUIPMENT. The Borrower shall, at the Borrower's
sole cost and expense, keep and maintain the Equipment in a good state
of repair and shall not destroy, misuse, abuse, illegally use or be
negligent in the care of the Equipment or any part thereof. The Borrower
shall not remove, destroy, obliterate, change, cover, paint, deface or
alter the name plates, serial numbers, labels or other distinguishing
numbers or identification marks placed upon the Equipment or any part
thereof by or on behalf of the manufacturer, any dealer or rebuilder
thereof, or the Bank. The Borrower shall not be released from any
liability to the Bank hereunder because of any injury to or loss or
destruction of the Equipment. The Borrower shall allow the Bank and its
representatives free access to and the right to inspect the Equipment at
all times and shall comply with the terms and conditions of any leases
covering the real property on which the Equipment is located and any
orders, ordinances, laws, regulations or rules of any federal, state or
municipal agency or authority having jurisdiction of such real property
or the conduct of business of the persons having control or possession
of the Equipment.
D. FIXTURES. The Equipment is not now and shall not at any time
hereafter be so affixed to the real property on which it is located as
to become a fixture or a part thereof. The Equipment is now and shall at
all times hereafter be and remain personal property of the Borrower.
6.05. LOCATION AND QUALITY OF INVENTORY. The inventory (i) is now and shall
at all times hereafter be of good and merchantable quality and free from
defects; (ii) is not now and shall not at any time hereafter be stored with a
bailee, warehouseman or similar party without the Bank's prior written consent
and, in such event, the Borrower will concurrently therewith cause any such
bailee, warehouseman or similar party to issue and deliver to the Bank, in form
acceptable to the Bank, warehouse receipts in the Bank's name evidencing the
storage of inventory; (iii) shall at all times be in the Borrower's physical
possession, (iv) shall not be held by others on consignment, sale on approval,
or sale or return; and (v) shall be kept only at the following location(s): 2681
Kelvin Avenue, Irvine, CA 92714.
6.06. PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all
assessments and taxes and all of its liabilities and obligations including, but
not limited to, trade payables, unless the same are being contested in good
faith by appropriate proceedings with the appropriate court or regulatory
agency. For purposes hereof, the Borrower's issuance of a check, draft or
similar instrument without delivery to the intended payee shall not constitute
payment.
6.07. INSPECTION RIGHTS. At any reasonable time and from time to time permit
the Bank or any representative thereof to examine and make copies of the records
and visit the properties of the Borrower and to discuss the business and
operations of the Borrower with any employee or representative thereof. If the
Borrower now or at any time hereafter maintains any records (including, but not
limited to, computer generated records and computer programs for the generation
of such records) in the possession of a third party, the Borrower hereby agrees
to notify such third party to permit the Bank free access to such records at all
reasonable times and to provide the Bank with copies of any records it may
request, all at the Borrower's expense, the amount of which shall be payable
immediately upon demand. In addition, the Bank may, at any reasonable time and
from time to time, conduct inspections and audits of the Collateral and the
Borrower's accounts payable, the cost and expenses of which shall be paid by the
Borrower to the Bank upon demand.
6.08. REPORTING REQUIREMENTS. Deliver or cause to be delivered to the Bank in
form and detail satisfactory to the Bank:
A. INTERIM STATEMENTS. Not later than 45 days after the end of each
fiscal quarter, the Borrower's financial statement as of the end of
such fiscal quarter.
B. RECEIVABLES AND PAYABLES AGINGS. Not later than 10 days after the
end of each fiscal quarter, an aging of accounts receivable and an
aging of accounts payable.
C. ANNUAL STATEMENTS. Not later than 90 days after the end of each of
the Borrower's fiscal years, a copy of the annual CPA audited financial
statements and 10K Report of the Borrower for such year.
D. OTHER INFORMATION. Promptly upon the Bank's request, such other
information pertaining to the Borrower, the Collateral, or any Guarantor
as the Bank may reasonably request.
6.09. PAYMENT OF DIVIDENDS. The Borrower shall not declare or pay any
dividends on any class of stock now or hereafter outstanding except dividends
payable solely in the corporation's capital stock.
6.11. ADDITIONAL INDEBTEDNESS. Not after the date hereof, create, incur or
assume, directly or indirectly, any liability or indebtedness other than (i)
indebtedness owed or to be owed to the Bank or (ii) indebtedness to trade
creditors incurred in the ordinary course of the Borrower's business.
6.12. LOANS. Not make any loans or advances or extend credit to any third
person, including, but not limited to, directors, officers, shareholders,
partners, employees, affiliated entities or subsidiaries of the Borrower,
except for credit extended in the ordinary course of the Borrower's business as
presently conducted and except up to an aggregate amount not exceeding
$150,000.00 in any one fiscal year.
(5)
<PAGE> 7
6.13. LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any
security interest, encumbrance, mortgage, deed of trust or other lien
(including, but not limited to, a lien of attachment, judgment or execution)
affecting any of the Borrower's properties, or execute or allow to be filed any
financing statement or continuation thereof affecting any such properties,
except for Permitted Liens or as otherwise provided in this Agreement.
6.14. TRANSFER ASSETS. Not sell, contract for sale, transfer, convey, assign,
lease or sublet any assets of the Borrower, including, but not limited to, the
Collateral, except in the ordinary course of business as presently conducted by
the borrower, and then, only for full, fair and reasonable consideration.
6.15. CHANGE IN THE NATURE OF BUSINESS. Not make any material change in the
Borrower's financial structure or in the nature of the Borrower's business as
existing or conducted as of the date of this Agreement.
6.16. FINANCIAL CONDITION. Maintain at all times:
A. NET WORTH. A minimum Effective Tangible Net Worth of not less than
$15,000,000.00.
B. DEBT TO NET WORTH RATIO. A Debt to Effective Tangible Net Worth ratio
of not more than 1.00 to 1.00.
C. MINIMUM WORKING CAPITAL. A minimum working capital amount of not less
than $10,000,000.00.
D. CURRENT RATIO. A ratio of current assets to current liabilities of not
less than 2.00 to 1.00.
6.17. COMPENSATION OF EXECUTIVES, OFFICERS AND DIRECTORS. Not increase total
compensation (which is defined herein to include, but not be limited to,
salaries, withdrawals, fees, bonuses, and commissions) to all of the Borrower's
executives, officers and directors during any fiscal year by more than 50.00%
of the total compensation paid in the prior fiscal year.
6.18. COMPENSATION OF EMPLOYEES. Compensate the employees of the Borrower for
services rendered at an hourly rate at least equal to the minimum hourly rate
prescribed by any applicable federal or state law or regulation.
6.19. RENTALS. Not incur additional liability (in addition to that incurred as
of the date of this Agreement) for the payment of, or pay, rentals for the
renting, leasing or use of any real or personal property.
6.20. CAPITAL EXPENSES. Not make any fixed capital expenditures or any
commitment therefor, including, but not limited to, incurring liability for
uses which would be, in accordance with generally accepted accounting
principles, reported as capital leases, or purchase any real or personal
property except for expenditures in an aggregate amount not exceeding
$1,000,000.00 excluding product molds.
6.21. PERMITTED ACQUISITION. Notwithstanding anything contained in Section
6.01 of this Agreement, the Borrower may, without prior approval of the Bank,
acquire in the 1994 fiscal year another company or the assets of another
company provided the purchase price for such acquisition does not exceed
$2,000,000.00.
6.22. ENVIRONMENTAL COMPLIANCE. The Borrower shall:
A. Conduct the Borrower's operations and keep and maintain all of its
properties in compliance with all Environmental Laws.
B. Give prompt written notice to the Bank, but in no event later than 10
days after becoming aware, of the following: (i) any enforcement,
cleanup, removal or other governmental or regulatory actions instituted,
completed or threatened against the Borrower or any of its affiliates or
any of its respective properties pursuant to any applicable Environmental
Laws, (ii) all other Environmental Claims, and (iii) any environmental or
similar condition on any real property adjoining or in the vicinity of
the property of the Borrower or its affiliates that could reasonably be
anticipated to cause such property or any part thereof to be subject to
any restrictions on the ownership, occupancy, transferability or use of
such property under any Environmental Laws.
C. Upon the written request of the Bank, the Borrower shall submit to the
Bank, at its sole cost and expense, at reasonable intervals, a report
providing an update of the status of any environmental, health or safety
compliance, hazard or liability issue identified in any notice required
pursuant to this Section.
D. At all times indemnify and hold harmless the Bank from and against
any and all liability arising out of any Environmental Claims.
6.23. NOTICE. Give the Bank prompt written notice of any and all (i) Events of
Default; (ii) litigation, arbitration or administrative proceedings to which the
Borrower is a party and which affects the Collateral; (iii) any change in the
place of business of the Borrower or the acquisition of more than one place of
business by the Borrower; (iv) any proposed or actual change in the name,
identity or business nature of the Borrower; (v) any change in the location of
the Equipment or Inventory; and (vi) other matters which have resulted in, or
might result in a material adverse change in the Collateral or the financial
condition or business operations of the Borrower.
SECTION VII
EVENTS OF DEFAULT
Any one or more of the following described events shall constitute an event of
default under this Agreement:
7.01. NON-PAYMENT. The Borrower shall fail to pay any Obligations within 10
days of when due.
7.02 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The Borrower shall fail in
any material respect to perform or observe any term, covenant or agreement
contained in this Agreement or in any document, instrument or agreement
evidencing or relating, to any indebtedness of the Borrower (whether owed to the
Bank or third persons), and any such failure (exclusive of the payment of money
to the Bank under this Agreement or under any other document, instrument or
agreement, which failure shall constitute and be an immediate Event of Default
if not paid when due or when demanded to be due) shall continue for more than
30 days after written notice from the bank to the Borrower of the existence and
character of such Event of Default.
7.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any representation
or warranty made by the Borrower under or in connection with this Agreement or
any financial statement given by the Borrower or any Guarantor shall prove to
have been incorrect in any material respect when made or given or when deemed
to have been made or given.
7.04 INSOLVENCY. The Borrower or any Guarantor shall: (i) become insolvent or
be unable to pay its debts as they mature; (ii) make an assignment for the
benefit of creditors or to an agent authorized to liquidate any substantial
amount of its properties or assets; (iii) file a voluntary petition in
bankruptcy or seeking reorganization or to effect a plan or other arrangement
with creditors; (iv) file an answer admitting the material allegations of an
involuntary petition relating to
(6)
<PAGE> 8
bankruptcy or reorganization or join in any such petition; (v) become or be
adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or
consent that an order be made, appointing any receiver, custodian or trustee
for itself or any of its properties, assets or businesses; or (vii) any
receiver, custodian or trustee shall have been appointed for all or a
substantial part of its properties, assets or businesses and shall not be
discharged within 30 days after the date of such appointment.
7.05. EXECUTION. Any writ of execution or attachment or any judgment lien
shall be issued against any property of the Borrower and shall not be
discharged or bonded against or released within 30 days after the issuance or
attachment of such writ or lien.
7.06. REVOCATION OR LIMITATION OF GUARANTY. Any Guaranty shall be revoked or
limited or its enforceability or validity shall be contested by any Guarantor,
by operation of law, legal proceeding or otherwise or any Guarantor who is a
natural person shall die.
7.07. SUSPENSION. The Borrower shall voluntarily suspend the transaction of
business or allow to be suspended, terminated, revoked or expired any permit,
license or approval of any governmental body necessary to conduct the
Borrower's business as now conducted.
7.09. IMPAIRMENT OF COLLATERAL. There shall occur any injury or damage to all
or any part of the Collateral or all or any part of the Collateral shall be
lost, stolen or destroyed, which changes cause the Collateral, in the sole and
absolute judgement of the Bank, to become unacceptable as to character and
value.
SECTION VIII
REMEDIES ON DEFAULT
Upon the occurrence of any Event of Default, the Bank may, at its sole
election, without demand and upon only such notice as may be required by law:
8.01. ACCELERATION. Declare any or all of the Borrower's indebtedness owing to
the Bank, whether under this Agreement or under any other document, instrument
or agreement, immediately due and payable, whether or not otherwise due and
payable.
8.02. CEASE EXTENDING CREDIT. Cease making Advances or otherwise extending
credit to or for the account of the Borrower under this Agreement or under any
other agreement now existing or hereafter entered into between the Borrower and
the Bank.
8.03. TERMINATION. Terminate this Agreement as to any future obligation of the
Bank without affecting the Borrower's obligations to the Bank or the Bank's
rights and remedies under this Agreement or under any other document,
instrument or agreement.
8.04. SEGREGATE COLLECTIONS. Require the Borrower to segregate all collections
and proceeds of the Collateral so that they are capable of identification and
to deliver such collections and proceeds to the Bank, in kind, without
commingling, at such times and in such manner as required by the Bank.
8.05. RECORDS OF COLLATERAL. Require the Borrower to periodically deliver to
the Bank records and schedules showing the status, condition and location of
the Collateral and such contracts or other matters which affect the Collateral.
In connection herewith, the Bank may conduct such audits or other examination
of such records, including, but not limited to, verification of balances owing
by any account debtor of the Borrower, as the Bank, in its sole and absolute
discretion, deems necessary.
8.06. NOTIFICATION OF ACCOUNT DEBTORS.
A. Notify any or all of the Borrower's Account Debtors, or any buyers or
transferees of the Collateral or other persons of the Bank's interest in
the Collateral and the proceeds thereof and instruct such person(s) to
thereafter make any payment due the Borrower directly to the Bank.
B. The Borrower hereby irrevocably and unconditionally appoints the Bank
as its attorney-in-fact to: (i) endorse the Borrower's name on any notes,
acceptances, checks, drafts, money orders or other evidence of payment
that may come into the Bank's possession; (ii) sign the Borrower's name on
any invoice or bill of lading relating to any of the Collateral; (iii)
notify post office authorities to change the address for delivery of mail
addressed to the Borrower to such address as the Bank may designate and
take possession of and open mail addressed to the Borrower and remove
therefrom, proceeds of and payments on the Collateral; and (iv) demand,
receive and endorse payment and give receipts, releases and satisfactions
for and sue for all money payable to the Borrower. All of the preceding
may be done either in the name of the Bank or in the name of the Borrower
with the same force and effect as the Borrower could have done had this
Agreement not been entered into.
C. Require the Borrower to indicate on the face of all invoices (or such
other documentation as may be specified by the Bank relating to the sale,
delivery or shipment of goods giving rise to the account) that the
account has been assigned to the Bank and that all payments are to be made
directly to the Bank at such address as the Bank may designate.
8.07. COMPROMISE. Grant extensions, compromise claims and settle any account
for less than the amount owing thereunder, all without notice to the Borrower
or any obligor on or guarantor of the Obligations.
8.08. PROTECTION OF SECURITY INTEREST. Make such payments and do such acts as
the Bank, in its sole judgment, considers necessary and reasonable to protect
its security interest or lien in the Collateral. The Borrower hereby
irrevocably authorizes the Bank to pay, purchase, contest or compromise any
encumbrance, lien or claim which the Bank, in its sole judgment, deems to be
prior or superior to its security interest. Further, the Borrower hereby agrees
to pay to the Bank, upon demand therefor, all expenses and expenditures
(including attorneys' fees) incurred in connection with the foregoing.
8.09. FORECLOSURE. Enforce any security interest or lien given or provided for
under this Agreement or under any security agreement, mortgage, deed of trust
or other document relating to the Collateral, in such manner and such order, as
to all or any part of the Collateral, as the Bank, in its sole judgment, deems
to be necessary or appropriate and the Borrower hereby waives any and all
rights, obligations or defenses now or hereafter established by law relating to
the foregoing. In the enforcement of its security interest or lien, the Bank is
authorized to enter upon the premises where any Collateral is located and take
possession of the Collateral or any part thereof, together with the Borrower's
records pertaining thereto, or the Bank may require the Borrower to assemble
the Collateral and records pertaining thereto and make such Collateral and
records available to the Bank at a place designated by the Bank. The Bank may
sell the Collateral or any portions thereof, together with all additions,
accessions and accessories thereto, giving only such notices and following only
such procedures as are required by law, at either
(7)
<PAGE> 9
a public or private sale, or both, with or without having the Collateral
present at the time of sale, which sale shall be on such terms and conditions
and conducted in such a manner as the Bank determines in its sole judgment to
be commercially reasonable. Any deficiency which exists after the disposition
or liquidation of the Collateral shall be a continuing liability of any obligor
on or any guarantor of the Obligations and shall be immediately paid to the
Bank.
8.10. APPLICATION OF PROCEEDS. All amounts received by the Bank as proceeds
from the disposition or liquidation of the Collateral shall be applied to the
Borrower's indebtedness to the Bank as follows: first, to the costs and expenses
of collection, enforcement, protection and preservation of the Bank's lien in
the Collateral, including court costs and reasonable attorneys' fees, whether or
not suit is commenced by the Bank; next, to those costs and expenses incurred by
the Bank in protecting, preserving, enforcing, collecting, selling or disposing
of the Collateral; next, to the payment of accrued and unpaid interest on all of
the Obligations; next, to the payment of the outstanding principal balance of
the Obligations; and last, to the payment of any other indebtedness owed by the
Borrower to the Bank. Any excess Collateral or excess proceeds existing after
the disposition or liquidation of the Collateral will be returned or paid by the
Bank to the Borrower.
8.11. NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of the Bank's rights
set forth herein or seek such other rights or pursue such other remedies as may
be provided by law, in equity or in any other agreement now existing or
hereafter entered into between the Borrower and the Bank, or otherwise.
SECTION IX
MISCELLANEOUS PROVISIONS
9.01. DEFAULT INTEREST RATE. If an Event of Default has occurred and is
continuing, the Bank, at its option, may require the Borrower to pay to the
Bank interest on any Indebtedness or amount payable under this Agreement at a
rate which is 3% in excess of the rate or rates otherwise then in effect under
this Agreement.
9.02. RELIANCE. Each warranty, representation, covenant and agreement
contained in this Agreement shall be conclusively presumed to have been relied
upon by the Bank regardless of any investigation made or information possessed
by the Bank and shall be cumulative and in addition to any other warranties,
representations, covenants or agreements which the Borrower shall now or
hereafter give, or cause to be given, to the Bank.
9.03. DISPUTE RESOLUTION.
A. DISPUTES. It is understood and agreed that, upon the request of any
party to this Agreement, any dispute, claim or controversy of any kind,
whether in contract or in tort, statutory or common law, legal or
equitable, now existing or hereinafter arising between the parties in
any way arising out of, pertaining to or in connection with: (i) this
Agreement, or any related agreements, documents or instruments, (ii) all
past and present loans, credits, accounts, deposit accounts (whether
demand deposits or time deposits), safe deposit boxes, safekeeping
agreements, guarantees, letters of credit, goods or services, or other
transactions, contracts or agreements of any kind, (iii) any incidents,
omissions, acts, practices, or occurrences causing injury to any party
whereby another party or its agents, employees or representatives may be
liable, in whole or in part, or (iv) any aspect of the past or present
relationships of the parties, shall be resolved through a two-step
dispute resolution process administered by the Judicial Arbitration &
Mediation Services, Inc. ("JAMS") as follows:
B. STEP I - MEDIATION. At the request of any party to the dispute,
claim or controversy, the matter shall be referred to the nearest office
of JAMS for mediation, which is an informal, non-binding conference or
conferences between the parties in which a retired judge or justice from
the JAMS panel will seek to guide the parties to a resolution of the
case.
C. STEP II - ARBITRATION (CONTRACTS NOT SECURED BY REAL PROPERTY).
Should any dispute, claim or controversy remain unresolved at the
conclusion of the Step I Mediation Phase, then (subject to the
restriction at the end of this subparagraph) all such remaining matters
shall be resolved by final and binding arbitration before a different
judicial panelist, unless the parties shall agree to have the mediator
panelist act as arbitrator. The hearing shall be conducted at a location
determined by the arbitrator in Los Angeles, California (or such other
city as may be agreed upon by the parties) and shall be administered by
and in accordance with the then existing Rules of Practice and Procedure
of JAMS and judgement upon any award rendered by the arbitrator may be
entered by any State or Federal Court having jurisdiction thereof. The
arbitrator shall determine which is the prevailing party and shall
include in the award that party's reasonable attorney's fees and costs.
This subparagraph shall apply only if, at the time of the submission of
the matter to JAMS, the dispute or issues involved do not arise out of
any transaction which is secured by real property collateral or, if so
secured, all parties consent to such submission.
As soon as practicable after selection of the arbitrator, the
arbitrator, or the arbitrator's designated representative, shall
determine a reasonable estimate of anticipated fees and costs of the
arbitrator, and render a statement to each party setting forth that
party's pro-rata share of said fees and costs. Thereafter, each party
shall, within 10 days of receipt of said statement, deposit said sum
with the arbitrator. Failure of any party to make such a deposit shall
result in a forfeiture by the non-depositing party of the right to
prosecute or defend the claim which is the subject of the arbitration,
but shall not otherwise serve to abate, stay or suspend the arbitration
proceedings.
D. STEP II - TRIAL BY COURT REFERENCE (CONTRACTS SECURED BY REAL
PROPERTY). If the dispute, claim or controversy is not one required or
agreed to be submitted to arbitration, as provided in the above
subparagraph, and has not been resolved by Step I mediation, then any
remaining dispute, claim or controversy shall be submitted for
determination by a trial on Order of Reference conducted by a retired
judge or justice from the panel of JAMS appointed pursuant to the
provision of Section 638(1) of the California Code of Civil Procedure,
or any amendment, addition or successor section thereto, to hear the
case and report a statement of decision thereon. The parties intend this
general reference agreement to be specifically enforceable in accordance
with said section. If the parties are unable to agree upon a member of
the JAMS panel to act as referee, then one shall be appointed by the
Presiding Judge of the county wherein the hearing is to be held. The
parties shall pay in advance, to the referee, the estimated reasonable
fees and costs of the reference, as may be specified in advance by the
referee. The parties shall initially share equally, by paying their
proportionate amount of the estimated fees and costs of the reference.
Failure of any party to make such a fee deposit shall result in
forfeiture by the non-depositing party of the right to prosecute or
defend any cause of action which is the subject of the reference, but
shall not otherwise serve to abate, stay or suspend the reference
proceeding.
E. PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No provision of,
or the exercise of any rights under any portion of this Dispute
Resolution provision, shall limit the right of any party to exercise
self help remedies such as set off, foreclosure against any real or
personal property collateral, or the obtaining of provisional or
ancillary remedies, such as injunctive relief or the appointment of a
receiver, from any court having jurisdiction before, during of after the
pendency of any arbitration. At the Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of
power of sale under the deed of trust or mortgage, or by judicial
foreclosure. The institution and maintenance of an action for
provisional remedies, pursuit of provisional
(8)
<PAGE> 10
or ancillary remedies or exercise of self help remedies shall not
constitute a waiver of the right of any party to submit the controversy or
claim to arbitration.
9.04. WAIVER OF JURY. The Borrower and the Bank hereby expressly and
voluntary waive any and all rights, whether arising under the California
constitution, any rules of the California Code of Civil Procedure, common law or
otherwise, to demand a trial by jury in any action, matter, claim or cause of
action whatsoever arising out of or in any way related to this Agreement or any
other agreement, document or transaction contemplated hereby.
9.05. RESTRUCTURING EXPENSES. In the event the Bank and the Borrower negotiate
for, or enter into, any restructuring, modification or refinancing of the
Indebtedness under this Agreement for the purposes of remedying an Event of
Default, The Bank, may require the Borrower to reimburse all of the Bank's
costs and expenses incurred in connection therewith, including, but not limited
to reasonable attorneys' fees and the costs of any audit or appraisals required
by the Bank to be performed in connection with such restructuring, modification
or refinancing.
9.06 ATTORNEYS' FEES. In the event of any suit, mediation, arbitration or other
action in relation to this Agreement or any document, instrument or agreement
executed with respect to, evidencing or securing the indebtedness hereunder,
the prevailing party, in addition to all other sums to which it may be
Entitled, shall be entitled to reasonable attorneys' fees.
9.07. NOTICES. All notices, payments, requests, information and demands which
either party hereto may desire, or may be required to give or make to the
other party shall be given or made to such party by hand delivery or through
deposit in the United States mail, postage prepaid, or by Western Union
telegram, addressed to the address set forth below such party's signature to
this Agreement or to such other address as may be specified from time to
time in writing by either party to the other.
9.08. WAIVER. Neither the failure nor delay by the Bank in exercising any right
hereunder or under any document, instrument or agreement mentioned herein shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder or under any document, instrument or agreement mentioned herein
preclude other or further exercise thereof or the exercise of any other right;
nor shall any waiver of any right or default hereunder or under any other
document, instrument or agreement mentioned herein constitute a waiver of any
other right or default or constitute a waiver of any other default of the same
or any other term or provision.
9.09. CONFLICTING PROVISIONS. To the extent that any of the terms or provisions
contained in this Agreement are inconsistent with those contained in any other
document, instrument or agreement executed pursuant hereto, the terms and
provisions contained herein shall control. Otherwise, such provisions shall be
considered cumulative.
9.10. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the Bank's prior written consent. The
Bank may sell, assign or grant participations in all or any portion of its
rights and benefits hereunder. The Borrower agrees that, in connection with any
such sale, grant or assignment, the Bank may deliver to the prospective buyer,
participant or assignee financial statements and other relevant information
relating to the Borrower and any guarantor.
9.11. JURISDICTION. This Agreement, any notes issued hereunder, the rights of
the parties hereunder to and concerning the Collateral, and any documents,
instruments or agreements mentioned or referred to herein shall be governed by
and construed according to the laws of the State of California, to the
Jurisdiction of whose courts the parties hereby submit.
9.12. HEADINGS. The headings set forth herein are solely for the purpose of
identification and have no legal significance.
9.13. ENTIRE AGREEMENT. This Agreement and all documents, instruments and
agreements mentioned herein constitute the entire and complete understanding of
the parties with respect to the transactions contemplated hereunder. All
previous conversations, memoranda and writings between the parties or pertaining
to the transactions contemplated hereunder that are not incorporated or
referenced in this Agreement or in such documents, instruments and agreements
are superseded hereby.
(9)
<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the date first hereinabove written.
BANK:
SANWA BANK CALIFORNIA
By: /s/ C.W. Ditchey
----------------------
Name: C.W. Ditchey
Title: Vice President
Address:
East Anaheim Office
4501 East La Palma Avenue
Anaheim, CA 92807
BORROWER:
GISH BIOMEDICAL, INC.
By: /s/ Jeanne M. Miller
----------------------
Name: Jeanne M. Miller
Title: Vice President/
Chief Financial Officer
Address:
2681 Kelvin Avenue
Irvine, CA 92714
(10)
<PAGE> 1
EXHIBIT 10.10
LBI/GISH BIOMEDICAL, INC. LEASE
Section 1. Premises
Section 2. Term (Initial Term & Option)
Section 3. Rental Payment
Section 4. Use
Section 5. Alterations
Section 6. Possession
Section 7. Insurance
Section 8. Default
Section 9. Remedies
Section 10. Maintenance and Repairs
Section 11. Hazardous Substances
Section 12. Estoppel Certificate
Section 13. Severability
Section 14. Assignment or Subletting
Section 15. Entry
Section 16. Signs
Section 17. Holding Over
Section 18. Destruction and Condemnation
Section 19. Indemnity
Section 20. Landlord's Right to Perform For Tenant
Section 21. Notices
Section 22. Attorney Fees
Section 23. Legal Effect
Section 24. Titles
Section 25. Successors
Section 26. Waiver
Section 27. Taxes
Section 28. Janitorial Services
Section 29. Entire Agreement
Section 30. Late Charge
Section 31. Time of the Essence
Section 32. Subordination
Section 33. Governing Law
Section 34. Certain Representations and Warranties of Landlord
Section 35. Landlord's Indemnity
Section 36. Landlord's Environmental Compliance
Section 37. Limitations on Tenant's Liability
Section 38. Maintenance of Utility Systems
Section 39. Assignment and Subletting
Section 40. Landlord's Insurance
Exhibit A. Premises Layout Map
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This Lease (Lease) dated as of April 17, 1996 is entered into between
LBI, a California general partnership, (Landlord) and Gish Biomedical, Inc.
(Tenant).
1 PREMISES.
Landlord leases to Tenant and Tenant leases from Landlord a portion of
the property located at 870 Gold Flat Road, Nevada City, California 95959
(Premises), currently occupied by Creative Medical Development, Inc. (CMD),
consisting of approximately FOURTEEN thousand (14,000) square feet designated on
the diagram attached to this Lease as Exhibit A which is incorporated by
reference.
2 TERM.
2.1 The initial term (Initial Term) of this Lease is for the period
commencing on April 13, 1996 and ending at midnight on April 12, 1997, unless
sooner terminated according to this Lease.
2.2 Tenant shall have the option to extend the term of this Lease for
one (1) year following the expiration of the Initial Term on all of the terms
and conditions in this Lease, except that during that extended term, Tenant
shall not have the further option to extend the term in this Section 2.2.
2.2.1 To exercise this option, Tenant must give Landlord
written notice of exercise of the option (Option Notice) no
earlier than six (6) months and no later than three (3) months
prior to the expiration of the Initial Term. However, if, as
of Landlord's receipt of the Option Notice, Tenant is in
default under this Lease beyond all applicable cure periods,
or has committed or failed to perform acts that with the
giving of notice or the lapse of time would constitute a
default under this Lease (Potential Default), the Option
Notice shall be totally ineffective. If, after giving the
Option Notice, Tenant is in default under this Lease, or if a
Potential Default has occurred, and that default or Potential
Default remains uncured as of the expiration of the Initial
Term, this Lease shall, at the election of Landlord, terminate
as of the expiration of the Initial Term.
2.2.2 Landlord may cancel the option prior to its exercise, if
Landlord has entered into a contract for sale of the Leased
Premises, or any portion thereof.
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<PAGE> 3
3 RENTAL PAYMENT.
3.1 The total rent shall be Ninety Thousand Dollars ($90,000) (Rent)
payable to Landlord, $7,500 monthly, in advance, at the address of Landlord
stated in this Lease or at another location Landlord may designate.
3.2 Rental does not include electricity, gas, water, trash disposal or
any other utility or services on the Premises. All such charges shall be paid by
Tenant.
4 USE.
4.1 The Premises are to be used for research and development, offices,
manufacturing and warehouse consistent with the prior usage by Creative Medical
Development, Inc. and no other purpose.
4.2 Tenant shall not do or permit any act to be done that will increase
the existing rate or cause cancellation of insurance on the Premises or will
cause a substantial increase in utility services normally supplied to the
Premises.
4.3 Tenant shall comply with all statutes, ordinances, regulations, and
other requirements of all governmental entities that pertain to the occupancy or
use of the Premises, and with all reasonable, non-discriminatory rules and
regulations that are adopted by Landlord for the safety, care, and cleanliness
of the Premises and the preservation of good order on the Premises. These rules
and regulations are expressly made a part of this Lease.
5 ALTERATIONS.
5.1 Except as provided in section 6.1, Tenant, shall be solely
responsible for all alterations, construction, remodeling or improvements
required to use the Premises pursuant to this Lease. All improvements and/or
trade fixtures which Tenant installs on the Premises occupied by Tenant may be
removed by Tenant at the end of this lease. If Landlord requests at the time
Tenant requests Landlord's approval for any improvements or alterations to be
made by Tenant, Tenant shall remove such improvements and alterations within ten
(10) days of the end of the Term. In addition, Tenant shall remove all trade
fixtures, within ten days of the end of the Term. To the extent that any such
removal causes any damages to the Premises, Tenant shall immediately restore the
Premises to its former condition, reasonable wear and tear excepted. Any and all
improvements, alterations, and/or changes in the Premises that Tenant may desire
must conform to all municipal, county, and other governmental standards. Prior
to commencement of any alterations, improvements and/or changes in the Premises
Tenant shall submit the proposed changes to Landlord for Landlord's approval.
Landlord shall
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<PAGE> 4
have ten (l0) days in which to indicate in writing either its approval or
disapproval of the alterations, improvements and/or changes. If Landlord
disapproves of the alterations, improvements and/or changes, Landlord shall
specifically state those portions to which Landlord objects. Approval of
alterations, improvements and/or changes shall not be unreasonably withheld by
Landlord.
5.2 Any alteration to the Premises without the prior written consent of
Landlord shall be a breach of this Lease and, at the option of Landlord, shall
cause a termination of this Lease.
6 POSSESSION.
Any delay in delivery of possession to the Tenant shall postpone the
commencement of rent accordingly, but shall not otherwise affect this Lease.
However, if for any reason Landlord does not deliver possession of the Premises
to Tenant on the Closing Date of the proposed Purchase of Assets Agreement
between CMD and Tenant, Tenant shall have the right, upon written notice to
Landlord, to terminate this Lease.
7 INSURANCE.
7.1 Tenant shall pay for and maintain insurance throughout the life of
this Lease with general liability coverage of at least One Million Dollars
($1,000,000) minimum coverage per occurrence. Tenant will furnish Landlord with
proof of insurance issued by an insurer approved by Landlord showing the
coverage to be in force and showing Landlord as a named insured for all periods
of the Term.
7.2 Landlord and Tenant shall each be responsible to maintain
appropriate fire and casualty insurance for their respective interests in the
Premises and the property situated thereon.
7.3 Landlord and Tenant each waive the rights of subrogation that may
arise against the other because of any act covered by insurance.
8 DEFAULT.
Each of the following shall be an Event of Default under this Lease:
8.1 If Tenant fails to make any payment required by the provisions of
this Lease within ten (10) days after written notice from Landlord. Said written
notice shall be in lieu of any required statutory notice to pay rent or quit.
8.2 If Tenant fails within thirty (30) days after written notice to
correct (or, if correction will reasonably take more than thirty (30) days, to
commence and diligently
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<PAGE> 5
prosecute such correction) any breach or default of the other covenants, terms,
or conditions of this Lease;
8.3 If Tenant vacates, abandons, or surrenders the Premises prior to
the end of the Term; and
8.4 If all or substantially all of Tenant's assets are placed in the
hands of a receiver or trustee, and that receivership or trusteeship continues
for a period of thirty (30) days, or if Tenant makes an assignment for the
benefit of creditors or is adjudicated a bankrupt, or if Tenant institutes any
proceedings under any state or federal bankruptcy act by which tenant seeks to
be adjudicated a bankrupt or seeks to be discharged of debts, or if any
voluntary proceeding is filed against Tenant under any bankruptcy laws, and
Tenant consents or acquiesces by pleading or default.
9 REMEDIES.
Upon the occurrence of an Event of Default under this Lease by Tenant,
Landlord is entitled at Landlord's option to the following:
9.1 to reenter and take exclusive possession of the Premises;
9.2 to continue this Lease in force or to terminate it at any time;
9.3 to relet the Premises for any period on Tenant's account and at
Tenant's expense, including real estate commissions actually paid, and to apply
the proceeds received during the balance of Term to Tenant's continuing
obligations under this Lease;
9.4 to take custody of all personal property on the Premises and to
dispose of the personal property and to apply the proceeds from any sale of that
property to Tenant's obligations under this Lease;
9.5 to recover from Tenant the damages described in Civil Code Section
1951.2(a)(1), 1951.2(a)(2), 1951.2(a)(3), and 1951.2(a)(4), the provisions of
which are expressly made a part of this Lease;
9.6 to restore the Premises to the same condition as received by
Tenant, or to alter the Premises to make them suitable for reletting, all at
Tenant's expense; and
9.7 to enforce by suit or otherwise all obligations of Tenant under
this Lease and to recover from Tenant all remedies now or later allowed by law.
Any act that Landlord is entitled to do in exercise of Landlord's
rights upon an Event of Default may be done at a time and in a manner deemed
reasonable by Landlord in
5
<PAGE> 6
Landlord's sole discretion, and Tenant irrevocably authorizes Landlord to act in
all things done on Tenant's account.
10 MAINTENANCE AND REPAIRS.
10.1 Landlord Responsibility. Except for damage caused by any negligent
or intentional act or omission of Tenant, or Tenant's employees or agents, in
which event Tenant shall repair the damage, Landlord shall repair, maintain, and
operate the common areas and repair and maintain the roof; foundation;
structural walls; exterior and structural parts of the premises and building and
heating, air conditioning, ventilation, plumbing, electrical, and other
equipment that serves both the Premises and other parts of the building, so that
they are kept in good working order and repair.
10.2 Tenant Responsibility. Except for Landlord's responsibility as set
forth in Section 10.1, Tenant shall maintain the Premises in good and safe
condition, including all interior surfaces of walls, windows, doors, and
ceilings, floor coverings, light fixtures, lamps and bulbs, plumbing fixtures,
and all other fixtures or equipment. Tenant promises to surrender the Premises
at termination of this Lease in the same condition as received, except for
normal wear and tear, casualty, condemnation, and changes authorized to be left
by Landlord. Tenant agrees to make no repairs at the expense of Landlord.
11 HAZARDOUS SUBSTANCES.
11.1 Tenant agrees that any and all handling, transportation, storage,
treatment, disposal, or use of Hazardous Substances ( as defined in Section 34)
by Tenant in or about the real estate commonly known as 870 Gold Flat Road,
Nevada City, CA 95959 ("Project") shall strictly comply with all applicable
Environmental Laws (as defined in Section 34).
11.2 Tenant agrees to indemnify and defend Landlord harmless from any
liabilities, losses, claims, damages, penalties, fines, attorney fees, expert
fees, court costs, remediation costs, investigation costs, or other expenses
resulting from or arising out of the use, storage, treatment, transportation,
release, or disposal of Hazardous Substances on or about the Project by Tenant.
11.3 If the presence of Hazardous Substances on the Project caused by
Tenant results in the contamination or deterioration of the Project or any water
or soil beneath the Project, Tenant shall promptly take all action necessary to
investigate and remedy that contamination caused by Tenant.
11.4 Landlord and Tenant each agree to promptly notify the other of any
communication received from any governmental entity concerning Hazardous
Substances or the violation of Environmental Laws that relate to the Project.
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<PAGE> 7
11.5 Tenant shall not use, handle, store, transport, generate, release,
or dispose of any Hazardous Substances on, under, or about the Project, except
that Tenant may use (i) small quantities of common chemicals such as adhesives,
lubricants, and cleaning fluids in order to conduct business at the Premises and
(ii) other Hazardous Substances that are necessary for the operation of Tenant's
business and for which Landlord gives written consent prior to the Hazardous
Substances being brought onto the Premises, which consent shall not be
unreasonably withheld. At any time during the term of this Lease, Tenant shall,
within ten (10) days after written request from Landlord, disclose in writing
all Hazardous Substances that are being used by Tenant on the Project, the
nature of the use, and the manner of storage and disposal.
11.6 At any time and upon prior written notice to Tenant, Landlord may
require testing wells to be drilled on the Project and may require the ground
water to be tested to detect the presence of Hazardous Substances by the use of
any tests that are then customarily used for those purposes. Landlord shall
supply Tenant with copies of the test results. The cost of these tests and of
the installation, maintenance, repair, and replacement of the wells shall be
paid by Tenant if the tests disclose the existence of facts that give rise to
liability of Tenant pursuant to this Section 11.
12 ESTOPPEL CERTIFICATE.
At any time within ten (10) days after request by Landlord, Tenant
shall execute, acknowledge, and deliver to Landlord, without charge, a written
statement certifying that this Lease is unmodified and in full force, or if
there have been modifications, that it is in full force as modified. The
statement shall also contain the date of commencement of this Lease, the dates
to which the rent and any other charges have been paid in advance, and any other
information Landlord reasonably requests. It is acknowledged by Tenant that any
statement is intended to be delivered by Landlord to and relied upon by
prospective purchasers, mortgagees, deed of trust beneficiaries, and assignees.
13 SEVERABILITY.
The invalidity of any portion of this Lease shall not affect the
remainder, and any invalid portion shall be deemed rewritten to make it valid so
as to carry out as near as possible the expressed intention of the parties.
14 ASSIGNMENT OR SUBLETTING.
Tenant may, either voluntarily or by operation of law, sell,
hypothecate, assign, or transfer this lease, or sublet the premises or any part
thereof or permit the premises or any part thereof to be occupied by others.
Tenant shall, within ten days, notify Landlord of any such event. Any such event
shall not relieve Tenant from any liability or obligation hereunder whether or
not then accrued.
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<PAGE> 8
15 ENTRY.
Landlord reserves the right to enter the Premises at reasonable times
upon one (1) business day's prior notice (except in an emergency) to carry out
any building management or business purpose in or about the building, without
any abatement of rent.
16 SIGNS.
Tenant shall not place or permit to be placed in, upon, about, or
outside the Premises any sign, notice, drapes, shutters, blinds, or display of
any kind, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld.
17 HOLDING OVER.
This Lease shall terminate without further notice at the expiration of
the Term. Any holding over shall not constitute a renewal or extension.
18 DESTRUCTION AND CONDEMNATION.
18.1 If the Premises are damaged to an extent that cannot be lawfully
repaired within sixty (60) days after the date of damage, this Lease may be
terminated by written notice of either party. If the Premises can be repaired
within the sixty (60) day period, or if this Lease is not terminated in
accordance with this provision, Landlord shall proceed with repairs as
necessary, subject to a proportionate reduction in the rent, based on the extent
to which the damage and repairs shall interfere with the business of Tenant on
the Premises. In case of damage to one-half (1/2) or more of the building in
which the Premises are located, Landlord may elect to terminate this Lease,
whether the Premises are damaged or not. Tenant waives the benefits of Civil
Code Sections 1932(2) and 1933(4). In case of a dispute between the
parties with respect to Section 18, the matter shall be settled by arbitration
in a manner as the parties may agree on, or if they cannot agree, in accordance
with the rules of the American Arbitration Association.
18.2 If all or any portion of the Premises are condemned or are
transferred in lieu of condemnation, Landlord or Tenant may, upon written notice
given within sixty (60) days after the taking or transfer, terminate this Lease
effective upon the date the condemning authority takes title or possession to
the Premises or any portion thereof. Tenant shall not be entitled to share in
any portion of the award, and Tenant expressly waives any right or claim to any
part of the award. Tenant shall, however, have the right to claim and recover,
from the condemning authority only, but not from Landlord, any amounts necessary
to reimburse Tenant for the cost of removing stock and fixtures, loss of
goodwill, relocation expenses, and damage or loss to personal property.
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19 INDEMNITY.
Except for damages caused by any negligent or intentional act or
omission of Landlord, its employees or agents, Tenant shall indemnify, hold
harmless, and defend Landlord from all claims and liability of every kind,
including court costs and attorney fees, arising in any way from any occurrence
on the Premises, or related to the use or occupancy of the Premises.
20 LANDLORD'S RIGHT TO PERFORM FOR TENANT.
If Tenant fails to perform any obligation under this Lease, Landlord
shall be entitled to make reasonable expenditures to cause proper performance on
Tenant's behalf and at Tenant's expense, and Tenant promises to reimburse
Landlord for any expenditures within ten (10) days after written notice from
Landlord requesting reimbursement, and failure of Tenant to make the
reimbursement shall be deemed to be a default the same as a failure to pay an
installment of rent when due. All obligations of Tenant to pay money are payable
without abatement, deduction, or offset of any kind.
21 NOTICES.
Any notice under this Lease shall be given by mailing the notice,
postage prepaid, by certified mail, return receipt requested, to Tenant at the
Premises or any other address set forth adjacent to Tenant's signature below and
to Landlord at 870 Gold Flat Road, Nevada City, CA 95959, or to any other place
designated in writing by the parties.
22 ATTORNEY FEES.
In any action or proceeding by either party to enforce this Lease or
any provision of this Lease, the prevailing party shall be entitled to recover
reasonable attorney fees and all other costs incurred.
23 LEGAL EFFECT.
All obligations of Tenant are expressly made conditions of this Lease,
any breach of which shall, at the option of Landlord, terminate this Lease.
24 TITLES.
The titles or headings to paragraphs shall have no effect on
interpretation of provisions.
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25 SUCCESSORS.
The provisions of this Lease shall apply to and bind the heirs,
successors, and assigns of the parties.
26 WAIVER.
The failure of Landlord to enforce a provision of this Lease shall not
be deemed a waiver for any purpose.
27 TAXES
Taxes attributable to the Premises or the use of the Premises shall be
allocated as follows:
27.1 Real Estate Taxes. Landlord shall pay all real estate taxes and
assessments for the Premises.
27.2 Personal Property Taxes. Tenant shall pay all personal property
taxes and any other charges which may be levied against the Premises which are
attributable to the improvements made by Tenant, Tenant's personal property or
equipment or which are otherwise attributable to Tenant's use of the Premises.
28 JANITORIAL SERVICES.
Tenant shall be responsible for janitorial services for the Premises,
including disposal of all waste and refuse. Disposal bins shall be situated as
designated by Landlord.
29 ENTIRE AGREEMENT.
This Lease, together with each attached exhibit, shall constitute the
entire agreement of the parties, and may be modified only by a writing signed by
the parties.
30 LATE CHARGE.
If any rent installment is not paid within ten (10) days after the due
date, Tenant agrees to pay a late charge of one percent (1%) of the delinquent
amount.
31 TIME OF THE ESSENCE.
Time is of the essence in the performance of Tenant's obligations under
this Lease.
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32 SUBORDINATION.
This Lease, at Landlord's option, shall be subordinate to the lien of
any first deed of trust or first mortgage subsequently placed upon the real
property of which the Premises are a part, and to any advances made on the
security of the Premises, and to all renewals, modifications, consolidations,
replacements, and extensions; provided, however, that as to the lien of any deed
of trust or mortgage, Tenant's right to quiet possession of the Premises shall
not be disturbed if Tenant is not in default and so long as tenant pays the rent
and observes and performs all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee, trustee, or
ground lessor elects to have this Lease prior to the lien of a mortgage, deed of
trust, or ground lease, and gives written notice to Tenant, this Lease shall be
deemed prior to that mortgage, deed of trust, or ground lease, whether this
Lease is dated prior or subsequent to the date of that mortgage, deed of trust,
or ground lease or the date of recording, subject to Tenant's right to quiet
possession of the Premises provided that Tenant is not in default of the Lease.
33 GOVERNING LAW.
This Lease shall be governed by and construed in accordance with
California law.
34 CERTAIN REPRESENTATIONS AND WARRANTIES OF LANDLORD. Notwithstanding
anything in the Lease to the contrary, Landlord represents and warrants to
Tenant that (i) Tenant's use of the Premises as used by Creative Medical
Development, Inc. will not (a) result in an increase in any insurance premiums
or cancellation of any insurance policy maintained by Landlord, or (b) conflict
with any rights granted to another tenant in the project, (ii) there are no
liens, encumbrances, leases, mortgages, deeds of trust or other matters
encumbering or affecting Landlord's right, title or interest in or to the
Premises that will materially and adversely affect Tenant's quiet use and
enjoyment of the Premises; and (iii) to Landlord's knowledge, the Premises and
all improvements thereto are in compliance with all federal, state and local
laws, including, but not limited to, all laws regulating or relating to
"Hazardous Substances" (as hereinafter defined) or the environment
(collectively, "Environmental Laws"), building codes, and the Americans With
Disabilities Act of 1990, 42 U.S.C. Sections 12101 et seq and 47 U.S.C. Sections
225 et seq, as amended from time to time, and any similar or successor federal,
state or local laws (collectively, the "ADA"). "Hazardous Substances" shall mean
and include all materials, substances, wastes, chemicals, liquids, solids and
gases that are harmful, hazardous, dangerous, toxic or radioactive, or that are
defined as a "hazardous material", "hazardous waste", "hazardous substance" or
similarly defined by any federal, state or local law."
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The parties have executed this Lease on the date first written above.
LANDLORD: TENANT:
LBI Gish Biomedical, Inc.
By:___________________ By:_________________________
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EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of April 17, 1996, by and among GISH BIOMEDICAL, INC., a
California corporation (the "Company"), and CREATIVE MEDICAL DEVELOPMENT, INC.,
a Delaware corporation (the "Purchaser").
This Agreement is made pursuant to that certain Asset Purchase
Agreement dated as of September 13, 1995 by and among the Company and the
Purchaser (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the
Company has agreed to provide the registration rights set forth in this
Agreement with respect to the Registrable Securities (as defined hereinafter in
this Agreement). The execution and delivery of this Agreement is a condition to
closing of the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS.
Capitalized terms used herein without definition shall have their
respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
Advice: See the last Paragraph of Section 3 hereof.
Affiliate: "Affiliate" means, with respect to any specified Person, (i)
any other Person directly or indirectly controlling or controlled by, or under
direct or indirect common control with, such specified Person or (ii) any
officer or director of such other Person. For purposes of this definition, the
term "control" (including the terms "controlling," "controlled by" and "under
common control with") of a Person means the possession, direct or indirect, of
the power (whether or not exercised) to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
Common Stock: The Company's presently authorized shares of common
stock, no par value.
Effectiveness Date: The date on which the Registration Statement
relating to the Shelf Registration is first declared effective by the SEC.
Effectiveness Period: See Section 2(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Initial Shelf Registration: See Section 2(b) hereof.
Losses: See Section 5(a) hereof.
Purchase Agreement: As such term is defined in the second paragraph of
this Agreement.
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Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, including, without
limitation, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchasers: Creative Medical Development, Inc., a Delaware corporation.
Registrable Securities: The total number of shares of Common Stock
issued to the Purchaser pursuant to Section 3.1 of the Purchase Agreement,
provided that any share of such Common Stock shall cease to be a Registrable
Security at such time as (i) it is effectively registered under the Securities
Act and disposed of in accordance with the Registration Statement covering it,
(ii) it becomes saleable by the holder thereof pursuant to Rule 144(k), (iii) it
is sold or otherwise transferred pursuant to Rule 144, or (iv) it is otherwise
sold or transferred by the Purchaser to any Person.
Registration Demand Date: The date on which the Purchaser requests in
writing that the Company register such Registrable Securities on Form S-3 under
the Securities Act.
Registration Expenses: See Section 4 hereof.
Registration Statement: Any registration statement of the Company which
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Shelf Registration: See Section 2 hereof.
Subsequent Shelf Registration: See Section (c) hereof.
2. SHELF REGISTRATION.
(a) On one occasion following the date which is six months
from the date hereof, the Purchaser may notify the Company in writing that it
intends to offer, cause to be offered or assist in offering for public sale all
of the Registrable Securities (the "Registration Demand Date"), either directly
in open market transactions or through distribution to Purchaser's stockholders
as a dividend. Within (30) days after the Registration Demand Date, the Company
will use its best efforts to cause all of the Registrable Securities to be
registered under the Securities Act as expeditiously as possible.
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(b) The Company shall prepare and file with the SEC within 30
days after the Registration Demand Date, or as soon as practicable thereafter, a
Registration Statement for an offering to be made on a continuous basis pursuant
to Rule 415 covering all of the Registrable Securities (the "Initial Shelf
Registration"). The Initial Shelf Registration may be a Registration Statement
that is filed by the Company with the SEC to register other securities of the
Company. The initial Shelf Registration Statement shall be on Form S-3 or
another appropriate form permitting registration of such Registrable Securities
for resale by the Purchaser, or distribution to, and subsequent resale by, its
stockholders. The Company shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act as soon as
practicable after the Registration Demand Date and to keep the Initial Shelf
Registration continuously effective under the Securities Act until the date that
is two (2) years from the date hereof (the "Effectiveness Period"), or such
shorter period ending when (i) all Registrable Securities covered by the Initial
Shelf Registration have been sold or have ceased being Registrable Securities,
or (ii) a Subsequent Shelf Registration covering all of the Registrable
Securities has been declared effective under the Securities Act.
(c) If the Initial Shelf Registration or any Subsequent Shelf
Registration ceases to be effective for any reason at any time during the
Effectiveness Period (other than because of the sale of all of the securities
registered thereunder), the Company shall use its best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in any
event shall within 30 days of such cessation of effectiveness amend the Shelf
Registration in a manner reasonably expected to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period.
(d) The Company shall supplement and amend the Shelf
Registration or Subsequent Shelf Registration, as the case may be, if required
by the rules, regulations or instructions applicable to the registration form
used by the Company for such Shelf Registration, if required by the Securities
Act, or if reasonably requested by the Purchaser.
3. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations under Section
2 hereof, the Company shall as expeditiously as practicable:
(a) Prepare and file with the SEC the Initial Shelf
Registration Statement on Form S-3 and shall use its best efforts to cause each
such Registration Statement to become effective and remain effective as provided
herein; provided, that before filing any such Registration Statement or
Prospectus or any amendments or supplements thereto (other than documents that
would be incorporated or deemed to be incorporated therein by reference and that
the Company is required by applicable securities laws or stock exchange
requirements to file) the Company shall furnish to the Purchaser copies of all
such documents proposed to be filed, which documents will be subject to the
review of the Purchaser and its counsel.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to the Initial Shelf and any Subsequent Registration
Statement as may be necessary to keep such Registration Statement continuously
effective for the applicable period specified in Section 2; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions then in
force) under the Securities Act; and
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comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or to such
Prospectus as so supplemented.
(c) Notify the Purchaser promptly (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other Federal
or state governmental authority during the period of effectiveness of the
Registration Statement for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (iii) of the issuance by
the SEC or any other Federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event which makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or which requires the making of any changes in such Registration Statement,
Prospectus or documents so that, in the case of any such Registration Statement,
it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and (vi) of the Company's reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate.
(d) Use every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction, at the
earliest possible moment.
(e) Subject to the last paragraph of this Section 3, if
reasonably requested by the Purchaser (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the Company or the
Purchaser agrees should be included therein as required by applicable law, (ii)
make all required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received notification of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to any Registration Statement
consistent with clause (i) or (ii) above; provided, that the Company shall not
be required to take any actions under this Section 3(e) that are not, in the
opinion of counsel for the Company, in compliance with applicable law.
(f) Furnish to the Purchaser and its counsel, without charge,
at least one conformed copy of the Registration Statement or Statements and any
post-effective amendment thereto, including financial statements (but excluding
schedules, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits, unless requested in writing by the Purchaser or its
counsel).
(g) Deliver to the Purchaser and its counsel, without charge,
as many copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons may reasonably request; and the Company
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hereby consents to the use of such Prospectus or each amendment or supplement
thereto by the Purchaser in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto in accordance with the methods of sale and distribution set forth
therein.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the Purchaser and its counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as the Purchaser, or its stockholders who have received Registrable
Securities as a dividend from Purchaser, reasonably requests in writing; keep
each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
applicable Registration Statement; provided, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it is
not then so qualified or (ii) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject.
(i) Upon the occurrence of any event contemplated by Section
3(c)(v) or 3(c)(vi) above, prepare a supplement or post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the Purchaser, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(j) Comply with all applicable rules and regulations of the
SEC and make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) commencing on the first
day of the first fiscal quarter of the Company, after the effective date of a
Registration Statement, which statements shall cover said 12-month periods.
The Company may require the Purchaser to furnish to the Company such
information regarding the distribution of its Registrable Securities as the
Company may, from time to time, reasonably request in writing and the Company
may suspend its efforts to register the Registrable Securities if the Purchaser
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
The Purchaser agrees that upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(c)(ii),
3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) hereof, the Purchaser will forthwith
discontinue disposition of any Registrable Securities covered by the applicable
Registration Statement or Prospectus until the Purchaser's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(i) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
4. REGISTRATION EXPENSES.
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company (the "Registration Fees") shall be borne by the
Company whether or not any of the Registration Statements become effective,
except that if the Purchaser requests that the Company withdraw or terminate
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its obligations under Sections 2 and 3 hereunder for reasons other than the
occurrence of one or more events regarding the Company, which event or events
may have a material adverse affect upon the business or prospects of the
Company, and the Purchaser learns of such event or events after the date of the
Registration Demand Date and prior to the date of withdrawal or termination by
it and such withdrawal or termination occurs with reasonable promptness
thereafter, then the Company shall have no obligation to pay or otherwise bear
any fees, expenses or other costs arising out of or relating to such
registration. The Registration Fees shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. or with securities or Blue Sky administrators in such
jurisdictions as the Purchaser may reasonably designate); (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company); (iii) messenger, telephone and delivery expenses; (iv) fees and
disbursements of counsel for the Company in connection with the Shelf
Registration; (v) fees and disbursements of all independent certified public
accountants and all other persons retained by the Company to assist it in the
preparation and filing of the Shelf Registration Statement or any Subsequent
Registration Statement. In addition, the Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed.
5. INDEMNIFICATION.
(a) Indemnification by the Company. The Company shall, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, the Purchaser from and against all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable attorneys' fees)
and expenses (collectively, "Losses"), as incurred, arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based solely upon information furnished in
writing to the Company by the Purchaser or its counsel expressly for use
therein; provided, that the Company shall not be liable to the Purchaser to the
extent that any such Losses arise out of or are based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
preliminary prospectus if either (A)(i) the Purchaser failed to send or deliver
a copy of the Prospectus with or prior to the delivery of written confirmation
of the sale by the Purchaser of a Registrable Security to the person asserting
the claim from which such Losses arise and (ii) the Prospectus would have
corrected such untrue statement or alleged untrue statement or such omission or
alleged omission; or (B)(x) such untrue statement or alleged untrue statement,
omission or alleged omission is corrected in an amendment or supplement to the
Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, the
Purchaser thereafter fails to deliver such Prospectus as so amended or
supplemented, prior to or concurrently with the sale of a Registrable Security
to the person asserting the claim from which such Losses arise.
(b) Indemnification by Purchaser. In connection with the
filing any Registration Statement, the Purchaser shall furnish to the Company in
writing such information as the Company reasonably requests for use in
connection with any Registration Statement or Prospectus and hereby agrees to
indemnify, to the fullest extent permitted by law, and without limitation as to
time, the Company, its directors and officers, agents and employees, each person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents
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or employees of such controlling persons, from and against all Losses arising
out of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by the Purchaser or its counsel to the
Company expressly for use in such Registration Statement or Prospectus and that
such information was relied upon by the Company in preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event shall
the liability of the Purchaser hereunder be greater in amount than the dollar
amount of the proceeds received by the Purchaser upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Person
shall be entitled to indemnity hereunder (an "indemnified party"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any Proceeding with respect to which such indemnified party
seeks indemnification or contribution pursuant hereto; provided, that the
failure to so notify the indemnifying party shall not relieve the indemnifying
party from any obligation or liability. All such fees and expenses (including
any fees and expenses incurred in connection with investigating or preparing to
defend such action or proceeding) shall be paid to the indemnified party, as
incurred, within five days of written notice thereof to the indemnifying party
(regardless of whether it is ultimately determined that an indemnified party is
not entitled to indemnification hereunder). The indemnifying party shall not
consent to entry of any judgment or enter into any settlement or otherwise seek
to terminate any proceeding in which any indemnified party is or could be a
party and as to which indemnification or contribution could be sought by such
indemnified party under this Section 5, unless such judgment, settlement or
other termination includes as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release, in form and
substance satisfactory to the indemnified party, from all liability in respect
of such claim or litigation for which such indemnified party would be entitled
to indemnification hereunder.
The provisions of this Section 5 shall survive so long as Registrable
Securities remain outstanding, notwithstanding any transfer of the Registrable
Securities by the Purchaser or any termination of this Agreement.
6. CERTAIN RESTRICTIONS; RULE 144; AND FORM S-3.
(a) As to the shares of Common Stock (including, without
limitation, the Registrable Securities) issued by the Company to the Purchaser
under the Purchase Agreement, which the Purchaser acknowledges are being issued
by the Company in reliance on Regulation D under the Act (the "Restricted
Shares"), the Purchaser covenants and agrees as follows:
(i) The Purchaser agrees in no event to make any
disposition of all or any part of the Restricted Shares, other than pursuant to
the Shelf Registration Statement, unless and until (i) the Purchaser shall have
notified the Company of the proposed disposition; (ii) the Purchaser shall have
furnished the Company with an opinion of counsel reasonably acceptable to the
Company to the effect that such disposition will not require and will be exempt
from registration of the Restricted Shares under the Act; and (iii) such opinion
of counsel shall have been concurred in by the Company's counsel and the Company
shall have advised the Purchaser of such concurrence.
(ii) The Purchaser understands and agrees that
certificates evidencing the Restricted Shares will bear the following legend or
a legend substantially similar thereto:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"); THEY HAVE BEEN ACQUIRED
BY THE HOLDER FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THESE
SECURITIES ARE FIRST REGISTERED UNDER THE ACT OR THE HOLDER FURNISHES
THE ISSUER WITH AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE
ISSUER, THAT THE PROPOSED TRANSACTION IS EXEMPT FROM REGISTRATION UNDER
SUCH ACT.
(b) Until the earlier of (i) the third anniversary of the date
hereof, or (ii) the date all of the Registrable Securities have been sold or
otherwise transferred for value by the Purchaser, the Company shall use its best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act, and if at any time the Company is not required to file
such reports, it will, upon the request of the Purchaser, make publicly
available other information so long as necessary to permit sales pursuant to
Rule 144 under the Securities Act. Upon the request of the Purchaser, the
Company shall deliver to such holder a written statement as to whether it has
complied with such filing requirements. Notwithstanding the foregoing, nothing
in this Section 6 shall be deemed to require the Company to register any of its
securities under any section of the Exchange Act.
(c) The Company shall file the reports required to be filed by
it under the Exchange Act and shall comply with all other requirements set forth
in the instructions to Form S-3 in order to allow the Company to be eligible to
file registration statements on Form S-3.
7. MISCELLANEOUS.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, the Purchaser will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Purchaser.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing and shall be deemed given (i)
when made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier or (iii) one business day after being deposited with a reputable
next-day courier, postage prepaid, to the parties as follows:
(x) if to the Purchaser, at the most current address
given by the Purchaser to the Company in accordance with the provisions
of this Section 7(c); and
(y) if to the Company, to Gish Biomedical, Inc., 2681
Kelvin Avenue, Irvine, California 92714-5821, Attention: Chief
Financial Officer.
8
<PAGE> 9
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(h) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such
which may be hereafter declared invalid, void or unenforceable.
(i) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and the
registration rights granted by the Company with respect to the Registrable
Shares sold pursuant to the Purchase Agreement. Except as provided in the
Purchase Agreement or this Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such registration rights.
(j) Further Assurances. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(k) Termination. This Agreement and the obligations of the
parties hereunder shall terminate at the end of the Effectiveness Period, except
for any liabilities or obligations under Sections 4 or 5 above, and the
restrictions in Section 6(a), which shall remain in effect in accordance with
their terms.
9
<PAGE> 1
EXHIBIT 21.1
21.1 SUBSIDIARIES OF THE COMPANY
Gish International, Inc., a wholly owned foreign sales corporation
which is incorporated in Barbados.
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-36432) pertaining to the Incentive Stock Option, Nonqualified
Stock Option and Restricted Stock Purchase Plan - 1987 and (Form S-8 No.
33-1706) pertaining to the Officers, Directors and Key Employee Incentive Plan
and in the related Prospectuses, of our report dated August 23, 1996, with
respect to the consolidated financial statements of Gish Biomedical, Inc.
included in the Annual Report (Form 10-K) for the year ended June 30, 1996.
Orange County, California
September 27, 1996 /s/ ERNST & YOUNG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 3,314,200
<SECURITIES> 1,031,600
<RECEIVABLES> 4,078,000
<ALLOWANCES> 0
<INVENTORY> 7,083,700
<CURRENT-ASSETS> 16,502,100
<PP&E> 9,799,900
<DEPRECIATION> 5,463,200
<TOTAL-ASSETS> 22,936,000
<CURRENT-LIABILITIES> 1,616,600
<BONDS> 0
0
0
<COMMON> 9,828,000
<OTHER-SE> (50,000)
<TOTAL-LIABILITY-AND-EQUITY> 22,936,000
<SALES> 23,022,400
<TOTAL-REVENUES> 23,022,400
<CGS> 15,062,400
<TOTAL-COSTS> 15,062,400
<OTHER-EXPENSES> 7,688,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 539,200
<INCOME-TAX> 210,300
<INCOME-CONTINUING> 328,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 328,900
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
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