<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended December 30, 1995 Commission File No. 0-11484
________________________
MARQUEST MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
COLORADO 84-0785259
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
11039 EAST LANSING CIRCLE, ENGLEWOOD, COLORADO 80112
(Address of principal executive offices, including zip code)
(303) 790-4835
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changes since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceeding 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
--- ---
Number of shares of common stock, no par value, of Registrant outstanding at
February 12, 1996.
8,246,880
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
ASSETS
<TABLE>
<CAPTION>
December 30, April 1,
1995 1995
------------ ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 949 $ 562
Trade accounts receivable, less allowances for
doubtful accounts of $144 and $132, respectively 2,574 2,847
Notes and other receivables 24 --
Inventories 3,056 2,610
Prepaid items 253 260
--------- ---------
Total current assets 6,856 6,279
PROPERTY, PLANT AND EQUIPMENT
Land 1,265 1,265
Buildings 4,985 4,976
Machinery and equipment 8,825 8,364
Other 2,526 2,573
Construction in progress 17 220
--------- ---------
17,618 17,398
Less accumulated depreciation (10,363) (9,727)
--------- ---------
Net property, plant and equipment 7,255 7,671
OTHER ASSETS 42 42
--------- ---------
$ 14,153 $ 13,992
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
2
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 30, April 1,
1995 1995
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 929 $ 1,220
Accrued liabilities 3,538 3,622
Note payable to Scherer Capital 1,100 --
Payable to related party 901 683
Swiss debt principal and interest 403 813
Notes payable -- 220
Current maturities of long-term debt 115 93
Current maturities of capital lease obligation 282 141
--------- ---------
Total current liabilities 7,268 6,792
CAPITAL LEASE OBLIGATION 606 291
NOTE PAYABLE TO SCHERER HEALTHCARE, INC. 1,852 1,852
NOTE PAYABLE TO BANK 888 1,141
SWISS NOTES PAYABLE 2,896 2,677
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 50,000,000
shares authorized; 8,267,720 and 8,102,720 shares
issued and outstanding, respectively 6,231 6,177
Warrants 599 612
Retained earnings (deficit) ($20,434 of retained
deficit eliminated at July 3, 1993 relating to the
quasi-reorganization) (6,117) (5,480)
Treasury stock, 20,840 shares (70) (70)
--------- ---------
Total shareholders' equity (deficit) 643 1,239
--------- ---------
$ 14,153 $ 13,992
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
3
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
December 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
NET REVENUES $ 5,739 $ 5,234
COST OF SALES (3,960) (3,985)
---------- ----------
GROSS PROFIT 1,779 1,249
COSTS AND EXPENSES
Selling and marketing expenses (979) (1,015)
General and administrative expenses (620) (733)
Research and development expenses (36) (24)
---------- ----------
OPERATING INCOME (LOSS) 144 (523)
OTHER INCOME (EXPENSE)
Interest and other income 100 11
Interest expense (169) (145)
Foreign exchange gain (loss) (2) 11
Gain on sale of assets 8 7
Other expense (9) (7)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 72 (646)
Provision for income taxes (697) --
---------- ----------
NET INCOME (LOSS) $ (625) $ (646)
---------- ----------
---------- ----------
Earnings (loss) per common share $ (0.08) $ (0.08)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding during the period 8,246,880 8,081,880
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
4
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
December 30, December 31,
1995 1994
------------ -------------
<S> <C> <C>
NET REVENUES $ 16,216 $ 14,730
COST OF SALES (11,149) (11,280)
---------- ----------
GROSS PROFIT 5,067 3,450
COSTS AND EXPENSES
Selling and marketing expenses (2,950) (3,287)
General and administrative expenses (1,757) (2,264)
Research and development expenses (112) (116)
---------- ----------
OPERATING INCOME (LOSS) 248 (2,217)
OTHER INCOME (EXPENSE)
Interest and other income 112 37
Interest expense (506) (476)
Foreign exchange gain (loss) 15 (55)
Gain on sale of assets 225 53
Other expense (34) (19)
---------- ----------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES 60 (2,677)
Provision for income taxes (697) --
---------- ----------
NET INCOME (LOSS) $ (637) $ (2,677)
---------- ----------
---------- ----------
Earnings (loss) per common share $ (0.08) $ (0.37)
---------- ----------
---------- ----------
Weighted average number of common shares
outstanding during the period 8,231,715 7,284,189
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
5
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
December 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (637) $ (2,677)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 819 1,047
Provision for losses on accounts receivable 17 15
Foreign exchange (gain) loss (15) 55
Gain on sale of assets (225) (53)
Gain on extinguishment of debt (32)
Increase(decrease) in operating assets and liabilities:
Accounts receivable 258 565
Notes and other receivables (24) 36
Inventories and prepaid items (439) 289
Accounts payable, accrued liabilities and
payable to related party (158) 55
Accrued interest on Swiss bonds 42 36
Other -- (11)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (394) (643)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from note from related party -- 150
Purchases of equipment (39) (400)
Proceeds from sale of assets 225 225
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 186 (25)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Swiss bond principal and interest (146) --
Proceeds from note payable to Scherer Capital 1,100 --
Issuance of common stock 1 --
Principal payments on borrowings (360) (225)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 595 (225)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 387 (893)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 562 1,662
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 949 769
---------- ----------
---------- ----------
</TABLE>
(Continued)
6
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
December 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Debt conversion:
Note payable converted $ -- $ (2,500)
Common stock issued -- 2,500
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
Refinancing of Industrial Revenue Bonds:
Bonds retired $ -- $ (1,300)
Note payable issued to bank -- 1,300
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
Warrants exercised:
Warrants $ (13) $ (20)
Swiss notes retired (40) (198)
Common stock 53 218
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
Capital lease:
Repayment of notes payable $ (220) $ --
Purchases of property and equipment (364) --
Capital lease addition 584 --
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
Swiss Bond exchange:
Issuance of Swiss notes payable $ 259 $ --
Repayment of Swiss Bond principal and interest (291) --
Gain on exchange 32 --
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
7
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INVENTORIES:
Inventories consist of the following (in thousands of dollars):
December 30, 1995 April 1, 1995
----------------- -------------
Raw materials $1,879 $1,530
Work in process 203 203
Finished goods 974 877
------ ------
$3,056 $2,610
------ ------
------ ------
2. REPORT OF MANAGEMENT:
The management of Marquest Medical Products, Inc. (the "Company") is responsible
for the integrity of the financial information presented. The financial
statements have been prepared in accordance with generally accepted accounting
principles and they include amounts that are based on management's best
estimates and judgment. These unaudited interim financial statements reflect
all adjustments which are, in the opinion of management, necessary to a fair
statement of the results of the interim periods presented.
Management relies upon the Company's system of internal accounting controls in
meeting its responsibilities for maintaining reliable financial records. This
system is designed to provide reasonable assurance that assets are safeguarded
and that transactions are properly recorded and executed in accordance with
management's intentions. Judgments are required to assess and balance the
relative cost and expected benefits of such internal accounting controls.
3. BASIS OF PRESENTATION:
The Company's consolidated financial statements have been presented on the basis
that it will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
During the nine months of Fiscal 1996, the Company has taken several steps to
preserve cash and increase profitability on sales. The Company believes that it
can fund its current operations and meet its obligations as they come due
through the fourth quarter of Fiscal 1996, however the viability of the Company
thereafter will depend on increasing operating income, extending the term of the
promissory note discussed in Note 6, and the successful completion of external
financing arrangements. There can be no assurance that external financing will
be available and there remains substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
4. QUASI-REORGANIZATION:
In June 1993, the Company's Board of Directors approved quasi-reorganization
procedures which were effective July 3, 1993, the end of the Company's first
quarter of Fiscal 1994.
8
<PAGE>
MARQUEST MEDICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. WARRANTS:
In April, 1995, 165,000 of the Company's warrants to purchase common stock at
$0.25 per share were exercised. These warrants had been issued to the Swiss
bondholders in an exchange in Fiscal 1994, and, in accordance with the warrant
agreement, $40,000 of the Company's 8% Swiss notes payable were used in lieu of
cash to exercise the warrants.
6. FINANCING TRANSACTIONS:
SWISS BONDS - In December, 1995, the Company exchanged Sfr 375,000 of defaulted
Swiss Bonds for $259,000 U. S. denominated 8% notes and $145,000 in cash. A
gain of $32,000 was recorded on the transaction.
SCHERER CAPITAL - In December, 1995, Scherer Capital, a company controlled by
the largest shareholder, Scherer Healthcare, Inc., loaned the Company
$1,100,000 at 9.25% annual interest to meet its cash obligations. The loan
is due February 15, 1996 and is collateralized by the Company's accounts
receivable and inventory. The Company is currently in discussions with
Scherer Capital to extend the term of the loan.
NOTE PAYABLE TO BANK - In December, 1995, Colorado National Bank (the "Bank")
released the Company's accounts receivable and inventory as collateral for the
Term Loan Agreement so that the collateral could be used to obtain additional
financing as described above from Scherer Capital. In consideration for the
release, the Company made a principal payment to the Bank of $160,000 and agreed
to shorten the term of the loan from June 2004 to January 2000. The
amortization of the loan will remain the same, however a balloon payment will be
made in January 2000.
7. INCOME TAXES:
During Fiscal 1994, the Company received a refund of federal income taxes of
approximately $745,000 due to the carryback to prior years of losses incurred
during the temporary suspension of operations by the United States Food and Drug
Administration. The Internal Revenue Service ("IRS") completed an audit during
Fiscal 1995 and determined that the losses could not be carried back and issued
an assessment to the Company for the taxes plus interest. In June 1995, the
Company reached agreement on a repayment plan with the IRS whereby the Company
paid $400,000 in June 1995 and the remaining balance plus interest will be paid
in equal monthly installments over a two-year period.
Subsequent to the end of the second quarter, the Company settled additional tax
issues related to audits by the IRS for fiscal years 1982-1988. The Company
recorded $697,000 of additional taxes and interest in the third quarter and is
currently negotiating a repayment plan with the IRS.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Revenues for the third quarter increased 9.6% over the same period in Fiscal
1995, and increased 10% for the nine months ended December 30, 1995 over the
first nine months of the prior year. Sales in the first quarter of Fiscal 1995
were low due to a decline in hospital census which the Company believes was due
to the uncertainties of healthcare reform. Also, many of the Company's
distributors had purchased high levels of product during the fourth quarter of
Fiscal 1994 which depressed sales in the first quarter of Fiscal 1995. During
the first nine months of Fiscal 1996, the Company implemented a network of
independent manufacturer's representatives which supplements the Company's sales
force.
The gross margin increased from 23.9% in the third quarter of Fiscal 1995 to 31%
in the third quarter of Fiscal 1996. Similar improvements have been achieved in
the gross margin for the first nine months: 23.4% in Fiscal 1995 compared to
31.2% in Fiscal 1996. The Company has reduced manufacturing costs through
reductions in personnel, improved operational efficiencies and increased its
vertical integration of the manufacturing process.
Selling and marketing expenses decreased 3.5% and 10.2% for the third quarter
and the first nine months of Fiscal 1996, respectively, compared to comparable
periods of Fiscal 1995 primarily due to reductions in personnel which occurred
during the second quarter of Fiscal 1995 and the second quarter of Fiscal 1996.
Advertising and promotion programs costing approximately $85,000 for the first
two quarters of Fiscal 1995 were not continued into Fiscal 1996. General and
administrative expenses decreased approximately 22% during the first three
quarters of Fiscal 1996 compared to the same periods in Fiscal 1995 due to
reductions in personnel during the second quarter of Fiscal 1995.
Interest expense increased 16.5% in the third quarter of Fiscal 1996 compared to
the same quarter in the prior fiscal year due to interest on monthly
installments paid to settle litigation as well as interest on the Company's
obligation to the Internal Revenue Service as discussed in Note 7.
LIQUIDITY AND CAPITAL RESOURCES
The Company has taken several steps in Fiscal 1996 to preserve cash and increase
profitability on sales, including (i) the addition of independent manufacturer's
representatives, (ii) cost reductions in all departments, and (iii) ordering of
equipment to increase the automation of the Company's manufacturing process. In
December, 1995, the Company signed a promissory note with Scherer Capital, a
company controlled by the largest shareholder, Scherer Healthcare, Inc., for
maximum borrowings of $1,800,000, of which $1,100,000 had been borrowed at
December 30, 1995. The note is secured by the Company's inventory and accounts
receivable and is due February 15, 1996. In January, 1996, $400,000 was repaid.
The Company is currently in discussions with Scherer Capital to extend the term
of the promissory note.
Management of the Company believes that it can fund its current operating levels
and meet its obligations as they come due through the fourth quarter of Fiscal
1996 from existing operations and from advances from Scherer Capital.
Thereafter, the viability of the Company will be dependent on increasing
operating income, the extension of the promissory note discussed above and the
successful completion of external financing arrangements, which the Company is
currently negotiating. There can be no assurance that the foregoing will occur
and there remains substantial doubt about the Company's ability to continue as a
going concern.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 3. DEFAULTS UPON SECURITIES.
On January 14, 1992, the Company was notified that the holders of the majority
of its Swiss bonds have exercised their right to put the bonds for redemption as
of March 11, 1992. The Company was not able to honor this put, and accordingly
defaulted on these obligations. The Company did not make any payments of
principal or interest on the Swiss bonds during 1993. During Fiscal 1994, the
Company refinanced 96% of the Swiss bonds outstanding with 8% notes, warrants to
purchase Marquest common stock and cumulative convertible preferred stock of
Scherer Healthcare, Inc. In December, 1995, the Company exchanged an additional
Sfr 375,000 of Swiss bonds for $259,000 of 8% notes and $145,000 in cash. The
Swiss bonds outstanding at December 30, 1995 and April 1, 1995, including the
accrued interest on these bonds of $104,000 and $176,000, respectively, have
been classified as current liabilities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description Page
----------- ----------- ----
10 Promissory Note and Security Agreement dated
December 15, 1995, between Marquest Medical
Products, Inc. and Scherer Capital, LLC 13
10(a) First Amendment to Loan Agreement dated
December 18, 1995, between Marquest Medical
Products, Inc. and Colorado National Bank 24
27. Financial Data Schedule (EDGAR version only) 26
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter for which
this report on Form 10-Q is being filed.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 16, 1996 MARQUEST MEDICAL PRODUCTS, INC.
/s/ William J. Thompson
-----------------------------------
William J. Thompson
President
/s/ Margaret Von der Schmidt
-----------------------------------
Margaret Von der Schmidt
Vice President - Finance and Chief
Financial Officer
12
<PAGE>
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay the order of SCHERER
CAPITAL, LLC, a Delaware limited liability company (hereafter, together with
any holder hereof, call "Holder"), without grace, the principal sum of one
million eight hundred thousand and no/100 DOLLARS ($1,800,000.00) or so much
thereof as has been advanced hereunder, in legal tender of the United States,
together with interest at the rate of 9-1/4% per annum on the unpaid
principal balance from time to time outstanding from the date of each advance.
The entire unpaid principal balance of the indebtedness evidenced by this
Note, together with all accrued interest shall be due and payable on February
15, 1996.
All payments shall be applied first to accrued interest and then on the
unpaid principal balance.
Any payment of principal or interest which is not made when due, shall
bear interest at the rate of 18% per annum from the due date until paid.
Principal and interest are payable at the offices of Holder in
metropolitan Atlanta, Georgia or at such other place as the Holder may from
time to time designate in writing.
This Note is secured in accordance with the terms of, and is entitled to
the benefit of, a Security Agreement of even date herewith executed by the
undersigned in favor of the Holder.
Should any payment not be paid in full when due, or should the undersigned
fail to comply with any of the terms of requirements of the Security
Agreement securing this indebtedness, the entire unpaid principal balance of
the indebtedness evidenced by this Note, together with all accrued interest,
shall, at the option of the Holder and without notice or demand of any kind,
become immediately due and payable and may be collected forthwith.
If the undersigned files a voluntary petition in bankruptcy, is adjudicated a
bankrupt or insolvent, files a petition or answer seeking or acquiescing in
any reorganization or arrangement under the bankruptcy laws, seeks or
acquiesces in the appointment of a trustee or receiver, makes a general
assignment for the benefit of creditors, or admits in writing of the
inability to pay debts generally as they become due, the entire unpaid
principal balance of the indebtedness evidenced by this Note, together with
all accrued interest, shall be immediately due and payable without notice or
demand of any kind and shall bear interest at the rate of 18% per annum from
the date thereof until paid.
Failure to the Holder to exercise the right of accelerating the maturity
of this debt, or indulgence granted from time to time, shall in not event be
considered as a waiver of such right of acceleration or estop the Holder
from exercising such right.
<PAGE>
In case this note is collected by law, or through an attorney at law, or
under advice therefrom, the undersigned agrees to pay all costs of
collection, including 15% of principal and interest as attorney's fees.
The undersigned waives presentment, demand, protest and notice of demand,
protect or nonpayment.
Time is of the essence of this Note.
The Note is to be construed in all respects and enforced according to the
laws of the State of Georgia.
This Note may be prepaid in whole or in part at any time and from time to
time without premium or penalty. Prepayments of principal shall be
accompanied by accrued interest on the amount of principal so prepaid through
the date of payment. Prepayments shall not affect of vary the duty of the
undersigned to pay all obligations when due, and shall not affect or impair
the right of the Holder to pursue all remedies available hereunder, or under
the Security Agreement securing this indebtedness.
IN WITNESS WHEREOF, the undersigned have executed this Note as of this
15th day of December, 1995.
MARQUEST MEDICAL PRODUCTS, INC.
By:__________________________________
Title: President
Attest:______________________________
Title: Vice President-Finance
(Corporate Seal)
<PAGE>
SECURITY AGREEMENT
1. MARQUEST MEDICAL PRODUCTS, INC. (hereinafter called "Debtor"), whose
address is 11039 Lansing Circle, Englewood, Colorado 80112, for value
received, hereby grants to Scherer Capital, LLC, a Delaware limited liability
company (hereinafter called "Second Party"), whose address is 2859 West Paces
Ferry Road, Suite 300, Atlanta, Georgia 30330, a security interest in the
"Collateral" (as hereinafter defined) to secure the payment of the principal
and interest on, and all obligations under a note (hereinafter called the
"Note"), dated even date herewith, made by the Debtor, payable to the order
of the Secured Party, in the original principal amount of one million eight
hundred thousand and no/100 DOLLARS ($1,800,000.00), all renewals and
extensions of the Note, all obligations of the Debtor hereunder, all costs,
expenses, advances and liabilities which may be made or incurred by the
Secured Party in the disbursement, administration and collection of the loan
evidenced by the Note and in the protection, maintenance and liquidation of
the security interest hereby granted, with interest at the maximum legal rate
on such costs, expenses, advances and liabilities, and all other obligations
of the Debtor to the Secured Party however created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or hereafter
existing, due or to become due. The Note and all other obligations secured
hereby are herein collectively called the "Liabilities".
2. The property (herein called the "Collateral") in which the security
interest is granted is all of the Debtor's property described below, together
with all proceeds and products therefrom:
<PAGE>
(a) All inventory, raw materials, work in process and supplies now
owned or hereafter acquired; and
(b) All accounts receivable now outstanding or hereafter arising.
Until Default (as hereinafter defined), the Debtor may have
possession of the Collateral and use the same in any lawful manner not
inconsistent with this Agreement or with any policy of insurance thereon.
3. Debtor represents and warrants to, covenants and agrees with, the
Secured Party as follows:
(a) The Collateral will be kept at the address of Debtor set forth
above unless the Secured Party shall otherwise consent in writing.
(b) Debtor shall not conduct business under any name other than that
given above, nor change or reorganize the type of business entity under
which it does business without the prior written consent of the Secured
Party.
(c) Debtor has full title to the Collateral and will at all times
keep the Collateral free of all liens and claims whatsoever, other than
the security interest granted hereunder.
(d) Debtor will not sell, transfer, lease or otherwise dispose of any
of the Collateral or any interest therein, without prior written approval
of the Secured Party, except that the Debtor may sell the inventory listed
in paragraph 2(a) in the ordinary course of business on customary terms
and at usual prices and may collect as the
- 2 -
<PAGE>
agent of Secured Party sums due on accounts receivable and contract rights
listed in paragraph 2(b) above, until advised otherwise by Secured Party.
(e) No financing statement covering any of the Collateral is on file
in any public office and Debtor will, from time to time or request of the
Secured Party, execute such financing statement and other documents (and
pay the costs of filing or recording the same in all public offices deemed
necessary by the Secured Party) and do such other acts and things, and pay
the cost thereof, as the Secured Party may request, to establish,
maintain, perfect, extend, extend, modify or terminate the security
interest granted hereunder, including, without limitation, depositing with
the Secured Party any certificate of title issuable with respect to any of
the Collateral and notation thereon of the security interest granted
hereunder.
(f) Debtor shall at all times keep the Collateral in first class order
and repair, pay promptly all taxes, judgments or charges of any kind
levied or assessed thereon, and keep current all rent due on the premises
where the Collateral is located.
(g) Debtor shall, at all times, maintain insurance on all Collateral
against such hazards and in such amounts and with such companies as Secured
Party may demand, all such insurance policies to be in the possession of
Secured Party and to contain a lender's loss payable clause naming Secured
Party in an amount satisfactory to Secured Party. Debtor hereby assigns to
Secured any proceeds of such policy and all unearned premiums thereon and
authorizes and empowers Secured Party to collect such sums and to execute
and endorse in Debtor's name all proofs of
- 3 -
<PAGE>
loss, drafts, checks and any other documents necessary to accomplish such
collections, and any persons or entities making payments to Secured Party
under the terms of this paragraph are hereby relieved absolutely from any
obligation to see to the application of any sums so paid.
(h) The Collateral, whether fixed to the realty or not, shall remain
personal property.
(i) The Secured Party may examine and inspect the Collateral or any
portion thereof, wherever located, at any reasonable time or times.
4. The Secured Party may, from time to time, at its option, perform any
agreement of the Debtor hereunder which the Debtor shall fail to perform and
take any other action which the Secured Party deems necessary for the
maintenance or preservation of any of the Collateral or its interest therein,
and the Debtor agrees to forthwith reimburse the Secured Party for all
expenses of the Secured Party in connection with the foregoing,together with
interest thereon at the maximum legal rate from the date incurred until
reimbursed by the Debtor.
5. If the Collateral, or any part thereof, is repossessed by the Secured
Party, the Debtor agrees to send notice by registered or certified mail to
the Secured Party within 24 hours thereafter if the Debtor claims that any
article not constituting a part of the Collateral was contained therein at
the time of repossession, and agrees that failure to do so shall be a waiver
of, and a bar to, any subsequent claim therefor.
- 4 -
<PAGE>
6. The occurrence of any of the following events shall constitute a
default (herein called a "Default") hereunder:
(a) Nonpayment when due of any amount payable on any of the
Liabilities or failure to perform any agreement of the Debtor contained
herein, in the Note, or in any other agreement evidencing, securing or
regarding the loan evidenced by the Note or any other liability;
(b) Any statement, representation or warranty of the Debtor herein or
any other writing at any time furnished by the Debtor to the Secured Party
is untrue in any material respect as of the date made;
(c) Any obligor (which term, as used herein, shall mean the Debtor and
each other party primarily or secondarily liable on any of the
Liabilities) becomes insolvent or unable to pay debts as they mature or
makes an assignment for the benefit of creditors, or any proceedings are
instituted by or against any obligor alleging that such obligor is
insolvent or unable to pay debts as they mature;
(d) Entry of any judgments against any obligor;
(e) Death of any obligor who is a natural person or any partner of any
obligor which is a partnership;
(f) Dissolution, merger or consolidation or transfer of a substantial
part of the property of any obligor which is a corporation or partnership;
(g) Appointment of a receiver for the Collateral or any property in
which the Debtor has an interest;
- 5 -
<PAGE>
(h) Seizure of the Collateral; and
(i) THe Secured Party feels insecure for any other reason whatsoever.
When a Default shall have occurred, the Note and all other Liabilities
(notwithstanding any provision thereof) shall, at the option of the Secured
Part, and without demand or notice of any kind, become immediately due and
payable and the Secured Party may exercise from time to time any rights and
remedies available to it under applicable law. The Debtor agrees, in the case
of a Default, to assemble and make available at is expense all of the
Collateral at a convenient place acceptable to the Secured Party and to pay
all costs of the Secured Party of collection of the Note and all other
Liabilities, enforcement of rights hereunder, including reasonable attorney's
fees and legal expenses, and expenses of any repairs to any realty or other
property to which any of the Collateral may be affixed or be a part. If any
notification of any intended disposition of any of the Collateral is required
by law, such notification, if mailed, shall be deemed reasonably and properly
given if mailed at least five days before such disposition, postage prepaid,
addressed to the Debtor either at the address shown hereinabove, or at any
other address of the Debtor appearing on the records of the Secured Party and
in reference to a private sale, need only state that the Secured Party
intends to negotiate such a sale. Disposition of Collateral shall be deemed
commercially reasonable if made pursuant to a public offering advertised at
least twice in a newspaper of general circulation in the community where the
Collateral is located or by a private sale for a sum equal to or in excess of
the liquidation value of the Collateral as determined by the Secured Party.
Any proceeds of the disposition of the Collateral may be applied by the
- 6 -
<PAGE>
Secured Party to the payment of expenses in connection with the Collateral,
including reasonable attorney's fees and legal expenses, and any balance of
such proceeds may be applied by the Secured Party toward the payment of such
of the Liabilities, and in such order of application, as the Secured Party
may from time to time elect.
7. (a) Time is of the essence of this Agreement.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia.
(c) No waiver of any breach of any covenant, agreement or
undertaking contained herein shall operate as a waiver of any subsequent
breach of the same covenant, agreement or undertaking or as a waiver of
any other covenant, agreement or undertaking. In the case of a breach by
any party of any covenant, agreement or undertaking, the nonbreaching
party may nevertheless accept from the other, any payment or performance
without waiving its right to exercise any right or remedy provided herein
or otherwise, with respect to any such breach which was in existence at
the time such payment or performance were accepted by it. No failure of
any party to exercise any power given herein or to insist upon strict
compliance with any covenant, agreement or undertaking contained herein,
and no custom or practice which varies from the terms hereof, shall
constitute a wavier of such party's right to demand exact compliance with
the terms hereof. The waiver by any party of a breach of any covenant,
agreement or undertaking contained herein shall be made only by a written
waiver in each case, and no such waiver shall operate or be construed as a
waiver of any prior or subsequent breach.
- 7 -
<PAGE>
(d) If any provision of this Agreement shall, to any extent, be held
invalid, illegal or unenforceable, in whole or in part, the validity,
legality, and enforceability of the remaining part of such provision, and
the validity, legality and enforcement of the other provisions hereof,
shall not be affected thereby. Any provision of this Agreement which is
held invalid, illegal or unenforceable in any jurisdiction shall not be
deemed invalid, illegal of unenforceable in any other jurisdiction.
(e) This Agreement may not be amended, changed, modified, altered or
terminated except in writing executed by all parties with the same
formality as this Agreement is executed.
(f) Except as otherwise expressly provided herein, all rights, powers
and privileges conferred hereunder upon any party shall be cumulative and
not restrictive of those given by law. No remedy herein conferred is
exclusive of any other available remedy, but each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
by agreement or now or hereafter existing at law or in equity or by statute.
(g) This Agreement shall be binding upon, shall inure to the benefit
of, and shall be enforceable by and against all the parties and their
respective heirs, legal representatives, successors and assigns. Nothing
in this Agreement, expressed or implied, is intended to or shall confer
upon any person other than the parties, and their respective heirs, legal
representatives, successors and assigns, any rights, remedies, obligations
or liabilities.
(h) Use the terms "herein", "hereby", "hereunder", "hereof",
"hereinbefore", "hereinafter", and other equivalent words refer to this
Agreement in its
- 8 -
<PAGE>
entirety and not solely to the particular portion of the Agreement in
which such word is used. Reference to "this Article", "this Section", or a
similar reference to a specific part of this Agreement shall refer to the
particular Article, Section or specific part in which such reference
appears. Wherever used herein, any pronoun shall be deemed to include both
singular and plural and all genders.
(i) The Debtor will execute, deliver, acknowledge and supply such
further documents, instruments and assurances as shall be reasonably
necessary or appropriate to carry out the full intent and purposes of this
Agreement.
IN WITNESS WHEREOF, the Debtor has executed this Security Agreement as of
the 15th day of December, 1995.
MARQUEST MEDICAL PRODUCTS, INC.
By:__________________________________
Title: President
Attest:______________________________
Title: Vice President-Finance
(Corporate Seal)
- 9 -
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (the "Amendment") is made as of
December 18, 1995, between MARQUEST MEDICAL PRODUCTS, INC., a Colorado
corporation ("Borrower") and COLORADO NATIONAL BANK, a national banking
association ("Bank").
WHEREAS,
i. Borrower and Bank entered into a Loan Agreement dated as of June 30,
1994, pursuant to which Bank made available to Borrower a Term Loan
("Loan") of $1,300,000.00 (the "Loan Agreement");
ii. Borrower has requested that Bank release Bank's security interests in
Borrower's accounts, general intangibles, inventory and equipment which
secure the Loan; and
iii. Bank is willing to take such action upon receipt of a prepayment of
$160,000.00 and Borrower's agreement to shorten the Maturity Date of
January 31, 2000, and otherwise subject to the terms and conditions in
this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein, Borrower and Bank agree as follows:
1. DEFINITIONS. Capitalized terms used herein and in the recitals hereto,
but not defined herein or therein, shall have the meanings given them in the
Loan Agreement.
2. AMENDMENT TO LOAN AGREEMENT. Section 1.04 of the Loan Agreement is
amended by changing the date "July 31, 2004" wherever it appears to the date
"January 31, 2000".
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby remakes each of the
representations and warranties contained in Section 3 of the Loan Agreement
as of the date of this Amendment, as if made in connection with this
Amendment and the Loan Agreement, except that for purposes hereof the
references in Section 3.04 of the Loan Agreement to financial statements
dated as of or as at certain dates shall be deemed to be references to the
audited and unaudited financial statements of Borrower most recently
delivered to Bank.
4. CONDITIONS PRECEDENT. The foregoing amendment shall not be effective
and Bank shall have no obligation to release its security interest in
personal property until:
(i) Borrower has delivered to Bank this Amendment and a
Modification/Extension Agreement shortening the Maturity Date
to January 31, 2000, each duly executed in form satisfactory to
Bank; and
(ii) Borrower has paid Bank the amount of $160,000.00.
The delivery of such documents and payment shall constitute Borrower's
representation to Bank that Borrower is not in default under the Loan
Agreement, as amended, except under Sections 5.09ii and that no other event
of default or event which, with the giving of notice or passage of time or
both, would become an event of default, has occurred; and Bank may request a
certificate of an officer of Borrower stating the foregoing.
5. RELEASE. Upon the delivery of the documents and payment provided for
in Section 4 above, Bank shall deliver to Borrower one or more duly executed
UCC-3 Termination Statements releasing Bank's security interests in
Borrower's accounts, general intangibles, inventory and equipment and shall
terminate Borrower's Security Agreement dated June 30, 1994.
6. ENTIRE AGREEMENT. This Amendment and the Loan Agreement contain the
entire agreement of the parties concerning the subject matter hereof and
thereof. No promise, representation or understanding which is not expressly
set forth in, or incorporated into, either the Loan Agreement or this
Amendment shall be enforceable by either party.
7. EFFECTIVENESS. The Loan shall continue to be governed by and subject
to all of the provisions of the Loan Agreement as amended hereby and any
amounts outstanding on the Loan after the pre-payment shall continue to be
outstanding and evidenced by the Note. The Loan Agreement, as amended hereby,
and all of the Collateral Documents, to which Borrower is a party, other than
Borrower's Security Agreement dated June 30, 1994, remain in full force and
effect and are hereby ratified and confirmed. Any reference to "this
Agreement" or "the Loan Agreement" in the Loan Agreement or in any promissory
note, security agreement, guaranty, or other instrument relating to the Loan
Agreement is deemed to be a reference to the Loan Agreement as amended
hereby.
IN WITNESS WHEREOF, Borrower and Bank have caused this Amendment to be
executed the date first set forth above.
COLORADO NATIONAL BANK
By:__________________________________
Title:_______________________________
MARQUEST MEDICAL PRODUCTS, INC.
By:__________________________________
Title:_______________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS AS OF DECEMBER 30, 1995 AND FOR THE SIX MONTHS
THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> APR-02-1995
<PERIOD-END> DEC-30-1995
<CASH> 949
<SECURITIES> 0
<RECEIVABLES> 2,742
<ALLOWANCES> (144)
<INVENTORY> 3,056
<CURRENT-ASSETS> 6,856
<PP&E> 17,618
<DEPRECIATION> (10,363)
<TOTAL-ASSETS> 14,153
<CURRENT-LIABILITIES> 7,268
<BONDS> 6,242
0
0
<COMMON> 6,231
<OTHER-SE> (5,588)
<TOTAL-LIABILITY-AND-EQUITY> 14,153
<SALES> 16,216
<TOTAL-REVENUES> 16,216
<CGS> 11,149
<TOTAL-COSTS> 11,149
<OTHER-EXPENSES> 4,836
<LOSS-PROVISION> 17
<INTEREST-EXPENSE> 506
<INCOME-PRETAX> 60
<INCOME-TAX> 697
<INCOME-CONTINUING> (637)
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<NET-INCOME> (637)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0
</TABLE>
