As filed with the Securities and Exchange Commission
on May 12, 1995
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 31, 1995
(for quarterly period ended)
1-12318
Commission File Number
BALLARD MEDICAL PRODUCTS
(Exact name of registrant as specified in its charter)
UTAH
(State or other jurisdiction of incorporation or organization)
87-0340144
(I.R.S. Employer Identification Number)
12050 LONE PEAK PARKWAY, DRAPER, UTAH 84020
(Address and zip code of principal executive offices)
(801) 572-6800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of stock, as of the latest practicable date:
26,506,750 - all common, May 11, 1995
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
FORM 10-Q INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Unaudited Consolidated
Balance Sheets as of March 31, 1995 and
September 30, 1994
Condensed Unaudited Consolidated
Statements of Operations for the three
and six months ended March 31, 1995 and
1994
Condensed Unaudited Consolidated
Statements of Cash Flows for the
six months ended March 31,
1995 and 1994
Notes to Condensed Unaudited
Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Risk Factors
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote
of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
DEFINITIONS
As used herein, the following terms have the meanings
indicated:
GENERAL DEFINITIONS
1. "Ballard" refers to Ballard Medical Products.
2. The "Company" and the "Registrant" refer to Ballard
and its subsidiaries.
3. "MIC" refers to Medical Innovations Corporation, a
wholly-owned subsidiary of Ballard.
4. "Code Blue" refers to Code Blue Medical
Corporation, a former wholly-owned subsidiary of
Ballard, which was statutorily merged into Ballard
in May, 1993.
5. "BREH" refers to Ballard Real Estate Holdings,
Inc., a wholly-owned subsidiary of Ballard.
6. "BI" refers to Ballard International, Inc., a
wholly-owned subsidiary of Ballard.
TECHNICAL AND MEDICAL TERMS
1. Bronchoalveolar lavage is a medical procedure for
obtaining samples from smaller airways in the
lungs. A catheter is wedged into the bronchus.
Then a lavage fluid is injected into the airways.
A fluid sample is withdrawn to determine whether
infectious organisms are present in the airways or
air sacs.
2. Catheter is a flexible tube that is inserted into
the body to deliver or remove fluid, retrieve
blood, or act as a conduit to pass other devices.
3. Closed suction catheter is a sleeved catheter used
with endotracheal tubes, on patients receiving
mechanical ventilation, enabling the airways to be
suctioned while maintaining mechanical ventilatory
support.
4. Cytology brush is a brush used to collect cell
samples from the gastrointestinal or pulmonary
tract.
5. Endoscope is an instrument used in the examination
of a hollow space or cavity in the human body.
6. Endoscopic refers to a procedure performed by means
of an endoscope.
7. Endoscopy is an examination of organs accessible to
observation through an endoscope.
8. Endotracheal tube is a tube inserted into the
patient's upper airway allowing medical ventilatory
support.
9. Enteral feeding catheter is a catheter used for the
delivery of nutritional liquids into the
gastrointestinal tract of the patient.
10. Gastrostomy is a surgical opening through the skin
into the stomach.
11. Jejunal means pertaining to the jejunum (part of
the small bowel).
12. Jejunostomy is a surgical opening through the skin
into the jejunum.
13. Nosocomial infection is an infection acquired while
a patient is in a hospital.
14. Percutaneous Endoscopic Gastrostomy (PEG) catheter
is a flexible tube inserted through the mouth,
esophagus, and stomach to the outside of the body
with the aid of an endoscope. Name refers to the
placement procedure and is a variation of a
gastrostomy tube.
15. Polypectomy is a medical procedure for removal of
polyps (growths).
16. Transgastric pertains to a bypass of the stomach.
Transgastric tubes are placed through the skin and
into the stomach, with the distal tip terminating
in the jejunum, or elsewhere in the digestive
system.
17. A ventilator is a life support device used to
assist breathing.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
3/31/95 9/30/94
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $19,193,935 $15,109,682
Investments available-
for-sale (cost: $19,288,342) 19,138,633
Investments 16,330,685
Trade accounts receivable - net 14,829,312 13,505,173
Other receivables 1,878,361 1,723,637
Inventories:
Raw materials 3,212,682 3,231,757
Work-in-progress 1,995,257 2,088,350
Finished goods 3,567,170 4,353,529
Deferred income taxes 500,023 407,405
Income tax refunds receivable 1,284,997 2,347,031
Prepaid expenses 522,958 690,143
Total current assets 66,123,328 59,787,392
PROPERTY AND EQUIPMENT:
Land 1,849,511 1,849,511
Building 11,860,790 11,912,302
Molds 2,193,981 2,044,983
Machinery and equipment 7,676,150 7,401,870
Vehicles 488,109 441,135
Furniture and fixtures 1,264,906 1,067,148
Leasehold improvements 100,730 71,118
Construction-in-progress 1,073,466 729,922
Total 26,507,643 25,517,989
Less accumulated depreciation 5,265,106 4,514,129
Property and equipment - net 21,242,537 21,003,860
INTANGIBLE ASSETS - net 12,178,012 11,568,397
OTHER ASSETS 20,624 20,624
DEFERRED INCOME TAXES 128,533 258,952
TOTAL $99,693,034 $92,639,225 <PAGE>
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
3/31/95 9/30/94
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $545,861 $228,749
Accrued liabilities:
Employee compensation 655,818 1,114,092
Royalties 320,333 370,579
Other 411,839 492,306
Total current liabilities 1,933,851 2,205,726
STOCKHOLDERS' EQUITY:
Common stock 2,649,766 2,645,586
Additional paid-in capital 27,745,417 28,291,261
Retained earnings 67,461,311 59,496,652
Net unrealized loss on
investments available-for-sale
(net of taxes) (97,311)
Total stockholders' equity 97,759,183 90,433,499
TOTAL $99,693,034 $92,639,225
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
3/31/95 3/31/94 3/31/95 3/31/94
<S> <C> <C> <C> <C>
NET SALES $20,030,632 $18,047,000 $38,540,861 $34,082,355
COST OF PRODUCTS
SOLD 6,621,987 5,148,403 12,840,864 9,997,720
GROSS MARGIN 13,408,645 12,898,597 25,699,997 24,084,635
OPERATING EXPENSES:
Selling, general,
and administrative 5,678,318 5,289,097 11,034,441 10,238,298
Research and
development 528,291 364,772 989,856 755,925
Royalties 307,980 340,109 678,480 651,184
Total operating
expenses 6,514,589 5,993,978 12,702,777 11,645,407
OPERATING INCOME 6,894,056 6,904,619 12,997,220 12,439,228
OTHER INCOME - net 958,460 929,510 1,869,760 1,989,661
INCOME BEFORE
INCOME TAX EXPENSE 7,852,516 7,834,129 14,866,980 14,428,889
INCOME TAX EXPENSE 2,872,500 2,974,129 5,320,500 5,276,903
INCOME BEFORE
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING FOR
INCOME TAXES 4,980,016 4,860,000 9,546,480 9,151,986
CUMULATIVE EFFECT
OF CHANGE IN
ACCOUNTING FOR
INCOME TAXES 1,403,232
NET INCOME $4,980,016 $4,860,000 $9,546,480 $10,555,218
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
3/31/95 3/31/94 3/31/95 3/31/94
<S> <C> <C> <C> <C>
INCOME PER COMMON
AND COMMON
EQUIVALENT SHARE:
Income before
cumulative effect of
change in accounting
for income taxes $0.181 $0.179 $.349 $0.337
Cumulative effect of
change in accounting
for income taxes 0.052
Net income $0.181 $0.179 $0.349 $0.388
INCOME PER COMMON
SHARE ASSUMING
FULL DILUTION:
Income before
cumulative effect of
change in accounting
for income taxes $0.180 $0.179 $0.345 $0.336
Cumulative effect of
change in accounting
for income taxes 0.052
Net income $0.180 $0.179 $0.345 $0.388
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING:
Common and common
equivalent share 27,515,066 27,196,818 27,380,862 27,176,021
Common share
assuming full
dilution 27,659,806 27,207,667 27,666,752 27,236,112
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
3/31/95 3/31/94
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $10,520,909 $2,068,756
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property
and equipment (989,654) (4,732,840)
Purchase of investments
available-for-sale (11,534,097)
Purchase of investments (10,771,256)
Purchases of intangible assets (1,068,215) (600,045)
Proceeds from sales of investments
available-for-sale 8,576,440
Proceeds from sales of investments 3,524,189
Net cash used in investing
activities (5,015,526) (12,579,952)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from exercise of options 166,470 1,214,932
Cash dividends paid (1,587,600) (1,314,490)
Purchase of treasury stock (124,750)
Net cash used in financing
activities (1,421,130) (224,308)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,084,253 (10,735,504)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 15,109,682 16,113,853
CASH AND CASH EQUIVALENTS,
END OF PERIOD $19,193,935 $5,378,349
</TABLE>
See notes to condensed unaudited consolidated financial statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for taxes $4,466,000 $5,644,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
During the six months ended March 31, 1995 and 1994, the
Company increased additional paid-in capital by $83,616 and
$1,623,848, respectively, which represents the tax benefit
attributable to the compensation received by employees from the
exercise and disqualifying disposition of incentive stock
options.
During the six months ended March 31, 1995, the Company
included in equity $97,311 of net unrealized losses on
investments available for sale (net of taxes). See Note 3
below.
See Notes to Condensed Unaudited Consolidated Financial
Statements.
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. In management's opinion, the accompanying condensed
unaudited consolidated financial statements contain all
adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial
condition of Ballard Medical Products and Subsidiaries as
of March 31, 1995 and September 30, 1994, the results of
operations for the three and six months ended March 31,
1995 and 1994, and the cash flows for the six months
ended March 31, 1995 and 1994.
2. The results of operations for the three and six months
ended March 31, 1995 are not indicative of the results to
be expected for the full year ended September 30, 1995.
3. On October 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity
Securities". SFAS 115 requires the Company to classify
its investment securities as either held to maturity,
available for sale, or trading. At March 31, 1995, the
Company considers all of its investment securities to be
available for sale and, as such, accounts for its
investments at fair value with any tax-affected
unrealized holding gain or loss reported as a separate
component of stockholders' equity. Implementation of
SFAS 115 will result in additions to or deductions from
total stockholders' equity as the result of fluctuations
in fair value.
As of October 1, 1994, the adoption of SFAS 115 resulted
in a decrease in the carrying values of investments
available-for-sale of approximately $1,036,000, with a
corresponding decrease in stockholders' equity and
increase in deferred taxes receivable of approximately
$659,000 and $377,000, respectively.
The amortized cost and fair value of investments
available-for-sale as of March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Debt securities issued
by states and political
subdivisions $19,288,343 None $149,709 $19,138,633
</TABLE>
The amortized cost and fair value of debt securities
classified as available-for-sale as of March 31, 1995 by
contractual maturity were as follows:
Amortized Cost Fair Value
Due in one year
or less $19,288,342 $19,138,633
Proceeds from sales of investments available-for-sale for
the three and six months ended March 31, 1995 were as
follows:
Three Months Ended Six Months Ended
March 31, 1995 March 31, 1995
Proceeds $4,532,806 $8,576,440
There were no gross realized gains or losses on sales of
investments available-for-sale for the three or six
months ended March 31, 1995. The change in unrealized
holding loss on investments available-for-sale (net of
taxes) that has been included as a separate component of
shareholders' equity as of March 31, 1995 totaled
$97,311.
4. On December 28, 1994, the Company paid a cash dividend of
$.06 per share to shareholders of record as of December
12, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's 1994 Annual Report to Shareholders contains
management's discussion and analysis of financial condition and
results of operations at and for the year ended September 30,
1994. The following discussion and analysis describes material
changes in the Company's financial condition and position from
September 30, 1994. Trends of a material nature are discussed
to the extent known and considered relevant. The analysis of
results of operations compares the three and six months ended
March 31, 1995 with the corresponding period of 1994. This
analysis should be considered in conjunction with the condensed
unaudited consolidated balance sheets, condensed unaudited
consolidated statements of operations, and condensed unaudited
consolidated statements of cash flows.
RESULTS OF OPERATIONS
OVERVIEW - The Company's net sales through the second
quarter of fiscal year 1995 continue to show solid growth and
record sales levels, primarily reflecting the efforts of a more
established, more mature, more professional sales force and
sales management team. New business is being generated in many
hospitals and other accounts, and there is greater product
consistency in Company accounts.
The Company's after-tax profit margin for the first six
months of 1995 remained strong at 24.7%, compared with an
industry average for similar mid-sized medical supply companies
of approximately 7.5% (according to Standard & Poors Research
Report, dated January 21, 1995).
The high after-tax profit margin added over $10,500,000
in cash flows from operations for the first six months of 1995,
increasing the Company's total cash, cash equivalents, and
investments to over $38,000,000 as of March 31, 1995. The
Company intends to utilize these cash reserves to fund future
growth and expansion, both domestically and internationally,
through new product development and acquisitions. See "Item 5.
Acquisition of Cox Medical Enterprises, Inc."
SALES - Net sales for the three months ended March 31,
1995 increased 11.0% to $20,030,632, compared with $18,047,000
for the corresponding three month period in fiscal year 1994.
Net sales for the six months ended March 31, 1995 increased
13.1% to $38,540,861, compared with $34,082,355 for the
corresponding six month period in fiscal year 1994. Net sales
have increased during 1995 principally due to expanding market
penetration of the TRACH CARE and MIC product lines. The
Company's MIC enteral feeding catheters continue to show
especially strong sales growth, with increases over 1994 of
46.9% and 52.0%, respectively, for the three and six month
periods ended March 31, 1995.
Effective March 15, 1995, pricing on several of the MIC
products was increased by up to 5%. No other price increases
occurred during the three months covered by this report;
therefore, substantially all of the increase in net sales is
attributable primarily to an increased volume of products sold.
All sales of the Company and related receipts were in
U.S. dollars. Export sales to unaffiliated customers from the
Company's domestic operations did not exceed 10 percent of the
Company's domestic consolidated net sales.
COST OF PRODUCTS SOLD - Cost of products sold for the
three months ended March 31, 1995 was $6,621,987 compared to
$5,148,403 for the corresponding period of 1994. Cost of
products sold for the six months ended March 31, 1995 was
$12,840,864 compared to $9,997,720 for the corresponding period
of 1994. As a percentage of net sales, cost of products sold
for the three months ended March 31, 1995, compared to 1994,
increased 4.6% from 28.5% to 33.1%. For the six months ended
March 31, 1995 compared to 1994, cost of products sold as a
percentage of net sales increased 4.0% from 29.3% to 33.3%.
The increase in cost of goods sold during 1995 reflects several
factors, including increased price discounts due to pricing
pressures, the initially higher costs of introducing new
products to the market, increased labor and raw material costs,
higher than anticipated manufacturing overhead costs, and
variable changes in sales mix. The Company expects cost of
products sold to remain fairly constant at approximately 33.0%
to 34.0% of net sales for the remainder of fiscal 1995.
OPERATING EXPENSES - Operating expenses consist of
selling, general, and administrative expenses, research and
development expenses, and royalty expenses. Total operating
expenses for the three months ended March 31, 1995 were
$6,514,589, which represents an increase of 8.6% over the
corresponding three-month period of 1994. For the six months
ended March 31, 1995 total operating expenses were $12,702,777,
representing a 9.0% increase over the corresponding six-month
period in 1994.
The increase in operating expenses during 1995 is due
primarily to selling, general, and administrative expenses
which increased from $5,289,097 in the quarter ended March 31,
1994 to $5,678,318 in the quarter ended March 31, 1995. For
the six months ended March 31, 1995, selling, general, and
administrative expenses totaled $11,034,441, compared with
$10,238,298 for the same six months of 1994. These increased
costs are attributable to increased wages, commissions, and
other selling costs associated with the increased levels of
sales. As a percentage of net sales, selling, general, and
administrative expenses decreased from 29.3% and 30.0% in the
three and six months ended March 31, 1994 to 28.3% and 28.6%,
respectively, in the three and six months ended March 31, 1995.
As a percentage of net sales, these decreases during 1995
reflect the Company's efforts to control variable selling
expenses.
Research and development expenses and royalty expenses,
as a percentage of net sales, remained relatively consistent
between the periods, approximating 2.5% and 1.7%, respectively,
for the three and six months ended March 31, 1995.
OTHER INCOME - Other income consists principally of
interest income from investments and royalty income from the
licensing of the TRACH CARE closed suction system. For the
three months ended March 31, 1995, other income totaled
$958,460, compared to $929,510 for the three months ended March
31, 1994. For the six months ended March 31, 1995, other
income totaled $1,869,760, compared to $1,989,661 for the six
months ended March 31, 1994. The increase during the second
quarter primarily reflects the increase in interest income from
the Company's investments. As the Company utilizes its cash
reserves to acquire other companies and technology, it is
expected that other income from interest will decrease.
NET INCOME - Net income for the three months ended March
31, 1995 increased 2.4% to $4,980,016, compared to $4,860,000
for the three months ended March 31, 1994. For the six months
ended March 31, 1995, net income increased 4.3% to $9,546,480,
compared to $9,151,986 for the six months ended March 31, 1994
(excluding the $1,403,232 effect of the change in accounting
for income taxes required by FASB 109). The increase in net
income during 1995 reflects the growth in net sales,
notwithstanding decreased profit margins related to higher
labor and raw material costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet and financial condition have
never been stronger. At March 31, 1995 the Company's working
capital totaled $64,189,477 compared with $57,581,666 at
September 30, 1994 and $51,502,086 at March 31, 1994. The
Company's current ratio at March 31, 1995 was 34.2 to 1.0,
compared with 27.1 to 1.0 at September 30, 1994 and 21.1 to 1.0
at March 31, 1994. The Company had $38,332,568 in cash, cash
equivalents, and investments available-for-sale at March 31,
1995, an increase of $6,892,201 since September 30, 1994. Cash
flows from operations totaled $10,520,909 for the six months
ended March 31, 1995. Stockholders' equity increased
$7,325,684 during the six months ended March 31, 1995, going
from $90,433,499 at September 30, 1994 to $99,759,183 at March
31, 1995.
In addition to its strong liquid position and equity
balance, the Company does not have any long-term debt nor does
it intend to utilize debt to fund future expansion. The
Company maintains a $4,000,000 unsecured line of credit with
its bank but has never drawn on this line. Continued growth in
cash, cash equivalents, and investments provides the Company
financial stability and flexibility to fund current operations,
acquisitions, future growth and expansion, and to continue its
dividend payment policy.
At March 31, 1995, net trade accounts receivables totaled
$14,829,312, compared to $13,505,173 at September 30, 1994 and
$20,892,732 at March 31, 1994. The overall decrease over the
last twelve months reflects the Company's increased efforts in
collecting past due accounts and in controlling the extending
of unfavorable credit terms. The increase since September 30,
1994 reflects the increased level of sales.
Inventories at March 31, 1995 were $8,775,109 compared
with $9,673,636 at September 30, 1994 and $10,512,877 at March
31, 1994. The decrease in inventory levels reflects the
changes made in the Company's distribution system near the end
of fiscal year 1994, a normalizing of hospital and distributor
purchasing, and efforts by the Company to increase inventory
turns.
Property and equipment, net of accumulated depreciation,
totaled $21,242,537 at March 31, 1995, compared with
$21,003,860 at September 30, 1994 and $20,745,704 at March 31,
1994. The increase in net property and equipment over the last
twelve months reflects normal purchasing to sustain operations.
No significant commitments for the purchase of inventory
or property or equipment existed as of March 31, 1995.
RISK FACTORS
The following risks should be considered in evaluating
the Company and its shares and the foregoing financial
information:
COMPETITION. A number of well-established medical
products companies, both in the United States and abroad, with
substantially greater capital resources and larger research and
development staffs and facilities, and with substantially
greater marketing systems, are engaged in the manufacture and
sale of products which compete with products of the Company,
and such other companies are engaged in research designed to
reach goals similar to the Company's. Such companies may
succeed in developing and marketing similar products which are
better or more cost effective than those of the Company and its
subsidiaries and also may prove to be more successful than the
Company in the manufacturing and marketing of their products.
In recent months, the Company has reduced pricing for certain
products in order to meet competition and the price reductions
demanded by hospitals. In the future, the results of the
Company's operations could continue to be impacted by increased
competition and continuing pricing pressures.
PATENTS. The Company owns certain patents and
proprietary information acquired while developing its products,
and the Company is the licensee of certain other technology.
One of the Company's early U.S. TRACH CARE patents has
expired. As patents expire, more competing products may be
released into the marketplace by other companies. The ability
of the Company to continue to compete effectively with other
medical device companies may be materially dependent upon the
protection afforded by its patents and the confidentiality of
certain proprietary information. There is no assurance that
patents will be issued for products and product improvements
recently released into the marketplace or for products
presently being developed. If patents of the Company are
challenged, an adverse ruling could materially adversely affect
the Company's sales and profits.
HEALTH CARE REFORM. Threatened government-mandated
reforms continue to cause concern and uncertainty throughout
the health care industry. The Company's future results of
operations could be severely impacted by government reforms
such as strict cost controls and other possible restrictions
being considered by federal and state law makers.
RESEARCH AND DEVELOPMENT. In the continuing discovery
and development of products, the Company spent $528,291 and
$989,856 for research and development in the three and six
months, respectively, ended March 31, 1995, and $1,638,475,
$1,345,052 and $1,047,048 in the years ended September 30,
1994, 1993, and 1992, respectively. The Company plans to
continue spending substantial sums for discovery, research and
development of products and improvements of existing products.
There is no assurance that research and development
expenditures in the past or in the future will result in
products which are commercially viable so as to recoup related
research and development costs or to allow the Company to
continue to grow and be profitable.
TECHNOLOGICAL CHANGE. The medical technology as utilized
by the Company has been subject to rapid advances. While the
Company feels that it currently possesses the technology
necessary to carry on its business, its commercial success will
depend on its ability to remain current with respect to such
technological advances and to retain experienced technical
personnel. Furthermore, there can be no assurance that other
technological advances will not render the Company's technology
and certain products uneconomical or obsolete.
FDA REGULATION. Certain Company products are regulated
by the United States Food and Drug Administration (FDA). The
Company is required to adhere to existing standards for good
manufacturing practices and to engage in extensive record
keeping and reporting. The Company may be subject to
additional FDA rules and regulations depending on the future
products it develops. While the Company believes it will be
able to satisfy FDA requirements with respect to its proposed
and existing products, there can be no assurance that
difficulties or excessive costs will not be encountered in the
Company's efforts to secure necessary FDA approvals which would
delay or preclude the Company from releasing and marketing such
products. In addition, the extent of governmental regulation
which may arise from future legislative or administrative
action cannot be predicted.
FOREIGN REGULATION. Company products face a wide variety
of existing difficult regulations and a changing regulatory
environment in foreign countries. For example, in Europe,
there is significant pressure to achieve compliance with
international quality standards and to obtain various
certifications which are available at great effort and expense
to the Company. There can be no assurance that the Company
will be successful at obtaining such certifications so as to be
able to sell and distribute its products in international
markets such as Europe, or that the Company will be able to
satisfy international standards and regulations. Failure to do
so may severely impair the Company's sales growth in
international markets.
PRODUCT LIABILITY. The Company's products are intended
to be used on or around humans by competent medical personnel.
In the event a patient develops medical problems in connection
with the Company's products, the Company could be liable for
substantial damages. The Company has product liability
insurance, but there is no assurance that the Company would not
be materially adversely affected from any claim which may be
made, or judgment which may be entered, against it.
LACK OF DIVIDENDS. Prior to January, 1990, no dividends
had been paid by the Company on its shares of Common Stock.
The Company has paid dividends since January, 1990. However,
there can be no assurance that dividends will be paid on shares
in the future, particularly since the Company prefers to
reserve its cash and liquid assets for possible business
acquisitions.
UNCERTAINTY OF FINANCIAL RESULTS AND CAPITAL NEEDS.
There may be substantial fluctuations in the Company's results
of operations because of the timing and receipt of revenues and
market acceptance of existing Company products. The ability of
the Company to expand its manufacturing and marketing
operations cannot be predicted with certainty. If revenues do
not continue to increase as rapidly as they have in the past
few years, or if manufacturing, marketing, research and
development are not successful or require more money than is
anticipated, the Company may have to scale back product
marketing, development and production efforts and attempt to
obtain additional financing. There can be no assurance that
the Company would be able to obtain timely additional financing
in the amounts required or that such financing, if available,
would be on terms advantageous to the Company.
SUPPLY OF RAW MATERIALS. Certain of the Company's
products are dependent upon raw materials for which there are
single or few sources. So far, the Company has not had any
serious problems obtaining needed raw materials. However,
there can be no assurance that the Company will be able to
continue to depend on existing sources of certain materials.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GUARDIANSHIP OF CARMEN MARIE SMOOT
v. BALLARD MEDICAL PRODUCTS, ET AL.
No material developments have occurred in this litigation
since the filing of the Company's Form 10-Q for the quarter
ended December 31, 1994. The parties continue to engage in the
discovery process.
BALLARD MEDICAL PRODUCTS
v. HUNTINGTON LABORATORIES, INC.
Within a week of the February 3, 1995 ruling by Judge
Bruce Jenkins' granting Ballard's motion for summary judgment,
Huntington commenced marketing a "new" foamer which Huntington
claims avoids infringement of the Ford patent which is the
subject of this litigation. Despite Huntington's claim,
Ballard believes that the changes made to the Huntington device
are insubstantial. On or about April 25, 1995, Ballard filed
with the United States District Court for the District of Utah,
Central Division, a motion seeking injunctive relief. The
motion asks the court to enter both (1) a permanent injunction,
enjoining Huntington from making, using, or selling the foaming
device which Huntington was manufacturing and selling before
the February 3, 1995 ruling, and (2) a preliminary injunction,
precluding Huntington from making, using, or selling its "new"
foamer. The motion also asks the court to require Huntington
in the future to seek court approval before marketing any
modified foamers.
Huntington will now have an opportunity to respond to
Ballard's motion. Further briefs will be filed, and eventually
the court will likely hear oral argument on this motion. In
the meantime, the parties are continuing with discovery and
information exchange.
OTHER LITIGATION
The Company is also a party to ordinary routine
litigation incidental to the Company's business.
ITEM 2. CHANGES IN SECURITIES
There are no changes in the rights of the holders of
common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no senior securities of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Since the Company's January, 1995 Annual Meeting of
Shareholders, no matters have been submitted to a vote of the
shareholders.
ITEM 5. OTHER INFORMATION
ACQUISITION OF ASSETS OF COX MEDICAL ENTERPRISES, INC.
(a) Effective May 2, 1995, Ballard entered into an
agreement to acquire substantially all of the assets of Cox
Medical Enterprises, Inc. ("Cox"), of 2168 Eastman Avenue,
Suite 110, Ventura, California. Also, as part of this
transaction, Ballard acquired from certain principals and
employees of Cox (James Cox, Dennis Cox, and Lanita Cox)
certain patents and patent applications related to products of
Cox. Cox is a manufacturer of disposable endoscopic devices.
The total purchase price for the assets of Cox and the patent
rights was $4,000,000, of which $400,000 was paid into an
escrow account with First Security Bank of Utah, 79 South
State, Salt Lake City, Utah. See copy of Purchase Agreement,
filed herewith as Exhibit 10.1. The escrow was established as
a fund to reimburse Ballard for any losses which may be
incurred because of any right to indemnification that Ballard
may have under the Purchase Agreement. See copy of Escrow
Agreement, filed herewith as Exhibit 10.2. The balance of the
purchase price was paid in cash and in assumption of certain
disclosed liabilities of Cox.
The assets acquired from Cox consist, generally, of
accounts receivable, equipment, machinery, leasehold
improvements, computer hardware and software, exhibits and
displays, furniture, tooling, molds, supplies, raw materials
inventory, work-in-process, finished goods inventory, and cash
in the bank. Cox produces disposable cleaning brushes,
polypectomy snares, cytology brushes, biopsy forceps, grasping
forceps, retrieval baskets, and a "reposable" accessory BASICS
endoscopy system (which utilizes both reusable and disposable
components), all for use in connection with the GI
(gastroenterology) tract. Cox's THERMAL OPTION Biopsy Forcep
gives physicians emergency cautery capability when taking
tissue samples. Cox's BASICS reposable system meets both the
infection concerns and budgetary concerns of clinicians.
In determining the purchase price to be paid to Cox and
its principals, the Company evaluated carefully a number of
factors, including without limitation Cox's past and projected
future sales and net income, Cox's patents and patent
applications, the unique features and benefits of Cox's product
line, and management's belief that Cox's product line would
complement and "round out" MIC's product line. The Cox
acquisition was funded from Ballard's cash reserves.
No material relationships exist between any of the
shareholders of Cox or Ballard or any director or officer of
Ballard.
This acquisition of assets and patent rights does not
constitute an acquisition of "a significant amount of assets,"
within the meaning of Item 2 of Form 8-K, since none of the
conditions in S-X Rule 1-02(v) exceeds 10%. Rather, this
transaction is disclosed voluntarily for the reason that the
Company deems the Cox acquisition to be an event which is of
importance to Ballard's shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Statements concerning computation of income per
share are included in the financial information provided in
Item 1 of Part I and are incorporated by reference into this
Item 6 of Part II of this report.
(b) No reports on Form 8-K were filed during the period
covered by this Form 10-Q.
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 of the undersigned thereunto duly
authorized.
BALLARD MEDICAL PRODUCTS
(Registrant)
Date: 2/14/95 Dale H. Ballard, President and
Principal Executive Officer
Date: 2/14/95 Kenneth R. Sorenson,
Treasurer and
Principal Financial Officer
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE NO.
10.1 Purchase Agreement
Concerning the Purchase
by Ballard Medical Products
of the Assets of Cox
Medical Enterprises, Inc.,
Effective May 2, 1995
10.2 Escrow Agreement
27 Financial Data Schedule
PURCHASE AGREEMENT
AGREEMENT (the "Agreement") made in triplicate effective
the second day of May, 1995, by and among BALLARD MEDICAL
PRODUCTS, a Utah corporation ("Ballard"), COX MEDICAL
ENTERPRISES, INC., a California corporation (the "Company"),
JAMES E. COX, PHYLLIS COX, LANITA G. COX, and DENNIS B. COX
(the "Coxes").
RECITALS:
A. The Company is engaged in the business of
manufacturing certain medical products for sale directly and
through distributors or other independent contractors to end
users throughout the United States (the "Business");
B. The Coxes own certain patents and patent
applications used in the Business; and
C. The Company desires to sell, transfer and assign to
Ballard, and Ballard desires to purchase and acquire from the
Company, substantially all of the assets of the Company
relating to the operation of the Business, and the Coxes desire
to sell, transfer and assign to Ballard, and Ballard desires to
purchase and acquire from the Coxes, certain patents and patent
applications relating to the operation of the Business, and in
connection therewith, Ballard has agreed to assume certain of
the liabilities of the Company relating to the Business, all on
the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and representations contained herein, the parties
hereto agree as follows:
ARTICLE I.
DEFINED TERMS
For all purposes of this Agreement, the following terms
shall have the meanings indicated:
1.1 "Assets" shall mean the assets and properties of
the Company listed in Section 2.1 below.
1.2 "Assumed Liabilities" shall have the definition set
forth in Section 6.4 below.
1.3 "Ballard" shall mean Ballard Medical Products, a
Utah corporation.
1.4 "Claim Notice" shall mean a written notification
pursuant to Section 7.3(a) of a Third Party Claim as to which
indemnity under Section 7.2 is sought by an Indemnified Party,
enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the
Indemnified Party's claim against the Indemnifying Party under
Section 7.2, together with the amount or, if not then
reasonably ascertainable, the estimated amount, determined in
good faith, of such Third Party Claim.
1.5 "Claimant" is intended to be defined more broadly
than as set forth in Section 6102(a)(5) of the California
Commercial Code, and shall therefore mean a person or entity
holding a claim incurred in the Company's business or to whom
the Company owes any liability whatsoever (other than an
unsecured and unmatured claim for employment compensation and
benefits, including commissions and vacation, severance, and
sick-leave pay).
1.6 "Closing" shall mean the consummation of the
purchase and sale transaction contemplated by this Agreement,
which is occurring simultaneously with the parties' execution
of this Agreement.
1.7 "Closing Date" shall mean the date of the Closing,
i.e., the effective date of this Agreement first set forth
above.
1.8 "Company" shall mean Cox Medical Enterprises, Inc.,
a California corporation.
1.9 "Contracts" shall have the definition set forth in
Section 4.16 below.
1.10 "Coxes" shall mean James E. Cox, Phyllis Cox,
Lanita G. Cox and Dennis B. Cox.
1.11 "Disclosure Schedule" shall mean the Disclosure
Schedule (attached hereto as Schedule 3 and made a part of this
Agreement) which identifies specific sections to which each
such disclosure relates.
1.12 "Dispute Period" means the period ending thirty
(30) days following receipt by an Indemnifying Party of either
a Claim Notice or an Indemnity Notice.
1.13 "Escrow Agent" shall mean First Security Bank of
Utah, N.A.
1.14 "FDA" shall mean the United States Food and Drug
Administration.
1.15 "Hard Assets" shall mean the assets described in
Section 4.9(a) below.
1.16 "Indemnified Party" means any person claiming
indemnification under any provision of Article VII, including
without limitation a person asserting a claim pursuant to
Section 7.3(c).
1.17 "Indemnifying Party" means any person against whom
a claim for indemnification is being asserted under any
provision of Article VII, including without limitation a person
against whom a claim is asserted pursuant to Section 7.3(c).
1.18 "Indemnity Notice" means written notification
pursuant to Section 7.3(b) of a claim for indemnity under
Article VII by an Indemnified Party, specifying the nature of
and basis for such claim, together with the amount or, if not
then reasonably ascertainable, the estimated amount, determined
in good faith, of such claim.
1.19 "Intangible Assets" shall mean the intangible
assets described in Section 4.12 below.
1.20 "Inventors" shall mean James E. Cox, Lanita G. Cox
and Dennis Cox in each instance as specified in the patents and
patent applications described in Section 2.3 below.
1.21 "Inventory" shall mean the inventory described in
Section 4.9(b) below.
1.22 "Liquid Assets" shall mean the cash and cash
equivalent assets described in Section 4.7 below.
1.23 "Patent Rights" shall mean the patents and patent
applications listed in Section 2.3 below.
1.24 "Permitted Lien" means:
(a) any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other
encumbrance included in the Verified List;
(b) any statutory lien arising in the ordinary
course of business by operation of law with respect to a
liability that is not yet due or delinquent; and
(c) any minor imperfection of title or similar
lien which individually or in the aggregate with other such
liens does not materially impair the value of the property
subject to such lien or the use of such property in the conduct
of the Business.
1.25 "Products" shall mean all products and product
ideas, improvements, inventions, and technology now being or
heretofore conceived, researched, or developed by any of the
Coxes or by any other agent or employee of the Company,
including without limitation the specific products described in
Section 4.22(a) below.
1.26 "Receivables" shall mean the receivables described
in Section 4.8 below, which shall be net of salesmen's
commissions due thereon.
1.27 "Resolution Period" means the period ending thirty
(30) days following receipt by an Indemnified Party of a
written notice from an Indemnifying Party stating that it
disputes all or any portion of a claim set forth in a Claim
Notice or an Indemnity Notice, as the case may be.
1.28 "Taxes" shall have the definition set forth in
Section 4.13.
1.29 "Verified List" shall mean the list of creditors
described in Section 4.11 below, which shall not include
salesmen's commissions due in respect of Receivables.
ARTICLE II.
PURCHASE AND SALE OF ASSETS
2.1 Assets of the Company. Except as otherwise
provided in Section 2.2 below, the Company agrees to sell,
transfer, and convey, and Ballard agrees to purchase and
receive, upon the terms and conditions set forth in this
Agreement, all of the business, assets, properties, goodwill,
and rights of the Company as a going concern, of every nature,
kind, and description, tangible and intangible, wheresoever
located and whether or not carried or reflected on the books
and records of the Company, as they exist on the Closing Date
(hereinafter sometimes collectively called the "Assets"),
including without limitation:
(a) the right to use the Company's corporate name
(the Company will change its name immediately after the
Closing);
(b) all trade secrets, plans, formulas,
engineering notes and notebooks, shop rights, production data,
customer lists, and supplier/vendor lists;
(c) the Liquid Assets (as defined herein);
(d) the Receivables (as defined herein);
(e) the Hard Assets (as defined herein);
(f) the Inventory (as defined herein);
(g) the Products (as defined herein);
(h) the Intangible Assets (as defined herein);
and
(i) the Company's rights and interests in and
under all contracts, agreements, understandings, commitments,
licenses, and engagements, including the Contracts (as defined
herein).
The Assets shall be conveyed and transferred to the Company
free and clear of all liabilities, obligations, liens, and
encumbrances, except Permitted Liens and liabilities which are
expressly assumed by Ballard hereunder.
2.2 Excluded Assets. Any provision to the contrary
notwithstanding, no interest in the following Assets is being
sold by the Company to Ballard under this Agreement:
(a) The Company's franchise to be a corporation;
(b) The Company's stock transfer books and
records, the record books containing the minutes of meetings of
directors and shareholders of the Company and such other of the
Company's records as have exclusively to do with its
organization, existence, or stock capitalization;
(c) Any contracts related to employment
arrangements with current employees;
(d) Any employee benefit, pension, profit
sharing, or similar plan established by the Company;
(e) The two Geo Prisms driven by Dennis and
Lanita Cox, and the Lincoln Towncar driven by Phyllis Cox;
(f) All refunds or credits, if any, of Taxes due
to or from the Company which cannot be assigned by law;
(g) The rights of the Company in, to and under
the Contracts identified in the Disclosure Schedule as excluded
Contracts;
(h) Personal property of the Coxes in possession
of the Company;
(i) The Company's rights under this Agreement;
and
(j) Any rights (including indemnification),
claims and recoveries under litigation of the Company against
third parties based upon tort theory and arising out of or
relating to events prior to the Closing Date. The Company and
the Coxes represent and warrant that no such litigation is
currently pending and that there are no facts or circumstances
known to the Company or the Coxes that could reasonably be
expected to give rise to any such right or claim.
2.3 Patent Rights of Inventors. The Inventors agree to
sell, transfer, and assign, and Ballard agrees to purchase and
receive, upon the terms and conditions set forth in this
Agreement, all of the patents and patent applications owned by
the Inventors and used or needed in conducting the business of
the Company (the "Patent Rights"), including without limitation
those described below (and related rights to file for patent
coverage in the U.S.A. and foreign countries):
(a) U.S. Patent No. 5,097,728, for BIOPSY FORCEPS
JAW AND METHOD FOR MAKING IT, issued March 24, 1992 in the
names of Dennis Cox and Lanita Cox (Product: "Thermal Option"
Disposable Biopsy Forcep);
(b) U.S. Patent No. 5,133,361, for BIOPSY BRUSH,
issued July 28, 1992 in the names of Lanita Cox and Dennis Cox
(Product: Molded Biopsy/Cytology Brush - not yet included in
product line);
(c) U.S. Patent No. 5,297,310, for CLEANING BRUSH
FOR ENDOSCOPES, issued March 29, 1994 in the names of Dennis
Cox and Lanita Cox (Product: CB-X2 Disposable Cleaning Brush);
(d) U.S. Patent Application Serial No.
08/068,568, for METHOD FOR MAKING A JAW FOR A BIOPSY FORCEPS
(AS AMENDED), filed May 28, 1993 in the name of James E. Cox;
and
(e) U.S. Patent Application Serial No.
08/358,899, for BIOPSY FORCEPS FOR OBTAINING TISSUE SPECIMEN
AND OPTIONALLY FOR COAGULATION, filed December 19, 1994 in the
name of Dennis Cox.
2.4 Purchase Price for Company Assets. The purchase
price to be paid by Ballard to the Company for the Assets and
the covenant not to compete contained in Section 6.3 shall be
One Million Seven Hundred Thirty-four Thousand Dollars
($1,734,000), $500.00 of which is allocable to, and deemded to be
in consideration of, the covenant of the Company contained in
Section 6.3 and the remainder of which is allocable to, and
deemed to be in consideration of, the Assets, payable as follows:
(a) Ballard will assume the liabilities in the
total sum of $686,690, as set forth in the Verified List; and
(b) Ballard shall pay cash or certified funds to
the Company in the amount of $1,047,310.
2.5 Purchase Price for Patent Rights. The purchase
price to be paid to the Coxes for the Patent Rights and the
covenant not to compete contained in Section 6.3 shall be Two
Million Two Hundred Sixty-six Thousand Dollars ($2,266,000),
$500 of which is allocable to, and deemed to be in
consideration of, the covenant of each of the Coxes contained
in Section 6.3 and the remainder of which is allocable to, and
deemed to be in consideration of, the Patent Rights, payable as
follows:
(a) Four Hundred Thousand Dollars ($400,000) of
the purchase price shall be held in escrow pursuant to the
provisions of an Escrow Agent, in form mutually agreeable to
the parties (the "Escrow Agreement"); and
(b) Ballard shall pay cash or certified funds to
the Coxes in the amount of $1,866,000.
2.6 Allocation of Purchase Price. The parties intend
that the purchase price for the Assets (from the Company) and
the Patent Rights (from the Inventors) be allocated using the
"residual method", as required by Treasury Regulations
promulgated under Section 1060 of the Internal Revenue Code.
(a) Company Assets. The purchase price to the
Company shall be allocated among the Assets as set forth on
Schedule 1, attached to and made a part of this Agreement and
no party hereto will take any position inconsistent with such
allocation in preparing financial statements, tax returns, or
otherwise.
(b) Patent Rights. The purchase price to the
Inventors shall be allocated among the Patent Rights as set
forth on Schedule 2, attached to and made a part of this
Agreement and no party hereto will take any position
inconsistent with such allocation in preparing financial
statements, tax returns, or otherwise.
2.7 Cox Name. Following the Closing Date, the Company
will not use the name Cox Medical Enterprises, Inc., or any
derivation, portion, or abbreviation thereof, for any purpose,
except to make the necessary tax and other filings to effect
the dissolution and tax liquidation of the Company. The Coxes
covenant and agree to effect the complete dissolution and
liquidation of the Company within ninety (90) days following
the Closing Date.
2.8 Post-Closing Payments Received. All payments and
checks received by the Company or any of the Coxes on account
of the Business or the Assets (including without limitation
payments on account) shall be promptly endorsed and delivered
over to Ballard.
ARTICLE III.
CLOSING
3.1 Date and Place. The Closing is occurring
contemporaneously with the parties' execution of this
Agreement, at a place mutually agreed to by the parties.
3.2 Deliveries by the Company. At this Closing, the
Company delivers herewith or make available to Ballard:
(a) A bill of sale, in form mutually agreeable to
the parties (the "Bill of Sale"), transferring and conveying to
Ballard good and marketable title to all of the Assets, except
the Assets which are leased pursuant to Contracts.
(b) Copies, certified by the Company to be true
and complete copies, of all of the Contracts, together with
such bulk or individual assignments dated as of the Closing
Date and consents of lessors, landlords, and other third
parties or a statement by such lessor, landlord or third party
as to the conditions which must be met before such consents are
granted as may be necessary or desirable to effect a transfer
to Ballard all of the Company's rights and interests under such
Contracts, all in form and substance satisfactory to Ballard;
(c) Possession of and title to all of the Assets,
and Ballard shall be entitled to full use and possession of the
Assets as of the date hereof;
(d) A copy of the Articles of Incorporation of
the Company, with all amendments thereto and restatements
thereof, and a certificate of good standing from the State of
California, each of which shall be certified as of a date
within a reasonable time prior to the Closing Date by the
California Secretary of State;
(e) All consents and approvals of governmental
agencies, if required, and third parties, if required, to the
transactions contemplated by this Agreement;
(f) An Employment Agreement, in form and
substance mutually agreeable to Ballard and Lanita G. Cox,
executed by Lanita Cox;
(g) An Employment Agreement, in form and
substance mutually agreeable to Ballard and Dennis Cox,
executed by Dennis Cox;
(h) Estoppel Certificates in form and substance
satisfactory to Ballard, from certain of the creditors listed
in the Verified List, acknowledging, among other things, that
the Company is not in breach of its obligations owed to each
such creditor;
(i) A California Franchise Tax Board good
standing letter with respect to the Company, dated within a
reasonable time prior to the Closing Date;
(j) Such transfer documents and instruments as
may be necessary or desirable to transfer to Ballard all
balances in all banking and financial depository accounts of
deposit of the Company;
(k) A unanimous resolution of the Directors of
the Company and the Company's shareholder, approving this
Agreement, the Escrow Agreement, the Bill of Sale, and the
Assignments, and authorizing the taking of such other action as
shall be advisable or necessary on the part of the Company to
complete the transactions contemplated by this Agreement;
(l) A certificate from the California Industrial
Commission, dated within ten days prior to the effective date
hereof, to the effect that the Company has made all workers'
compensation and unemployment insurance payments required to be
paid by the Company prior to the date hereof;
(m) A certified UCC-1 (financing statement)
search from the state of California, dated within ten days
prior to the effective date of this Agreement, showing all
financing statements filed against any of the Assets, plus
copies of all such financing statements;
(n) Notices to the Company's customers and
creditors, in form and substance satisfactory to Ballard and
the Company.
(o) An Assignment of Products, Assignment of
Receivables, and Assignment of Liquid Assets, in form and
substance satisfactory to Ballard and the Company;
(p) Such bulk or individual assignments, dated as
of the Closing Date, as may be necessary or desirable to
transfer to Ballard all of the Company's right, title, and
interest in the Intangible Assets; and
(q) All business records of the Company.
3.3 Deliveries by the Inventors. At the Closing, the
Inventors herewith make, execute and deliver to Ballard
assignments to all of the patents and patent applications
comprising the Patent Rights, in form and substance
satisfactory to Ballard.
3.4 Deliveries by Ballard. At the Closing, Ballard
herewith makes the following deliveries:
(a) To Escrow Agent the cash sum of $400,000, to
be held in escrow pursuant to the terms and conditions of the
Escrow Agreement;
(b) The Employment Agreements, executed by Ballard;
(c) The Escrow Agreement, executed by Ballard;
(d) To the Company wired funds in the amount of
$1,047,310
and
(e) To Coxes wired funds in the
following amounts:
James E. Cox $300,500
Phyllis Cox $425,800
Lanita G. Cox $800,000
Dennis Cox $800,000
Total $3,373,610
(f) an Assumption Agreement and such other good
and sufficient instruments of assumption, in form mutually
agreeable to the parties, duly executed by Ballard, as shall be
effective to cause Ballard to assume the liabilities assumed to
the extent provided in Section 6.4 (the "Assumption
Instruments").
3.5 Prorations. The following prorations relating to
the Assets and the ownership and operation of the Business will
be made as of the Closing Date, with the Company liable to the
extent such items relate to any time period prior to the
Closing Date and Ballard liable to the extent such items relate
to periods beginning with and subsequent to the Closing Date:
(a) Real estate Taxes on or with respect to the
Assets.
(b) Rents, additional rents, taxes and other items
payable by the Company under its real property leases.
(c) The amount of rents, taxes and charges for
sewer, water, telephone, electricity and other utilities
relating to the real property subject to the Company's real
property leases.
(d) All other items (excluding personal property
taxes and other Taxes) normally adjusted in connection with
similar transactions.
Except as otherwise agreed by the parties, the net amount of
all such prorations will be settled and paid on the Closing
Date. If the Closing shall occur before a real estate tax rate
is fixed, the apportionment of taxes shall be based upon the
tax rate for the preceding year applied to the latest assessed
valuation.
3.6 Third-Party Consents. To the extent that any
Contract is not assignable without the consent of another
party, this Agreement shall not constitute an assignment or an
attempted assignment thereof if such assignment or attempted
assignment would constitute a breach thereof. The Company and
Ballard shall use commercially reasonable efforts to obtain the
consent of such other party to the assignment of any such
Contract to Ballard in all cases in which such consent is or
may be required for such assignment. If any such consent shall
not be obtained, the Company shall cooperate with Ballard in
any reasonable arrangement designed to provide for Ballard the
benefits intended to be assigned to Ballard under the relevant
Contract, including enforcement at the cost and for the account
of Ballard of any and all rights of the Company against the
other party thereto arising out of the breach or cancellation
thereof by such other party or otherwise. If and to the extent
that such arrangement cannot be made, Ballard shall have no
obligation pursuant to Section 6.4 or otherwise with respect to
any such Contract.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE COXES
As a material inducement to Ballard's willingness to
enter into and perform this Agreement, the Company and the
Coxes represent and warrant to Ballard as follows:
4.1 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of California. The Company has all requisite
power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, and
is duly licensed, authorized and qualified to do business in
California.
4.2 Subsidiaries/Affiliates. The Company has no
subsidiaries or affiliated companies. The Company has no
interest, direct or indirect, and has no commitment to purchase
any interest, direct or indirect, in any other corporation or
in any partnership, joint venture or other business enterprise
or entity. The business carried on by the Company has not been
conducted through any direct or indirect subsidiary or
affiliate.
4.3 Capitalization. The authorized capital stock of
the Company consists solely of 10,000 common shares, of which
1,000 shares are issued and outstanding. No shares are held in
the treasury. All of the Company's outstanding shares have
been duly authorized, validly issued and are fully paid,
nonassessable and free of preemptive rights. The issuance and
sale of all of the Company's shares by the Company have been in
full compliance with all applicable federal and state
securities laws. Except as set forth on the Disclosure
Schedule, there are no subscriptions, options, warrants, calls,
rights, contracts, commitments, understandings, restrictions or
arrangements to which the Company or any of the Coxes is a
party relating to the issuance, sale, purchase or transfer of
any shares of the capital stock or other securities of the
Company, including any rights of conversion or exchange under
any outstanding securities or other agreements or instruments.
There are no voting trusts, and there are no other agreements
or understandings to which the Company or any of the Coxes is a
party, with respect to any of the capital stock of the Company.
The Company does not have any obligation (contingent or other)
to purchase, redeem, or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
4.4 Ownership of Shares. Phyllis Cox is the sole
record and beneficial owner of all of the outstanding shares of
Company stock.
4.5 Authority. The Company and each of the Coxes have
full power and authority to enter into this Agreement. Each of
the Coxes is of sound mind and mentally competent and is of the
legal age of majority. All shareholder and director actions
and authorizations on behalf of the Coxes and the Company
required for the approval of this Agreement and the
consummation of the transactions contemplated hereby have been
taken. This Agreement has been duly executed and delivered by
the Company and each of the Coxes. This Agreement is a valid
and binding obligation of the Company and each of the Coxes,
enforceable in accordance with its terms, except as may be
affected by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights
generally or by rules of law governing specific performance,
injunctive relief, or equitable principles (regardless of
whether such principles are considered in a proceeding at law
or in equity). Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will (i) violate, or conflict with, or require any
consent under, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required
by, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties of the Company
or any of the Patent Rights, under any of the terms, conditions
or provisions of the Articles of Incorporation or Bylaws of the
Company or of any note, bond, mortgage, indenture, deed of
trust, license, agreement or other instrument or obligation to
which the Company or any of the Coxes is a party, or by which
the Company or any of the Coxes or any of the Assets or the
Patent Rights may be bound or affected, or (ii) subject to
obtaining the consents, approvals and actions, and making the
filings and giving the notices disclosed in the Disclosure
Schedule, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any of the
Patent Rights. Except as disclosed in the Disclosure Schedule,
no consent or approval by, notice to or registration with any
governmental or administrative authority or board or third
party is required in connection with the execution and delivery
by the Company or any of the Coxes of this Agreement or the
performance by the Company and the Coxes of any of the
transactions contemplated hereby.
4.6 Financial Statements. The Company has previously
delivered to Ballard the following financial statements of the
Company prepared by Stuart J. Greenburg, certified public
accountants which are based upon a compilation:
(a) Balance Sheet, dated December 31, 1994;
(b) Income Statement for the Twelve Months Ended
December 31, 1994;
(c) Comparative Income Statement for the Twelve
Months Ended December 31, 1994 and 1993; and
(d) Comparative History Balance Sheet, as of
December 31, 1994 and 1993.
(All of the financial statements referred to above in this
Section are hereinafter collectively referred to as the
"Company Financial Statements" and copies thereof are attached
to the Disclosure Schedule.)
The Company Financial Statements are complete and correct
in all material respects and have been prepared from and are
substantially in conformity with the books and records of the
Company in accordance with generally accepted accounting
principles consistently applied and maintained throughout the
periods indicated and present fairly the financial condition
and results of operations, and cash flows of the Company as of
the dates and for the periods indicated, in each case prepared
under the accrual method of accounting, and in each case
accompanied by a certificate of the President and Chief
Financial Officer of the Company certifying to the foregoing.
However, the Company Financial Statements are prior to and do
not include year-end adjustments. Income statements included
in the Company Financial Statements do not contain any items of
special or nonrecurring income or any income not earned in the
ordinary course of business except as expressly specified
therein.
4.7 Liquid Assets.
(a) The Disclosure Schedule lists all cash and
cash equivalent assets (the "Liquid Assets") of the Company,
including without limitation the following:
(i) All bank accounts, including the
balances thereof as of April 30, 1995, institution names and
addresses, and account numbers;
(ii) All brokerage accounts, including the
asset balances thereof as of April 30, 1995, institution names
and address, and account numbers; and
(iii) All other investments and cash
equivalents.
(b) In addition, the Disclosure Schedule lists
all safe deposit boxes of the Company (and the contents
thereof), with institution names and addresses.
4.8 Receivables.
(a) The Disclosure Schedule lists all receivables
of the Company (the "Receivables") as of April 30, 1995,
including without limitation the following:
(i) all trade accounts receivable;
(ii) all advances and loans receivable; and
(iii) all claims of every description owned
and receivable by the Company as of April 30, 1995, including
without limitation claims for refunds, rebates, and credits.
(b) All of the Receivables have arisen from and
represent arms length, bona-fide transactions made in the
ordinary course of business. The Receivables are good and
collectible to the extent of the full amount thereof, except as
set forth in the Disclosure Schedule.
4.9. Plant and Facilities and Manufacturing.
(a) Hard Assets. The Disclosure Schedule lists
all of the equipment, machinery, leasehold improvements,
furniture, tooling, molds, vehicles, supplies, and fixed assets
(the "Hard Assets") of the Company (except the excluded Assets
described in Section 2.2 above), and the addresses of the
location of the Hard Assets as of the date hereof. The list of
Hard Assets includes all tooling and molds necessary for or
used by the Company in the manufacture of its products.
(b) Inventory. The Disclosure Schedules lists
all of the Company's inventory as of April 30, 1995 (the
"Inventory"), including raw materials, work in process, and
finished goods. All of the Inventory is in good, usable
condition, except as otherwise disclosed in the Disclosure
Schedule.
(c) Suppliers. The Disclosure Schedule lists, by
product, the twenty largest suppliers currently used by the
Company for all components and parts of the Company's products,
on the basis of cost of goods and services purchased in the
fiscal year ended December 31, 1994.
4.10 Title to Assets and Properties.
(a) Except as set forth in the Disclosure
Schedule, the Company owns all of its Assets and such Assets
are the only assets which are reasonably necessary to carry on
its business and operations as presently conducted. Except as
set forth in the Disclosure Schedule, all of the Assets are
located in the Company's offices at 2186 Eastman Avenue, Suite
110, Ventura, California.
(b) Except as set forth in the Disclosure
Schedule, each lease or agreement under which the Company is a
lessee of any property, real or personal, owned by a third
party is a valid and continuing agreement without any default
of the Company thereunder or, to the best knowledge of Coxes,
of the other party thereto, and this Agreement and the
consummation of the transactions contemplated hereby will not
cause any default under any such lease or agreement.
(c) Except as set forth in the Disclosure
Schedule Section 4.10, the Company has good, marketable title
to all property and assets which it owns, free and clear of all
mortgages, liens, pledges, charges, security interests, claims,
encumbrances or restrictions of any kind whatsoever (whether
accrued, absolute, contingent, or otherwise), except Permitted
Liens.
(d) The Company has not received any notice of
violation of any regulation, ordinance, law, order or other
requirement relating to the property, real or personal, or
business of the Company. The Company and the Coxes are unaware
of any changes in any such regulation, ordinance, law, order or
other requirement affecting any such property or any
condemnation proceeding, pending or threatened, which might
prohibit the Company from continuing its present and continued
use of such property or from using such property for the
purpose for which it was acquired, or which might curtail or
interfere with the present or proposed use of such property.
(e) The buildings, improvements, furniture,
fixtures, leaseholds, equipment and personal property of the
Company are in good operating condition and repair, reasonable
wear and tear excepted.
4.11 Liabilities.
(a) On or about May 2, 1995, the Company
delivered to Ballard a verified and dated list (the "Verified
List") of Claimants of whom the Company had notice three days
before the Company delivered the Verified List to Ballard. The
Verified List is an accurate and complete list of all of the
Claimants (total liabilities owed, $686,690). It includes
accurate balances owed to and addresses for all of the
Claimants. Except as otherwise noted in the Disclosure
Schedule, the Verified List is accurate and complete also as of
the date of this Agreement.
(b) None of the Company's employees is now, or
will by the passage of time become, entitled to receive any
vacation time, vacation pay, or severance pay attributable to
services rendered prior to the Balance Sheet date referred to
in subparagraph (b) above except as disclosed on the face of
said Balance Sheet or in the Disclosure Schedule.
4.12 Intangible Assets.
(a) The Disclosure Schedule contains a list and
complete description of all PMAs and 510(k)s, and all material
permits, franchises, approvals, authorizations, consents,
licenses, accreditations and registrations ("Licenses"), if
any, issued or granted to, or held by, the Company (other than
the excluded Assets described in Section 2.2 above) or any
affiliate of the Company, and indicating the person or entity
to which any such License was issued or by which it is held.
All such Licenses are valid and in full force and effect, no
proceedings or actions with respect to the suspension,
cancellation or any other aspect of any of them is pending or,
to the best knowledge of Coxes, threatened, and no basis exists
therefor and the transactions contemplated hereby will not
affect such Licenses.
(b) The Disclosure Schedule also (i) contains a
list and brief description of all domestic and foreign patents,
patent and know-how licenses, trade names, trademark and
service mark registrations, common law trademarks, copyright
registrations, copyrights, and applications for any of the
foregoing ("Intellectual Properties"), owned or used in the
conduct of the business of the Company, other than the Patent
Rights, and (ii) specifies the jurisdiction in or by which such
Intellectual Properties have been registered, filed or issued.
All such Intellectual Properties (including the Patent Rights)
are valid and in full force and effect.
(c) The Company has all Licenses and owns, or
possesses adequate rights to use, all Intellectual Properties
and all inventions, technology, processes, products, designs,
computer programs, know-how, trade secrets and formulae
necessary to conduct its Business as presently conducted and
there are no actual or, to the best knowledge of the Coxes,
threatened claims, assertions or litigation (nor to the best
knowledge of Coxes is there any basis therefor) relating to the
Company's ability to use the foregoing. The Company is not
infringing upon or otherwise violating the rights of any third
party with respect to any of the Intellectual Properties
(including the Patent Rights) or any of its Products. The
Company and the Coxes have not received any claim or notice
alleging any such infringement or violation. No proceedings
have been instituted against the Company, nor, to the best
knowledge of the Coxes, are any proceedings threatened alleging
any such infringement or violation. The Company and the Coxes
do not know of any basis for any such proceeding or claim.
There is no infringement or other adverse judgment or order
against the Company with respect to any of the foregoing.
(d) Neither the Company nor the Coxes have
received any claim that any employee affiliated with the
Company has, in respect of his or her activities to date,
violated any of the terms or conditions of an employment
contract with any third party, or disclosed or utilized any
trade secrets or proprietary information or documentation of
any third party, or interfered in the employment relationship
between any third party and any of its employees.
4.13 Tax Matters. "Tax" shall mean any federal, state,
local, foreign or other tax (whether income, sales, use,
franchise, excise, real or personal property or other kind of
tax), assessment, levy, impost, withholding or other
governmental charge and shall include all interest and
penalties thereon. The Company has timely filed all Tax
returns, reports and forms concerning Taxes that are required
to be filed. The Company has made timely payment of all such
Taxes when due and payable, including all interest, penalties,
deficiencies and assessments, if any, heretofore levied or
assessed, and where payment was not required to be made before
the Closing Date, the Company has set up an adequate reserve or
accrual for the payment of all Taxes required to be paid in
respect of all periods on or prior to the Closing Date. There
are no agreements for extension of the time of assessment or
payment of any Taxes of the Company. No waiver of any statute
of limitations has been executed by or on behalf of the
Company. There are no examinations by the Internal Revenue
Service ("IRS") of or relating to the Company presently in
process, or, to Coxes' best knowledge, threatened against the
Company. Neither the IRS nor any other taxing authority is now
asserting or, to the best knowledge of Coxes, threatening to
assert, any deficiency or assessment for additional Taxes,
including any interest, penalties or fines, against the
Company. No federal income tax returns of the Company have
been audited by the IRS. Except as set forth in the Disclosure
Schedule, state, local and foreign income tax returns of the
Company have never been audited by the appropriate tax
authorities for the jurisdictions indicated on the Disclosure
Schedule. The Company has not incurred any liability for Taxes
other than in the ordinary course of business and the Company
has not incurred any liability for Taxes which, in the
aggregate, would result in a material decrease in the net worth
of the Company.
4.14 Conflicts of Interest. No present or former
officer or director (other than the interest of the Inventors
in the Patent Rights), and no shareholder, subsidiary,
affiliate or related entity thereof, has or claims to have (a)
any interest in the Patent Rights or Assets, including without
limitation, the Liquid Assets, the Receivables, the Hard
Assets, the Inventions, the Intangibles, trade secrets, know
how, or technology used in or pertaining to the business of the
Company, or (b) any contract, commitment, arrangement or
understanding regarding any of the foregoing. No present
officer or director of the Company, and no shareholder,
subsidiary, affiliate or related entity thereof, has any
ownership or stock interest in any other enterprise, firm,
corporation, trust or any other entity which is engaged in any
line or lines of business which are the same as, or similar to,
or competitive with, the line or lines of business of the
Company. For purposes of this representation, ownership of not
more than five percent of the voting stock of any publicly held
company whose stock is listed on any recognized securities
exchange or traded over the counter shall be disregarded.
4.15 Human Resources.
(a) The Company has never been subject to a labor
contract or collective bargaining agreement. None of the
employees of the Company are members of a labor union.
(b) The Disclosure Schedule contains a list of
(i) all written employment agreements, commission plans, bonus
plans and all material unwritten employment agreements with any
employee or agent of the Company, and the total compensation
(separately stating salary and bonus or other compensation)
payable to each of them, including the fringe benefits (other
than those made available to employees generally) provided to
each of them, (ii) all officers and directors of the Company
and the total compensation (separately stating salary and
bonus) paid to each of them in 1994 and payable to each of them
in 1995, including the fringe benefits (other than those made
available to employees generally) provided to each of them,
(iv) a list of each present and former employee of the Company
paid in excess of $30,000 during the year ended December 31,
1994, and any employee of the Company paid in excess of
$30,000, on an annualized basis, after December 31, 1994, and
the job description or title and the total compensation of each
such employee, and (v) all employee handbooks, brochures or
booklets setting forth the employment policies or practices of
the Company. The Company is not in default with respect to its
payment or benefit obligations to its employees.
(b) There are no employment or other compensation
agreements with any director, officer or employee of the
Company that entitles any of them to terminate his or her
relationship with the Company upon the acquisition by any
person of control of the Company.
(c) A listing of departments of the Company,
including employee job classifications, numbers of employees
and compensation ranges is included in the Disclosure Schedule.
4.16 Contracts.
(a) Except as set forth and briefly described in
the Disclosure Schedule, the Company is not a party to, or
bound by, any material contract, agreement, understanding,
commitment or engagement (written or oral). The Disclosure
Schedule lists and describes any and all contracts, agreements,
commitments and engagements material to the Company (the
"Contracts"), including without limitation (i) supply and
service contracts to which the Company is a party as vendor or
vendee, (ii) contracts for the purchase or lease of capital
equipment, (iii) consulting contracts and agreements, (iv)
union contracts, (v) employee health and welfare, pension,
bonus, life, hospitalization or other insurance, medical,
deferred or incentive compensation, profit sharing, loan and
other employee benefit plans or arrangements, (vi) contracts or
agreements regarding credit or borrowed money, (vii)
guaranties, (viii) letters of credit, (ix) surety and
indemnification agreements, (x) confidentiality agreements,
(xi) covenants not to compete, (xii) leases of real property,
as lessor or lessee, (xiii) leases of personal property, as
lessor or lessee, (xiv) contracts and agreements regarding
Licenses and Intellectual Properties, (xv) agreements or
commitments regarding debts and equity securities of the
Company and any interest therein, (xvi) contracts and
agreements regarding the distribution or payment of profits or
dividends, (xvii) contracts and agreements regarding the
allocation or sharing of Taxes or otherwise with respect to
Taxes, (xviii) agreements regarding financial, management or
advisory services to be rendered by or for the Company, and
(xix) contracts or agreements not entered into in the ordinary
course of business.
(b) All such Contracts are valid and binding and
in full force and effect as of the date hereof, and no breach
or default (or event or condition, which after notice or lapse
of time, or both, would constitute a breach or default) by the
Company or, to the best of the Coxes' knowledge, by any other
party thereto exists with respect thereto, and this Agreement
and the transactions contemplated hereby will not cause any
breach or default thereof.
4.17 Legal Proceedings. Except as disclosed in the
Disclosure Schedule:
(a) there is no action, dispute, claim (including
any counterclaim or cross claim), litigation, arbitration,
grievance, investigation, hearing or other proceeding at law or
in equity pending or, to the knowledge of the Company and the
Coxes, threatened against, relating to, or affecting the
Company with respect to the Business or any of the Patent
Rights or Assets which (i) could possibly result in the
issuance of an order restraining, enjoining or otherwise
prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or otherwise result
in a material diminution of the benefits contemplated by this
Agreement to Ballard, or (ii) if determined adversely to the
Company, could possibly result in (x) any injunction or other
equitable relief that would interfere in any material respect
with the Business or (y) losses by the Company, individually or
in the aggregate with losses in respect of other such actions
or proceedings, exceeding $10,000;
(b) there are no facts or circumstances known to
the Company or the Coxes that could reasonably be expected to
give rise to any action or proceeding that would be required to
be disclosed pursuant to paragraph (a) above; and
(c) there are no judicial, governmental or
administrative judgments, decrees, orders, writs or injunctions
outstanding against the Inventors with respect to the Patent
Rights or against the Company.
4.18 Compliance with Laws, Etc. The Company is not in
violation of, and to the best knowledge of the Company and the
Coxes, the Company is not under investigation with respect to,
and the Company has not been charged with or given any notice
of any violation of, any applicable law, statute, order, rule,
regulation, policy, guideline or judgment of any federal,
state, local or foreign court or governmental or administrative
body or agency relating to the Company, its Business,
operations, agreements or policies.
4.19 Risk Management. The Disclosure Schedule sets
forth a correct and complete list and brief description
(including policy number, nature of coverage, limits,
deductibles, premiums, carriers and effective and termination
dates) of all policies of insurance in effect with respect to
the Company. The Disclosure Schedule also sets forth a list of
all claims for any insured loss in excess of $5,000 per
occurrence during the three-year period prior to the Closing
Date relating to the Company, including but not limited to
workers' compensation, automobile and general and product
liability claims. All such policies are in full force and
effect. The Company has not been denied any insurance or
indemnity bond and no insurance carrier has canceled or reduced
any insurance coverage of the Company. The Company has not
received any notice from any insurer or agent of any intent to
cancel or reduce any insurance coverage or that any substantial
improvement or other expenditure with respect to any insured
property is necessary in order to continue such insurance.
4.20 Fees or Commissions. The Company (including its
officers, directors and employees) has not employed any broker,
agent or finder or incurred any liability for any brokerage
fees, agent's commissions or finder's fees or other similar
obligations in connection with the transactions contemplated
hereby.
4.21 Powers of Attorney. Except as disclosed in the
Disclosure Schedule, the Company has not granted any powers of
attorney to any entity or person.
4.22 Products.
(a) The Disclosure Schedule lists the Products
currently being sold or developed for sale by the Company.
(b) Except as set forth in the Disclosure
Schedule, the Company has not received any material complaint
or injury report regarding its Products.
4.23 Marketing and Sales. The Disclosure Schedule
lists all of the distributors and independent representatives
(and their addresses and telephone numbers) for the Company's
Products.
4.24. Disclosure. No representation or warranty made by
the Company or the Coxes in this Agreement and neither the
Disclosure Schedule nor any schedule, exhibit or certificate
furnished or to be furnished by the Company or the Coxes
pursuant hereto and no other document furnished to Ballard by
Coxes as listed in the Disclosure Schedule, contains or will
contain any untrue statement of a material fact or omits or
will omit any material fact necessary in order to make the
statements contained therein not misleading. Ballard
acknowledges that it has conducted its own due diligence
investigation directly and through its representatives and in
the course of such investigation has reviewed the status of the
Company in detail.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BALLARD
Ballard hereby represents and warrants to the Company and
the Coxes that:
5.1 Organization. Ballard is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Utah, with all requisite power and authority to
own, lease and operate its properties and to carry on its
business as it is now being conducted and is duly licensed,
authorized and qualified to do business and in good standing in
Utah.
5.2 Authority. Ballard has full power and authority to
enter into this Agreement and the Escrow Agreement. The
execution, delivery and performance of this Agreement and the
Escrow Agreement have been duly and effectively authorized by
the Board of Directors of Ballard, and this Agreement and the
Escrow Agreement have been duly executed and delivered by
Ballard. No other corporate proceedings on the part of Ballard
are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement and the
Escrow Agreement are valid and binding obligations of Ballard
enforceable against Ballard in accordance with its terms,
except as may be affected by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by rules of law
governing specific performance, injunctive relief or other
equitable principles (regardless of whether such principles are
considered in a proceeding at law or in equity). Neither the
execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (a) violate, or
conflict with, or require any consent under, or result in a
breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in the
creation of any lien, security interest, charge or encumbrance
upon any of the properties of Ballard, under any of the terms,
conditions or provisions of the Articles of Incorporation or
Bylaws of Ballard or of any note, bond, mortgage, indenture,
deed of trust, license, agreement or other instrument or
obligation to which Ballard is a party, or by which Ballard or
any of its properties may be bound or affected, or (b) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to Ballard or any of its properties. No
consent or approval by, notice to or registration with any
governmental or administrative authority or board is required
on the part of Ballard in connection with the execution and
delivery by Ballard of this Agreement or the performance by
Ballard of any of the transactions contemplated hereby.
5.3 Legal Proceedings. There are no actions, suits,
proceedings, arbitrations or governmental or regulatory
authority or agency investigations or audits pending or, to the
knowledge of Ballard, threatened against, relating to or
affecting Ballard or any of its assets or properties which
could possibly result in the issuance of an order restraining,
enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this
Agreement or the Escrow Agreement.
5.4 Fees or Commissions. Ballard (including its
officers, directors and employees) has not employed any broker,
agent or finder or incurred any liability for any brokerage
fees, agent's commissions or finder's fee or similar obligation
in connection with the transactions contemplated hereby.
ARTICLE VI.
MISCELLANEOUS COVENANTS
6.1 Publicity. No public announcement of this
Agreement or the transactions contemplated hereby will be made
without the prior consent of all parties hereto as to both
timing and content, except that Ballard without the parties'
consents may make such announcements and disclosures as it
believes advisable pursuant to securities and other laws.
6.2 Bulk Sales Law. The parties intend to avoid
application to this transaction of the California "Bulk Sale"
law, Division 6 of California Commercial Code, Section 6101, et
seq., Wests Annotated California Codes, by complying with
Section 6103(c)(9) of the California Commercial Code.
6.3 Covenant Not to Compete.
(a) For the period ending on the third
anniversary of the Closing Date or for whatever time within
that period found by a court of competent jurisdiction to be
reasonably necessary for the protection of Ballard, the Company
and each of the Coxes, other than pursuant to an Employment
Agreement with Ballard to be executed at the Closing hereof,
will not, themselves or together with other persons, directly
or indirectly, own, manage, operate, join, control, consult in
or participate in the ownership, management, operation or
control of or become an employee of any business that engages
in the business of selling any products which directly compete
with the following products:
Flexible endoscopic instruments and
accessories, including without
limitation biopsy forceps, endoscopy
cleaning brushes, polypectomy snares,
grasping forceps, retrieval baskets,
cytology brushes, injector needles,
ERCP cannulas, papillotomes, stents,
guide wires, occlusion balloons,
sclerotherapy needles, and
transbronchial needles.
This restriction will apply throughout the continental United
States and in all foreign countries or whatever geographical
scope within that area described above found by a court of
competent jurisdiction to be reasonably necessary for the
protection of Ballard or any of its assignees.
(b) The Company and each of the Coxes hereby
agree (i) that the restrictions set forth in the paragraph
immediately above are founded on valuable consideration and are
reasonable in duration and geographic extent in view of the
circumstances in which this Agreement is executed and are
necessary to protect the legitimate interests of Ballard, and
(ii) that the remedy at law for any breach of the foregoing
covenant will be inadequate and that Ballard will be entitled
to injunctive relief in the event of any such breach. Nothing
herein stated shall be construed as prohibiting Ballard from
pursuing any other remedies available to it for any such breach
or threatened breach or for any other breach of this Agreement,
including the recovery of damages from each of the Coxes.
(c) The consideration for the above-described
covenant not to compete is $500 to each of the Coxes and $500
to the Company, all of whom acknowledge and agree that such
consideration is fair and adequate payment for said covenant
and that they will be estopped from claiming at any time in the
future that such consideration is adequate.
6.4 Liabilities.
(a) Assumed Liabilities. In connection with the
sale, transfer, conveyance, assignment and delivery of the
Assets and the Patent Rights pursuant to this Agreement, on the
terms and subject to the conditions set forth in this
Agreement, at the Closing, Ballard will assume and agree to
pay, perform and discharge when due the following obligations
of the Company and the Coxes arising in connection with the
operation of the Business, as the same shall exist on the
Closing Date (the "Assumed Liabilities"), and no others:
(i) Verified List. All obligations of the
Company set forth in the Verified List in accordance with their
terms;
(ii) Real Property Lease Obligations. All
obligations of the Company under the real property leases
identified in the Disclosure Schedule (the "Real Property
Leases") arising and to be performed on or after the Closing
Date, and excluding any such obligations arising or to be
performed prior to the Closing Date;
(iii) Personal Property Lease Obligations.
All obligations of the Company under the personal property
leases listed in the Disclosure Schedule arising and to be
performed on or after the Closing Date, and excluding any such
obligations arising or to be performed prior to the Closing
Date;
(iv) Obligations under Contracts and
Licenses. All obligations of the Company under the Contracts
arising and to be performed on or after the Closing Date, and
excluding any such obligations arising or to be performed prior
to the Closing Date;
(v) Returned Goods. All obligations of the
Company for replacement of, or refund for, damaged, defective
or returned goods, to the extent such goods are subject to full
return privileges from the supplier thereof; and
(vi) Product Liabilities. All liabilities
arising out of claims of third parties for damage or injury
suffered as the result of defective products sold by the
Company prior to the Closing Date where the occurrence giving
rise to any such claim takes place on or after the Closing
Date, except that Ballard assumes such liabilities only to the
extent of the limits and coverage of Ballard's products
liability insurance policy, and provided further that Ballard
assumes no liability for claims arising out of the negligent or
intentional acts of the Company or its employees or agents.
(b) Retained Liabilities. Except for the Assumed
Liabilities, Ballard shall not assume by virtue of this
Agreement or the transactions contemplated hereby, and shall
have no liability for, any liabilities of the Company
(including, without limitation, those related to the Business)
of any kind, character or description whatsoever (the "Retained
Liabilities"). The Company shall discharge in a timely manner
or shall make adequate provision for all of the Retained
Liabilities, provided that the Company shall have the ability
to contest, in good faith, any such claim of liability asserted
in respect thereof by any person other than Ballard.
6.5 Post-Closing Assistance. For a period of ninety
(90) days following the date hereof, the Coxes agree to provide
reasonable assistance to Ballard, including without limitation
the following:
(a) Helping Ballard to understand and further the
Business and Assets acquired by Ballard from the Company;
(b) Assisting in the transition of ownership and
management from the Company to Ballard; and
(c) Training Ballard employees in all aspects of
the Company's Business;
Ballard shall promptly reimburse the Coxes for all out-of-
pocket expenses reasonably incurred by the Coxes in providing
assistance under this Section 6.5, provided such expenses are
approved in advance by Ballard.
6.6 Health Insurance Benefits/Accrued Vacation.
Company employees who are offered employment by Ballard will
also be offered benefits under Ballard's health insurance plan
in accordance with the plan terms. Accrued vacation benefits
of those who become Ballard employees will carry over to their
employment with Ballard.
ARTICLE VII
INDEMNIFICATION
7.1 Escrow. At the Closing Date, an escrow (the
"Escrow") shall be established with the Escrow Agent on the
terms set forth in the Escrow Agreement, and Ballard shall
deposit $400,000 in the Escrow. The funds deposited by Ballard
in the Escrow, together with interest thereon from the Closing
Date but less any amounts returned to Ballard or disbursed to
the Company or Dennis and Lanita Cox, are referred to herein as
the "Escrowed Funds". Even though only purchase moneys of
Dennis and Lanita Cox are being deposited with Escrow Agent,
the Escrowed Funds will provide a fund for indemnity payments
that the Company or any of the Coxes may become obligated to
make to the Ballard Indemnified Parties under the provisions of
this Agreement.
7.2 Indemnification Obligations.
(a) Subject to paragraph (c) of this Section and
the other sections of this Article VII, the Company and the
Coxes shall be jointly and severally liable to Ballard to
indemnify, defend and hold harmless Ballard and each of its
subsidiaries, officers, directors and stockholders (the
"Ballard Indemnified Parties") from and against and in respect
of any and all demands, claims, actions, causes of action,
assessments, fines, losses, damages, liabilities, interest,
penalties, costs, and expenses (including, without limitation,
reasonable legal fees and disbursements incurred in connection
therewith) ("Losses") resulting from, arising out of, relating
to, or incurred by reason of any breach of any representation,
warranty, covenant or agreement of any one or more of the
Company or the Coxes contained in this Agreement or any
agreement, certificate or document executed and delivered by
the Company or the Coxes pursuant hereto.
(b) Subject to paragraph (c) of this Section and
the other Sections of this Article VII, Ballard shall indemnify
each of the Company, the Coxes and their respective officers,
directors, stockholders, attorneys and agents (the "Company
Indemnified Parties") in respect of, and hold each of them
harmless from and against, any and all Losses suffered,
incurred or sustained by any of them or to which any of them
becomes subject, resulting from, arising out of or relating to
(i) any misrepresentation, breach of warranty or nonfulfillment
of or failure to perform any covenant or agreement on the part
of Ballard contained in this Agreement, (ii) any misrep-
resentation, breach of warranty or nonfulfillment of or failure
to perform any covenant or agreement on the part of Ballard
contained in the Escrow Agreement or (iii) an Assumed
Liability.
(c) No amounts of indemnity shall be payable in
the case of a claim by a Ballard Indemnified Party under
Section 7.2(a) or a Company Indemnified Party under
Section 7.2(b)(i), as the case may be, unless, until and then
only to the extent that the Ballard Indemnified Parties or the
Company Indemnified Parties, as the case may be, have suffered,
incurred, sustained or become subject to Losses referred to in
such Sections in excess of $10,000 in the aggregate, provided
that this paragraph (c) shall not apply to a misrepresentation
or breach of warranty by the Company and the Coxes contained in
Section 4.5 or 4.10 or by Ballard contained in Section 5.2 or
5.4 or to the breach of a covenant contained in Sections
2.7, 6.1, 6.3, or 9.2.
7.3 Method of Asserting Claims. All claims for
indemnification by any Indemnified Party under Section 7.2 will
be asserted and resolved as follows:
(a) In the event any claim or demand in respect
of which an Indemnified Party might seek indemnity under
Section 7.2 is asserted against or sought to be collected from
such Indemnified Party by a person other than the Company, the
Coxes, Ballard or any affiliate of the Company, the Coxes or
Ballard (a "Third Party Claim"), the Indemnified Party shall
deliver a Claim Notice with reasonable promptness (and in no
event later than 10 days after service of any citation, summons
or similar document) to the Indemnifying Party. If the Indem-
nified Party fails to provide the Claim Notice with reasonable
promptness after the Indemnified Party receives notice of such
Third Party Claim, the Indemnifying Party will not be obligated
to indemnify the Indemnified Party with respect to such Third
Party Claim to the extent that the Indemnifying Party's ability
to defend has been irreparably prejudiced by such failure of
the Indemnified Party. The Indemnifying Party will notify the
Indemnified Party as soon as practicable within the Dispute
Period whether the Indemnifying Party disputes its liability to
the Indemnified Party under Section 7.2 and whether the
Indemnifying Party desires, at its sole cost and expense, to
defend the Indemnified Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the
Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this Section
7.3(a), then the Indemnifying Party will have the right to
defend, with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of the Indemnifying Party,
such Third Party Claim by all appropriate proceedings, which
proceedings will be vigorously and diligently prosecuted by the
Indemnifying Party to a final conclusion or will be settled at
the discretion of the Indemnifying Party (but only with the
consent of the Indemnified Party in the case of any settlement
that provides for any relief other than the payment of monetary
damages or that provides for the payment of monetary damages as
to which the Indemnified Party will not be indemnified in full
by reason of Section 7.2). The Indemnifying Party will have
full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may, at the sole cost and expense of the
Indemnified Party, at any time prior to the Indemnifying
Party's delivery of the notice referred to in the first
sentence of this Section 7.3(a)(i), file any motion, answer or
other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to
protect its interests; and provided further, that if requested
by the Indemnifying Party, the Indemnified Party will, at the
sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to
contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim
controlled by the Indemnifying Party pursuant to this Section
7.3(a)(i), and except as provided in the preceding sentence,
the Indemnified Party will bear its own costs and expenses with
respect to such participation. Notwithstanding the foregoing,
the Indemnified Party may take over the control of the defense
or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under Section 7.2
with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to
notify the Indemnified Party within the Dispute Period that the
Indemnifying Party desires to defend the Third Party Claim
pursuant to this Section 7.3(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and
diligently or settle the Third Party Claim, or if the
Indemnifying Party fails to give any notice whatsoever within
the Dispute Period, then the Indemnified Party will have the
right to defend, at the sole cost and expense of the
Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings will be prosecuted by the
Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party
(with the consent of the Indemnifying Party, which consent will
not be unreasonably withheld). The Indemnified Party will have
full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party
will, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified Party and its
counsel in contesting any Third Party Claim which the
Indemnified Party is contesting. NOTWITHSTANDING the foregoing
provisions of this Section 7.3(a)(ii), if the Indemnifying
Party has notified the Indemnified Party within the Dispute
Period that the Indemnifying Party disputes its liability
hereunder to the Indemnified Party with respect to such Third
Party Claim and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party will not be required
to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section 7.3(a)(ii) or of the
Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party will promptly
reimburse the Indemnifying Party in full for all reasonable
costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this Section
7.3(a)(ii), and the Indemnifying Party will bear its own costs
and expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the
Indemnified Party that it does not dispute its liability to the
Indemnified Party with respect to the Third Party Claim under
Section 7.2 or fails to notify the Indemnified Party within the
Dispute Period whether the Indemnifying Party disputes its
liability to the Indemnified Party with respect to such Third
Party Claim, the Loss in the amount specified in the Claim
Notice (or such lesser amount as is determined through
adjudication or settlement of the Third Party Claim) will be
conclusively deemed a liability of the Indemnifying Party under
Section 7.2 and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party on demand, which, in the
case of the Company or the Coxes shall be effected and
discharged first by Ballard's demand to Escrow (i.e., to the
Escrow Agent, pursuant to the Escrow Agreement). If the
Indemnifying Party has timely disputed its liability with
respect to such claim, the Indemnifying Party and the
Indemnified Party will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through
negotiations within the Resolution Period, then Ballard may
make demand for payment from the Escrow, pursuant to the terms
of the Escrow Agreement, and if Ballard believes that the
"Escrowed Funds" (defined in the Escrow Agreement) will not be
sufficient to reimburse its Losses, Ballard may also pursue
other remedies which it deems to be appropriate.
(b) In the event any Indemnified Party should
have a claim under Section 7.2 against any Indemnifying Party
that does not involve a Third Party Claim, the Indemnified
Party shall deliver an Indemnity Notice with reasonable
promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that an
Indemnifying Party demonstrates that it has been irreparably
prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim described
in such Indemnity Notice or fails to notify the Indemnified
Party within the Dispute Period whether the Indemnifying Party
disputes the claim described in such Indemnity Notice, the Loss
in the amount specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under
Section 7.2 and the Indemnifying Party shall pay the amount of
such Loss to the Indemnified Party on demand, which, in the
case of the Company or the Coxes shall be effected and
discharged first by Ballard's demand to Escrow. If the
Indemnifying Party gives notice to the Indemnified Party within
the Dispute Period to the effect that the Indemnifying Party
disputes the claim described in the Indemnity Notice, the
Indemnifying Party and the Indemnified Party will proceed in
good faith to negotiate a resolution of such dispute, and if
not resolved through negotiations within the Resolution Period,
then Ballard may make demand for payment from the Escrow,
pursuant to the terms of the Escrow Agreement, and if Ballard
believes that the "Escrowed Funds" (defined in the Escrow
Agreement) will not be sufficient to reimburse its Losses,
Ballard may also pursue other remedies which it deems to be
appropriate.
(c) In the event of any Loss resulting from a
misrepresentation, breach of warranty or nonfulfillment or
failure to be performed of any covenant or agreement contained
in this Agreement as to which an Indemnified Party would be
entitled to claim indemnity under Section 7.2 but for the
provisions of Section 7.2(c), such Indemnified Party may
nevertheless deliver a written notice to the Indemnifying Party
containing the information that would be required in a Claim
Notice or an Indemnity Notice, as applicable, with respect to
such Loss. If the Indemnifying Party notifies the Indemnified
Party that it does not dispute the claim described therein or
fails to notify the Indemnified Party within the Dispute Period
whether the Indemnifying Party disputes the claim described in
such Claim Notice or Indemnity Notice, as the case may be, the
Loss specified in the notice will be conclusively deemed to
have been incurred by the Indemnified Party for purposes of
making the determination set forth in Section 7.2(c). If the
Indemnifying Party has timely disputed the claim described in
such Claim Notice or Indemnity Notice, as the case may be,
disposition of such claim shall be suspended until the total of
such claim and all other claims made by such Indemnified Party
and subject to Section 7.2(c) equals or exceeds the amount set
forth in Section 7.2(c). At such time, the Indemnifying Party
and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute(s), and if not resolved
through negotiations within the Resolution Period then Ballard
may make demand on the Escrow, pursuant to the terms of the
Escrow Agreement, and if Ballard believes that the "Escrowed
Funds" (defined in the Escrow Agreement) will not be sufficient
to reimburse its Losses, Ballard may also pursue other remedies
which it deems to be appropriate.
7.4 Tolling Provision. The parties agree that the
period of any statute of limitations applicable to a claim for
indemnification by Ballard, but for which an action has not
been commenced solely because the Threshold Date (as defined in
the Escrow Agreement) has not yet occurred, which might
otherwise run or expire during the term of the Escrow Agreement
(i.e., prior to the "Termination Date", as defined in the
Escrow Agreement) shall be tolled until such "Termination
Date".
7.5 Set-Off. Any claim for indemnification by either
the Ballard Indemnified Parties or the Company Indemnified
Parties under the foregoing provisions of this Article VII may
be set-off and netted against claims for indemnification
asserted by the other party in any litigation filed by either
party to recover damages for breach of this Agreement. The
parties intend, by this provision, to foster efficient
litigation of claims arising under this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 Nature and Survival of Representations. All
representations and warranties of the Company, the Coxes, or
Ballard made in this Agreement (including the Disclosure
Schedule) shall survive the Closing Date and any investigation
at any time made by or on behalf of any party hereto.
8.2 No Merger. The covenants, terms, and provisions of
this Agreement shall survive the Closing.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment or Supplement. This Agreement may be
amended or supplemented at any time by mutual agreement of
Ballard, the Company, and the Coxes. Any amendment or
supplement must be in writing.
9.2 Expenses. Each party hereto shall bear and pay
all costs and expenses incurred by it in connection with the
transactions contemplated in this Agreement, including fees and
expenses of its own brokers, financial consultants, accountants
and counsel.
9.3 Entire Agreement. This Agreement, the Bill of
Sale, the Escrow Agreement, and the closing documents being
executed herewith contain the entire agreement among the
parties with respect to the transactions contemplated hereunder
and supersedes all prior arrangements or understandings with
respect thereto, written or oral, other than documents referred
to herein. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto
and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party,
other than the parties hereto and their respective successors,
any rights, remedies, obligations or liabilities.
9.4 Assignment. None of the parties hereto may assign
any of its rights or obligations under this Agreement to any
other person, except that Ballard can assign all its rights and
obligations hereunder to any of its subsidiaries without any
other party's consent, but such assignment by Ballard will not
relieve it of its obligations for the ultimate performance
thereof.
9.5 Notices. All notices and other communications
which are required or permitted hereunder shall be in writing
and sufficient if delivered personally or sent by a nationally
recognized overnight express carrier for next-day delivery
(charges prepaid) or by registered or certified mail, postage
prepaid, addressed as follows:
If to Ballard: Ballard Medical Products
12050 Lone Peak Parkway
Draper, Utah 84020
Attention: Dale H. Ballard,
President
If to Company: Cox Medical Enterprises, Inc.
2168 Eastman Avenue, Suite 110
Ventura, California 93003
If to the Coxes: James E. Cox
1951 Saint Andrews Court
Oxnard, California 93030
Phyllis Cox
1951 Saint Andrews Court
Oxnard, California 93030
Lanita G. Cox
25059 Wintergreen Court
Newhall, California 91321
Dennis Cox
25479 Sheffield Lane
Sangus, California 91350
9.6 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
9.7 Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart shall be
deemed to be an original instrument, but all such counterparts
together shall constitute but one agreement.
9.8 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Utah applicable to agreements made and entirely to be performed
within such jurisdiction except to the extent federal law may
be applicable. Any action under this Agreement may be filed
and maintained only in state or federal courts located within
Salt Lake County, State of Utah, and all parties hereby submit
to the jurisdiction of such courts.
9.9 Litigation Expenses. If any action, suit or
proceeding is brought by a party hereto with respect to a
matter or matters covered by this Agreement, all costs and
expenses of the prevailing party incident to such proceeding,
including reasonable attorney's fees, shall be paid by the
other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above
written.
BALLARD MEDICAL PRODUCTS
By: Dale H. Ballard, President
THE COMPANY
COX MEDICAL ENTERPRISES, INC.
By: Lanita G. Cox, President
COXES:
James E. Cox
Phyllis Cox
Lanita G. Cox
Dennis B. Cox
SCHEDULE 1
ALLOCATION OF PURCHASE PRICE AMONG ASSETS
(Attached to and forming part of Purchase Agreement)
<TABLE>
<CAPTION>
Asset Agreed Purchase Price
<S> <C>
Liquid Assets:
Cash balance $19,560
All deposits 3,800
Receivables 228,790
Inventory 243,590
Hard Assets:
Leasehold improvements 60,600
Molds and tooling 173,300
Production tools and equipment 33,200
Office equipment 9,100
Computer hardware and software 17,800
Exhibits/displays 16,700
Products 305,710
Contract Rights and Interests 150,000
Intangible Assets 142,300
Trade Secrets, Know How, Going Concern Value,
and Goodwill 329,050
TOTAL $1,733,500
</TABLE>
SCHEDULE 2
ALLOCATION OF PURCHASE PRICE AMONG PATENT RIGHTS
(Attached to and forming part of Purchase Agreement)
<TABLE>
<CAPTION>
Agreed
Patent or Purchase
Patent Application No. Inventor Price
<S> <C> <C>
5,097,728 (Biopsy Forceps) Dennis Cox and Lanita Cox $525,950
5,133,361 (Biopsy Brush) Dennis Cox and Lanita Cox 386,150
5,297,310 (Cleaning Brush) Dennis Cox and Lanita Cox 525,950
08/068,568
(Jaw for Biopsy Forceps) James E. Cox 300,000
08/358,899
(Biopsy Forceps Coagulation) Dennis Cox 525,950
Total $2,264,000
</TABLE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into in triplicate
effective the second day of May, 1995, by and among BALLARD
MEDICAL PRODUCTS, a Utah corporation ("Ballard"), COX MEDICAL
ENTERPRISES, INC., a California corporation (the "Company"),
FIRST SECURITY BANK OF UTAH, N.A. ("Escrow Agent"), LANITA G.
COX ("Lanita"), and DENNIS B. COX ("Dennis").
RECITALS:
A. Contemporaneously with the execution hereof,
Ballard, James E. Cox, Phyllis Cox, Dennis, and Lanita (the
"Coxes") have entered into a Purchase Agreement (the "Purchase
Agreement"), pursuant to which Ballard has acquired
substantially all of the Assets of the Company and certain
Patent Rights from James E. Cox, Lanita, and Dennis in exchange
for cash consideration identified in the Purchase Agreement
(the "Purchase Price");
B. The Purchase Agreement requires as a condition to
the sale of the business that Ballard, the Company, Dennis,
Lanita, and Escrow Agent enter into this Agreement and that
Ballard deliver a portion of the Purchase Price by depositing
the same with Escrow Agent in order to provide a fund for
indemnity payments that the Company or any of the Coxes become
obligated to make to Ballard or its subsidiaries, officers,
directors and stockholders (together, the "Indemnified
Parties") as and to the extent provided in Article VII of the
Purchase Agreement;
C. Even though only purchase moneys of Dennis and
Lanita are being deposited with Escrow Agent, the Escrowed
Funds hereunder will provide a fund for indemnity payments that
the Company or any of the Coxes may become obligated to pay to
the Indemnified Parties.
D. In the Purchase Agreement, the Company and the
Coxes have made numerous representations, warranties,
indemnities, and covenants to Ballard, and the Purchase
Agreement provides that the sum of $400,000 is to be deposited
with Escrow Agent in escrow; and
E. The parties hereto desire to deliver to Escrow
Agent $400,000 of the Purchase Price moneys of Dennis and
Lanita, to be held and disposed of by Escrow Agent according to
the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and agreements contained herein, the parties hereto
agree as follows:
1. Definitions. For all purposes of this Agreement,
the terms set forth below shall have the meanings indicated:
(a) "Ballard" shall mean Ballard Medical
Products, a Utah corporation.
(b) "Demand Notice" shall mean a written notice
of demand given by Ballard to Escrow Agent (with a copy to each
of Dennis and Lanita) pursuant to the last sentence of each of
the following respective clauses or subparagraphs, as the case
may be, of Section 7.3 of the Purchase Agreement: Section
7.3(a)(iii) or Section 7.3(b) or Section 7.3(c).
(c) "Company" shall mean COX MEDICAL ENTERPRISES,
INC., a California corporation.
(d) "Coxes" shall mean James E. Cox, Phyllis Cox,
Lanita, and Dennis.
(e) "Escrow Agent" shall mean FIRST SECURITY BANK
OF UTAH, N.A.
(f) "Escrowed Funds" shall mean the $400,000 of
Purchase Price moneys being delivered pursuant to Section 2
hereof to Escrow Agent (together with all interest earned
thereon after the date hereof, less any amounts disbursed to
Ballard or to the Company or to Dennis and Lanita in accordance
with the provisions hereof), to be held and disposed of by
Escrow Agent according to the terms and conditions provided
herein.
(g) "Final Determination" shall mean: (i) a
final order of a court not subject to further right of appeal,
disposing of the claim or demand made by Ballard in one or more
Demand Notice(s) and authorizing the distribution of the
Escrowed Funds in some manner; or (ii) a settlement agreement
signed by Dennis, Lanita, and Ballard by which the applicable
Demand Notice(s) is withdrawn, superseded, or otherwise
resolved by the parties.
(h) "Purchase Agreement" shall mean the Purchase
Agreement being executed contemporaneously herewith by Ballard,
the Company, and the Coxes.
(i) "Termination Date" shall mean the date
thirty-six (36) months after the date of this Agreement.
(j) "Threshold Date" shall have the meaning set
forth in Section 3(b) below.
(k) "Tolling Notice" shall mean a written notice
given by Ballard to Escrow Agent (with a copy to each of Dennis
and Lanita) stating, among other things:
(i) That a "Third Party Claim" (defined in
the Purchase Agreement) is still pending pursuant to the
provisions of Section 7.3(a) of the Purchase Agreement;
(ii) That Ballard properly provided to the
Coxes, as "Indemnifying Party", a "Claim Notice" (defined in
the Purchase Agreement), as required in said Section 7.3(a);
and
(iii) Ballard's good faith estimate of the
possible "Loss" (defined in the Purchase Agreement).
(l) "Unresolved Demand" shall mean a claim or
demand for which a Demand Notice or Tolling Notice has been
given (whether or not the Threshold Date has occurred) but with
respect to which there has been no Final Determination.
2. Appointment of the Escrow Agent; Deposit of Escrow
Amount; Funds to be Held in Trust.
(a) The Company, Dennis, Lanita, and Ballard
hereby constitute and appoint Escrow Agent as, and Escrow Agent
hereby agrees to assume and perform the duties of, the escrow
agent under and pursuant to this Agreement. Escrow Agent
acknowledges receipt of an executed copy of the Purchase
Agreement and of the amount of Four Hundred Thousand Dollars
($400,000) from Ballard as provided in Section 7.1 of the
Purchase Agreement.
(b) The Escrowed Funds shall be held by Escrow
Agent in a separate account maintained for the purpose, on the
terms and subject to the conditions of this Agreement. The
Escrowed Funds shall not be subject to lien or attachment by
any creditor of any party hereto and shall be used solely for
the purpose set forth in this Agreement. Amounts held as
Escrowed Funds shall not be available to, and shall not be used
by, the Escrow Agent to set off any obligations of either
Ballard or the Company owing to Escrow Agent in any capacity.
(c) During the term of this Agreement, Escrow
Agent shall invest the Escrowed Funds only in (i) direct
obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by the United States of
America; (ii) short-term certificates of deposit; or (iii)
money market funds which invest solely in (i) or (ii). The
Escrow Agent shall invest the Escrowed Funds in the foregoing
as directed in writing by Dennis and Lanita.
3. Disposition of Escrowed Funds.
(a) At any time prior to final disbursement of
remaining Escrowed Funds, Ballard may give a Demand Notice to
Escrow Agent. The Demand Notice shall set forth at least the
following:
(i) the dollar amount claimed by Ballard to
be owed to Ballard (i.e., the estimated amount of the "Loss",
as defined in the Purchase Agreement);
(ii) a description of the alleged breach of
covenant, warranty, or representation or entitlement to
indemnification under the Purchase Agreement; and
(iii) a certification by Ballard to the
effect that said demand on Escrow Agent is proper under the
provisions of Section 7.3 of the Purchase Agreement.
(b) No portion of the Escrowed Funds shall be
disbursed by Escrow Agent to Ballard under this Section 3 until
Escrow Agent has received Demand Notices from Ballard claiming
"Losses" (as defined in the Purchase Agreement) aggregating in
excess of $75,000, unless the $75,000 threshold aggregate
amount is never reached prior to the Termination Date. (The
date on which Escrow Agent receives a Demand Notice claiming a
"Loss" which causes the aggregate "Losses" claimed in all
Demand Notices received by Escrow Agent up to that point in
time to exceed this $75,000 threshold amount is referred to
herein as the "Threshold Date".
The parties intend, by this provision, to aggregate
Demand Notice claims for efficient "litigation" thereof. The
Threshold Date need occur, if at all, only one time during the
term of this Agreement (i.e., the $75,000 threshold amount need
be aggregated only one time.)
(c) If Escrow Agent receives, within thirty (30)
days following the Threshold Date, a copy of a complaint and
summons which have been filed in a federal or state court
located in Salt Lake County, Utah, together with proof that
said summons and complaint have been served on Ballard, which
complaint seeks a judicial determination of one or more of the
Demand Notice(s) filed with Escrow Agent by Ballard, then
Escrow Agent shall not deliver to Ballard any of the Escrowed
Funds on account of the Demand Notice(s) it has received which
are the subject of such action, until a Final Determination
occurs with respect to such Demand Notice(s).
If the Threshold Date does not occur at any time during
the term of this Agreement (i.e., the $75,000 threshold amount
of aggregate "Losses" is not reached), then in order to prevent
the disbursement of Escrowed Funds Dennis and Lanita must,
prior to the Termination Date hereunder, commence said lawsuit
to seek a judicial determination of one or more of the Demand
Notice(s) received by Escrow Agent and deliver the copy of the
complaint and summons (with proof that said summons and
complaint have been served on Ballard) to Escrow Agent. Upon
receipt of said summons, complaint, and proof of service,
Escrow Agent shall not disburse any of the Escrowed Funds on
account of the Demand Notice(s) covered in such action until a
Final Determination occurs with respect thereto.
In order to prevent the disbursement of Escrowed Funds
with respect to any Demand Notice given by Ballard after the
Threshold Date, Dennis and Lanita must, within thirty (30) days
following the date the Demand Notice is given under paragraph
(a) above, deliver to Escrow Agent a copy of either (i) a
complaint and summons which have been filed in a federal or
state court located in Salt lake County, Utah, together with
proof that said summons and complaint have been served on
Ballard, which complaint and summons seek a judicial
determination of the Demand Notice; or (ii) a motion by Dennis
and Lanita in a pending lawsuit (previously filed by Dennis and
Lanita with respect to other Demand Notices(s)), seeking leave
to amend their complaint in said pending action to request also
a judicial determination of the Demand Notice most recently
received by Escrow Agent, together with proof that said motion
to amend has been served on Ballard. Upon receipt of either
(i) or (ii) above, Escrow Agent shall not disburse any of the
Escrowed Funds on account of said most recently received Demand
Notice until a Final Determination occurs with respect thereto.
(d) When a Final Determination occurs, if the
Final Determination provides that a sum is owed to Ballard on
account of the Demand Notice(s), Escrow Agent shall, upon
receipt of a copy of the Final Determination (certified by
Ballard or Dennis or Lanita to be a true and complete copy of
the original or certified by the clerk of the applicable court)
and without further notice or consent being required,
immediately distribute and transfer to Ballard an amount of the
Escrowed Funds (as of the date of Escrow Agent's receipt of
said certified copy of the Final Determination) equal to the
total dollar amount of said sum owed, including pre-judgment
and post-judgment interest payable by law.
If the Final Determination provides that no sum is owed
to Ballard on account of the Demand Notice(s), no Escrowed
Funds shall be distributed to Ballard with respect to the
Demand Notice(s). For this purpose also, Escrow Agent may rely
upon a copy of the Final Determination as certified by Ballard
or Dennis or Lanita to be a true and complete copy of the
original or certified by the clerk of the applicable court.
(e) If Escrow Agent does not receive the
applicable documents required to prevent disbursement under
paragraph (c) above within the applicable period strictly as
required under paragraph (c), then Escrow Agent will promptly,
without any further notice or consent being required, disburse
and deliver to Ballard an amount of the Escrowed Funds equal to
the dollar amount of the "Losses" as set forth in the
applicable Demand Notice(s). As to Demand Notice(s) not
covered by a lawsuit commenced by Dennis and Lanita under
paragraph (c) above, Escrow Agent shall, without any further
notice or consent being required, disburse and deliver to
Ballard an amount of the Escrowed Funds equal to the dollar
amount of the "Loss" as set forth in said Demand Notice(s).
(f) Subject to the foregoing paragraphs of this
Section, Escrow Agent shall make annual disbursements from the
Escrowed Funds, as follows:
(i) Within ten (10) days after the date
which is twelve (12) months following the date of this
Agreement, Escrow Agent shall disburse, transfer, and deliver
to Dennis and Lanita (in the proportions and at the addresses
indicated in Exhibit A) a sum equal to one-third ( ) of the
Escrowed Funds then on hand; PROVIDED, HOWEVER, that such
disbursement shall be reduced by an amount necessary to ensure
that the balance of Escrowed Funds remaining after such
disbursement is not less than the product of (A) the total
dollar amount of all Unresolved Demands on such disbursement
date and (B) 1.5. If the balance of Escrowed Funds on hand
immediately before such disbursement is less than the product
of (A) and (B) above, then no disbursement shall be made under
this subparagraph (i).
(ii) Within ten (10) days after the date
which is twenty-four (24) months following the date of this
Agreement, Escrow Agent shall disburse, transfer, and deliver
to Dennis and Lanita (in the proportions and at the addresses
indicated in Exhibit A) a sum equal to one-half (1/2) of the
Escrowed Funds then on hand; PROVIDED, HOWEVER, that such
disbursement shall be reduced by an amount necessary to ensure
that the balance of Escrowed Funds remaining after such
disbursement is not less than the product of (A) the total
dollar amount of all Unresolved Demands on such disbursement
date and (B) 1.5. If the balance of Escrowed Funds on hand
immediately before such disbursement is less than the product
of (A) and (B) above, then no disbursement shall be made under
this subparagraph (ii).
(g) At the Termination Date, Escrow Agent shall
retain in escrow an amount of the Escrowed Funds equal to one
and one-half (1 1/2) times the total dollar amount of all
Unresolved Demands. The remaining Escrowed Funds will, without
further notice or consent being required, be promptly
disbursed, transferred, and delivered to Dennis and Lanita, in
the proportions and at the addresses indicated in Exhibit A
attached to and made a part of this Agreement.
(h) Ballard may give Escrow Agent a Tolling
Notice at any time prior to the Termination Date. The purpose
of Ballard's giving Escrow Agent a Tolling Notice shall be
because of an unresolved "Third Party Claim" (defined in the
Purchase Agreement). No portion of the Escrowed Funds shall be
disbursed by Escrow Agent to Ballard on account of a Tolling
Notice in and of itself. Escrowed Funds may be disbursed to
Ballard on account of a Tolling Notice only after a Demand
Notice has been given as required herein and only after the
parties have complied with the foregoing provisions of this
Section.
4. Fees and Expenses. Except as provided in Section
8(c) below, all fees and expenses of Escrow Agent shall be paid
by Ballard. The fees for the usual services of Escrow Agent
under the terms of this Agreement are set forth in the Schedule
attached hereto and marked as Exhibit B. In addition, Escrow
Agent shall be entitled to reimbursement for all out-of-pocket
expenses reasonably incurred hereunder (including, without
limitation, fees of counsel pursuant to Section 7 below).
Additional compensation shall be paid to Escrow Agent for
any additional or extraordinary service it may be requested by
all parties to render hereunder; and Escrow Agent shall be
reimbursed for any out-of-pocket expenses (including, without
limitation, fees of counsel) reasonably incurred in connection
with such additional or extraordinary services.
5. Notices. All notices and other communications
which are required or permitted hereunder shall be in writing
and sufficient if delivered personally or sent by overnight
express or by registered or certified mail, postage prepaid,
addressed as follows:
If to Ballard: Ballard Medical Products
12050 Lone Peak Parkway
Draper, Utah 84020
Attention: Dale H. Ballard,
President
If to Dennis and Lanita: At their respective addresses
shown in Exhibit A.
If to Escrow Agent: First Security Bank of Utah, N.A.
79 South Main Street
Salt Lake City, Utah 84111
Attention: Corporate Trust Dept.
Any party may change the address to which such
communications are to be directed to it by giving written
notice to the other parties in the manner provided in this
Section.
6. Modification. No change or modification of this
Agreement, nor of any right, title, interest, or liability
hereunder, shall be binding on Escrow Agent, without Escrow
Agent's written consent.
7. Disagreement. In the event of any disagreement
between Ballard and the Company and the Coxes resulting in
adverse claims and demands being made, Escrow Agent shall be
entitled at its option to refuse to comply with any such claim
or demand so long as such disagreement shall continue, and
Escrow Agent shall not be or become liable to Ballard or the
Company or the Coxes for its failure or refusal to comply with
such conflicting or adverse demands; and Escrow Agent shall be
entitled to continue so to refrain and refuse so to act until:
(a) The rights of the adverse claimants have
been finally adjudicated in a court assuming jurisdiction of
the parties and the Escrowed Funds involved herein or affected
hereby; or
(b) All differences shall have been adjusted by
agreement, and Escrow Agent shall have been notified thereof in
a writing signed by both Ballard and the Company (if still in
existence) and the Coxes.
Escrow Agent may consult with legal counsel in the event
of any dispute or question as to its duties hereunder and shall
not be held to any liability for acting in accordance with
advice so received.
8. Escrow Agent Liability. Ballard, the Company, and
Dennis and Lanita further agree that:
(a) Escrow Agent acts hereunder as a depository
only and is not responsible or liable in any manner whatever
for any act to be performed hereunder on the part of either
Ballard or the Company or the Coxes, or for any failure to
perform by any of them, or for the sufficiency, correctness,
genuineness or validity of any instrument deposited with Escrow
Agent hereunder, or with respect to the form of execution of
the same, or the identity, authority or rights of any person
executing or depositing the same;
(b) Except as herein otherwise expressly
provided, Escrow Agent shall be under no obligation whatsoever
to give any notice concerning any payment or any default
hereunder, or any other notice;
(c) Escrow Agent shall not be liable in acting
upon any instruction, notice (including a Demand Notice),
certification, request, waiver, consent, receipt or other paper
or document believed by Escrow Agent to be genuine and signed
by the proper party or parties;
(d) Escrow Agent is hereby expressly authorized
to comply with and obey any and all orders, judgments and
decrees of any court, made, filed, entered or issued, with
proper jurisdiction; and in case Escrow Agent shall obey, or
comply with any such order, judgment, or decree, Escrow Agent
shall not be liable to any of the parties hereto, or to anyone
else or otherwise by reason of any such compliance,
notwithstanding the fact that any such order, judgment or
decree may be subsequently reversed, modified, annulled, set
aside or vacated;
(e) Escrow Agent shall not be liable, except for
the negligence or willful misconduct of its agents or
employees, and, except with respect to claims based upon such
negligence or willful misconduct that are successfully asserted
against Escrow Agent, the other parties hereto shall jointly
and severally indemnify and hold harmless Escrow Agent from and
against any and all losses, liabilities, claims, actions,
damages, and expenses, including reasonable attorneys' fees,
arising out of and in connection with this Escrow Agreement.
9. Resignation and Removal of Escrow Agent.
(a) Escrow Agent may resign as such thirty (30)
calendar days following the giving of prior written notice
thereof to Dennis and Lanita and Ballard. In addition, Escrow
Agent may be removed and replaced on a date designated in a
written instrument signed by Dennis and Lanita and Ballard and
delivered to Escrow Agent. Notwithstanding the foregoing, no
such resignation or removal shall be effective until a
successor escrow agent has acknowledged its appointment as such
as provided in paragraph (b) below. In either event, upon the
effective date of such resignation or removal, Escrow Agent
shall deliver the property comprising the Escrowed Funds to
such successor escrow agent, together with such records
maintained by Escrow Agent in connection with the Escrowed
Funds as such successor may reasonably request.
(b) Upon written acknowledgment by a successor
escrow agent appointed in accordance with the foregoing
provisions of this Section 9 of its agreement to serve as
escrow agent hereunder and the receipt of the property then
comprising the Escrowed Funds, Escrow Agent shall be fully
released and relieved of all duties, responsibilities and
obligations under this Agreement, subject to paragraph (e) of
Section 8, and such successor escrow agent shall for all
purposes hereof be Escrow Agent.
10. Miscellaneous.
(a) Titles and Captions. All section titles or
captions to this Agreement are for convenience only and shall
not be deemed part of this Agreement and in no way define,
limit, augment, extend or describe the scope, content or intent
of any part of this Agreement.
(b) Litigation Expenses. If any action, suit or
proceeding is brought by a party with respect to a matter or
matters governed by this Agreement, all costs and expenses of
the prevailing party incident to such proceeding, including
reasonable attorney's fees, shall be paid by the nonprevailing
party.
(c) Authorization. Each individual executing
this Agreement does thereby represent and warrant to each other
person so signing that he or she has been duly authorized to
execute and deliver this Agreement in the capacity and for the
entity set forth where he or she signs.
(d) Governing Law: This Agreement shall be
governed by and construed in accordance with the laws of the
State of Utah applicable to agreements made and to be performed
entirely within such jurisdiction except to the extent federal
law may be applicable. Any action under this Agreement may be
filed and maintained only in state or federal courts located
within Salt Lake County, State of Utah, and all parties herein
hereby submit to the jurisdiction of such courts.
IN WITNESS WHEREOF, the parties have executed this
Agreement on the dates shown below, effective as of the date
first shown above.
BALLARD MEDICAL PRODUCTS
Date: May 2, 1995 By: Dale H. Ballard, President
THE COMPANY:
COX MEDICAL ENTERPRISES, INC.
Date: May 2, 1995 By: Lanita G. Cox, President
ESCROW AGENT:
FIRST SECURITY BANK OF UTAH, N.A.
Date: May 2, 1995 By: Nancy M. Dahl
Title: Assistant Vice President
Date: May 2, 1995 Lanita G. Cox
Date: May 2, 1995 Dennis B. Cox
Exhibit A
(Attached to and forming part of Escrow Agreement)
Proportionate Share
Name and Address of Escrowed Funds
Lanita G. Cox
25059 Wintergreen Court
Newhall, California 91321
Tax I.D. No. ###-##-#### 50%
Dennis B. Cox
25479 Sheffield Lane
Sangus, California 91350
Tax I.D. No. ###-##-#### 50%
Exhibit B
ESCROW AGENT SERVICES AND CHARGES
(Attached to and forming part of Escrow Agreement)
1. Initial Charge: $500.00
2. Annual Account Administration Charge one year: $500.00
3. Extraordinary Charges:
(a) Billable at $75.00 per officer hour for
services substantially expanding the duties
or responsibilities of the Escrow Agent and
not generally associated (in the experience
of this Bank as Escrow Agent, either as to
type, or frequency, or both) with the
routine administration of similar Escrow
Agreements; or
(b) Services rendered in connection with a
direction by a party entitled to make such
direction.
4. Out-of-Pocket Charges: (will be billed as they occur)
(a) Publication costs;
(b) Postage;
(c) Counsel fees;
(d) Printing and reproduction of documents,
notices and other instruments;
(e) Airfreight; telecopy;
(f) Such other out-of-pocket expenses as may
reasonably be incurred.
5. These charges may, at the discretion of the Escrow Agent,
be annually adjusted on or after the anniversary date of
execution of this Agreement to take into account any
increase in the consumer price index.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the second
quarter Form 10-Q and is qualified in its entirety by reference to such
Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 19,193,935
<SECURITIES> 19,138,633
<RECEIVABLES> 15,629,312
<ALLOWANCES> 800,000
<INVENTORY> 8,775,109
<CURRENT-ASSETS> 66,123,328
<PP&E> 26,507,643
<DEPRECIATION> 5,265,106
<TOTAL-ASSETS> 99,693,034
<CURRENT-LIABILITIES> 1,933,851
<BONDS> 0
<COMMON> 2,649,766
0
0
<OTHER-SE> 95,109,417
<TOTAL-LIABILITY-AND-EQUITY> 99,693,034
<SALES> 20,030,632
<TOTAL-REVENUES> 20,030,632
<CGS> 6,621,987
<TOTAL-COSTS> 6,621,987
<OTHER-EXPENSES> 6,514,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,852,516
<INCOME-TAX> 2,872,500
<INCOME-CONTINUING> 4,980,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,980,016
<EPS-PRIMARY> 0.181
<EPS-DILUTED> 0.180
</TABLE>
