As filed with the Securities and Exchange Commission
on February 14, 1996
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
DECEMBER 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:
27,085,835 - all common, February 12, 1996.
<PAGE>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
FORM 10-Q INDEX
Page
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 2
Condensed Unaudited Consolidated
Balance Sheets as of December 31,
1995 and September 30, 1995 2
Condensed Unaudited Consolidated
Statements of Operations for the
three months ended December 31,
1995 and 1994 4
Condensed Unaudited Consolidated
Statements of Cash Flows for the
three months ended December 31,
1995 and 1994 5
Notes to Condensed Unaudited
Consolidated Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
Risk Factors 11
PART II OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote
of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
Index to Exhibits 16
i
<PAGE>
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. "BREH" refers to Ballard Real Estate Holdings,
Inc., a wholly-owned subsidiary of Ballard.
5. "BI" refers to Ballard International, Inc., a
wholly-owned subsidiary of Ballard.
GLOSSARY OF TECHNICAL AND MEDICAL TERMS
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.
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.
ENTERAL FEEDING CATHETER is a catheter used for the delivery
of nutritional liquids into the gastrointestinal tract of
the patient.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 12/31/95 9/30/95
<S> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents $28,687,213 $27,329,371
Investments available
for sale 18,823,639 18,357,304
Trade accounts
receivable - net 14,905,988 13,504,572
Income tax refunds
receivable 2,103,570
Royalties receivable 1,047,282 447,282
Other receivables 1,037,994 1,173,871
Inventories:
Raw materials 3,191,290 3,784,222
Work-in progress 3,126,231 2,286,542
Finished goods 5,266,882 5,220,882
Deferred income taxes 730,245 593,313
Prepaid expenses 600,730 232,315
Total current
assets 77,417,494 75,033,244
PROPERTY AND EQUIPMENT:
Land 1,855,512 1,849,511
Buildings 11,886,512 11,886,512
Molds 2,839,944 2,539,615
Machinery and
equipment 8,206,198 8,077,753
Vehicles 583,222 535,547
Furniture and
fixtures 1,519,624 1,408,169
Leasehold
improvements 250,522 246,735
Construction-in-
progress 2,123,648 1,234,998
Total 29,265,182 27,778,840
</TABLE>
2
<PAGE>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
12/31/95 9/30/95
<S> <C> <C>
Less accumulated
depreciation 6,383,626 5,832,822
Property and
equipment - net 22,881,556 21,946,018
INTANGIBLE ASSETS - net 15,882,350 15,106,614
OTHER ASSETS 2,662,312 933,497
TOTAL $118,843,712 $113,019,373
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $2,253,397 $1,114,607
Accrued liabilities:
Dividends payable 2,153,012
Employee
compensation 985,041 2,301,755
Income taxes payable 914,939
Royalties 332,499 344,712
Other 472,222 448,236
Total current
liabilities 7,111,110 4,209,310
DEFERRED INCOME TAXES 459,450 223,757
Total liabilities 7,570,560 4,433,067
STOCKHOLDERS' EQUITY:
Common stock 2,677,215 2,656,129
Additional
paid-in capital 30,274,674 29,213,647
Unrealized losses
on investments -
net of tax (307,104) (142,728)
Retained earnings 78,628,367 76,859,258
Total
stockholders'
equity 111,273,152 108,586,306
TOTAL $118,843,712 $113,019,373
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial
Statements.
3
<PAGE>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
[CAPTION]
<TABLE>
Three Months Three Months
Ended Ended
12/31/95 12/31/94
<S> <C> <C>
NET SALES $23,141,632 $18,510,229
COST OF PRODUCTS SOLD 7,833,736 6,218,877
GROSS MARGIN 15,307,896 12,291,352
OPERATING EXPENSES:
Selling, general,
and administrative 6,404,643 5,356,123
Research and development 646,845 461,565
Royalties 357,300 370,500
Total operating expenses 7,408,788 6,188,188
OPERATING INCOME 7,899,108 6,103,164
OTHER INCOME - net 1,041,030 911,300
INCOME BEFORE INCOME
TAX EXPENSE 8,940,138 7,014,464
INCOME TAX EXPENSE 3,230,510 2,448,000
NET INCOME $5,709,628 $4,566,464
INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $0.202 $0.168
INCOME PER COMMON SHARE
ASSUMING FULL DILUTION $0.201 $0.167
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Common and common
equivalent shares 28,307,639 27,246,658
Common shares assuming
full dilution 28,395,640 27,320,177
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial
Statements.
4
<PAGE>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
12/31/95 12/31/94
<S> <C> <C>
CASH FLOWS FROM OPERATING $5,898,651 $5,477,147
ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures for
property and equipment (1,486,342) (449,669)
Purchases of short-term
investments (5,730,676) (3,810,264)
Purchases of intangible assets (113,101) (282,184)
Payment for equity interest (2,224,815)
Payment for option (500,000)
Payment for deposit
on property (4,000)
Proceeds from maturities of
short-term investments 5,004,073 4,532,806
Net cash used in
investing activities (5,054,861) (9,311)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from exercise
of options 2,311,559 75,054
Cash dividends paid (1,582,286)
Purchase of treasury stock (1,797,507)
Net cash provided by (used
in) financing activities 514,052 (1,507,232)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,357,842 3,960,604
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 27,329,371 15,109,682
CASH AND CASH EQUIVALENTS,
END OF PERIOD $28,687,213 $19,070,286
</TABLE>
See Notes to Condensed Unaudited Consolidated Financial
Statements.
5
<PAGE>
BALLARD MEDICAL PRODUCTS AND SUBSIDIARIES
CONDENSED UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<CAPTION>
Three Months Three Months
Ended Ended
12/31/95 12/31/94
<S> <C> <C>
Cash paid during the
period for taxes None $505,000
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
During the three months ended December 31, 1995, the Company
increased additional paid-in capital by $890,181, which
represents the tax benefit attributable to the compensation
received by employees from the exercise and disqualifying
disposition of incentive stock options. There were no
disqualifying dispositions of incentive stock options during
the three months ended December 31, 1994.
See Notes to Condensed Unaudited Consolidated Financial
Statements.
6
<PAGE>
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 and its subsidiaries as of
December 31, 1995 and September 30, 1995, the results
of operations for the three months ended December 31,
1995 and 1994, and the cash flows for the three months
ended December 31, 1995 and 1994.
2. The results of operations for the three months ended
December 31, 1995 are not necessarily indicative of the
results to be expected for the full year ended
September 30, 1996.
3. Effective July 17, 1995, the Company entered into an
agreement with Neuro Navigational Corporation ("Neuro")
under which the Company acquired on November 14, 1995
200,000 shares of Neuro's convertible Series A
Preferred Stock, representing a 19.5% equity interest
in Neuro, for $2,000,000.
In addition, on November 14, 1995, the Company paid
Neuro $500,000 for a 24-month option to purchase all of
the assets of Neuro. If Ballard exercises the option
during the first 12 months of the option period the
purchase price for the assets will be $9,500,000. If
the option is exercised during the remainder of the
option term, the purchase price will be equal to two
times the net sales of Neuro for the 12 months
immediately preceding the exercise of the option. In
either event, the $500,000 option price will be
credited towards the purchase price. The option term
expires November 13, 1997.
4. On December 7, 1995, the Company declared a cash
dividend of $.08 per share to shareholders of record as
of December 18, 1995. The dividend was paid January 3,
1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's 1995 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, 1995. The following discussion and
analysis describes material changes in the Company's
financial condition and position from September 30, 1995.
Trends of a material nature are discussed to the extent
known and considered relevant. The analysis of results of
operations compares the three months ended December 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 for the first
quarter of fiscal year 1996 were at record levels,
increasing 25% over the corresponding 1995 period. The
growth in net sales continues to reflect the Company's
ability to expand its existing base of business, to
effectively compete in a dynamic, cost competitive
environment, and to efficiently develop and deliver new
products and enhancements to the market place.
The Company's after-tax profit margin for the first
quarter of 1996 remained strong at 24.7% and net income
after taxes increased more than 25% over the corresponding
1995 period. The increase in net income and continued
strong profit margin reflects the Company's ongoing cost
control programs and its desire to maintain profitability
and increase share value.
SALES - Net sales for the three-months ended December
31, 1995 increased 25.0% to $23,141,632, compared with
$18,510,229 for the corresponding three-month period in
fiscal year 1995. In comparison, net sales for the three
months ended December 31, 1994 increased 15.4% over the
corresponding three-month period of fiscal year 1994.
Net sales have increased principally due to expanding
market penetration of all of Ballard's principal product
lines, as well as acceptance of the Company's new products.
The Company's MIC enteral feeding catheters continue to show
especially strong sales growth, with overall growth of MIC
products during the first quarter of 81.1% over the
corresponding quarter in 1995.
Throughout the first quarter, pricing for several
products was reduced in order to meet competition and price
reductions demanded by hospitals and large buying groups.
No price increases occurred during the three months covered
by this report; therefore, substantially all of the increase
8
<PAGE>
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 December 31, 1995 was $7,833,736,
compared to $6,218,877 for the corresponding three months in
fiscal year 1995. As a percentage of net sales, cost of
products sold for the three months ended December 31, 1995,
compared to December 31, 1994, only increased 0.3% from
33.6% to 33.9%, respectively. For the three months ended
December 31, 1994 compared to December 31, 1993, cost of
products sold as a percentage of net sales increased 3.3%
from 30.2% to 33.5%, respectively.
Cost of goods sold as a percentage of net sales
remained relatively consistent reflecting the Company's
continuing efforts to control manufacturing costs despite
increases resulting from inflationary pressures. The
Company continues to refine and automate its manufacturing
processes, as well as expand its injection molding capacity.
The Company expects cost of products sold to remain fairly
constant at approximately 34.0% of net sales for the
remainder of fiscal year 1996.
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 December 31, 1995 were
$7,408,788, which represents an increase of 19.7% over the
corresponding period of fiscal year 1995. As a percentage
of net sales, operating expenses for the three months ended
December 31, 1995 totaled 32.0% compared with 33.4% for the
corresponding three months in fiscal year 1995. In
comparison, operating expenses as a percentage of net sales
for the three months ended December 31, 1993 totaled 35.2%.
The increase in total operating expenses between the
first three months of fiscal 1996 over fiscal 1995 is due
primarily to selling, general, and administrative expenses
which increased from $5,356,123 in the quarter ended
December 31, 1994 to $6,404,643 in the quarter ended
December 31, 1995. These increased costs are attributable
primarily 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 28.9% in the three
months ended December 31, 1994 to 27.7% in the three months
ended December 31, 1995. As a percentage of net sales,
these decreases during 1995 reflect the Company's efforts to
control these variable selling expenses.
Research and development expenses and royalty expenses,
as a percentage of net sales, remained relatively consistent
9
<PAGE>
between the periods, approximating 2.8% and 1.5%,
respectively, for the three months ended December 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 December 31, 1995, other income totaled
$1,041,030, compared to $911,300 for the three months ended
December 31, 1994. The increase primarily reflects the
increase in interest income from the Company's increased
cash and investment balances. Royalty income remains fairly
consistent on a quarterly basis, approximating $600,000
quarterly. As the Company utilizes its cash reserves to
acquire other companies and technology, it is expected that
interest income will decrease.
NET INCOME - Net income after taxes for the three
months ended December 31, 1995 increased 25.0% to
$5,709,628, compared to $4,566,464 for the three months
ended December 31, 1994. The increase in net income
reflects the growth in net sales, and reflects the Company's
efforts in controlling production and operating costs.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended December 31, 1995 the
Company's operating activities provided $5,898,651 in cash
and cash equivalents, compared with $5,477,147 in cash and
cash equivalents provided during the three months ended
December 31, 1994. At December 31, 1995, working capital
totaled $70,306,384, compared with $70,823,934 at September
30, 1995, and its current ratio was at 10.9 to 1.0. The
Company had $47,510,852 in cash, cash equivalents, and
investments available-for-sale at December 31, 1995,
compared with $45,686,675 at September 30, 1995.
Significant uses of cash during the three month period
included the purchase of 100,000 shares of treasury stock,
the purchase of a 19.5% interest in Neuro Navigational (see
note 4 above), and progress payments toward the construction
of the Company's new manufacturing facility in Idaho. See
"Item 5. Other Information".
In addition to its strong liquidity and overall
financial position, the Company does not have any long-term
debt nor does management 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, an aggressive
acquisition program, future growth and expansion, and its
dividend payment policy.
No significant commitments for the purchase of
inventory or property or equipment existed as of December
31, 1995 except as noted in "Item 5 - Other Information."
10
<PAGE>
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
device 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 pricing and the price
reductions demanded by certain hospitals and large buying
groups. 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 or through acquisitions, and the Company is the
licensee of certain other technology. One of the Company's
early U.S. TRACH CARE patents expired in 1993. 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 a significant patent of the
Company were challenged, an adverse ruling could materially
adversely affect the Company's sales and profits.
ACQUISITIONS. In order to continue increasing sales
volume and profits, the Company relies heavily on a program
of acquiring business and new product lines from other
companies. There is always a significant risk that a given
acquisition by the Company will prove to be unsuccessful or
end up not contributing sufficiently to sales and profit
growth of the Company. There is also a risk that hidden and
contingent liabilities of an acquired company could
negatively impact the Company's financial position or even
the acquisition transaction itself.
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
11
<PAGE>
such as strict cost controls and other possible restrictions
being considered by some federal and state law makers.
RESEARCH AND DEVELOPMENT. In the continuing discovery
and development of products, the Company spent $646,845 and
$461,565 for research and development in the three months
ended December 31, 1995 and 1994, respectively, and
$2,177,117, $1,638,245 and $1,345,052 in the years ended
September 30, 1995, 1994, and 1993, 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 continue 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
12
<PAGE>
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 can be 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
growth and 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 recording 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, or
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 external financing. There can be no
assurance that the Company would be able to obtain timely
external 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-K for
the fiscal year ended September 30, 1995. The parties
continue to engage in the discovery process.
13
<PAGE>
BALLARD MEDICAL PRODUCTS
v. HUNTINGTON LABORATORIES, INC.
At a December 18, 1995 hearing, Judge Jenkins (of the
U.S. District Court for the District of Utah, Central
Division), among other things, granted Ballard's motion for
permanent injunction, restraining Huntington from
manufacturing or selling the foamer which the court had
found on February 3, 1995 to infringe two claims of
Ballard's Reissue Patent No. 33,564; ruled that Huntington
was estopped from challenging the validity of Ballard's
Reissue Patent; and denied Ballard's motion for preliminary
injunction related to a modified foamer which Huntington
began selling within a week after the February 3, 1995
ruling.
On or about January 22, 1996, Ballard and Huntington
entered into a Settlement Agreement. Pursuant to this
Settlement Agreement, among other things: (a) Huntington
paid to Ballard the sum of $75,000, as a settlement sum; (b)
Huntington has agreed to the validity of the Reissue Patent
No. 33,564 and all of its claims; (c) Huntington agreed not
to appeal any of the rulings and judgments made thus far in
this litigation; and (d) Huntington and Ballard entered into
a two-year Supply Contract wherein, among other things,
Huntington agreed to discount the price of its 2% CHG being
supplied to Ballard.
Ballard is pleased with the results of this litigation
and with the terms of this settlement.
LINDA MADSEN V. BALLARD MEDICAL PRODUCTS
Ms. Madsen's attorney has withdrawn from representing
her in this case. In the meantime, discovery has been
delayed pending appointment of a new attorney for Ms.
Madsen.
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
The following information describes matters submitted
to a vote of the security holders:
14
<PAGE>
(a) The 1996 Annual Meeting of Stockholders was held
January 22, 1996 at the principal executive offices of the
Company, 12050 Lone Peak Parkway, Draper, Utah.
(b) At the Annual Meeting of Stockholders, the
following persons were elected as Directors, constituting
all of the Directors of the Company, and also constituting
all of management's nominees in the Proxy Statement mailed
to stockholders and filed with the Securities and Exchange
Commission prior to the Annual Meeting of Stockholders:
Dale H. Ballard E. Martin Chamberlain, Jr.
John I. Bloomberg Dale H. Ballard, Jr.
J. Dallas VanWagoner Paul W. Hess
Robert V. Petersen
(c) It was proposed to the security holders to approve
the Company's adoption of the 1995 Incentive Stock Option
Plan. The Plan was approved by the following vote:
Affirmative votes cast 21,178,060
Negative votes cast 2,477,123
Abstaining votes 612,398
ITEM 5. OTHER INFORMATION
IDAHO EXPANSION
LAND ACQUISITION. Effective November 29, 1995, the
Company (acting through BREH) entered into an Agreement for
the acquisition of a 20-acre parcel of land (the "Pocatello
Property") on Alvin Ricken Drive, Pocatello, Idaho, with
Idaho State University ("ISU") and Eastern Idaho Strategic
Alliance, Inc. ("EISA").
ISU (the owner of the Pocatello Property at the time
this Agreement was entered into) agreed to cooperate in a
land exchange whereby BREH would receive the Pocatello
Property at no cost. The parcel of land was conveyed to
BREH at the November 30, 1995 closing under this Agreement.
The Company caused BREH to acquire the Pocatello
Property, in order to enable the Company to expand its
manufacturing facilities into Pocatello, Idaho. This
expansion is necessitated, in part, by low unemployment
rates in Salt Lake County and surrounding areas of Utah.
The Company has adequate land in Draper to accommodate
future sales growth, but cannot look to the Wasatch Front to
provide labor needed to meet the Company's anticipated sales
growth in the near term.
The Company is in the process of constructing a
manufacturing plant (approximately 100,000 square feet) on
the Pocatello Property, at an estimated total development
cost of $7 to $8 million. This new facility should
accommodate the Company's sales growth into the foreseeable
future.
15
<PAGE>
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.
The following exhibits are filed with this report:
Standard Form of Agreement between Owner and
Design/Builder, Part 1, dated effective November
14, 1995.
Standard Form of Agreement between Owner and
Design/Builder, Part 2, dated effective November
14, 1995.
(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 by the undersigned thereunto duly
authorized.
BALLARD MEDICAL PRODUCTS
(Registrant)
Date: 2/14/96 Dale H. Ballard, President
(Principal Executive Officer)
Date: 2/14/96 Kenneth R. Sorenson,
Treasurer
(Principal Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT
NUMBER PAGE NO.
10.1 Standard Form of Agreement between
Owner and Design/Builder, Part 1,
dated effective November 14, 1995. 17
10.2 Standard Form of Agreement between
Owner and Design/Builder, Part 2,
dated effective November 14, 1995. 24
27 Financial Data Schedule
16
EXHIBIT 10.1
AIA DOCUMENT A191
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND DESIGN/BUILDER
(MODIFIED)
1985 EDITION
This document is comprised of two separate agreements: Part 1
Agreement -- Preliminary Design and Budgeting; and, Part 2
Agreement -- Acceptance of Design and Bid and Construction.
Hereafter, the Part 1 Agreement is referred to as Part 1 and the
Part 2 Agreement is referred to as Part 2.
PART 1 AGREEMENT -- PRELIMINARY DESIGN AND BUDGETING
AGREEMENT made effective as of November 11, 1995
BETWEEN the Owner BALLARD REAL ESTATE HOLDINGS, INC.
12050 Lone Peak Parkway
Draper, Utah 84020
and the Design/Builder: ECKMAN & MIDGLEY INC.
7644 South State Street
Midvale, Utah 84047
For the following project:
The design and preparation of budgets, estimates, and bids for
the construction of a building, parking lot, landscape and site
improvements for the Owner at Alvin Ricken Dr., Pocatello, ID.
The scope of work shall include the design of all on-site
improvements and office-warehouse facilities, parking lots,
loading docks, and landscaping to meet the needs and requirements
of Owner. Off-site improvements are the responsibility of
Pocatello City. Once designed, Design/Builder shall construct the
improvements pursuant to part 2, in accordance with the plans and
specifications determined by the designs produced by
Design/Builder. The Part 1 and Part 2 Work shall proceed
simultaneously with the actual construction under Part 2 to be
performed in phases as needed to complete the Project and as
designs are available and approved by Owner. All design work
shall be performed by licensed and competent engineers or
architects selected by Design/Builder.
The architectural services described in Article 2 will be
provided by the following person or entity who is lawfully
licensed to practice architecture.
SMITH LAYTON ANDERSON
375 West 200 South
Salt Lake City, UT 84101
17
<PAGE>
The Owner and the Design/Builder agree as set forth below.
Terms and Conditions -- Part 1 Agreement
ARTICLE 1
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 The "Project" is the total design of the improvements and
preparation of budgets and estimates for which the Design/Builder
is responsible under Part 1, as originally described on page 1,
including all professional design services and all labor,
materials and equipment used or incorporated in such design.
1.1.2 The "Work" comprises the preparation of a completed design
for improvements included in the Project, preparation of all and
all plans and specifications ready for use in bidding, estimating
and construction of the Project and includes all labor and
services necessary to produce the completed design, and all plans
and specifications as required.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 This Part 1 shall be signed in not less than duplicate by
the Owner and Design/Builder
1.2.2 Nothing contained in the Design/Builder Contract Documents
shall create a contractual relationship between the Owner and any
third party.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 The drawings, plans, and specifications and other documents
prepared by the Design/Builder shall remain the property of the
Design/Builder whether or not the Project for which they are
prepared is commenced. At Owner's expense, Owner shall have the
right to retain copies of such drawings, plans and specifications
as Owner may deem necessary for its own use at the Project site.
ARTICLE 2
DESIGN/BUILDER
2.1 SERVICES AND RESPONSIBILITIES
2.1.1 Design services shall be performed by qualified architects,
engineers and other professionals selected and paid by the
Design/Builder who are supervised and act under the direction of
the Design/Builder. The professional obligations of such persons
shall be undertaken and performed in the interest of the
Design/Builder and Owner. Nothing contained in Part 1 shall
create any contractual relationship between such persons and the
Owner.
2.1.2 The Design/Builder shall be responsible to the Owner for
18
<PAGE>
acts and omissions of the Design/Builder's employees and any
parties performing Work for the Design/Builder, provided such
work is within the scope of this Project, and such parties'
respective contracts, including such parties' agents and
employees.
2.2 BASIC SERVICES
2.2.1 The Basic Services for Part 1 are: The total design,
including separation into phases, of all on-site improvements,
parking lots, driveways, sidewalks, landscaping and warehouse-
manufacturing building for Owner of at least 104,000 square feet,
and paved parking areas containing at least 150 parking spaces.
2.2.2 The Design/Builder shall review the Owner's program to
ascertain requirements of the Project and shall review such
requirements with the Owner.
2.2.3 The Design/Builder shall provide, after consultation with
the Owner, a preliminary evaluation of the program and Project
budget, each in terms of the other.
2.2.4 The Design/Builder shall review with the Owner alternative
approaches to design and construction of the Project.
2.2.5 The Project shall be designed and construction may proceed
under Part 2 in phases as such designs are completed by
Design/Builder and approved by Owner. Each "Phase" shall
constitute a discreet portion of the Project. All phases shall be
designed and constructed within the Owner's budget unless Owner
agrees otherwise in writing.
2.2.6 As portions of the Project design, plans and specifications
are completed, they shall be submitted to Owner for approval. If
Design/Builder cannot complete a design acceptable to
Design/Builder and Owner within Owner's budget, this Part 1 and
Part 2 may then be terminated by written notice by either party.
In such event, Design/Builder shall be entitled to compensation
for the Work performed under Part 1 and Part 2 of this Agreement
to the date of termination. Once a design is approved by Owner,
the Design/Builder shall submit to the Owner a Proposal for each
phase of the Project, including the completed Design Documents, a
statement of the proposed contract sum for that phase of the
Project, a proposed schedule for completion of the Work under
Part 2 for that phase of the Project, and all other information
necessary to complete Part 2 Work. Design Documents shall consist
of design drawings, specifications and other documents to fix and
describe size, quality and character of each phase, or a
particular phase, of the entire project, its architectural,
structural, mechanical and electrical systems, and the materials
and such other elements of the Project as may be appropriate. If
the Proposal for that phase is accepted by the Owner, then Owner
and Design/Builder shall execute an addendum to Part 2 for the
phase of work to be constructed by Design/Builder. Nothing herein
shall require Owner to accept the design for any phase of
19
<PAGE>
construction as submitted by Design/Builder.
2.2.7 Design/Builder shall be responsible to obtain geotechnical
engineers and other consultants when such services are deemed
necessary by the Design/Builder. Geotechnical engineers or other
consultants shall be selected by mutual agreement. Such services
shall include, as required applicable test borings, test pits,
soil bearing values, percolation tests, air and water pollution
tests, and other necessary operations for determining subsoil,
air and water conditions, with reports and appropriate
professional recommendations.
2.3 ADDITIONAL SERVICES
All other services requested by the Owner and mutually agreed to
in writing by the Owner and Design/Builder in Part 1, including,
among others, changes in Project scope and program, shall
constitute Additional Services and shall be paid for by the Owner
as provided in this Part 1.
ARTICLE 3
OWNER
3.1 The Owner shall provide information regarding requirements
for the Project, including but not limited to the Owner's design
objectives, constraints and criteria.
3.2 If a design at the projected total cost is not approved as
satisfactory by Owner and Design/Builder, either party shall have
the right to terminate Part 1 and Part 2 and the Design/Builder
shall be entitled to compensation, as provided herein, for the
Work under Part 1 and Part 2 of this Agreement, to the date of
termination. Any material modification of the Design Documents
after acceptance by the Owner shall require a review of the
Project budget for impact and mutually agreeable Change Orders.
The Project cost shall not include off-site improvements by the
City of Pocatello.
3.3 The Owner has designated representatives authorized to act on
the Owner's behalf with respect to the Project. The
representatives for Owner shall be Larry Eldredge or Dale H.
Ballard. The Owner or such authorized representative shall
examine the documents submitted by the Design/Builder and shall
render decisions pertaining thereto within a reasonable time
after submittal to avoid delay in orderly progress of the design
Work and proceeding with construction under Part 2.
3.4 The Owner shall cooperate with the Design/Builder in
identifying required permits, licenses and inspections, and shall
take appropriate action with reasonable promptness.
3.5 The Owner will furnish a legal description and a certified
land survey of the site, giving, as applicable grades and lines
of streets, alleys, pavements and adjoining property; rights-of-
way, restrictions, easements, encroachments, zoning, deed
20
<PAGE>
restrictions, elevations and contours of the site; locations,
dimensions and complete data pertaining to existing buildings,
other improvements and trees; and full information concerning
available services and utility lines, both public and private,
above and below grade, including inverts and depths.
Design/Builder shall be responsible to obtain any other
information in addition to that previously furnished by Owner.
3.6 If the Owner observes or otherwise becomes aware of any fault
or defect in the Work, the Owner shall give prompt written notice
thereof to the Design/Builder.
3.7 The Owner shall furnish required information and services and
shall render decisions with reasonable promptness to avoid delay
in orderly progress of the Design/Builder services.
3.8 The Owner shall communicate with contractors only through the
Design/Builder, unless otherwise deemed necessary by the Owner.
3.9 Owner and Design/Builder acknowledge that Owner has
previously entered into an agreement with Pocatello City to
provide certain off-site improvements. Owner and Design/Builder
shall each use their best efforts to coordinate the work efforts
of Pocatello City and Design/Builder to avoid interference and
delay in construction of the off-site improvements.
ARTICLE 4
TIME
4.1 The Design/Builder shall provide the Basic and Additional
Services as expeditiously as is consistent with reasonable skill
and care. The Basic Services to be performed have already
commenced as of Sept 27, 1996 subject to authorized adjustments,
Change Orders, and to delays not caused by the Design/Builder,
shall be completed, including all of Part 1 and Part 2 Work, on
or before June 15, 1996.
ARTICLE 5
PAYMENTS
5.1 Payments for Part 1 Basic Services, Additional Services and
Reimbursables Expenses shall be made monthly on the basis set
forth in Article 8.
5.2 Within 15 days of the Owner's receipt of a properly submitted
Application for Payment, the Owner shall make payment to the
Design/Builder, unless Owner shall dispute the quality of the
work or the estimate of progress, based upon recommendations of a
qualified architect or engineer. Owner shall withhold payment
only on a disputed portions of the Work. Application for Payment
may be submitted only once each month, on or before the first day
of each month.
5.3 Payments due the Design/Builder under Part 1 which are not
paid when due shall bear interest from the date due at the rate
of Twelve Percent (12%) per annum.
21
<PAGE>
5.4 With each Application for Payment, the Design/Builder shall
provide unconditional lien waivers from itself & each
subcontractor/material supplier covering the previous Application
and a conditional lien waiver from the Design/Builder which
covers the current Application.
ARTICLE 6
MISCELLANEOUS PROVISIONS
6.1 This Part 1 shall be governed by the laws of the State of
Utah.
6.2 The table of contents and the headings of articles and
paragraphs are for convenience only and shall not modify rights
and obligations created by Part 1.
6.3 In case a provision of Part 1 is held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected.
6.4 This Part 1 shall be binding on successors, assigns, legal
representatives of, and persons in privity of contract with, the
Owner or Design/Builder. Neither party shall assign, sublet or
transfer an interest in Part 1 without written consent of the
other. Design/Builder may not subcontract any of the Project or
the Work to any person without approval of the Owner in writing.
This paragraph 6.4 shall survive completion of the Work required
under Part 1.
6.5 Part 1 represents the entire agreement for the design and
completion, of proposals for each phase of Work within the
Project, and supersedes all prior negotiations, representations
or agreements. Part 1 may be amended only by written instrument
signed by both Owner and Design/Builder.
6.6 In case of termination of the Architect, the Design/Builder
shall provide the services of another lawfully licensed person or
entity against whom the Owner makes no reasonable objection.
ARTICLE 7
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with
Article 5, Payments, and the other provisions of Part 1 as
described below.
8.1 COMPENSATION FOR BASIC SERVICES
8.1.1 FOR BASIC SERVICES, compensation shall be as follows: An
amount equal to the sum of Professional Expenses, plus ten
percent (10%) of said amount.
22
<PAGE>
8.2 COMPENSATION FOR ADDITIONAL SERVICES
8.2.1 FOR ADDITIONAL SERVICES, compensation shall be as follows:
On the same basis described at Paragraph 8.1, but must be
approved in writing by Owner as "additional services", in advance
of performance of the services, before additional payment shall
be due.
8.3 PROFESSIONAL EXPENSES
8.3.1 Professional Expenses are the basis for determining
Compensation for Basic and Additional Services and include actual
expenses incurred by the Design/Builder and the Design/Builder's
employees and contractors in the interest of the Project for the
expenses listed as follows: Architects fees, engineers fees,
duplication and copying costs and fees, permit fees and expenses,
and fees or costs for draftsmen, CAD operators or surveyors, and
such other costs or fees incurred by Design/ Builder in preparing
the designs, plans and specifications for the Project and which
may reasonably be included within the Project budget.
8.4 INTEREST PAYMENTS
8.4.1 The rate of interest for past due payments shall be as
follows:
Interest at the rate of 12% per annum.
An initial payment of $245,048.93 shall be paid upon execution
of this Agreement (Retention already deducted). Said payment is
for work performed prior to the date of this Part 1. No interest
shall be paid thereon.
8.5 RETENTION
8.5.1 Owner may, at Owner's option retain an amount equal to Ten
Percent (10%) of the amount charged and required to be paid under
Section 8.1 above for labor and services as itemized on the
Application for Payment, Amounts retained may be held by Owner
for up to thirty (30) days after Owner's written approval of
final plans and specifications for this Project. If the design
cannot be completed acceptable to Owner and Design/Builder, the
amounts held in retention shall be paid upon contract
termination, except for amounts disputed for quality or value of
the Work. No interest shall be paid on retention.
This Part 1 entered into as of the and year first written above.
OWNER DESIGN/BUILDER
BALLARD REAL ESTATE
HOLDINGS, INC. ECKMAN & MIDGLEY INC.
By: Gary Eckman, President By: Dale H. Ballard,
President
23
EXHIBIT 10.2
AIA DOCUMENT A191
STANDARD FORM OF AGREEMENT BETWEEN
OWNER AND DESIGN/BUILDER
(MODIFIED)
1985 EDITION
This document is comprised of two separate agreements: Part 1
Agreement -- Preliminary Design and Budgeting; and, Part 2
Agreement -- Acceptance of Design and Bid and Construction.
Hereafter, the Part 1 Agreement is referred to as Part 1 and the
Part 2 Agreement is referred to as Part 2.
PART 2 AGREEMENT -- ACCEPTANCE OF DESIGN AND BID AND
CONSTRUCTION
AGREEMENT made as of November 14, 1995
BETWEEN the Owner BALLARD REAL ESTATE HOLDINGS, INC.
12050 Lone Peak Parkway
Draper, Utah 84020
and the Design/Builder: ECKMAN & MIDGLEY INC.
7644 South State Street
Midvale, Utah 84047
For the following project:
The total construction of on-site improvements, offices,
warehouse-manufacturing facilities, parking lots, loading docks,
expansion facilities, sidewalks, driveways, and landscaping for
the Ballard Medical Products located at Alvin Ricken Drive in
Pocatello, ID., except for such portions thereof to be completed
by Owner's separate contractors as provided herein. Improvements
will be constructed by Design/Builder in accordance with the
Design Documents obtained from Design/Builder after acceptance of
the Project design by Owner as described in Part 1 of this
Agreement. The construction may be executed in phases, each of
which may be treated as a separate Project by Owner.
Design/Builder shall not be responsible for off-site
improvements.
The architectural services described in Article 2 will be
provided by the following person or entity who is lawfully
licensed to practice architecture.
SMITH LAYTON ANDERSON
375 West 200 South
Salt Lake City, Utah 84101
24
<PAGE>
The Owner and the Design/Builder agree as set forth below.
Terms and Conditions -- Part 1 Agreement
ARTICLE 1
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 The Contract Documents consist of the Design/Builder's
Proposal identified in Article 13, this Part 2, the Construction
Documents approved by the Owner in accordance with Subparagraph
2.2.2 below and Modifications issued after execution of Part 2. A
Modification is a Change Order or a written amendment to Part 2
signed by both parties. These form the Contract, and are as fully
a part of the Contract as if attached to this Part 2 or repeated
herein.
1.1.2 The "Project" is the total design and construction for
which the Design/Builder is responsible under Parts 1 and 2,
including all professional design services and all labor,
materials and equipment used or incorporated in such design and
construction, all as more fully described at page 1 of this Part
2.
1.1.3 The "Work" comprises the performance of the construction of
the Project and includes labor necessary to perform such
construction, materials and equipment incorporated or to be
incorporated into the Project, obtaining all licenses or permits
necessary to effect the Work, and obtaining all insurance
required hereunder to be carried by Design/Builder. The work
shall also include the clean-up of the construction site. Except
as provided herein, the Design/Builder shall obtain all
information, pay all fees, costs and expenses, including
professional and design services, all of which shall be part of
the Work.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 This Part 2 shall be signed in not less than duplicate by
the Owner and Design/Builder
1.2.2 It is the intent of the Owner and Design/Builder that the
Contract Documents include all items necessary for proper
execution and completion of the Work. The Contract Documents are
complementary, and what is required by any one shall be as
binding as if required by all. Work not covered in the Contract
Documents as approved by local regulatory officials, will not be
required unless it is contrary to requirements of applicable
building codes. Words and abbreviations which leave well-known
technical or trade meanings are used in the Contract Documents in
accordance with recognized meanings.
1.2.3 It is recognized that the Work may be completed in phases,
each phase relating to the total Project, Unless otherwise
25
<PAGE>
directed by the Owner, it is the intent that the satisfactory
completion of all phases of Work will complete the entire Project
according to the requirements of the Owner.
1.3 OWNERSHIP AND USE OF DOCUMENTS
1.3.1 The designs, drawings, specifications and other documents
furnished by the Design/Builder or its architect are instruments
of service and shall remain the property of the Design/Builder or
its architect, whether or not the Project or any Phase of the
Project for which they are prepared is commenced. At its expense,
the Owner shall have the right to obtain such copies of the
designs, plans and specifications as Owner deems necessary for
its own use at the Project site. Design/Builder shall be supplied
with at least two (2) complete copies of all designs, plans and
specifications for its use in construction.
ARTICLE 2
DESIGN/BUILDER
2.1 SERVICES AND RESPONSIBILITIES
2.1.1 Design services shall be performed by qualified architects,
engineers and other professionals selected and paid by the
Design/Builder in accordance with Part 1 and as required in this
Part 2. The professional obligations of such persons shall be
undertaken and performed in the interest of the Design/Builder
and Owner. Construction services shall be performed by qualified
construction contractors and suppliers, selected and paid by the
Design/Builder and acting in the interest of the Design/Builder
and Owner. Nothing contained in Part 2 shall create any
contractual relationship between such persons and the Owner.
2.2 BASIC SERVICES
2.2.1 The Design/Builder's Basic Services are described below.
2.2.2 As the design for any Phase of the Project is completed in
accordance with Part 1, Design/Builder shall prepare a Proposal
for construction of that Phase, as designed, and shall submit
that Proposal to Owner. The Proposal shall include bids for
construction of that Phase of the Work to be constructed and
other information as described in paragraph 2.2.3. Owner shall
have a period of five (5) working days for acceptance or
rejection of the Proposal. If Owner fails to act, the Proposal
shall be deemed accepted. If the Proposal is rejected, the
Design/Builder shall have no further responsibilities for the
proposed Work on that Phase unless otherwise instructed by the
Owner. Owner may request modifications to the design or Proposal
and Design/Builder shall prepare revisions thereto as needed.
Upon acceptance of a Proposal, the Design/Builder and the Owner
shall be bound to complete the construction as agreed upon in the
Proposal in accordance with the terms of this Part 2. The
Design/Builder shall not be separately compensated for its time
and effort or materials in preparing Proposals.
26
<PAGE>
2.2.3 The Design/Builder's Proposal for each phase shall include:
a. Actual Cost Detail;
b. The total price for the phase of Work contemplated;
c. Detailed building plans showing floor plans, elevations,
engineering requirements, structural requirements, electrical,
heating, cooling, plumbing requirements and details, material
requirements and all other specifications for completion of the
Work for the phase described in the Proposal;
d. Detailed time schedules for completion of the Work;
e. List of subcontractors and suppliers and cost bids received
from such subcontractors and suppliers.
2.2.4 Based on the Design/Builder's Proposal for each phase of
the Project, which is accepted by Owner, the Design/Builder shall
submit Construction Documents for such phase of construction for
review and approval by the Owner which, when approved, shall
become a part of this Part 2 Agreement. Construction Documents
shall include all designs, plans, technical drawings, schedules,
diagrams and specifications, and cost bids which are consistent
with the Proposal, setting forth in detail the requirements for
construction of the Work, and shall:
.1 develop the intent of the Design/Builder's Proposal;
.2 provide all information which is reasonably necessary for the
use of those in the building trades to interpret and construct
the Project and perform all or part of the Work;
.3 include all documents reasonably required for regulatory
agency approvals for the Project, or for that phase of the
Project.
2.2.5 The Design/Builder shall assist the Owner in filing
documents required to obtain necessary approval of governmental
authorities having jurisdiction over the Project by preparing
such documents and delivering them where required in order to
obtain such approvals as may be necessary.
2.2.6 Unless otherwise provided in the Contract Documents, the
Design/Builder shall provide or cause to be provided and shall
pay for design, architect, engineering, or other professional
services, labor, materials, equipment, tools, construction
equipment and machinery, water, heat, utilities, transportation
and other facilities and services necessary for proper execution
and completion of the Work, whether temporary or permanent and
whether or not incorporated or to be incorporated in the Work.
2.2.7 Design/Builder shall be responsible for and shall
coordinate all construction means, methods, techniques, sequences
and procedures.
27
<PAGE>
2.2.8 The Design/Builder shall keep the Owner informed of the
progress and quality of the Work. This requirement may be met by
properly prepared Applications for Payment prepared and delivered
on the first day of each month, or by a monthly report delivered
on the same date. Owner may request reports more frequently if
Owner deems such reports reasonably necessary.
2.2.9 Except as limited at paragraph 5.2.3.3, the Design/Builder
shall correct Work which does not conform to the Construction
Documents, as such Construction Documents may be amended from
time to time by Change Orders.
2.2.10 The Design/Builder warrants to the Owner that materials
and equipment incorporated in the Work will be new unless
otherwise specified, and that the workmanship, materials and
equipment shall be in conformance with the Contract Documents and
suitable for the purpose intended by Owner as set forth in
criteria. Upon completion of the Project, Design/Builder will
assign to Owner all warranties and guarantees Design/Builder has
reserved for materials incorporated into the Project. Work not
conforming to these requirements shall be corrected in accordance
with Article 9.
2.2.11 The Design/Builder shall pay all sales, consumer, use and
similar taxes and shall secure and pay for building and other
permits and governmental fees, licenses and inspections necessary
for the proper execution and completion of the Work which are
either customarily secured or are legally required.
2.2.12 The Design/Builder shall give notices and comply with
laws, ordinances, rules, regulations and lawful orders of public
authorities relating to the Project.
2.2.13 The Design/Builder shall pay royalties and license fees.
The Design/Builder shall defend suits or claims for infringement
of patent rights and shall save the Owner harmless from loss on
account thereof, except that the Owner shall be responsible for
such loss when a particular design, process or product of a
particular manufacturer is required by the Owner. However, if the
Design/Builder has reason to believe the use of a required
design, process or product is an infringement of a patent, the
Design/Builder shall be responsible for such loss unless such
information is promptly given to the Owner.
2.2.14 The Design/Builder shall be responsible to the Owner for
acts and Omissions of the Design/Builder's officers and employees
and all parties performing a portion of the Work, including their
agents and employees, provided that such parties are engaged in
Work within the scope of the Project and their respective
contracts.
2.2.15 The Design/Builder shall keep the premises free from
accumulation of waste materials or rubbish caused by
Design/Builder's operations. At the completion of the Work, the
Design/Builder shall remove from and about the Project the
28
<PAGE>
Design/Builder's tools, construction equipment, machinery,
surplus materials, waste materials and rubbish.
2.2.16 The Designer/Builder shall be responsible to prepare
Change Orders for the Owner's approval and execution in
accordance with Part 2. The Design/Builder shall be entitled to
no compensation for any Work claimed to be additional Work unless
an executed Change Order is in force, unless this requirement is
waived by Owner at the time payment is requested. Whenever
payment for additional Work is claimed, Design/Builder shall
specifically identify it as such in the Application for Payment,
and shall further identify Change Order, if any which authorized
it, or shall state that no Change Order then exists.
2.2.17 The Design/Builder shall notify the Owner when the Work is
completed by issuing a Certificate of Substantial Completion,
certified by Design/Builder and the architect, which shall
establish the Date of Completion, and shall state the
responsibility of each party for security, maintenance, heat,
utilities, damage to the Work and insurance.
2.2.18 The Design/Builder shall maintain in good order at the
site one record copy of the drawings, specifications, product
data, samples, shop drawings, Change Orders and other
Modifications, marked currently to record changes made during
construction. These shall be delivered to the Owner upon
completion of the design and construction and prior to final
payment. The final set of plans shall conform to the construction
of the Project "as built". A complete set of approved Contract
Documents for each Phase of the Project shall be delivered to
Owner prior to the beginning of construction for each Phase.
2.2.19 The Design/Builder shall furnish services by land
surveyors, geotechnical engineers and other consultants for
subsoil, air and water conditions, in addition to those provided
under Part 1 when such services are deemed necessary by the
Design/Builder to carry out properly the construction services
under this Part 2.
2.2.20 The Design/Builder shall furnish structural, mechanical,
chemical, geotechnical and other laboratory or on-site tests,
inspections and reports as required by law or the Contract
Documents, or to properly effect the Work.
2.2.21 The services, information, surveys and reports required by
paragraph 2.2.18 and 2.2.19 shall be furnished at the
Design/Builder's expense as part of the Work.
2.2.22 Subject to the limitations contained in paragraph 10.7.1
the Design/Builder shall maintain site security and shall be
liable for any loss, damage, property damage, injury, or death
occurring on the site of the Project during the period of
construction. The Design/Builder shall obtain liability insurance
and property damage insurance with liability limits of
$1,000,000.00 per occurrence and $3,000,000.00 aggregate, to
29
<PAGE>
provide insurance coverage for such events. Owner shall be named
as an additional insured for any such insurance. Design/Builder
shall promptly deliver a copy of insurance policies or
certificate to Owner. Each policy of insurance shall contain a
clause providing that the insurance may not be canceled except
upon 30 days notice to Owner.
2.2.23 The Design/ Builder shall designate a representative who
shall have authority to represent and bind the Design/Builder in
all aspects of the Project, including modifications to the
Contract Documents. The representative for the Design/Builder
shall be Gary Eckman or Tom Mitchell.
ARTICLE 3
OWNER
3.1 The Owner shall designate a representative authorized to act
on the Owner's behalf with respect to the Project. The
representatives for Owner shall be Dale Ballard or Larry Eldredge
unless otherwise directed in writing to the Design/Builder. The
Owner or such authorized representative shall examine documents
submitted by the Design/Builder and shall, with reasonable
promptness render decisions pertaining thereto to avoid delay in
the orderly progress of the Work.
3.2 The Owner may appoint an on-site project representative to
observe the Work and to have such other responsibilities as the
Owner may designate.
3.3 The Owner shall cooperate with the Design/Builder in securing
building and other permits, licenses and inspection.
3.4 If the Owner observes or otherwise becomes aware of a fault
or defect in the Work or nonconformity with the Design or
Construction Documents, the Owner shall give prompt written
notice thereof to the Design/Builder.
3.5 The Owner shall furnish required information and services and
shall, with reasonable promptness, render decisions pertaining
thereto to avoid delay in the orderly progress of the design and
construction.
3.6 Upon request of Design/Builder, Owner shall provide to
Design/Builder a sworn certificate by one or both of Owner's
representatives attesting to the availability and amount of funds
to be used for the Project. The certificate shall provide to
Design/Builder the location(s), amount(s) and source(s) of such
funds, and shall authorize Design/Builder to contact such
source(s) and verify the availability of funds as certified by
Owner. If, after verification of such funds by Design/Builder, it
is determined that (1) the amounts verified are materially less
than attested; or (2) the amounts verified are insufficient to
meet outstanding applications for payment, plus the of the
portion of the Work completed since last the last application for
payment, then Design/Builder may require Owner to immediately set
30
<PAGE>
aside such funds as may be required in an account under the joint
control of the parties or in such other separate control account
arrangement as may be mutually acceptable to the parties.
3.7 The Owner shall communicate with the contractors only through
the Design/Builder, unless otherwise deemed reasonably necessary
by the Owner.
3.8 Owner shall obtain and carry during the term of this Part 2,
a Course of Construction, All Risk" insurance policy for the
replacement value of the improvements constructed with respect to
the Project in the event of damage or casualty loss thereto from
fire, flood, vandalism, water and earthquake, with such
deductibles and replacement amounts as may be determined by
Owner. Owner shall name Design/Builder as an additional insured,
but all proceeds of such policy shall be paid to Owner, who, in
the event of loss or damage to of Fifty Percent (50%) or more of
the Project improvements, may elect not to replace such
improvements and may thereby terminate this Agreement. In such
event, the notice of termination shall be given within sixty (60)
days of the date the loss occurs, the Design/Builder shall be
paid for all Work to the date of termination. Otherwise, Owner
shall use proceeds to replace the damaged or destroyed
improvements as soon as reasonably practicable after receipt of
such proceeds.
ARTICLE 4
TIME
4.1 The Design/Builder shall provide services as expeditiously as
is consistent with reasonable skill and care and the orderly
progress of design and construction.
4.2 Time limits stated in the Contract Documents are of the
essence of Part 2. The Work to be performed under Part 2 shall
commence upon acceptance of a Proposal, unless otherwise agreed,
and subject to authorized modifications or delays recognized in
paragraphs 4.5 and 4.6, Completion shall be achieved on or
before: June 16, 1996
4.3 The Date of Completion of the Work is the date when
construction shall be fully completed and Owner obtains
Certificate of Occupancy from Pocatello City and a certificate of
Substantial Completion attested to by Design/Builder and its
architect.
4.4 The schedule provided in the Design/Builder's Proposal shall
include a construction schedule consistent with Paragraph 4.2
above.
4.5 If the Design/Builder is delayed in the progress of the
Project by acts or neglect of the Owner, Owner's employees, or
separate contractors employed by the Owner, or by acts or neglect
of Pocatello City or its contractors, or another cause which the
31
<PAGE>
Owner and Design/Builder agree is justifiable, the contract time
shall be reasonably extended by Change Order.
4.6 The deadline for completion of the Work may be extended if
reasonably required in the event of stoppage of Work or delay
from causes which could not be reasonably anticipated by
Design/Builder and which are out of the control of Design/Builder
and resulting from damage by fire, flood, hurricane, earthquake
or other Acts of God, or for strikes, war or shortages of
materials, and for unreasonable delay in approvals or stoppage of
Work caused by or resulting from municipal regulatory agencies.
ARTICLE 5
PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 The Design/Builder shall deliver to the Owner itemized
Applications for Payment in such detail as indicated in this
Article and Article 12..
5.1.2 Within 15 days of the Owner's receipt of a properly
submitted and correct Application for Payment, the Owner shall
make payment to the Design/Builder, unless any item or items are
disputed by the Owner, based upon recommendations of a qualified
architect or engineer. If disputed, Owner shall notify
Design/Builder of the dispute, in writing, within the fifteen
(15) day period, and shall only withhold the disputed portion of
the payment. Unless disputed, the amount paid shall be the amount
of the request, less retainage pursuant to paragraph 5.1.8.
5.1.3 The Application for Payment shall constitute and shall
contain a representation by the Design/Builder and its architect
to the Owner that, to the best of their knowledge, information
and belief, the construction has processed to the point indicated
by percentage of completion on the Application, by Phase and by
total Project; the workmanship and materials of the Work covered
by the Application is in accordance with the Contract Documents;
the Design/Builder is entitled to payment in the amount
requested; and, the Design/Builder has made payment , or upon
full receipt of funds, will make payment to its contractors,
subcontractors and suppliers as required herein. Applications for
Payment shall be submitted on the first day of each month and may
only be submitted once per month. Any Application received after
the first day of the month shall be considered in the next month.
5.1.4 The Design/Builder shall pay each contractor and supplier,
upon receipt of payment from the Owner, less retainage, out of
the amount paid to the Design/Builder on account of such
contractor's work, the amount which said contractor or supplier
is entitled in accordance with the terms of the Design/Builder's
contract with such contractor or supplier. The Design/Builder
shall, by appropriate agreement with each contractor, require
each contractor to make payments to their subcontractors or
suppliers in a similar manner.
32
<PAGE>
5.1.5 The Owner shall have no obligation to pay or to be
responsible in any way for payment to a contractor or supplier of
the Design/Builder.
5.1.6 No progress payment or partial or entire use or occupancy
of the Project by the Owner shall constitute an acceptance of
Work not in accordance with the Contract Documents.
5.1.7 The Design/Builder warrants that: (1) title to Work,
materials and equipment covered by an Application for Payment
will pass to the Owner either by incorporation in construction or
upon receipt of payment by the Design/Builder, whichever occurs
last; (2) Work, materials and equipment covered by previous
Applications for Payment are free and clear of liens, claims
security interests or encumbrances, hereinafter referred to as
"liens", provided that liens may be allowed if Design/Builder
provides Owner with a bond or other security acceptable to Owner
for one and one-half (11/2) times the amount of the lien, in the
event that the Design/Builder desires to contest any such lien;
and (3) no Work, materials or equipment covered by an Application
for Payment will have been acquired by the Design/Builder, or any
other person performing work at the site or furnishing materials
or equipment for the Project, subject to an agreement under which
an interest therein or an encumbrance thereon is retained by the
seller or otherwise imposed by the Design/Builder or such other
person.
5.1.8 Owner shall have the right to withhold payment of up to Ten
Percent (10%) of any amounts requested for labor or services in
the Application for Payment by Design/Builder, to be held by
Owner to assure completion of all the Work. Within 30 days
following the date of Completion of the Work, the Design/Builder
may apply for the release of retained amounts. If the
Design/Builder has satisfied the requirements of Paragraph 5.2.1
and any other requirements of this Part 2, Owner, upon receipt of
such Application, shall pay the Design/Builder the amount
retained, if any, for the Work less the reasonable value of
incorrect or incomplete Work, which withheld sum shall be paid
upon correction or completion of such Work. The retainage may, in
the Owner's discretion, be used as an offset by Owner against any
amounts otherwise owed by Design/Builder. Owner shall reduce the
retention amount to five percent (5%) upon receipt of a
certificate from Design/Builder and its architect that the
Project is at least fifty percent (50%) completed, is within
budget and on schedule, and that no default exists at the time of
payment.
5.1.9 Owner may, if Owner deems it necessary, make payment to
Design/Builder by joint checks payable to Design/Builder and/or
its contractors or suppliers.
5.1.10 Design/Builder shall have the right to stop the
construction of the Work if Owner is in default or its payment
obligations under this Part 2, or, in the event Owner is unable
33
<PAGE>
to reasonably satisfy Design/Builder of its financial ability to
fund the Project in accordance with paragraph 3.6.
5.1.11 With each Application for Payment, the Design/Builder
shall provide unconditional lien waivers from itself & each
subcontractor/material supplier covering the previous Application
and a conditional lien waiver from the Design/Builder which
covers the current Application.
5.2 FINAL PAYMENT
5.2.1 Neither final payment nor amounts retained, if any, shall
become due until the Design/Builder submits to the Owner (1) an
affidavit that payrolls, bills for materials and equipment, and
other indebtedness connected with the Project for which the Owner
or Owner's property might be liable have been paid or otherwise
satisfied, (2) consent of surety, if any, to final payment, (3) a
certificate that insurance required by the Contract Documents is
in force following completion of the Work, and (4) if required by
the Owner, other data establishing payment or satisfaction of
obligations, such as receipts, releases and waivers of lien
arising out of Part 2, to the extent and in such form as may be
designated by the Owner. If a contractor refuses to furnish a
release or waiver, required by the Owner, the Design/Builder may
furnish a bond satisfactory to the Owner to indemnify the Owner
against such lien. If such lien remains unsatisfied after
payments are made, the Design/Builder shall reimburse the Owner
for moneys the latter may be compelled to pay in discharging such
lien, including all costs and reasonable attorneys' fees.
5.2.2 Final Payment constituting the entire unpaid balance due
except retainage as described above, shall be paid by the Owner
to the Design/Builder upon Owner's receipt of the
Design/Builder's final Application for Payment when the Work has
been completed and the Contract fully performed except for those
responsibilities of the Design/Builder which survive final
payment.
5.2.3 The making of final payment shall constitute acceptance of
the Work by Owner and waiver of all claims by Owner except those
arising from:
.1 unsettled liens or liens which appear thereafter but release
the activities of Design/Builder.
.2 faulty or defective Work appearing after completion.
.3 failure of the Work to comply with requirements of the
Contract Documents which is discovered and claimed by the Owner
within one year of the date of issuance of a Certificate of
Occupancy for the Project; provided that this one year limitation
shall apply unless Owner receives a Certificate from the
Design/Builder's architect to the effect that all Work, including
workmanship, materials and equipment is in full conformance with
Contract Documents.
34
<PAGE>
.4 terms of special warranties required by the Contract Documents
or described herein; or
.5 incorrect or incomplete Work as provided in paragraph 5.1.8
above.
5.2.4 Acceptance of Final Payment shall constitute a waiver of
all claims by the Design/Builder except those previously made in
writing and identified by the Design/Builder as unsettled at the
time of final Application for Payment.
5.2.5 At the time of the Application for Payment for the final
sums due to Design/Builder and upon presentation of a Certificate
of Completion signed by the Design/Builder and its architect, if
Owner determines that Design/Builder has left certain Work
uncompleted, or if corrections to the Work need to be made as
determined by Owner, Owner shall provide to Design/Builder a
punch list comprised of such uncompleted Work and Work to be
corrected, and shall retain such amounts as Owner deems
reasonably necessary to cover the cost of such Work until
completed. Design/Builder shall perform any such Work within
thirty (30) days after receipt of such list.
5.3 INTEREST PAYMENTS
5.3.1 Payments due the Design/Builder under Part 2 which are not
paid when due, except retainage, shall bear interest from the
date due at the rate specified in Article 12, or in the absence
of a specified rate, at the legal rate prevailing where principal
improvements are to be located.
ARTICLE 6
PROTECTION OF PERSONS AND PROPERTY
6.1 The Design/Builder shall be responsible for initiating,
maintaining and providing supervision of safety precautions and
programs in connection with the Work.
6.2 The Design/Builder shall take reasonable precautions for
safety or; and shall provide reasonable protection to prevent
damage, injury or loss to: (1) employees on the Work and other
persons who may be affected thereby; (2) the Work and materials
and equipment to be incorporated therein; and (3) other property
at or adjacent to the site.
6.3 The Design/Builder shall give notices and comply with
applicable laws, ordinances, rules, regulations and orders of
public authorities bearing on the safety of persons and property
and their protection from damage, injury or loss.
6.4 Subject to the limitations contained in paragraph 10.7.1, the
Design/Builder shall be liable for all damage or loss to property
at the site, except damage or loss attributable to the acts or
omissions of the Owner, the Owner's separate contractors or
anyone directly or indirectly employed by them or by anyone for
35
<PAGE>
whose acts they may be liable, and except for those damages or
losses otherwise covered by insurance obtained by either Owner or
Design/Builder as provided herein.
ARTICLE 7
INSURANCE AND BONDS
7.1 DESIGN/BUILDER'S LIABILITY INSURANCE
7.1.1 The Design/Builder shall purchase and maintain in a company
or companies authorized to do business in the State of Idaho the
following types of insurance which shall provide coverage for
Design/Builder and Owner for liabilities related to the Work and
the operations of the Design/Builder on the Project as follows:
.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit laws which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of the Design/Builder's employees under
any applicable employer's liability law;
.3 claims for damages because of bodily injury, sickness or
disease or death of persons other than the Design/Builder's employees;
.4 claims for damages covered by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such
person by the Design/Builder or (2) by another person;
.5 claims for damages, other than to the Work at the site,
because of injury to or destruction of tangible property,
including loss of use; and
.6 claims for damages for bodily injury or death of a person or
property damage arising
out of ownership, maintenance or use of a motor vehicle.
7.1.2 The insurance required by the above Sub-paragraph 7.1.1
shall be written for not less than limits of liability of
$1,000,000.00 aggregate, per injury or death, or $500,000.00
property damage per occurrence, or as required by law, whichever
is greater.
7.1.3 The Design/Builder's liability insurance shall include
contractual liability insurance applicable to the
Design/Builder's obligations under Paragraph 10.7.
7.1.4 Certificates of insurance, and copies of policies
requested, acceptable to the Owner shall be delivered to the
36
<PAGE>
Owner prior to commencement of design and construction. These
Certificates as well as insurance policies required by this
Paragraph shall contain provisions that coverage will not be
canceled or allowed to expire until at least thirty (30) days'
written notice has been given to the Owner. If any of the
foregoing insurance coverage are not required to remain in force
after final payment, an additional certificate evidencing
continuation of such coverage shall be submitted along with the
application for final payment.
7.2 OWNER'S LIABILITY INSURANCE
7.2.1 The Owner shall be named as an additional insured on all
policies of insurance required under paragraph 7.1. Owner shall
obtain the insurance required under paragraph 3.8.
7.3 PROPERTY INSURANCE
7.3.1 Unless otherwise provided under this Part 2, the Owner
shall purchase and maintain, in a company or companies authorized
to do business in the State of Idaho, property insurance upon the
Work at the site to the replacement value thereof acceptable to
the Owner. Property insurance shall include interests of the
Owner and the Design/Builder in the work. It shall insure against
perils of fire and extended coverage and shall include all risk
insurance for physical loss or damage including, without
duplication of coverage, theft, vandalism and malicious mischief.
If not covered under the all risk insurance or not otherwise
provided in the Contract Documents, the Design/Builder shall
effect and maintain similar property insurance on portions of the
Work stored off-site or in transit when such portions of the Work
are to be included in an Application for Payment.
7.3.2 A loss insured under the foregoing property insurance is to
be adjusted with the Owner and made payable to the Owner who may
repair or replace the damaged property or retain the proceeds, in
Owner's discretion. If Owner elects not to repair or replace the
damaged property, Design/Builder shall be released from its duty
to complete the Project. To the extent proceeds of such insurance
are paid for damage to property not belonging to the Owner, such
proceeds shall be delivered to Design/Builder who shall receive
them in trust for all contractors, subcontractors and suppliers.
7.3.3 Before an exposure to any loss hereunder may occur, the
Design/Builder and Owner shall each file with the other a copy of
each policy required under this Part 2. Each policy shall contain
only those endorsements specifically related to this Project.
Each policy shall contain a provision that the policy will not be
canceled or allowed to expire until at least thirty days' prior
written notice has been given the applicable party.
7.3.4 If the Owner requests in writing that insurance for risks
other than those described herein or for special hazards be
included in any property insurance policy, the Design/Builder
shall, if possible obtain such insurance, and the actual cost
37
<PAGE>
thereof shall be charged to the Owner by appropriate Change
Order.
7.3.5 If the Owner finds it necessary to occupy or use a portion
or portions of the Work before completion, such occupancy or use
shall not commence prior to a time agreed to by the Owner and
Design/Builder and to which the insurance company or companies
providing property insurance have consented by endorsement to the
policy or policies. The property insurance shall not lapse or be
canceled on account of such partial occupancy or use. Consent of
the Design/Builder to such occupancy or use shall not be
unreasonably withheld.
7.4 LOSS OF USE INSURANCE
7.4.1 The Owner, at the Owner's option, may purchase and maintain
such insurance as will insure the Owner against loss of use of
the Owner's property due to fire or other hazards, however
caused.
7.5 PERFORMANCE BOND AND PAYMENT BOND
7.5.1 Upon Owner's request the Design/Builder shall furnish bonds
covering the faithful performance of the contract and the payment
of all Design/Builder's obligations hereunder, at Owner's expense
for the actual cost thereof.
ARTICLE 8
CHANGES IN THE WORK
8.1 CHANGE ORDERS
8.1.1 A Change Order is a written order signed by the Owner and
Design/Builder, and issued after execution of Part 2, authorizing
a change in the Work or adjustment in the contract sum or
contract time. The contract sum and contract time may be changed
only by Change Order.
8.1.2 The Owner, without invalidating Part 2, may order changes
in the Work within the general scope of Part 2 consisting of
additions, deletions or other revisions, and the contract sum and
contract time shall be adjusted accordingly. Such changes in the
Work shall be authorized by Change Order, and shall be performed
under applicable conditions of the Contract Documents.
8.1.3 Cost or credit to the Owner resulting from a change in the
Work shall be determined by mutual acceptance of a cost bid
properly itemized and supported by sufficient substantiating data
to permit evaluation.
8.1.4 In the event Owner and Design/Builder cannot agree on a
price for any Change Order for any Work outside the scope of the
Basic Services, Design/Builder shall perform the work as directed
by Owner at a price equal to the actual cost to Design/Builder
for performance of the additional work as those costs are defined
38
<PAGE>
in this Agreement, plus an amount equal to ten percent (10%) of
such costs to cover profit and overhead for the Design/Builder.
8.2 CONCEALED CONDITIONS
8.2.1 The Design/Builder assumes all risk of changes in law or
regulation after beginning of construction, provided, however,
that if any change to the Project or Work is required Pocatello
City or other municipal governmental officials after their
initial approval of the plans and specifications for the Work,
Owner shall agree to the change and the additional costs thereof
by appropriate Change Order. Design/Builder assumes all risk of
conditions existing on site, which are known or which, with the
exercise of reasonable diligence, should be known by
Design/Builder, based upon Design/Builder's examination of
existing engineering and soil reports and the Project site.
ARTICLE 9
CORRECTION OF WORK
9.1 The Design/Builder shall promptly correct Work rejected by
the Owner or known by the Design/Builder to be defective or
failing to conform to the Construction Documents, whether
observed before or after Completion and whether or not
fabricated, installed or completed, and shall correct Work under
this Part 2 found to be defective or non conforming within a
period of one year from the date of Completion of the Work or
designated portion thereof, or within such longer period provided
by any applicable special warranty in the Contract Documents.
Upon issuance of the Certificate of Completion and final payment,
Design/Builder shall assign to Owner all warranties and
guarantees that it has received relative to the Project.
9.2 Nothing contained in this Article 9 shall be construed to
establish a period of limitation with respect to other
obligations of the Design/Builder under this Part 2. Paragraph
9.1 relates only to the specific obligation of the Design/Builder
to correct the Work, and has no relationship to the time within
which obligation to comply with the Contract Documents may be
sought to be enforced, nor to the time within which proceedings
may be commenced to establish the Design/Builder's liability with
respect to the Design/Builder's obligations by contract, statute
or common law, other than correction of the Work.
9.3 If the Design/Builder fails to correct the defective Work as
required or is otherwise in default under Part 1 or Part 2, the
Owner may, but need not, provide written notice to Design/Builder
of default. In the event such a notice of default is given,
Design/Builder shall have a period of seven (7) days after the
date of receipt of such notice, to effect a cure of said default
in accordance with the Contract Documents. If Design/Builder
fails to effect a cure of the default within the seven (7) day
time period, Owner may, at Owner's option (i) order
Design/Builder to immediately cease all Work except that required
to cure the
39
<PAGE>
default and Owner may then proceed to cure the default and may
charge the cost thereof to the Design/Builder, or (ii) provide
notice of termination of this Part 2, in whole or in part. In the
event notice of termination is given, Design/Builder shall have
an additional seven (7) days from the date such termination
notice is received to cure any default. In the event of the
failure of Design/Builder to then cure default, this
Part 2 shall terminate in whole or in part without further action
on the part of Owner. In the event that any default is of such a
nature that it cannot be cured within the initial seven (7) days,
the Design/Builder shall be allowed up to an additional twenty-
two (22) days to cure the default, so long as Design/Builder
immediately takes action to cure the default upon receipt of the
first notice and diligently pursues the correction of such
deficiency.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 This Part 2 shall be governed by the laws of the State of
Utah.
10.2 The table of contents and the headings of articles and
paragraphs are for convenience only and shall not modify rights
and obligations created by Part 2.
10.3 In case a provision of Part 2 is held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected.
10.4 SUBCONTRACTS
10.4.1 The Design/Builder shall, prior to beginning construction
of any phase of the Work, and at the time of submitting the
Proposal, furnish to the Owner in writing the names of the
persons or entities the Design/Builder will engage as contractors
or suppliers for that Phase of the Project. The Owner may direct
the Design/Builder to engage a particular contractor,
subcontractor or supplier for any part of the Work at a price or
cost which agreed upon by Owner. The Design/Builder shall not be
liable to Owner for defective work or materials of such
contractor or subcontractor if Design/Builder objects in writing
to Owner to the use of such contractor or subcontractor, unless
such defect results in part or in whole from the negligent act or
omission of Design/Builder from its obligations to properly
supervise any and all contractors and suppliers on the Project.
10.4.2 Nothing contained in the Design/Builder Contract Documents
shall create a contractual relationship between Owner and any
third party.
40
<PAGE>
10.5 WORK BY OWNER OR OWNER'S CONTRACTORS
10.5.1 The Owner reserves the right to perform work related to or
included within the Project and to award separate contracts in
connection with the Work, so long as Owner provides notice to
Design/Builder prior to Owner's acceptance of any Proposals from
Design/Builder pursuant to paragraph 2.2.2. Owner may further
contract with other contractors or subcontractors to provide
fixturization or customization of the Project outside the scope
of Work.
10.5.2 The Design/Builder shall afford the Owner's separate
contractors reasonable opportunity for introduction and storage
of their materials and equipment for execution of their Work. The
Design/Builder shall incorporate and coordinate he
Design/Builder's Work with work of the Owner's separate
contractors.
10.5.3 Costs caused by defective or ill-timed work shall be borne
by the party responsible.
10.5.4 Any Work performed by Owner or its contractors or
employees shall be performed in such a manner as not to interfere
with the completion of the Work by Design/Builder as required
under the Contract Documents. Design/Builder shall have the right
to make claims against Owner for additional compensation for any
delays caused by Owner or its contractors or subcontractors to
the extent of the actual cost thereof. Owner and Design/Builder
shall fully cooperate, one with the other, in the scheduling and
coordination of their respective responsibilities under this
Agreement.
10.5 (INTENTIONALLY LEFT OPEN)
10.7 INDEMNIFICATION
10.7.1 To the fullest extent permitted by law, the Design/Builder
shall indemnify and hold harmless the Owner and the Owner's
consultants and its agents and employees from and against claims,
damages, losses and expenses, including but not limited to
attorneys' fees, arising out of or resulting from performance of
the Work, except to the extent caused by Owner or its agents or
employees, or caused by Pocatello City or its agents or
employees. These indemnification obligations shall included, but
not be limited to claims, damages, loses or expenses (1) that are
attributable to bodily injury, sickness, disease or death, or to
injury to or destruction of tangible property, including loss of
use resulting therefrom, and (2) to the extent such claims,
damages, losses or expenses are caused in whole or in part by
negligent acts or omissions of the Design/Builder, the
Design/Builder's contractors, subcontractors or suppliers, anyone
directly or indirectly employed by them or anyone for whose acts
such persons may be liable, provided that such contractors or
subcontractors are performing Work within the scope of their
respective contracts and the Project. Such obligation shall not
be construed to negate, abridge or otherwise reduce other rights
41
<PAGE>
or obligations of indemnity which would otherwise exist as to a
party or person described in this Paragraph 10.7.
10.7.2 In claims against the Owner or its consultants, agents or
employees by an employee of the Design/Builder, its contractors,
anyone directly or indirectly employed by them or anyone for
whose acts they may be liable, the indemnification obligation
under this paragraph 10.7 shall not be limited by a limitation on
amount or type of damages, compensation or benefits payable by or
for the Design/Builder, or a Design/Builder's contractor, under
worker's or workmen's compensation acts, disability benefit acts
or other employee benefit acts.
10.7.3 This paragraph 10.7 shall survive the Completion of the
Work.
10.8 SUCCESSORS
10.8.1 This Part 2 shall be binding on successors, assigns and
legal representatives of and persons in privity of contract with
the Owner or Design/Builder. Neither party shall assign, sublet
or transfer an interest in Part 2 without written consent of the
other.
10.8.2 This Paragraph 10.8 shall survive completion of the Work.
10.8.3 In case of termination of the Architect, the
Design/Builder shall provide the services of another lawfully
licensed person or entity against whom Owner makes no reasonable
objection.
10.10 EXTENT OF AGREEMENT
10.10.1 Part 2, when considered with Part 1, represents the
entire agreement between the Owner and Design/Builder and
supersedes prior negotiations, representations or agreements.
Part 2 may be amended only by written instrument signed by both
Owner and Design/Builder.
10.11 USE OF SITE
10.11.1 Owner hereby grants to Design/Builder, its employees,
subcontractors and sub-subcontractors, a license of ingress and
egress to the Project site as necessary to complete the Work as
contemplated hereby, including, but not limited to, ingress and
egress of all construction vehicles and personnel, including the
delivery and removal of materials, equipment, supplies and
refuse.
42
<PAGE>
ARTICLE 11
TERMINATION OF THE AGREEMENT
11.1 TERMINATION BY OWNER
11.1.1 The Owner shall have the right to terminate this Part 2 as
provided at paragraph 9.3. Upon such termination, the Owner may
take possession of the site and of all materials, equipment,
tools and construction equipment and machinery thereon owner by
the Design/Builder and finish the Work by whatever method the
Owner may deem expedient. Upon such termination, Owner shall be
entitled to damages in the amount of all costs and expenses Owner
may incur to complete all or part of the Work in accordance with
such termination. Owner shall pay Design/Builder for any Work
completed by Design/Builder after allowing a set-off for Owner's
damages. No other claim for damages shall accrue, including
claims for consequential damages.
11.2 TERMINATION BY THE DESIGN /BUILDER
11.2.1 If the Owner fails to make payment when due, the
Design/Builder may give written notice of the Design/Builder's
intention to terminate Part 2. If the Design/Builder fails to
receive payment within seven (7) days after providing such notice
to the Owner, the Design/Builder may give a second written
notice, and seven (7) days after receipt of such second written
notice by the Owner, if Owner has not made such payments as are
then due, Design/Builder may terminate this Part 2 and recover
from the Owner payment for Work executed and for proven loses
sustained upon materials, equipment, tools and construction
equipment and machinery, and for compensation described at
Paragraph 12.1. No other claim for damages shall accrue,
including claims for consequential damages.
ARTICLE 12
BASIS OF COMPENSATION
The Owner shall compensate the Design/Builder in accordance with
Article 5, Payments, and the other provisions of Part 2 as
described below.
12.1 COMPENSATION
12.1.1 FOR BASIC SERVICES, as described in Paragraphs 2.2.2
through 2.2.21, and for any other services included in Article 13
as part of Basic Services, Basic Compensation shall be as
follows: A contract price shall be determined by the
Design/Builder's Proposal for each phase of construction. The
contract price for each phase of the Work shall be determined to
be the cost of the Work related to such phase (as "cost" is
defined herein), as determined by the Proposal from the
Design/Builder, plus an amount equal to 10% of such costs. No
compensation shall be due to Design/Builder for any Work unless
approved and accepted by the Owner. The Basic Compensation for
each phase of construction shall not exceed the contract price as
determined herein, unless a signed Change Order has been
executed. The total cost for the entire Project shall not exceed
$6,800,000.00 unless a signed Change Order has been issued. In
the event the Design/Builder desires to perform part of the Work
or supply part or all of the materials to be incorporated into
43
<PAGE>
the Work, and in determining "costs" as used herein above to
establish the contract price for each Phase in the Proposals,
"cost shall mean the actual direct costs to Design/Builder for
materials incorporated into the Project, wages, for labor
directly used on the Project, including unemployment, social
security, and other benefit payments for such labor, the pro-
rated rental value or industry standard price for
Design/Builder's tools or equipment used to perform the Work, for
the time such equipment or tools will be used, cost for tools or
equipment rentals, cost of insurance, bonds, permits, sales or
use taxes, temporary facilities and clerical personnel and office
facilities used at the Project site, the amounts paid to any
subcontractors used in any portion of that phase of the Work, but
only such costs as are incurred with respect to accomplishing the
Work. These shall be set forth in their entirety in the Proposal
from the Design/Builder. "Costs which are specifically not
included (except to the extent inconsistent with the foregoing)
are salaries or other compensation of the Design/Builder's
personnel at the Design Builder's main office; general office
expenses of the Design Builder's; any part of the
Design/Builder's capital expenses, including interest on
Design/Builder's capital; costs due to negligence of the
Design/Builder, any subcontractor, anyone directly or indirectly
employed by any of them, or for whose acts any of them may be
liable, including but not limited to, the correction of defective
or non conforming Work, disposal of materials and equipment
wrongfully supplied, or making good any damage to property;
overhead, general expense, secretarial or clerical help,
supervisory personnel, except for time actually spent on the
Project, and the cost of any item not specifically or reasonably
inferable as included in the terms described above. Once the
contract price for each Phase has been established by Proposal,
there shall be no adjustment based upon actual costs incurred.
The Design/Builder shall be responsible to complete the Project
within the total cost budget described in this Article 12.
12.2 REIMBURSABLE EXPENSES
12.2.1 There shall be no reimbursable expenses except as set
forth in the specific Proposal accepted for each phase of Work,
or, as agreed upon by Change Order.
12.3 INTEREST PAYMENTS
12.3.1 The rate of interest for past due payments shall be as
follows: 12% per annum, simple interest.
Applications for Payment for Work prior to the date of this
Agreement shall not be deemed to be past due for a period of
fifteen (15) days after the date hereof; and only upon receipt of
all information required in such Application.
44
<PAGE>
ARTICLE 13
OTHER PROVISIONS
13.1 The Basic Services to be performed have commenced and shall
be completed no later than: June 15, 1996.
13.2 The Design/Builder shall submit Applications for Payment on
or before the first (1st) day of each month, or any pay
application received after that date shall not be deemed to be
received until the first (1st) day of the month following
receipt.
13.3 When accepted, a Proposal shall be attached hereto and shall
become a part of this Part 2 Agreement.
This Part 2 entered into as of the day and year first written
above.
OWNER DESIGN/BUILDER
BALLARD REAL ESTATE
HOLDINGS, INC. ECKMAN & MIDGLEY INC.
Dale H. Ballard, President Gary Eckman, President
45
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 Ballard
Medical Products' first quarter 10-Q and is qualified in its entirety by
reference to such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 28,687,213
<SECURITIES> 18,823,639
<RECEIVABLES> 15,545,988
<ALLOWANCES> 640,000
<INVENTORY> 11,584,403
<CURRENT-ASSETS> 77,417,494
<PP&E> 29,265,182
<DEPRECIATION> 6,383,626
<TOTAL-ASSETS> 118,843,712
<CURRENT-LIABILITIES> 7,111,110
<BONDS> 0
<COMMON> 2,677,215
0
0
<OTHER-SE> 108,595,937
<TOTAL-LIABILITY-AND-EQUITY> 118,843,712
<SALES> 23,141,632
<TOTAL-REVENUES> 23,141,632
<CGS> 7,833,736
<TOTAL-COSTS> 7,833,736
<OTHER-EXPENSES> 7,408,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,940,138
<INCOME-TAX> 3,230,510
<INCOME-CONTINUING> 5,709,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,709,628
<EPS-PRIMARY> 0.202
<EPS-DILUTED> 0.201
</TABLE>
