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________________________________________________________________________________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ____________
Commission file number 0-9570
LUTHER MEDICAL PRODUCTS, INC.
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(Name of small business issuer in its charter)
California 33-0468235
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14332 Chambers Road, Tustin, California 92680
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (714) 544-3002
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, No Par Value Per Share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No ___
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year.$4,022,101
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The aggregate market value of registrant's common stock held by non-
affiliates of the registrant is $16,352,743 based upon the average bid and asked
price of the common stock on September 20, 1996.
Number of shares of Common Stock outstanding as of September 20, 1996:
3,188,386 shares.
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PART I
ITEM 1. Description of Business.
Luther Medical Products, Inc., a California corporation (the "Company"),
since its organization in 1980 has been primarily engaged in the design,
development, manufacture, sale, and licensing of intra-vascular catheters and
split, peel-away needles. The Company's L-Cath(TM) peel-away needle catheter
placement system and the OneCath/(R)/ protected needle catheter placement
systems are used when soft, flexible catheters must be inserted for short- and
long-term intravenous therapy. The L-Cath(TM) for Ports is used to insert a
soft, flexible catheter into an implanted port as an alternative to a steel
Huber needle.
Products
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Peripherally Inserted Central Catheters ("PICCs").
PICCs provide venous access and typically reach into the superior vena cava
to serve as a "central line." The Company's patented peel-away needle has been
central to the Company's PICC products. A PICC is indicated for the following
clinical reasons: (i) lack of peripheral venous access, (ii) infusion of
vesicant/irritant drugs, (iii) long-term intravenous therapy in the home,
hospital, or clinic setting, (iv) administration of blood/blood products, or (v)
infusion of intermittent drug therapy.
The Company believes that PICCs provide certain non-economic advantages
over conventional intravenous catheters, e.g., reliable vascular access
throughout the course of therapy and decrease in patient pain and discomfort
associated with frequent venipuncture. In addition, the Company believes that
certain economic advantages also exist. For example, PICCs may be left in place
for two to six weeks or more as compared to traditional over-the-needle
catheters that must be changed every 48 hours. One PICC may substitute for up
to 20 short-term catheters, saving up to 19 short-term procedures.
Peripherally Inserted Midline Catheters ("Midlines")
Midlines provide venous access with the tip of the catheter located in the
upper arm. A Midline is indicated for the following clinical reasons: (i)
certain types of peripheral IV solutions, (ii) two to six week short-term IV
therapy, or (iii) providing venous access when a PICC is contra-indicated.
Midlines provide similar economic advantages as PICCs.
L-Cath(TM) and SilCath(TM) PICC and Midline Catheter Placement Systems.
The Company's patented peel-away needle catheter placement system (used
with the L-Cath and SilCath products) consists of a stainless steel needle (the
"cannula") through and by which a flexible catheter is inserted. The cannula is
sharpened to a fine point on one end and has an extremely narrow slit along its
entire length. Once a cannula has been inserted into a blood vessel, the
catheter is inserted into the cannula and advanced into the vessel. After the
catheter has been advanced to the desired level of insertion, the needle is with
drawn. Rather than attempting to thread the needle back over the length of the
catheter
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outside the body and off the end (an end that may have a large connecting
adapter rendering removal impossible), the needle is peeled or split lengthwise
in two and is removed from the catheter.
The L-Cath and SilCath catheter placement systems may be used in a variety
of biomedical applications. In the medical market, for example, catheters are
advanced into a vein, thereby allowing the clinician to administer plasma,
blood, chemotherapy, intravenous drugs, or feeding solutions.
The L-Cath and SilCath catheter placement system are currently manufactured
and sold in a variety of sizes and configurations for applications ranging from
neonatal (infants) to adult to veterinary. The L-Cath catheter system is
available in either polyurethane or silicone (SilCath) materials. The L-Cath
PICC and Midline catheter systems represent a relatively new market.
OneCath(R) Catheter.
The OneCath catheter placement system has been designed as a new generation
of PICCs or Midlines. The OneCath catheter placement system incorporates the
advantages of many of the Company's earlier developments and certain protection
against accidental needle sticks. The OneCath allows for the insertion of
central venous catheters or Midlines made from soft biocompatible material using
conventional "over-the-needle" techniques with a protected needle that is
designed to give protection from AIDS and other infectious diseases.
L-Cath Catheter for Port Access.
The L-Cath for Ports is a soft catheter utilized in the infusion of fluids
into the blood stream through a small implanted chamber (a port) inserted under
the skin of a patient's chest. In August of 1994, the FDA granted the Company
clearance to market the L-Cath for Ports, a market currently served only by
steel needle manufacturers. Management believes that the L-Cath for Ports
offers certain advantages in comparison with traditional steel needles,
including increased comfort for the patient and reduced inventory levels for the
healthcare provider. The L-Cath for Ports catheter will bend in response to
external forces applied to it, or to its connections, e.g., a patient rolling
over in bed; whereas, a steel needle would not bend, but would cause the patient
noticeable pain. Because the distance under the skin at which ports have been
implanted will vary depending on the patient and the surgeon's preference,
healthcare providers typically maintain many lengths of steel needles in
inventory. The L-Cath for Ports can satisfy virtually any length requirement
simply by bending the soft catheter outside of the skin.
Stickless Technology.
Currently, the Company's OneCath catheter placement system incorporates
stickless technology. See Item 1. Description of Business -- Research and
Development. When placing a catheter into a patient, the health care worker is
at significant risk of receiving an accidental needle stick. The needle may be
contaminated by any one of a variety of potentially
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infectious diseases. The degree to which the health care worker is at risk of
becoming infected is directly dependent upon the degree to which the disease is
transmittable.
AIDS and other infectious diseases have been shown to be transmittable from
patient to health care worker via contaminated needles. Management believes
that (a) health care workers and hospital administrators are highly motivated to
reduce the possibility of transmission of such diseases and (b) the insurance
industry is also highly motivated to reduce the risks (and associated costs) of
such infectious diseases. Furthermore, management believes that nurses' unions
and government agencies, e.g., Occupational Safety and Health Administration,
may require that needle guards be used when treating potentially infectious
patients. The present directive of the Centers for Disease Control and
Prevention in Atlanta, Georgia, is that hospital workers treat all patients as
potentially infectious; hence, care-givers must take certain necessary
precautions. Those precautions do not currently include the mandated use of
needle guards and there can be no assurance that any union or government agency
will require the use of needle guards. However, the design of the OneCath
catheter placement system incorporates technology that provides increased
protection against accidental needle sticks to health care workers.
Pertrach Technology.
The Pertrach tracheostomy device provides a means of rapidly and safely
inserting a breathing tube into a patent's trachea (through their crico-thyroid
membrane or trachea) in certain clinical situations. It provides an adequate
airway through which the patient can receive airflow. The method of inserting
the device is dilating a needle puncture. Because of the small size of the
puncture, a patient typically suffers minimal bleeding and the chance of
infection is reduced. Deploying the Pertrach tracheostomy device has been
demonstrated to take 30 seconds or less to perform.
ACTIV(TM) Catheter and Material.
In April of 1987 the Company executed a License and Sales Agreement (the "L
& S Agreement") with Tyndale Plains-Hunter, Ltd. ("TPH"), in respect of a
polymer that the Company used in early versions of its OneCath catheters. As a
result of experience gained in the marketplace through the Company's specialty
distribution network, the Company and TPH modified the L & S Agreement in April
of 1996. As modified, the L & S Agreement permits the Company to make, use,
sell, and sublicense products that utilize the Company's OneCath technology
covered by certain patents owned by TPH in the field of intravenous catheters,
exclusive of use in the fields of cardio-vascular diagnosis and treatment, blood
sensing, and enteral feeding tubes, for the original term of 25 years. The
amendment eliminates the Company's $60,000 minimum annual royalty requirement.
The Company remains obligated to pay royalties to TPH of a minimum of 2% to a
maximum of 3.5% of net sales of products incorporating the patented rights, and
a royalty of 40% of all income that the Company receives from sublicenses, if
any.
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Marketing and Customers
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The Company's marketing strategy is to distribute the L-Cath, SilCath, and
OneCath catheter products through a specialty distribution network. The Company
may develop and manufacture products, some of which may incorporate the
Company's patented technology for distribution on an OEM basis. The Company may
also license portions of its technology.
For several years, the Company had indirectly participated in the PICC and
Midline markets by selling its patented peel-away needle to two firms offering
complete patient PICC kits. In late 1990, the Company decided that it would
discontinue the supply of patented peel-away needles to one such firm and would
market complete patient PICC and Midline catheter kits under its own label. In
1994, the Company determined to discontinue the supply of peel-away needles to
the other firm and to sell the peel-away needles for PICC and Midline use
exclusively through its own distribution network.
In March of 1992, the Company entered into an exclusive distribution
agreement with Pharmacia Deltec Inc. ("Pharmacia") for the Company's PICC and
Midline products. In 1994 the Company and Pharmacia agreed to terminate the
exclusive nature of the agreement. In March 1994, Pharmacia became a non-
exclusive distributor for a broad range of the Company's products and the
Company commenced the establishment of a distribution network through specialty
distributors. Effective March of 1995, Pharmacia was permitted only to
distribute the Company's neonatal products.
Management believes that the current size of the markets for PICCs and
Midlines in the United States is approximately $40 million annually and that it
is expanding at an annual rate of 15%. The Company believes that the market
will continue its growth due to the continued efforts of the medical insurance
industry to reduce health care costs and the collateral movement of health care
delivery from the hospital to the outpatient setting. The Company believes that
its products are lower cost alternatives to established therapy.
Management believes that the current size of the market for implanted port
catheters in the United States is approximately $150 million annually. The
Company believes that its distribution network is properly positioned to address
this market and to gain certain market share for the Company, as the market is
currently served only by Huber steel needle manufacturers. Many of the
Company's distributors also sell Huber needles.
National Accounts Marketing.
Certain observers of the healthcare industry believe that as much as 70% of
materials purchased by hospitals are purchased under group contracts. Group
purchasing organizations represent large groups of hospitals or healthcare
agencies and negotiate with manufacturers for scheduled deliveries of products
at predetermined, competitive prices. In May of 1995, the Company entered into
a two-year consulting agreement with National Contracts, Inc. ("NCI"), pursuant
to which NCI will provide national account services for the Company. NCI
represents approximately ten companies in respect of national accounts into
which it has historically gained access and from which it has historically
received purchase contracts for its
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clients. The Company will pay approximately $200,000 annually to NCI in
consideration of its consulting services.
In furtherance of the Company's desire to sell its products through group
purchasing organizations, the Company entered into agreements with various
national group purchasing organizations, e.g., Apria Healthcare, Inc. ("Apria"),
Teamcare, the institutional pharmacy subsidiary of Atlanta-based GranCare, Inc.
("TeamCare"), Mid Atlantic Group Network of Shared Services, Inc. ("Magnet"),
and Health Services Corporation of America ("HSCA"). The Company is the
principal nationwide supplier of intermediate and long-term intravenous
catheters to Apria and to TeamCare. The Company supplies its catheter products
through Magnet, which is comprised of 11 regional shared services/group
purchasing organizations representing more than 1,100 acute care hospitals,
1,350 long-term care facilities, and a range of extended care and related
healthcare facilities. The Company supplies its L-Cath for Ports to HSCA.
Sales through such national accounts commenced during the 1996 fiscal year. In
December of 1995, the Company was awarded the rights to use the Alliance of
Children's Hospitals "Seal of Acceptance" for the Company's pediatric and
neonatal products, which products the Company supplies to members of the
Alliance.
Distribution Network.
In March of 1994, the Company commenced the establishment of a network of
specialty distributors to encompass the United States and Canadian markets. In
addition, the Company has appointed a number of international distributors. As
of the date of this Annual Report, the Company has full coverage of the United
States and Canadian marketplace through approximately 20 distributors, resulting
in more than 120 sales personnel engaged in sales efforts for the Company's
products.
In August of 1994, the Company entered into a five-year distribution
agreement for the states of California, Arizona, Nevada, and New Mexico with
Kentec Medical, Inc. ("Kentec"). The Company granted Kentec certain pricing
accommodations during a transition period. The agreement provides certain
termination privileges for the Company and for Kentec. The Company may
terminate the agreement if Kentec fails to purchase sufficient quantities of the
Company's products. Kentec may terminate the agreement if, during the term of
the agreement and under certain circumstances, the Company (i) commences direct
sales into Kentec's territory without its written consent or (ii) is a party to
a business combination transaction, the resulting enterprise of which chooses
not to assume the agreement. Kentec shall be entitled to a fee if it terminates
the agreement upon the occurrence of either such event. For each year remaining
of the then-unexpired term of the agreement, such fee (to be paid annually)
shall be a sum equivalent to 30% of the aggregate transfer price for products
sold by the Company to Kentec during the immediately preceding 12 months. In
the case of such a termination, Kentec is to receive the initial annual payment
of such fee within 30 days.
Licensed Technology.
In October of 1993, the Company signed an exclusive "life of the patents"
agreement with The Kendall Company ("Kendall") for North and South America,
pursuant to which the Company licensed Kendall to use certain of the Company's
patent rights and technology relat-
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ing to the Company's peel-away needles. Kendall may utilize such patent rights
and technology in research and development, manufacturing, marketing, and
selling peel-away needles used in connection with epidural and/or spinal
anesthesia (the "Kendall Licensed Products"). Kendall tendered to the Company
an initial licensing fee of $10,000. Kendall is obligated to tender to the
Company a royalty on the sale of Kendall Licensed Products, which royalty shall
be the greater of three percent of net sales of the Kendall Licensed Products or
75 cents for each sale of Kendall Licensed Products. If the Company manufactures
for, or supplies to, Kendall peel-away needles during the first 12 months
following the date on which the FDA issues a 510(k) clearance to market, Kendall
shall pay to the Company its proportional direct labor, direct material, and
direct overhead costs, plus one dollar for each such needle. In order to
maintain exclusivity under the license agreement, Kendall shall be required to
sell a minimum of 6,000 needles during the first year of production and, during
each of the four subsequent years, the greater of 15,000 needles or an amount
equivalent to 80% of the needles sold during the previous year. If Kendall
desires to maintain exclusivity under the license agreement, but has not
attained such minimum sales levels, it shall make a payment to the Company at
the end of each year in an amount equivalent to the royalty that would have been
due on the relevant minimum sales levels. If Kendall does not maintain
exclusivity under the license agreement, the royalty rate shall be reduced by
50%.
In March of 1992, the Company and Pharmacia entered into a five-year
distribution and development arrangement, pursuant to which Pharmacia became the
virtually exclusive distributor (world-wide, except for Japan) of certain of the
Company's catheter products (both currently available and under development) and
undertook to provide certain funding related to the development of the OneCath
products. In March of 1994, the Company and Pharmacia modified their
relationship as follows: (i) the March of 1992 agreements were terminated,
other than certain confidentiality provisions, and Pharmacia was released from
all minimum purchase obligations; (ii) the Company executed a replacement 8%
promissory note (with an initial principal balance of $625,000) due in June of
1997; (iii) the Company granted to Pharmacia a world-wide (except for Japan)
non-exclusive license to distribute the Company's PICC and Midline products that
use a peel-away needle for adults for a 12-month period and, for a five-year
period, certain neonatal catheter products; and (iv) the Company granted to
Pharmacia a non-exclusive license to use certain of the Company's patents, as
partial consideration for which Pharmacia paid $100,000 to the Company in May
of 1994. The Company utilized such payment as its initial $100,000 principal
payment on the March 1994 promissory note and, thereafter, commenced quarterly
principal and interest payments. In November of 1995, the Company paid to Sims
Deltec, Inc. ("Sims"), the corporate successor to Pharmacia, $400,000, as
payment in full of such promissory note.
In November of 1987, the Company signed a world-wide "life of the patents"
agreement with Critikon, Inc., a Johnson & Johnson company ("Critikon"), that
licensed Critikon to manufacture, market, and distribute the Company's patented
guarded intravenous catheter under the trademarked name of PROTECTIV. In March
of 1995, the Company assigned the licensed patents to Johnson & Johnson Medical,
Inc. ("JJMI"), the corporate successor to Critikon, for $4.7 million.
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Interventional Radiology.
In September of 1995, the Company entered into a product development and
supply agreement with Boston Scientific Corporation ("BSC"), pursuant to which
the Company undertook to manufacture (to BSC's specifications) and BSC
undertook to sell (on an exclusive basis) a jointly developed range of PICCs to
be used exclusively in the interventional radiology market for patients who
require percutaneous access to the vascular system.
Order Backlog
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The amount of backlog orders believed by the Company to be firm, as of June
30, 1996, for catheter production was $402,000. The Company expects that all of
such backlog will be filled within the current fiscal year. As of June 30,
1995, such backlog orders were approximately $400,000 for catheter production.
Production and Supplies
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Many of the components of the catheter product lines can have more than one
source of supply, although the Company has not traditionally multi-sourced its
components. The Company believes that it would be able to switch its sources of
supply without causing significant disruption to its manufacturing or marketing
operations. The Company owns the designs and molds for the components that are
proprietary to the Company and can relocate the molds at its discretion to
numerous alternative molders in its local area.
Government Regulation
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The FDA classified the Company's catheter placement systems as Class II
medical devices under the Federal Food, Drug and Cosmetic Act (the "FFD&C
Act"). This classification requires the Company to obtain clearance from the
FDA prior to marketing its catheter products. The Company has had and will
continue to have its products clinically tested in hospitals and other
institutions to ensure the fitness for, and ease of, use of the catheter
placement systems. Under the FFD&C Act and applicable FDA regulations, the FDA
may periodically inspect the manufacturing facilities of the Company, and the
Company must comply with certain methods, facilities, controls, labeling,
recordkeeping, and reporting requirements in manufacturing and marketing its
catheter placement systems.
The manufacture and sale of medical devices are also regulated by some
states, including California, and most foreign countries. The Company has
obtained its manufacturing license from California and is not aware of any other
state approvals necessary at this time. The Company will require each foreign
distributor to obtain all necessary regulatory approvals to market the Company's
catheter placement system in the countries in which the distributor intends to
market the product. Management believes that the Company's distributors have
obtained all necessary international approvals for products currently being
sold.
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Patents
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Peel-Away Cannula Patent.
In July of 1980, Mr. Luther and one other then-current executive officer
and director of the Company assigned the cannula patent to the Company in
exchange for a royalty of 6% of net sales of products utilizing that patent.
Through December of 1987, royalties of $83,000 had been paid and an additional
$70,000 had been accrued. In March of 1988, the parties agreed to terminate the
royalty agreement; in consideration thereof and of the accrued but unpaid
royalties, 24,858 shares of the Company's Common Stock were issued to such
individuals.
OneCath Patents.
The Company has filed applications for six patents for the OneCath catheter
and its manufacturing process. To date, four letters patent have issued.
Pertrach Patents.
The Company is the assignee of three patents utilized in the Pertrach
Products. See "Item 1. Description of Business -- Products -- Pertrach
Technology."
Other Patents.
During the fiscal years ended June 30, 1996, 1995, and 1994, six patent
applications, in addition to those referenced above, were filed, five of which
have since been granted and three of which are pending as of the date of this
Annual Report.
General Patent Protection.
To date, no court has ruled on the enforceability of any of the Company's
patents. There is no assurance that the Company's patents or any future patents
will afford protection broad enough to prevent competitors from manufacturing
systems similar to the Company's. In defense of its intellectual property
rights, the Company was successful in compelling Gesco International, Inc.
("Gesco") to cease its infringement of one of the Company's split-needle
patents. The Company has purchased a policy of patent insurance to supplement
its financial resources in the prosecution of infringement of its major patents.
Competition
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Many larger medical companies, e.g., Baxter Healthcare Corp., Becton-
Dickinson and Co., Abbott Laboratories, and Sims, dominate the general catheter
and port access segments of the medical device industry and compete with the
Company on the basis of product performance. Management believes that PICCs
and Midlines typically offer a lower cost alternative to the surgically placed
central catheter lines that are offered by such larger companies. See Products
- -- Peripherally Inserted Central Catheters.
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Management believes that such larger companies neither offer a range of
products that better suit the needs served by PICCs and Midlines nor utilize
appropriate channels of distribution to service the PICC and Midline markets.
Although the Company does not have the financial or distribution resources to
supplant the market position of such larger companies with respect to the
specific catheter products manufactured and marketed by them, management
believes that the Company can be successful in manufacturing and supplying PICCs
and Midlines to the markets that can utilize such products. Accordingly, the
Company has adopted a strategy of marketing its products through its network of
specialty distributors, as well as through selective licensing arrangements.
Management believes that the major manufacturers of PICCs and Midlines are:
. Gesco, which was recently acquired by Bard Access Systems, offers only
silicone PICCs as an extension to Bard's established product line, the
range of which the Company's management believes to be more limited and
more expensive than the Company's.
. HDC Corporation, which currently only offers silicone PICCs and Midlines.
Research and Development
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In May of 1987, the Company introduced a new catheter product designed to
minimize the transmission of infectious diseases such as AIDS and hepatitis
through accidental needle sticks. Management believes that the Company was the
first to develop and market a product of this type. That product became the
PROTECTIV catheter, licensed by the Company to Critikon, Inc., a Johnson &
Johnson company ("Critikon"). Since the introduction of stickless technology
with PROTECTIV, the Company's catheter research and development efforts
continued to concentrate on stickless product designs, as well as the OneCath
catheter, L-Cath for Ports, high flow-rate catheters, and dual lumen products.
Since completion of the PROTECTIV design, the Company has concentrated on
the development of additional products for its distribution network. Current
areas on which the Company is concentrating its efforts include needle stick
protection for healthcare workers, reduced exposure to blood, increased dwell
time (the time that a catheter may remain in a vein before it must be removed),
ease of use with a related reduction in training time, and improved patient
comfort. As a result of such development efforts, the L-Cath for Ports design
has been upgraded to offer reduced blood exposure and ease of use. Other
products offering such upgrades are currently in development. There can be no
assurance that any commercially feasible products will result from such research
and development activities. During the fiscal years ended June 30, 1996, and
1995, the Company expended an aggregate of approximately $395,000 and $368,000,
respectively, on catheter research and development efforts.
Employees
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The Company employs 48 individuals. The Company's employees are not
covered by any collective bargaining agreement, and management believes its
relationship with its employees is good.
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ITEM 2. Description of Property.
The Company's executive offices and manufacturing facilities are located in
leased premises at 14332 Chambers Road, Tustin, California. The property
comprises approximately 20,000 square feet of light industrial space. The
leasehold improvements include approximately 4,350 square feet of a controlled
manufacturing environment suitable for medical device manufacturing, as well as
air, vacuum, and electrical systems. The Company believes that its facilities,
as improved, are suitable and adequate for its business, as currently conducted
and for the foreseeable future. The Company believes that the facilities
provide it with productive capacity sufficient to enable it to meet its current
production goals and requirements, and those for the foreseeable future.
Management believes that the facilities, as currently situated, could support a
tripled level of production of current catheter products. The lease terminates
April 30, 1998.
ITEM 3. Legal Proceedings.
The Company is not a party to any legal proceedings and management is not
aware of any threatened legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted during the fourth quarter of the year ended
June 30, 1996, to a vote of security holders through the solicitation of proxies
or otherwise.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is publicly traded in the over-the-counter
market and is quoted on the NASDAQ SmallCap Market under the trading symbol
"LUTH". The following table sets forth the high and low quotations for the
Common Stock of the Company during the calendar periods indicated, as reported
by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
Calendar Year Quarter High Low
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<S> <C> <C> <C>
1994 Third Quarter 3.00 2.12
Fourth Quarter 2.75 2.37
1995 First Quarter 3.00 2.50
Second Quarter 2.68 2.50
Third Quarter 3.19 2.25
Fourth Quarter 5.38 2.75
1996 First Quarter 5.13 3.25
Second Quarter 7.25 4.31
</TABLE>
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The closing price of the Company's Common Stock as of September 20, 1996,
was $5.50. At September 20, 1996, the Company had approximately 3,200 record
holders of its Common Stock.
The Company did not declare or pay any dividends during either of its
fiscal years ended June 30, 1996, and 1995. Payment of dividends, if any, on
the Common Stock, is dependent upon the amounts of future after-tax earnings, if
any, of the Company and is subject to the discretion of its Board of Directors.
The Board of Directors is not legally obligated to declare dividends, even if
the Company is profitable. To date, the Company has not declared or paid any
dividends. The Company intends to employ all available funds to finance the
growth of its business and, accordingly, does not intend to declare or pay any
dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
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The Company commenced business operations in 1980 (as the successor to a
partnership organized in 1979) to develop, manufacture, and market a
proprietary catheter placement system and related products. The Company has
financed its development activities and operations since inception primarily
with the net proceeds of an initial public offering in 1980 and with proceeds
from subsequent sales of securities (both public and private issuances), funds
received under a research and development agreement funded by a limited
partnership to develop certain small catheter systems, and the proceeds of a
sale by the Company of five of its patents to JJMI.
Development continues on new models of catheter systems for various
applications. Since its inception, the Company has developed and introduced
numerous versions of its catheter placement products and systems, and additional
catheter products are in development. There can be no assurance that any
commercially feasible products will result from such development activities.
Because of the Company's focus on research and development and its limited
capital and marketing resources, the Company has generated relatively nominal
sales of its products until recently. In November of 1987, a significant
private label agreement was entered with Critikon, under which the Company
manufactured its PROTECTIV catheter product for distribution by Critikon; in
March of 1990, Critikon commenced to manufacture the product and paid the
Company a sales-based royalty; and in March of 1995, the Company assigned to
JJMI the PROTECTIV patents for $4.4 million, net of expenses. In 1990, the
Company commenced the marketing of a PICC product line utilizing its L-Cath
catheter placement system. In March of 1992, the Company entered into an
exclusive distribution agreement with Pharmacia for the Company's PICC and
Midline products that use a peel-away needle, including catheters for adults and
certain neonate catheters, which agreements became non-exclusive in March of
1994. Effective March of 1995, Pharmacia was permitted only to distribute the
Company's neonatal products for an additional four years. See Item 1.
Description of Business.
-12-
<PAGE>
In March of 1994, the Company commenced the establishment of a network of
specialty distributors to encompass the United States and Canadian markets. In
addition, the Company has appointed a number of international distributors. As
of the date of this Annual Report, the Company has approximately 20
distributors, resulting in more than 120 sales personnel engaged in sales
efforts for the Company's products. As of the date of this Annual Report,
substantially all of the distributors have received training in the use of the
products.
Fiscal Year Ended June 30, 1996, Compared To Fiscal Year Ended June 30, 1995.
Total revenues for 1996 were $4 million compared to $7.4 million in 1995.
During the 1995 fiscal year, the Company sold five patents related to stickless
needle technology to JJMI for $4.4 million, net of expenses. The decrease in
total revenues for 1996 was attributable to such patent sale, as partially
offset by the $1,370,000 increase in sales of the Company's catheter products.
JJMI, successor-in-interest to Critikon, was the exclusive licensee under these
patents pursuant to a royalty license agreement entered into in 1987, which was
terminated as of March 28, 1995. Royalty income, therefore, decreased to
$13,445 for fiscal year 1996, compared to $376,470 in 1995, as a result of
termination of the royalty license agreement with Critikon. There were no
production costs associated with any such license fee revenues.
The Company's catheter products generated revenues of $3,883,000 in 1996 as
compared to $2,513,000 in 1995, an increase of 55%. In 1994, the Company
modified its agreement with Pharmacia from an exclusive to a non-exclusive
distributor relationship and established a network of specialty distributors.
Sales to Pharmacia contributed $43,000 in 1996, compared to $512,000 in 1995,
while sales to the Company's specialty distributors increased by 88% to
$2,049,000 in 1996 from $1,091,000 in 1995.
Sales to OEM customers increased by 171% to $993,000 in 1996, from $367,000
in 1995, primarily as a result of a new distribution agreement with BSC, to
develop and manufacture a range of PICCs for the interventional radiology
market. Catheter sales to international distributors increased by 52% to
$774,000 in 1996 from $508,000 in 1995. Interest and other income was
$126,000 in 1996 compared to $50,000 in 1995, reflecting the increased interest
earned on available cash which was invested in U.S. Treasury bills.
Cost of revenues rose from $1,818,000 in 1995 to $2,393,000 in 1996. Cost
of revenues as a percentage of product sales decreased from 72% to 62%,
attributable to increased sales and lower per-unit manufacturing costs.
Selling expenses decreased to $902,000 in 1996 from $1,126,000 in 1995, as
a result of an accrual in 1995 of $238,000 relating primarily to the engagement
of NCI in May of that year to develop a national accounts program targeting
hospital purchasing groups and to lower advertising and promotional expenses in
1996. General and administrative expenses decreased to $869,000 in 1996 from
$1,026,000 in 1995, primarily due to lower legal and license fee expenses.
Research and development expenses for 1996 were $395,000, compared to $368,000
in 1995. Depreciation and amortization expenses decreased to $181,000 for 1996,
compared to $194,000 for 1995. Interest and other expenses decreased to $13,000
in 1996 from $262,000 in 1995, due to a $162,000 write-off of the Company's
repur-
-13-
<PAGE>
chased licensing rights from a foreign distributor in 1995 and to lower interest
expenses resulting from lower debt balances in 1996. The Company recorded a
provision for minimum income taxes of $800 for 1996, compared to $124,000 in
1995. At June 30, 1996, the Company had net operating loss carryforwards of
approximately $3.7 million available to offset future taxable federal income.
The carryforwards amounts expire in varying amounts between 2001 and 2011.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1996, the Company had working capital of $3.6 million and its
principal sources of liquidity consisted of $1.6 million in cash and cash
equivalents. The Company used cash for operations of $1.5 million during 1996,
mainly as the result of increases in accounts receivable and inventories
resulting from higher sales levels and the net loss for the year. With respect
to investing activities, the Company made purchases of property and equipment
totaling $105,000 and invested $125,000 in licensing and manufacturing rights to
be amortized over three and five years, respectively. Financing activities
provided $357,000, resulting from the collection of a note receivable from a
shareholder and proceeds from sales of common stock from the exercise of stock
options and warrants, as offset by repayment of debt to Sims of $400,000.
The Company has no long-term capital commitments other than an annual lease
obligation of between $130,000 and $151,000 for its facilities through 1998 and
consulting fees of $396,000 payable to NCI over a two-year period, $239,000 of
which was paid through June 30, 1996.
The Company believes that available cash and cash equivalents, as well as
funds expected to be generated from operations, will be sufficient to meet the
Company's operating expenses and cash requirements for the next fiscal year.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("Statement No. 123"). Statement No. 123 is primarily a disclosure standard
for the Company because the Company will continue to account for employee stock
options under Accounting Principles Board Opinion No. 23. The disclosure
requirements for the Company required by Statement No. 123 will be effective for
the Company's financial statements for its 1997 fiscal year.
ITEM 7. Financial Statements.
See Index to Financial Statements at page 32.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no events or conditions requiring reporting under the
requirements of this item.
-14-
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
Director
Name of Individual Age Position Since
- ---------------------------- --- --------------------------- -----
<S> <C> <C> <C>
David Rollo 55 President, Chief Executive 1993
Officer, Chief Financial
Officer, and a Director
Ronald B. Luther 64 Vice President, Director of
Research and Development -
Petra Darling 52 Secretary -
Mark S. Isaacs 31 Director 1991
Jack W. Payne 66 Director 1992
D. Ross Hamilton 58 Director 1993
William R. Dahlman 54 Director 1995
Barry W. Hall 48 Director 1995
</TABLE>
Each of the Company's directors has been elected to serve until the next
meeting of shareholders. Except as described below, there are no arrangements
or understandings between any director and any other person pursuant to which
any person was elected or nominated as a director. Pursuant to an understanding
between the Company and a now-disbanded shareholder group, of which Mr. Luther
was a member, (i) Mr. Dahlman was a nominee to be elected as a director at the
Company's Annual Meeting of Shareholders, held in December of 1995, and (ii) in
the organizational meeting of the Company's board of directors held in December
of 1995, the number of directors of the Company was increased from five to six
to facilitate the appointment of Mr. Hall, a designee of such group, as a
director of the Company. Each of Messrs. Dahlman and Hall is to serve as a
director of the Company until the immediately following annual meeting of the
Company's shareholders and until their respective successors are elected and
shall qualify. The Company's executive officers serve at the discretion of the
Board of Directors.
Mr. Rollo has served as President, Chief Executive Officer, and as a
director of the Company since December of 1993, as its Chief Financial Officer
since January of 1994, and as its Chairman of the Board since June of 1995.
From 1976 to 1993, Mr. Rollo was employed by Telectronics Inc. (or by certain of
its affiliates), a Denver, Colorado, heart pacemaker manufacturer, in various
positions, including President and Chief Executive Officer.
Mr. Luther is the founder of the Company and, since September of 1995 has
served as its Vice President, Director of Research and Development. From the
Company's organization in 1980, until December of 1995, he served as a director;
until June of 1995, as the Company's Chairman of the Board; until December of
1993, as its Chief Executive Officer; and, between 1980 and 1990 and during 1992
and 1993, as its President. From 1978 to 1980, Mr.
-15-
<PAGE>
Luther was the President and sole shareholder of Luther Medical Systems, Inc., a
research and consulting company. From 1975 to 1978, he was the President of
William Harvey Research Corporation, a manufacturer of blood oxygenators for
open heart surgery.
Ms. Darling has served as secretary of the Company since November of 1992.
Since 1981, she has been employed by the Company in various administrative, non-
policy making capacities, including the Company's assistant secretary (between
1988 and 1992) and its controller (from 1981 to the present), reporting to the
Company's principal accounting officer.
Mr. Isaacs has served as a director of the Company since September of 1991.
From April of 1995 until December of 1995, he also served as a consultant to
the Company. Since May of 1996, Mr. Isaacs served as the Chairman of the
Board of VenzCoal, Inc., a private Nevada corporation formed to be engaged in
the production and marketing of coal in Guarico State Venezuela. From March of
1991 to October of 1994, Mr. Isaacs was engaged in the acquisition of silver
mining properties under the name SilTex Resources. In August of 1992, SilTex
Resources was incorporated in Nevada as "SilTex Resources, Inc." Mr. Isaacs
served as its Chairman of the Board and Chief Executive Officer until October of
1994, as a director until December of 1994, and as a consultant through April of
1995. From February of 1993 until October of 1994, Mr. Isaacs served as
President, Chief Executive Officer, and Chairman of the Board of Belcor Inc.
("Belcor"), whose business consists of natural resource related activities.
Mr. Payne has served as a director of the Company since March of 1992.
From January of 1993 to the present, he has served as the Executive Vice
President and a director of Sequin Hospital Bed Corporation, a Denver, Colorado,
durable medical equipment company of which he is a co-founder. From June of
1992 to the present, Mr. Payne has also served as President and Chief Executive
Officer of FerroMagnetic Therapeutics Corp., a Denver, Colorado, biotechnology
company. From December of 1993 to the present, he has served as a director of
First Fidelity Acceptance Corp., a public Dallas, Texas, financial services
company. Between 1990 and 1993, Mr. Payne served as the President of Executive
Marketing International, Inc., a Denver, Colorado, human resource consulting
company. From January of 1990 to June of 1992, he was the President and served
as the Chief Operating Officer of Bio Barrier Corporation. Mr. Payne commenced
his career in the medical products and devices field at Baxter Travenol
Laboratories, Inc., in 1958, where, until 1977, he was employed in various sales
and executive positions. Thereafter, he continued his career in that industry
with executive positions at R.P. Scherer Corporation and Terumo Medical
Products, Inc.
Mr. Hamilton has served as a director of the Company since March of 1993.
For not less than the previous five years, he has served as President of
Hamilton Research, Inc., a Maryland-based financial consulting firm. Since
December of 1989, Mr. Hamilton has served as a director of Incstar Corporation,
52% of which enterprise is owned by Fiat S.p.A.; between January of 1993 and
June of 1996, as a director of Belcor; and since June of 1994, as a director of
Alpharel, Inc., a computer software company. Between 1968 and 1981, he served as
a Vice President of Dean Witter Reynolds and, for the six previous years, in
various executive positions at Chemical Bank.
-16-
<PAGE>
Mr. Dahlman has served as a director of the Company since December of 1995.
From January of 1991 to the present, he has served as a principal of WRD &
Associates, a Los Angeles, California, contract management and consulting
group. From 1987 until forming WRD & Associates, Mr. Dahlman was the President
and Chief Executive Officer of Suntory Water Group in Atlanta, Georgia.
Mr. Hall has served as a director of the Company since December of 1995.
From January of 1996 to the present, he has served as Vice President, Finance
and Administration and Chief Financial Officer of EarthLink Network, Inc., a
Pasadena, California, internet service provider. From April of 1994 to December
of 1995, Mr. Hall was an independent management consultant. For the five years
commencing March of 1989, he served as Chief Executive Officer and Chairman of
the Board of California Amplifier, Inc., a publicly traded manufacturer of
microwave amplifiers headquartered in Camarillo, California.
Committees; Meetings.
The Company has a standing audit committee, the members of which are
Messrs. Isaacs, Hamilton, and Hall; a standing compensation committee, the
members of which are Messrs. Payne and Hamilton; and a standing nominating
committee, the members of which are Rollo, Isaacs, and Dahlman.
The Company's Board of Directors met a total of seven times during the
fiscal year ended June 30, 1996.
ITEM 10. Executive Compensation.
Employment Agreements
- ---------------------
The Company employs Mr. Rollo as its Chief Executive Officer and President
pursuant to a series of employment agreements, the most current of which is
effective as of December of 1995. Mr. Rollo's annual base compensation
thereunder currently is $150,000, subject to cost of living increases and
periodic review and increase upon the recommendation of the Company's
compensation committee. Mr. Rollo is also entitled to receive bonus payments in
their discretion.
Upon execution of the initial employment agreement in December of 1993, the
Company granted to Mr. Rollo warrants to purchase 150,000 shares of the
Company's common stock, of which 50,000 warrants vested in December of 1994,
50,000 vested in December of 1995, and 50,000 are to vest in December of 1996.
The exercise price of the warrants (the average of the closing bid and asked
prices as quoted on the NASDAQ System on December 6, 1993) is $2.94.
If Mr. Rollo's employment by the Company should terminate for any reason,
all of such warrants shall immediately vest and become exercisable. Vesting of
all of Mr. Rollo's unvested warrants shall be accelerated to the date on which
a sale of all or substantially all of the Company's assets closes or a change of
control of the Company occurs.
-17-
<PAGE>
Under certain circumstances, a termination of Mr. Rollo's employment
agreement will cause the Company to pay to Mr. Rollo (i) his full base
compensation through the date of termination at the rate in effect at the time
of such termination and (ii) a lump sum equal to 100% of his annual base
compensation at the highest rate in effect during the 12 months immediately
preceding the date of termination.
A "change in control of the Company" means a change in control of a nature
that would be required to be reported in response to Item 5(f) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided, however, that such "person" (as such
-------- -------
term is used in Section 13(d) and 14(d) of the Exchange Act), other than the
Company or any "person" who on the date hereof is a director or officer of the
Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
80% or more of the combined voting power of the Company's then outstanding
securities.
Effective in September of 1995, the Company and Mr. Luther entered into an
agreement (the "September 1995 Agreement"), pursuant to which the Company
employs Mr. Luther as its Vice President, Director of Research and Development.
Mr. Luther's annual base compensation thereunder is $115,000, subject to
periodic review. Mr. Luther may receive bonus payments in the discretion of the
Company's compensation committee. The September 1995 Agreement supersedes an
earlier employment agreement entered in November of 1993 (the "November 1993
Agreement").
Upon execution of the November 1993 Agreement, the Company granted to Mr.
Luther warrants to purchase 100,000 shares of the Company's common stock, of
which warrants, 40,000 of which are currently vested and the remainder vest
annually in November of 1996, 1997, and 1998, in three equal allotments of
20,000 each. The exercise price of the warrants, as determined by the Company's
board of directors (with Mr. Luther abstaining), is $2.63.
During each of the five years following the earlier of (i) termination of
the agreement for any reason (other than if Mr. Luther has been convicted of
committing a felony) or (ii) November 19, 1998, the Company shall pay to Mr.
Luther compensation ("Royalties") equivalent to two percent of the "net sales
price" of all products manufactured by, or on behalf of, the Company for which
the Company received a 510(k) notification from the United States Food and Drug
Administration that bears a date on or after November 19, 1993. No Royalties
shall accrue in favor of Mr. Luther during the period that the Company is
responsible to pay to him base compensation. Royalties shall be paid in cash,
quarterly, in arrears. Any successor to the Company may limit Royalties (i) to
the amount paid by the Company prior to such event of succession, if, as of the
date of such event, Mr. Luther had received Royalties in an aggregate amount of
not less than $2,000,000 or (ii) to a maximum aggregate amount of $2,000,000,
if, as of such event of succession, Mr. Luther had not received Royalties in
such amount. In lieu of the second limitation, a successor to the Company may
pay to Mr. Luther the then net present value of Royalties remaining to be paid,
to a maximum aggregate payment of $2,000,000.
-18-
<PAGE>
"Net sales price" means all revenues from sales of relevant royalty
products received by the Company in arms-length transactions for commercial
purposes, whether a sale, lease, or other transaction, less sales, excise, and
use taxes; export or import duties; freight; credits for claims; and allowances
for returns from, and samples to, purchasers. If the Company grants licenses or
otherwise transfers to unaffiliated third parties certain patent rights to sell
relevant royalty products, sales or leases thereof by such third parties shall
be deemed to be sales or leases by the Company, although the calculation of such
"third-party generated" Royalties would be reduced from two percent to one
percent of the royalty revenues received by the Company.
During the period that Royalties are to be paid by the Company, Mr. Luther
shall not, without the Company's prior written consent, engage in business
activities that are the same or substantially similar to the businesses,
products, services, or markets of the Company. The Company's termination of Mr.
Luther's employment pursuant to the at will employment provisions of the
September 1995 Agreement shall be deemed to be such written consent.
Additionally, Mr. Luther may elect to compete by voluntarily terminating the
Company's Royalties obligation.
If Mr. Luther's employment agreement is terminated due to his death or
disability, the Company will be required to pay to Mr. Luther, his designee, or
his estate, as appropriate, (i) his full base compensation to the date of
termination, (ii) a sum equivalent to one month's salary for each year
commencing November 12, 1980, payable monthly for the relevant number of
months, and (iii) the Royalties. If Mr. Luther's employment agreement is
terminated pursuant to the at will employment provisions of the September 1995
Agreement, the Company will be required to pay to Mr. Luther (i) his full base
compensation to the date of termination, (ii) a sum equivalent to 16 months'
salary in 16 equal monthly installments, and (iii) the Royalties.
-19-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------------------------------
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Rollo 1996 $ 150,000 --- --- --- - 0 - -- --
(President, 1995 $ 141,437 --- --- --- - 0 - -- --
CEO, and CFO) 1994 $ 74,417/1/ --- --- --- 150,000 -- --
Ronald Luther 1996 $ 115,300 --- --- --- 100,000 -- --
(Vice President, 1995 $ 107,690 --- --- --- - 0 - -- --
Director - R&D) 1994 $ 100,000 --- --- --- 104,286 -- --
All executive
officers as a group
(3 persons) 1996 $ 326,870 --- --- --- 100,000 -- --
(3 persons) 1995 $ 308,383 --- --- --- 9,286 -- --
(3 persons) 1994 $ 230,334 --- --- --- 258,429 -- --
</TABLE>
________________
1 Represents the period from the commencement of Mr. Rollo's employment in
December of 1994 through the end of the Company's fiscal year at June 30,
1995.
________________
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------------
Percent of Total
Options/SARs
Options/ Granted to Market Price
SARs Employees in Exercise or Base on Date Expiration
Name Granted(#) Fiscal Year Price($/Sh) of Grant($/Sh) Date
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David Rollo - 0 - N/A N/A N/A N/A
Ronald Luther 100,000 36 3.63 3.13 9/18/2000
</TABLE>
-20-
<PAGE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David Rollo -0- --- 100,000/ 169,000/
50,000 84,500
Ronald Luther -0- --- 156,429/ 192,537/
140,000 200,000
</TABLE>
Effective in December of 1995, Directors who are not officers of the
Company receive a fee of $900 per meeting attended in person, or $500 per
meeting attended by telephone, as compensation for their services, an increase
from $600 and $400, respectively.
The Company granted warrants to its directors to purchase the number of
shares of the Company's Common Stock set forth in the chart below. Except as
noted, each warrant was exercisable immediately, for a period of five years, and
is currently outstanding. The chart does not reflect warrants that expired,
unexercised prior to the Company's fiscal year ended June 30, 1996.
-21-
<PAGE>
<TABLE>
<CAPTION>
Fair
Name of Number of Date of Date of Exercise Market
Individual Shares Grant Expiration Price Value/1/
- ---------------- --------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
D. Rollo/2/ 150,000 Dec. 1993 Dec. 1999-2001 $2.94 $2.94
M. Isaacs/3/ 7,143 Sep. 1991 Sep. 1996 3.50 5.01
M. Isaacs 5,000 Jan. 1992 Jan. 1997 5.57 8.32
M. Isaacs 5,000 Jan. 1993 Jan. 1998 3.50 4.57
M. Isaacs 25,000 July 1993 July 1998 2.75 2.75
M. Isaacs 5,000 Jan. 1994 Jan. 1999 2.50 3.13
M. Isaacs 13,500 Jan. 1995 Jan. 2000 2.55 3.25
M. Isaacs/4/ 13,500 Sep. 1995 Sep. 2000 2.56 3.13
M. Isaacs 9,000 Dec. 1995 Dec. 2000 3.85 4.81
M. Isaacs/5/ 30,000 Dec. 1995 Dec. 2001-2005 4.81 4.81
J. Payne 2,500 Mar. 1992 Mar. 1997 6.20 9.26
J. Payne 5,000 Jan. 1993 Jan. 1998 3.50 4.57
J. Payne 25,000 July 1993 July 1998 2.75 2.75
J. Payne 5,000 Jan. 1994 Jan. 1999 2.50 3.13
J. Payne 9,000 Jan. 1995 Jan. 2000 2.55 3.25
J. Payne 9,000 Dec. 1995 Dec. 2000 3.85 4.81
J. Payne/5/ 30,000 Dec. 1995 Dec. 2001-2005 4.81 4.81
R. Hamilton 35,000 July 1993 July 1998 2.75 2.75
R. Hamilton 5,000 Jan. 1994 Jan. 1999 2.50 3.13
R. Hamilton 9,000 Jan. 1995 Jan. 2000 2.55 3.25
R. Hamilton 9,000 Dec. 1995 Dec. 2000 3.85 4.81
R. Hamilton/5/ 30,000 Dec. 1995 Dec. 2001-2005 4.81 4.81
W. Dahlman/5/ 30,000 Dec. 1995 Dec. 2001-2005 4.81 4.81
B. Hall/5/ 30,000 Dec. 1995 Dec. 2001-2005 4.81 4.81
R. Luther 7,143 June 1988 June 1998 3.50 6.58
R. Luther/6/ 21,429 Jan. 1990 Jan. 1996 3.50 4.41
R. Luther/7/ 14,286 Jan. 1991 Jan. 1996 3.50 2.66
R. Luther/8/ 70,000 Nov. 1991 Nov. 1996 3.75 6.75
R. Luther 15,000 Apr. 1993 Apr. 1998 3.50 4.57
R. Luther/9/ 100,000 Nov. 1993 Nov. 1998-2002 2.63 4.57
R. Luther 4,286 Apr. 1994 Apr. 1999 3.25 3.25
R. Luther/10/ 100,000 Sep. 1995 Sep. 2000 3.63 3.13
</TABLE>
1 Fair market value represented the average of the bid and asked price for a
share of the Company's common stock on the date of grant.
2 100,000 of such warrants are currently exercisable as of, or within 60 days
of, the date of this Annual Report; 50,000 of such warrants are to vest in
December of 1996. If Mr. Rollo's employment by the Company should
terminate for any reason, all of such warrants that, as of the date of
termination, otherwise would have become exercisable within the 12-month
period following the date of termination shall immediately vest and become
exercisable. Vesting of all such unvested warrants shall be accelerated to
the date on which a sale of all or substantially all of the Company's
assets closes or a change of control of the Company occurs.
3 All of such warrants were exercised in September of 1996.
4 All of such warrants are currently exercisable; 1,500 of which were
exercised in April of 1996.
5 On December 8, 1995, the Company's board of directors established a five-
year warrant program, pursuant to which each of the Company's outside
directors was granted 30,000 warrants to purchase a like number of shares
of the Company's common stock at fair market value as of the date of grant.
Vesting, at the annual rate of 6,000 warrants per year, will commence one
year following the date of grant and will end upon the grantee's cessation
of services as a director of the Company. In the event of a sale of the
Company while the person is a director, all of such warrants immediately
vest and become exercisable.
-22-
<PAGE>
6 The exercise period of such warrants commenced one year after date of grant
(or in January of 1991). All of such warrants were exercised in January of
1996.
7 All of such warrants were exercised in January of 1996.
8 The exercise period of such warrants commenced on March 24, 1992, the
effective date of an agreement between the Company and Pharmacia Deltec
Inc.
9 60,000 of such warrants are currently exercisable; 20,000 of such warrants
are exercisable in November of 1996 and 1997, respectively.
10 40,000 of such warrants are currently exercisable; 20,000 of such warrants
are exercisable in September of 1997, 1998, and 1999, respectively.
Vesting of all of such unvested warrants shall be accelerated (a) in the
event of Mr. Luther's death or disability or (b) to the date on which the
Company is acquired or all or substantially all of the Company's assets are
sold. Such warrants were granted in replacement of 100,000 warrants that
were granted in June of 1985, which expired, fully vested and unexercised,
in June of 1995.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock at September 16, 1996, (except as otherwise indicated
by footnote) by (i) each person (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) known by management to
own beneficially more than 5% of the Company's outstanding Common Stock, (ii)
each of the Company's directors, and (iii) all executive officers and directors
of the Company as a group:
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (2)
Name of Individual Amount (1) %
- ---------------------- ---------- ------
<S> <C> <C>
David Rollo 103,175(3) 2.79
Mark S. Isaacs 94,211(4) 2.55
Jack W. Payne 55,500(5) 1.50
D. Ross Hamilton 93,856(6) 2.54
William R. Dahlman - 0 -(7) 0.0
Barry W. Hall - 0 -(8) 0.0
Ronald B. Luther 365,276(9) 9.87
All executive officers
and directors as a
group (8 persons) 726,804(10) 19.64
</TABLE>
_______________
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Company Common Stock shown to be beneficially
owned by them, subject to community property laws where applicable and the
information contained in the footnotes to this table.
-23-
<PAGE>
(2) Assumes the exercise of options and warrants to purchase 491,644 shares
held by executive officers and directors of the Company, which options and
warrants are, or become, exercisable within the 60 days of the date of this
Annual Report.
(3) Includes 3,175 shares beneficially owned by Mr. Rollo, plus warrants to
purchase 150,000 shares at an exercise price of $2.94 per share, expiring
at various dates from December 5, 1999, to December 5, 2001, of which
100,000 warrants are exercisable as of, or within 60 days of, the date of
this Annual Report. Mr. Rollo's address is 14332 Chambers Road, Tustin,
California 92680.
(4) Includes 19,711 shares beneficially owned by Mr. Isaacs, plus warrants to
purchase 5,000 shares at an exercise price of $5.57 per share, expiring on
January 28, 1997; warrants to purchase 5,000 shares at an exercise price of
$3.50 per share, expiring on January 15, 1998; warrants to purchase 25,000
shares at an exercise price of $2.75 per share, expiring on July 23, 1998;
warrants to purchase 5,000 shares at an exercise price of $2.50 per share,
expiring on January 21, 1999; warrants to purchase 13,500 shares at an
exercise price of $2.55 per share, expiring on January 27, 2000; warrants
to purchase 12,000 shares at an exercise price of $2.56 per share, expiring
at various times during the period of April 30 through September 30, 2000;
and warrants to purchase 9,000 shares at an exercise price of $3.85 per
share, expiring on December 8, 2000. Mr. Isaacs' address is 14332 Chambers
Road, Tustin, California 92680.
(5) Includes warrants to purchase 2,500 shares at an exercise price of $6.20
per share, expiring on March 20, 1997; warrants to purchase 5,000 shares at
an exercise price of $3.50 per share, expiring on January 15, 1998;
warrants to purchase 25,000 shares at an exercise price of $2.75 per share,
expiring on July 23, 1998; warrants to purchase 5,000 shares at an exercise
price of $2.50 per share, expiring on January 21, 1999; warrants to
purchase 9,000 shares at an exercise price of $2.55 per share, expiring on
January 27, 2000; and warrants to purchase 9,000 shares at an exercise
price of $3.85 per share, expiring on December 8, 2000. Mr. Payne's
address is 4515 S. Meadow Drive, Boulder, Colorado 80301.
(6) Includes 5,000 shares beneficially owned by Mr. Hamilton and 30,856 shares
owned by a partnership, of which Mr. Hamilton and an unaffiliated third
party each owns 50%; warrants to purchase 35,000 shares at an exercise
price of $2.75 per share, expiring on July 23, 1998; warrants to purchase
5,000 shares at an exercise price of $2.50 per share, expiring on January
21, 1999; warrants to purchase 9,000 shares at an exercise price of $2.55
per share, expiring on January 27, 2000; and warrants to purchase 9,000
shares at an exercise price of $3.85 per share, expiring on December 8,
2000. Mr. Hamilton's address is 9440 Gregory Road, Easton, Maryland 21601.
(7) Mr. Dahlman's address is 215 N. Marengo Avenue, Pasadena, California 91101.
(8) Mr. Hall's address is 3100 New York Drive, Pasadena, California 91107.
(9) Includes 150,082 shares beneficially owned by Mr. Luther, 5,622 shares
owned by Mr. Luther's spouse, as to which shares Mr. Luther disclaims
beneficial ownership, war-
-24-
<PAGE>
rants to purchase 70,000 shares at an exercise price of $3.75 per share,
expiring on November 15, 1996; warrants to purchase 15,000 shares at an
exercise price of $3.50 per share, expiring April 23, 1998; warrants to
purchase 7,143 shares at an exercise price of $3.50 per share, expiring on
June 24, 1998; warrants to purchase 4,286 shares at an exercise price of
$3.25 per share, expiring on April 22, 1999; warrants to purchase 100,000
shares at an exercise price of $2.63 per share, expiring at various dates
from November 19, 1998, to November 19, 2002, of which 60,000 warrants are
exercisable as of, or within 60 days of, the date of this Annual Report;
and warrants to purchase 100,000 shares at an exercise price of $3.63 per
share, expiring September 18, 2000, of which 40,000 warrants are
exercisable as of, or within 60 days of, the record date. Also includes
options, issued to Mr. Luther's spouse, to purchase 1,500 shares at
an exercise price of $4.25 per share, expiring on November 15, 1996;
options to purchase 1,000 shares at an exercise price of $4.25 per share,
expiring on November 13, 1997; options to purchase 8,500 shares at an
exercise price of $3.07 per share, expiring on April 23, 1998; and options
to purchase 2,143 shares at an exercise price of $3.25 per share, expiring
on April 22, 1999, as to all of which options and the underlying shares
Mr. Luther disclaims beneficial ownership. Mr. Luther's address is 14332
Chambers Road, Tustin, California 92680.
(10) Includes all shares, options, and warrants described in notes (3) through
(6), inclusive, and (9), above; 714 shares beneficially owned by an
executive officer who is not a director, plus options to purchase 1,429
shares at an exercise price of $3.71 per share, expiring on June 19, 1997;
options to purchase 1,500 shares at an exercise price of $4.25 per share,
expiring on November 15, 1996; options to purchase 1,000 shares at an
exercise price of $4.25 per share, expiring on November 13, 1997; options
to purchase 6,000 shares at an exercise price of $3.07 per share, expiring
on April 23, 1998; options to purchase 2,143 shares at an exercise price of
$3.25 per share, expiring on April 22, 1999; and options to purchase 2,000
shares at an exercise price of $2.82 per share, expiring on July 22, 1999.
ITEM 12. Certain Relationships and Related Transactions.
As of June 30, 1996, no officers or directors were indebted to the Company
in any amount. During such fiscal year, Mr. Luther's maximum obligation to the
Company was $183,000, which obligation was paid in full in September of 1995.
-25-
<PAGE>
ITEM 13. Exhibits and Reports on Form 8-K.
The following documents are filed as a part of this report:
(a) Exhibits
* Exhibits filed herewith. Other exhibits are incorporated by reference to
previous filings.
2.1 Asset Purchase Agreement, dated July 1, 1994, among Luther Medical
Products, Inc., a California corporation, Neuro Diagnostics, Inc., a
California corporation, and Bio-Logic Systems Corp., a Delaware
corporation, relating to the acquisition of certain assets and the
assumption of certain liabilities of Neuro Diagnostics, Inc., by a
wholly-owned subsidiary of Bio-Logic Systems Corp., filed as Exhibit
2.1 to the Registrant's Annual Report on Form 10-KSB for the Fiscal
Year Ended June 30, 1994, (the "1994 10-KSB") and is incorporated
herein by reference.
3.1 Articles of Incorporation of the Registrant as filed with the
Secretary of State of California on February 22, 1991, filed as
Exhibit B to the Registrant's Proxy Statement for the Annual Meeting
of Stockholders, May 24, 1991, and is incorporated herein by
reference.
3.1a Certificate of Determination of Preferences of Preferred Shares, filed
as Exhibit 3.1a to the Registrant's Annual Report on Form 10-KSB for
the Fiscal Year Ended June 30, 1993, and is incorporated herein by
reference.
3.2 By-Laws of the Registrant as currently in effect, filed as Exhibit 3.2
to the Registrant's Annual Report on Form 10-K for the Fiscal Year
Ended June 30, 1991, (the "1991 10-K") and is incorporated herein by
reference.
10.1 Assignment dated July 21, 1980, and Amendment to Assignment dated
September 2, 1980, pursuant to which Ronald B. Luther and Marshall F.
Sparks assigned to the Registrant a patent relating to the catheter
placement system, filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-2, as amended (the "Registration
Statement") (File No. 33-12557) and are incorporated herein by
reference.
10.2 Supplemental Assignment dated July 1, 1981, pursuant to which Ronald
B. Luther and Marshall F. Sparks expanded the applicability of the
Assignment dated July 21, 1980, to include all subsequent technology
related to the catheter placement system on the same terms and
conditions, filed as Exhibit 10.2 to the Registration Statement and is
incorporated herein by reference.
-26-
<PAGE>
10.4 License and Sales Agreement, dated April 1, 1987, and Amendment to
License and Sales Agreement, dated December 4, 1987, between the
Registrant and Tyndale Plains-Hunter, Ltd., relating to an
exclusive license to make, use, and sell certain patented
hydrophilic polymers, filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1988,
(the "1988 10-K") and are incorporated herein by reference.
10.4a* Amendment, dated April 11, 1996, to License and Sales Agreement,
dated April 1, 1987, between the Registrant and Tyndale Plains-
Hunter, Ltd., relating to modifications of the field of the
Agreement and the Registrant's royalty obligations.
10.5 License Agreement, dated June 17, 1985, between the Registrant and
Medtronic, Inc., granting Medtronic a license to utilize the
Registrant's patents on split needle technology for certain product
applications, filed as Exhibit 10.6 to the Registration Statement
and is incorporated herein by reference.
10.6 Agreement, dated November 11, 1987, and Amendment to Agreement,
dated February, 1988, between the Registrant and Critikon, Inc.,
relating to the Registrant's stickless needle technology, filed as
Exhibit 10.10 to the 1988 10-K and are incorporated herein by
reference.
10.6a Agreement dated as of March 28, 1995, between the Registrant and
Johnson & Johnson Medical, Inc., relating to the assignment by the
Company of five certain catheter patents to JJMI, filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K dated March 28,
1995.
10.7 Lease dated December 9, 1992, between the Registrant and the
Beecher Family Trust, as lessor, as to facilities located at 14332
Chambers Road, Tustin, California, filed as Exhibit 6(a) to the
Quarterly Report on Form 10-QSB for the Quarter Ended December 31,
1992, and is incorporated herein by reference.
10.8 Adoption Agreement for Prototype Defined Contribution Plan #02
Sponsored By IDS Financial Services, filed as Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K for the Fiscal Year Ended
June 30, 1990, (the "1990 10-K") and is incorporated herein by
reference.
10.9 Loan and Security Agreement dated September 17, 1990, between the
Registrant and Johnson & Johnson Finance Corporation, filed as
Exhibit 10.13 to the 1990 10-K and is incorporated herein by
reference.
10.10 Loan and Security Agreement dated May 12, 1994, (and Addendum
thereto) between the Registrant and Johnson & Johnson Finance
Corporation, filed as Exhibit 10.10 to the 1994 10-KSB and is
incorporated herein by reference.
-27-
<PAGE>
10.11 Loan and Security Agreement dated August 15, 1994, between the
Registrant and Johnson & Johnson Finance Corporation, filed as
Exhibit 10.11 to the 1994 10-KSB and is incorporated herein by
reference.
10.12 Research and Development Agreement, dated March 24, 1992, between
the Registrant and Pharmacia Deltec Inc., filed as Exhibit 10.1 of
the Registrant's Current Report on Form 8-K filed on April 1, 1992,
and is incorporated herein by reference.
10.13 Distribution Agreement, dated March 24, 1992, between the
Registrant and Pharmacia Deltec Inc., filed as Exhibit 10.2 of the
Registrant's Current Report on Form 8-K filed on April 1, 1992, and
is incorporated herein by reference.
10.13a Distribution and License Agreement, dated as of March 9, 1994,
between the Registrant and Pharmacia Deltec Inc., filed as Exhibit
10.13a to the 1994 10-KSB and is incorporated herein by reference.
10.14 Loan and Security Agreement, dated March 24, 1992, between the
Registrant and Pharmacia Deltec Inc., filed as Exhibit 10.3 of the
Registrant's Current Report on Form 8-K filed on April 1, 1992,
and is incorporated herein by reference.
10.14a Amendment to Loan and Security Agreement, dated as of March 9,
1994, between the Registrant and Pharmacia Deltec Inc., filed as
Exhibit 10.14a to the 1994 10-KSB and is incorporated herein by
reference.
10.15 8% Convertible Note, dated March 24, 1992, of the Registrant in
favor of Pharmacia Deltec Inc., filed as Exhibit 10.4 of the
Registrant's Current Report on Form 8-K filed on April 1, 1992, and
is incorporated herein by reference.
10.15a Replacement Note, dated as of January 1, 1994, of the Registrant in
favor of Pharmacia Deltec Inc., filed as Exhibit 10.15a to the 1994
10-KSB and is incorporated herein by reference.
10.15b* Payment Agreement, dated as of November 3, 1995, between the
Registrant and Pharmacia Deltec Inc., in respect of Replacement
Note, dated as of January 1, 1994, of the Registrant in favor of
Pharmacia Deltec Inc.
10.16 Registration Rights Agreement, dated March 24, 1992, between the
Registrant and Pharmacia Deltec Inc., filed as Exhibit 10.5 of the
Registrant's Current Report on Form 8-K filed on April 1, 1992,
and is incorporated herein by reference.
10.17 Release and Termination Agreement, dated as of March 9, 1994,
between the Registrant and Pharmacia Deltec Inc., filed as Exhibit
10.17 to the 1994 10-KSB and is incorporated herein by reference.
-28-
<PAGE>
10.18 Non-U. S. Distributor Agreement, dated May 18, 1983, between the
Registrant and Medical Japan, Ltd., filed as Exhibit 10.19 of the
Registrant's Annual Report on Form 10-KSB for the Fiscal Year Ended
June 30, 1992, and is incorporated herein by reference.
10.19 Registrant's Incentive Employee Stock Option Plan - 1984, filed as
Exhibit 10.14 to the Registration Statement and is incorporated
herein by reference.
10.20 Amendments to Registrant's Incentive Employee Stock Option Plan -
1984, filed as Exhibit 10.14A to the Registration Statement and is
incorporated herein by reference.
10.21 Registrant's Employee Stock Option Plan - 1986, filed as Exhibit
10.15 to the Registration Statement and is incorporated herein by
reference.
10.22 Amendments to Registrant's Employee Incentive Stock Option Plan -
1986, filed as Exhibit 10.15A to the Registration Statement and is
incorporated herein by reference.
10.23 Registrant's Employee Stock Option Plan - 1987, filed as Exhibit
4.1 to the Registrant's Registration Statement on Form S-8 (File
No. 33-48850) (the "1987 S-8") and is incorporated herein by
reference.
10.24 Registrant's Incentive Stock Compensation Plan - 1987, filed as
Exhibit 4.2 to the 1987 S-8 and is incorporated herein by
reference.
10.25 Intentionally omitted.
10.26 Intentionally omitted.
10.27 Patent and Technology License and Supply Agreement, dated as of
October 31, 1993, between the Registrant and The Kendall Company,
filed as Exhibit 10.27 to the 1994 10-KSB and is incorporated
herein by reference.
10.28 Agreement for Transfer of License, dated as of March 1, 1994,
between the Registrant and Medikit Co., Ltd., filed as Exhibit
10.28 to the 1994 10-KSB and is incorporated herein by reference.
10.29 Distribution Agreement, dated as of August 4, 1994, between the
Registrant and Kentec Medical, Inc., filed as Exhibit 10.29 to the
1994 10-KSB and is incorporated herein by reference.
10.30 Employment Agreement, dated November 19, 1993, between the
Registrant and Ronald B. Luther, filed as Exhibit 10.30 to the 1994
10-KSB and is incorporated herein by reference.
-29-
<PAGE>
10.30a* Employment Agreement, dated September 25, 1995, between the
Registrant and Ronald B. Luther.
10.31 Employment Agreement, dated December 6, 1993, between the
Registrant and David Rollo, filed as Exhibit 10.31 to the 1994 10-
KSB and is incorporated herein by reference.
10.31a Employment Agreement, dated May 31, 1995, between the Registrant
and David Rollo, filed as Exhibit 10.31a to the Registrant's Annual
Report on Form 10-KSB for the Fiscal Year Ended June 30, 1995, (the
"1995 10-KSB") and is incorporated herein by reference.
10.32 Consulting Agreement, dated April 1, 1995, between the Registrant
and Mark S. Isaacs, filed as Exhibit 10.32 to the 1995 10-KSB and
is incorporated herein by reference.
10.33 National Account Consulting Agreement, dated May 19, 1995, between
the Registrant and National Contracts, Inc., filed as Exhibit 10.33
to the 1995 10-KSB and is incorporated herein by reference.
10.34* Purchase Agreement, dated September 12, 1995, between the
Registrant and Apria Healthcare, Inc.
10.35* Vendor Agreement, dated November 2, 1995, between the Registrant
and Health Services Corporation of America.
10.36* Standard Proposal, dated November 9, 1995, between the Registrant
and Mid Atlantic Group Network of Shared Services, Inc.
10.37* National Contract, dated July 1, 1996, between the Registrant and
Teamcare, the institutional pharmacy subsidiary of GranCare, Inc.
10.38* License Agreement for Use of Alliance of Children's Hospitals' Seal
of Acceptance by the Manufacturer, dated December 1, 1995, between
the Registrant and Alliance of Children's Hospitals.
10.39* Distributorship Agreement, dated September 21, 1995, between the
Registrant and Boston Scientific Corporation.
23.1* Consent of Thelen, Marrin, Johnson & Bridges.
23.2* Consent of Robert L. Pike, Esq.
23.3* Consent of Corbin & Wertz
-30-
<PAGE>
(b) Reports on Form 8-K
During the last quarter of the period covered by this Annual Report, the
Company did not file any Current Reports on Form 8-K.
-31-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Reference
<S> <C>
- - Independent Auditors' Report F-1
- - Consolidated balance sheet as of June 30, 1996 F-2
- - Consolidated statements of operations for each of the years
in the two-year period ended June 30, 1996 F-3
- - Consolidated statements of stockholders' equity for each of
the years in the two-year period ended June 30, 1996 F-4
- - Consolidated statements of cash flows for each of the years
in the two-year period ended June 30, 1996 F-5, F-6
- - Notes to consolidated financial statements for each of
the years in the two-year period ended June 30, 1996 F-7 -- F-23
</TABLE>
-32-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: September 26, 1996 LUTHER MEDICAL PRODUCTS, INC.
By: /S/ DAVID ROLLO
---------------
David Rollo
President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
--------- ----- ----
/S/ DAVID ROLLO Chairman of the Board September 26, 1996
- ---------------------- President, Chief Executive
David Rollo Officer, Principal Financial
Officer, Principal Accounting
Officer, and a Director
/S/ MARK ISAACS Director September 26, 1996
- ----------------------
Mark S. Isaacs
/S/ JACK PAYNE Director September 26, 1996
- ----------------------
Jack Payne
/S/ D. ROSS HAMILTON Director September 26, 1996
- ----------------------
D. Ross Hamilton
/S/ BARRY W. HALL Director September 26, 1996
- ----------------------
Barry W. Hall
/S/ WILLIAM R. DAHLMAN Director September 26, 1996
- ----------------------
William R. Dahlman
-33-
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors of
Luther Medical Products, Inc.
We have audited the accompanying consolidated balance sheet of Luther Medical
Products, Inc. and subsidiary (the "Company") as of June 30, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the two-year period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Luther
Medical Products, Inc. and subsidiary as of June 30, 1996 and the results of its
operations and its cash flows for each of the years in the two-year period ended
June 30, 1996 in conformity with generally accepted accounting principles.
CORBIN & WERTZ
Irvine, California
August 8, 1996
F-1
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1996
ASSETS
Current assets:
Cash and cash equivalents $1,598,141
Accounts receivable, less allowance for
doubtful accounts of $17,075 824,285
Inventories (Note 3) 1,587,322
Prepaid expenses and other assets 72,219
----------
Total current assets 4,081,967
----------
Property and equipment:
Production equipment 905,487
Office equipment 161,755
Leasehold improvements 107,870
Automobiles 4,706
----------
1,179,818
Less accumulated depreciation and amortization (772,615)
----------
Property and equipment, net 407,203
Intangible assets, net (Notes 4 and 6) 121,390
Deposits 10,199
----------
$ 4,620,759
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 330,547
Accrued payroll and related expenses 80,760
Other accrued liabilities 88,603
-----------
Total current liabilities 499,910
-----------
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 6 and 7):
Preferred stock - no stated par value;
10,000,000 shares authorized; none issued
Common stock - no stated par value; 25,000,000
shares authorized; 3,173,100 shares issued
and outstanding 10,154,002
Common stock purchase warrants 50,000
Accumulated deficit (6,083,153)
-----------
Net stockholders' equity 4,120,849
-----------
$ 4,620,759
===========
See accompanying notes to consolidated financial statements
F-2
<PAGE>
LUTHER MEDICAL PRODUCTS, INC AND SUBUSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For Each Of The Years In The Two-Year Period Ended June 30, 1996
1996 1995
----------- -----------
Revenues (Note 8):
Product sales $3,882,950 $2,512,720
Sale of patents --- 4,415,000
Royalties 13,445 376,470
Interest income and other 125,706 50,028
---------- ----------
Total revenues 4,022,101 7,354,218
---------- ----------
Costs and expenses (Note 6):
Costs of revenues 2,393,065 1,817,962
Research and development 395,073 367,726
General and administrative 868,862 1,026,447
Selling 901,593 1,126,409
Depreciation and amortization 181,084 194,274
Interest expense (Note 5) 13,237 99,550
Write-off of intangible asset --- 162,000
---------- ----------
Total costs and expenses 4,752,914 4,794,368
---------- ----------
Income (loss) from operations
before provision for income
taxes and extraordinary item (730,813) 2,559,850
Income tax provision (Note 9) 800 123,709
---------- ----------
Income (loss) from operations
before extraordinary item (731,613) 2,436,141
Extraordinary item -
Gain on forgiveness of debt, net
of income taxes of $0 (Note 5) 122,958 ---
---------- ----------
Net income (loss) $ (608,655) $2,436,141
========== ==========
Net income (loss) per common and
common equivalent share:
Income (loss) from operations
before extraordinary item $ (.24) $ .81
Extraordinary item
.04 ---
Net income (loss) ---------- ----------
$ (.20) $ .81
========== ==========
Weighted average number of common
and common equivalent shares:
Primary 3,070,974 3,004,797
========== ==========
Fully-diluted 3,070,974 3,012,784
========== ==========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For each of The Years In The Two - Year Period Ended June 30, 1996
<TABLE>
<CAPTION>
COMMON
COMMON STOCK STOCK PURCHASE NOTES RECEIVABLES ACCUMULATED
----------------------------
SHARES AMOUNT WARRANTS - STOCKHOLDERS DEFICIT TOTAL
----------- ------------- -------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - July 1, 1994 2,953,923 $ 9,493,828 $ 50,000 $ (183,444) $(7,910,639) $1,449,745
Common stock issued - exercise of stock
options and warrants (note 7) 31,713 86,885 --- --- --- 86,885
Net income --- --- --- --- 2,436,141 2,436,141
----------- ------------- -------------- ---------------- ------------- ----------
Balances - June 30, 1995 2,985,636 9,580,713 50,000 (183,444) (5,474,498) 3,972,771
Common stock issued - exercise of stock
options and warrants (Note 7) 187,464 573,289 --- --- --- 573,289
Collection of notes receivable from
shareholder (Note 7) --- --- --- 183,444 --- 183,444
Net Loss --- --- --- --- (608,655) (608,655)
----------- ------------- -------------- --------------- -------------- ----------
Balances - June 30, 1996 3,173,100 $10,154,002 $ 50,000 $ --- $(6,083,133) $4,120,849
=========== ============= ============== =============== ============== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Each Of The Years In The Two-Year Period Ended June 30, 1996
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing
operations $ (608,655) $ 2,436,141
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Allowance for doubtful accounts 9,560 3,600
Allowance for inventory obsolescence (42,338) 82,250
Depreciation and amortization 181,084 194,274
Loss on write-down of marketing
and distribution rights --- 162,000
Gain on forgiveness of debt (122,958) ---
Changes in operating assets and
liabilities:
Accounts receivable (506,456) 127,990
Inventories (356,592) (219,575)
Prepaid expenses and other assets 16,202 (33,564)
Accounts payable 189,354 (178,216)
Accrued payroll and related
expenses 663 (33,112)
Other accrued liabilities (225,979) 298,899
----------- ------------
Net cash provided by (used in)
operations (1,466,115) 2,840,687
----------- ------------
Cash flows from investing activities:
Purchases of available-for-sale
securities (1,974,826) (2,999,856)
Proceeds from sale of available-
for-sale securities 4,729,259 245,423
Purchases of property and equipment (104,636) (124,108)
Purchases of intangible assets (125,000) ---
----------- ------------
Net cash provided by (used in)
investing activities 2,524,797 (2,878,541)
----------- ----------
</TABLE>
Continued
F-5
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Issuance of common stock 573,289 86,885
Collections of notes receivable --- 61,079
Collections of notes receivable
from stockholder 183,444 ---
Borrowings --- 900,000
Principal payments on debt (400,000) (1,043,750)
------------ ------------
Net cash provided by financing
activities 356,733 4,214
------------ ------------
Net increase (decrease) in cash and
cash equivalents 1,415,415 (33,640)
Cash and cash equivalents,
beginning of year 182,726 216,366
---------- ------------
Cash and cash equivalents,
end of year $ 1,598,141 $ 182,726
========== ============
Supplemental disclosures of cash flows
information -
Cash paid during the year for:
Interest $ --- $ 92,087
========== ============
Income taxes $ 800 $ 123,709
========== ============
</TABLE>
Supplemental schedule of noncash investing activity -
During fiscal 1996, the Company retired property and equipment totaling
$89,220, which had been fully depreciated.
During fiscal 1996, PDI (see Note 5) forgave $122,958, including
$41,708 of accrued interest, of debt.
See accompanying notes to consolidated financial statements
F-6
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 1 - GENERAL
- ----------------
Luther Medical Products, Inc. (the "Company") was organized in 1980 for the
purpose of engaging in the design, development, manufacture and sale of catheter
placement systems. Effective June 30, 1994, the Company's wholly-owned
subsidiary, NDI Disposition Corporation (formerly Neuro Diagnostics, Inc.)
("NDI"), sold the rights to its products and certain assets to an unrelated
third party. NDI's corporate status was dissolved effective April 17, 1996.
The Company holds numerous patents for a wide variety of catheter placement
systems. The Company sells its products world-wide primarily through
independent distributors. Approximately 80% of product sales during both fiscal
1996 and 1995 were domestic. The Company considers its business to be in the
medical devices industry.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Principles of Consolidation
- ---------------------------
The accompanying financial statements include the accounts of the Company and
its subsidiary. Intercompany balances and transactions have been eliminated in
consolidation. As of April 17, 1996, the Company dissolved its sole subsidiary.
Accounting Methods
- ------------------
The Company uses the accrual method of accounting for financial and income tax
reporting purposes.
Concentration of Credit Risk
- ----------------------------
On occasion, the Company maintains cash balances at certain financial
institutions in excess of amounts insured by Federal agencies.
The Company provides credit in the normal course of business to customers
throughout the United States and foreign markets. During fiscal 1996, two
customers accounted for approximately 15% and 12%, respectively, of total
product sales, and during fiscal 1995 three customers accounted for
approximately 17%, 13% and 11%, respectively, of total product sales. At June
30, 1996, two customers accounted for approximately 23% and 20%, respectively,
of accounts receivable. The Company performs ongoing credit evaluations of its
customers. The Company does not obtain collateral with which to secure its
accounts receivable. The Company does maintain reserves for potential credit
losses based upon the Company's historical experience related to credit losses.
Continued
F-7
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
During fiscal 1996, two of the Company's vendors accounted for approximately 25%
and 14%, respectively, of its materials and supplies purchased, and during
fiscal 1995, one vendor accounted for approximately 34% of the Company's
materials and supplies purchased. At June 30, 1996, two vendors accounted for
approximately 27% and 15%, respectively, of accounts payable. The Company
believes that it could purchase such materials and supplies from other vendors
without a material adverse effect to the Company.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Statements
- ----------------------------------
The Company has financial instruments whereby the fair value of the financial
instruments could be different than that recorded on a historical basis on the
accompanying consolidated balance sheet. The Company's financial instruments
consist of cash and cash equivalents, accounts receivable and accounts payable.
The carrying amounts of the Company's financial instruments generally
approximate their fair values at June 30, 1996.
Cash and Cash Equivalents
- -------------------------
For consolidated financial statement purposes, cash and cash equivalents are
defined as highly liquid holdings which have remaining maturities of three
months or less when purchased. The Company had $1,300,210 in U.S. Treasury
bills which are considered to be cash equivalents at June 30, 1996.
Continued
F-8
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Investments
- -----------
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities," which requires that investments be
classified as "held-to-maturity", "available-for-sale" or "trading securities".
At June 30, 1995, the Company had classified its longer-term investments in U.S.
Treasury bills as available-for-sale. Available-for-sale securities are carried
at fair value with material unrealized gains and losses reported as a separate
component of stockholders' equity. The Company has no investments which qualify
for such treatment under SFAS 115 at June 30, 1996.
Inventories
- -----------
Inventories are stated at the lower of cost or net realizable value. Cost is
determined under the first-in, first-out method. Costs include materials,
direct labor, and an allocable portion of direct and indirect manufacturing
overhead based upon standard rates derived from historical trends and experience
factors. The industry in which the Company operates is characterized by
technological changes. Should demand for the Company's products prove to be
significantly less than anticipated, the ultimate realizable value of such
products could be less than the amount shown in the accompanying balance sheet.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the respective assets of
five years. Leasehold improvements are amortized over the lesser of the
estimated useful lives of the improvements or the related lease term. Total
depreciation expense for the years ended June 30, 1996 and 1995 was $177,474 and
$180,774, respectively.
Intangible Assets
- -----------------
Intangible assets are being amortized using the straight-line method over three
years for license rights and over five years for manufacturing rights.
Continued
F-9
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
The Company assesses the recoverability of these intangible assets by
determining whether the amortization of the asset's balance over its remaining
life can be recovered through projected undiscounted future cash flows.
Reductions for impairment are charged to operations in the period in which the
impairment is determined by management. Management has determined that there is
no impairment of intangible assets as of June 30, 1996. Amortization expense
for the year ended June 30, 1996 was $3,610 (see Note 4).
During 1995, the Company determined that its capitalized marketing and
distribution rights had no future benefit and accordingly, the carrying value of
such was reduced from $162,000 to zero. The write-down in value of the
marketing and distribution rights is included in write-off of intangible assets
in the accompanying consolidated statement of operations for the year ended June
30, 1995. The Company had been amortizing such rights utilizing the straight-
line method over ten years. Amortization expense for the year ended June 30,
1995 related to such rights was $13,470.
Revenue Recognition
- -------------------
Revenues on product sales are recognized at the time of shipment. Royalty fees
are recognized as earned.
Advertising
- -----------
The Company expenses all advertising as incurred. Advertising expense for the
years ended June 30, 1996 and 1995 was $31,273 and $142,664, respectively.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under
SFAS 109, the asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and the tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Continued
F-10
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Net Income (Loss) Per Common and Common Equivalent Share
- --------------------------------------------------------
Net income (loss) per common and common equivalent share is computed based on
the weighted average number of common and, if applicable, common equivalent
shares outstanding during each of the respective years. Common equivalent
shares which relate to shares issuable upon the exercise of stock options and
warrants, have been excluded from the calculation in fiscal 1996 as the effect
of their inclusion would be antidilutive. Net income (loss) per share is the
same on a primary and fully diluted basis for both years presented.
Reclassifications
- -----------------
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform to the 1996 presentation.
NOTE 3 - INVENTORIES
- --------------------
Inventories at June 30, 1996 consist of the following:
<TABLE>
<S> <C>
Raw materials $ 520,443
Work in process 483,881
Finished goods 582,998
-----------
$ 1,587,322
===========
</TABLE>
NOTE 4 - INTANGIBLE ASSETS
- --------------------------
The components of intangible assets at June 30, 1996 consist of the following:
<TABLE>
<S> <C>
Licensing rights (Note 6) $ 65,000
Manufacturing rights (Note 6) 60,000
-----------
125,000
Less accumulated amortization (3,610)
-----------
$ 121,390
===========
</TABLE>
Continued
F-11
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 5 - DEBT
- -------------
Effective March 9, 1994, the Company amended a note payable to Sims Deltec,
Inc., formerly Pharmacia Deltec, Inc., ("PDI") under which the Company borrowed
$625,000 (Note 8). The note payable bore interest at a rate of 8% per annum,
was collateralized by certain equipment and required quarterly principal
installments of $43,750 plus interest through June 30, 1997. The Company
discontinued making principal and interest payments in October, 1994. Effective
November 3, 1995, the Company entered into an agreement with PDI under which the
Company paid $400,000 in full satisfaction of the $481,250 note payable and
$41,708 in accrued interest. The resulting gain from the forgiveness of debt of
$122,958 is reflected as an extraordinary item in the accompanying consolidated
statement of operations for the year ended June 30, 1996.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
License Agreement
- -----------------
During 1987, the Company entered into an agreement whereby it acquired an
exclusive worldwide license to make, use and sell products covered by certain
patents owned by the licensor. Under the agreement, the Company was obligated
to pay the licensor minimum annual royalties of $60,000 for a period of 25
years, earned royalties each year of 2 percent to 3.5 percent of net sales of
products incorporating the patented rights, and a royalty of 40 percent of all
income the Company receives from sublicensees, if any. Minimum royalties were
credited against earned royalties for the same year. For the years ended June
30, 1996 and 1995, net royalties of $45,000 and $60,000, respectively, were
charged to operations. During April 1996, the agreement was amended resulting
in the Company paying a one-time fee of $65,000 to purchase the rights to use
the products covered by the above mentioned patents on a more limited scale than
that which was previously in effect. These licensing rights are included in
intangible assets in the accompanying consolidated balance sheet at June 30,
1996 (Note 4). In accordance with the amendment, no further minimum royalty
payments are required through the remaining term of the agreement.
Continued
F-12
<PAGE>
LUTHER MEDCIAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
Employment Agreements
- ---------------------
During fiscal 1996 and 1995, the Company entered into employment agreements with
two officers of the Company, which agreements expire upon written notice by the
Company or 30 days' written notice by the employee and December 1998,
respectively. The agreements include base salaries, participation in the
Company's bonus plan, and certain agreed upon compensation related to
termination. The 1996 agreement provides for the unlimited payment of royalties
by the Company to the officer subsequent to the conclusion of the related
agreement. Such royalties will be calculated at 1 to 2 percent of the "net
sales price" of all products manufactured by, or on behalf of, the Company for
which the Company had received a 510(k) notification from the United States Food
and Drug Administration subsequent to November 19, 1993. The 1995 agreement
provides for warrants to purchase a total of 150,000 shares of the Company's
common stock at $2.94 per share, vesting through November 1997 (see Note 7).
The minimum aggregate amount of base salaries per year for the 1996 and 1995
agreements are $115,000 and $150,000, respectively.
Consulting Agreement
- --------------------
During March 1995, the Company entered into a consulting agreement with an
unrelated third party, which became effective in May 1995, under which the
consultant has been engaged to promote and develop a national accounts program
for the Company's products for sale to certain hospital groups, organizations
and health care delivery systems. Under the terms of the agreement, the Company
is required to pay the consultant $396,000 over its two-year term.
Distribution Agreements
- -----------------------
During September 1995, the Company entered into a distributorship agreement (the
"Distributorship Agreement") with an unrelated company ("Distributor"), thereby
appointing the Distributor as the Company's exclusive world-wide distributor in
the field of interventional radiology and to supply the Distributor with
peripherally inserted central catheters ("PICC Products"). The transfer price
to the Distributor for PICC Products has been fixed for the first two years of
the Distributorship Agreement and may be
Continued
F-13
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
revised thereafter by either party in accordance with the terms of said
agreement. The distributorship may become non-exclusive if, (i) in any contract
year after the first contract year the Distributor fails to purchase at least
$20,000 of PICC Products; provided the Distributor has the right to pay the
Company an amount equal to the shortfall, or (ii) the Distributor manufactures
or engages a third party to manufacture PICC Products. The Distributorship
Agreement remains in effect through September 2000, at which time it may be
renewed for an additional three years unless sooner terminated. Either party
may terminate the Distributorship Agreement upon (i) the filing of bankruptcy,
(ii) a breach of any material provision not cured in a timely manner, or (iii)
the Company being unable to manufacture or deliver a certain amount of the
Distributor orders as specified in said agreement.
The aforementioned distributor agreement grants the Distributor a three-year
option to purchase certain property, plant and equipment used in the
development, manufacture and preparation of the PICC Products and a paid-up
irrevocable license to all related patent rights and know-how related to the
PICC Products at a purchase price equal to a percentage of one year's sales of
the PICC Products (as defined in the Distributorship Agreement). The
Distributor can exercise its purchase option at the end of three years (fiscal
1998) or upon certain events.
During August 1994, the Company entered into an exclusive five-year distribution
agreement for the states of California, Arizona, Nevada, and New Mexico for the
sale of intra-vascular catheters. The agreement provides certain termination
privileges for the Company and for the distributor. The Company may terminate
the agreement if the distributor fails to purchase sufficient quantities of the
Company's products. The distributor may terminate the agreement if, during the
term of the agreement and under certain circumstances, the Company (i) commences
direct sales into the distributor's territory without its written consent or
(ii) is a party to a business combination transaction and the resulting
enterprise chooses not to assume the agreement. The distributor shall be
entitled to a fee if it terminates the agreement upon the occurrence of either
such event. For each year remaining of the then-unexpired term of the
agreement, such fee (to be paid annually) shall be equivalent to 30% of the
aggregate transfer price for products sold by the Company to the distributor
during the immediately preceding 12 months. The distributor is to receive the
initial annual payment of such fee within 30 days of such termination. The
Company's sales to this distributor represented 9% and 12% of total product
sales for the years ended June 30, 1996 and 1995, respectively.
Continued
F-14
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
Manufacturing Agreement
- -----------------------
During March 1996, the Company entered into a product development and supply
agreement (the "Agreement") with an unrelated company ("Seller"), to manufacture
and sell tracheostomy and cricothyroidotomy products. The Agreement provided
for the assignment to the Company of certain patents issued to the former owners
of the Seller.
The Agreement calls for the payment of certain royalties based on amounts
derived from the then-relevant royalty percentage of the "gross sales price" of
all products manufactured by, or on behalf of the Company that utilize any of
the technology that is the subject of the patents acquired. Royalty payments as
a percentage of the "gross sales price" is a follows:
Period Percentage
------ ----------
March 1996 through February 1997 15%
March 1997 through expiration
of patents (ranging from
December 1999 through December
2007) 10%
Under the Agreement, royalty payments of 3% of the "gross sales price" shall
continue if a certain former owner of the Seller survives the expiration of such
patent. Such royalties shall continue until said former owner shall become
deceased. As of June 30, 1996, there were no royalty payments made or accrued.
The purchase price for the assignment of the patents was $60,000, which is
included in intangible assets as manufacturing rights (Note 4) at June 30, 1996
in the accompanying consolidated balance sheet.
Continued
F-15
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
Operating Lease
- ---------------
The Company leases its corporate and manufacturing facility under a non-
cancelable operating lease which expires during fiscal year 1998. This
agreement reflects periodic rental payment increases, provide that the Company
pay operating costs such as taxes, insurance and maintenance, and certain
renewal options among other items. The lease expense is being recognized on a
straight-line basis over the term of the related lease. The excess of the
expense recognized over the cost paid is included in other accrued liabilities
in the accompanying consolidated balance sheet. The future minimum lease
payments are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
1997 $ 151,000
1998 130,000
------------
$ 281,000
============
</TABLE>
Rent expense was $144,408 and $144,406 for the years ended June 30, 1996 and
1995, respectively.
NOTE 7 - STOCK OPTIONS, WARRANTS AND COMMON STOCK
- -------------------------------------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("Statement No. 123"). Statement No. 123 is primarily a disclosure standard for
the Company because the Company will continue to account for employee stock
options under Accounting Principles Board Opinion No. 25. The disclosure
requirements for the Company required by Statement No. 123 will be effective for
the Company's 1997 financial statements.
Stock Options
- -------------
The Company has adopted five stock option plans which include four nonqualified
stock option plans and the 1987 Incentive Stock Compensation Plan. Only three
plans have options currently outstanding as two of the nonqualified plans have
been terminated. The outstanding plans expire in August 1997. The terms of any
options from the grant date are not to exceed ten years. Terms of the options
granted are at the discretion of the Company's Board of Directors.
Historically, options have been granted with terms of five years with immediate
vesting.
Continued
F-16
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 7 - STOCK OPTIONS, WARRANTS AND COMMON STOCK, continued
- ------------------------------------------------------------
The following table summarizes option transactions relating to the five stock
option plans for each of the years in the two-year period ended June 30, 1996:
<TABLE>
<CAPTION>
Beginning End
of period Granted Exercised Expired of period
--------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1995:
Number of shares 184,691 95,428 (27,713) (51,457) 200,949
Option price per
share (in dollars) $.70-4.41 $2.56-3.19 $2.63 $2.63-4.41 $.70-4.25
1996:
Number of shares 200,949 714 (38,606) (1,000) 162,057
Option price per
share (in dollars) $.70-4.25 $2.69 $.70-4.25 $2.82 $2.56-4.25
</TABLE>
As of June 30, 1996, options for 62,515 shares are exercisable and 88,859 shares
are available for future grant.
Stock Warrants
- --------------
The Company has adopted an officers and directors warrant compensation plan (the
"Plan") under which warrants are granted at exercise prices established by the
Board of Directors. Warrants have historically been granted for a period of
five years with immediate vesting. Such terms, however, are at the discretion
of the Company's Board of Directors and may vary.
On December 8, 1995, the Company's board of directors established a five-year
warrant program (the "Program"), pursuant to which each of the Company's outside
directors was granted 30,000 warrants to purchase a like number of shares of the
Company's common stock at fair market value as of the date of grant. Vesting,
at the annual rate of 6,000 warrants per year, will commence one year following
the date of grant and will end upon the grantee's cessation of services as a
director of the Company. In the event of a sale of the Company while the person
is a director, all such warrants immediately vest and become exercisable.
Contintued
F-17
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 7 - STOCK OPTIONS, WARRANTS AND COMMON STOCK, continued
- ------------------------------------------------------------
The following table summarizes warrant transactions under the Plan and the
Program for each of the years in the two-year period ended June 30, 1996:
<TABLE>
<CAPTION>
Beginning End
of period Granted Exercised Expired of period
---------- ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1995:
Number of shares 882,516 81,100 (4,000) (146,001) 813,615
Warrant price per
share (in dollars) $2.50-6.20 $2.00-3.19 $3.50 $3.50 $2.00-6.20
1996:
Number of shares 813,615 300,700 (148,858) --- 965,457
Warrant price per
share (in dollars) $2.00-6.20 $2.56-4.81 $2.00-3.75 --- $2.25-6.20
</TABLE>
As of June 30, 1996, warrants to purchase 695,458 shares issued under the Plan
are exercisable.
As part of a private placement offering in fiscal 1992, warrants were sold to a
group of investors to purchase 100,000 shares of the Company's common stock at
$12.50 per share. No value was ascribed to such warrants. During fiscal 1995,
the Company canceled the warrants issued as part of the private placement and
issued 50,000 new warrants at $5.00 per share. The warrants expire in fiscal
1997. No value was ascribed to such warrants.
Common Stock
- ------------
At June 30, 1995, non-interest bearing notes receivable relating to issuances of
common stock to a director and employee aggregated $183,444 and were included in
stockholders' equity for financial statement presentation. During fiscal 1996,
said notes receivable were paid in full.
Continued
F-18
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 8 - ROYALTY, LICENSE AND MANUFACTURING ASSISTANCE AGREEMENTS
- -----------------------------------------------------------------
Catheter Products
- -----------------
During March 1992, the Company entered into agreements with Sims Deltec, Inc.,
formerly Pharmacia Deltec, Inc., ("PDI") related to certain of the Company's
catheter products, minimum purchase obligations and credit facilities.
Effective March 9, 1994, the Company and PDI entered into a release and
termination agreement, which, among other things, contained the following:
i) All prior agreements between the Company and PDI were terminated as
of March 9, 1994, other than certain confidentiality provisions.
ii) PDI was released from all minimum purchase obligations.
iii) The Company entered into a new 8% note due June 30, 1997 to PDI,
requiring a $100,000 principal payment on May 13, 1994, and
commencing September 30, 1994, and on the last day of every third
calendar month thereafter, installments of principal in the amount of
$43,750 (Note 5).
iv) The Company granted to PDI a nonexclusive license to promote,
distribute, market and sell, and appointed PDI as a distributor of
certain products. Such nonexclusive license was for a one year term
for non-neonate products and a five year term for neonate products.
v) The Company granted to PDI a nonexclusive license to use certain
patents owned by the Company. As partial consideration, PDI paid the
Company $100,000 upon execution and delivery of the agreement which
was in turn repaid to PDI as the $100,000 reduction of debt noted in
iii) above. The license fee of $100,000 was recognized as income
during 1994.
Continued
F-19
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 8 - ROYALTY, LICENSE AND MANUFACTURING ASSISTANCE AGREEMENTS, continued
- ----------------------------------------------------------------------------
Royalties ranging from 3 and 7 percent were to be paid by PDI to the Company
based on net sales of the related products. The Company did not earn any
royalties under this agreement in 1996 and 1995.
Stickless Needle Technology
- ---------------------------
During November 1987, the Company entered into an agreement (the "Agreement")
with a manufacturer and distributor of medical products, Critikon, Inc., a
Johnson & Johnson company, (the "licensee") to manufacture and sell catheters
utilizing the Company's stickless needle technology. Under the Agreement, the
Company granted to the licensee an exclusive worldwide license to patents,
trademarks and technology relating to the Company's stickless needle catheters
for a royalty, based on catheter sales, not to exceed $.03 per catheter through
April 1993 and $.02 per catheter thereafter subject to a minimum royalty of
$25,000 per year for 10 years to enable the licensee to maintain its exclusive
rights under the Agreement.
During March 1995, the Company consummated the sale of the patents related to
the Company's stickless needle technology to the licensee in exchange for
$4,415,000, net of selling expenses of $285,000. As the Company has no future
obligations under the agreement, the Company recorded such amount as revenue
during the year ended June 30, 1995. In connection with the sale of the
patents, the Company repaid all amounts outstanding to Johnson & Johnson Finance
Corporation ("JJFC") under a credit agreement between the Company and JJFC.
Accordingly, effective April 1995, the Company no longer received royalties from
the licensee related to its stickless needle technology. Royalty revenues
related to the patents was $363,638 for the year ended June 30, 1995.
NOTE 9 - INCOME TAXES
- ---------------------
The provision for income taxes for the years ended June 30, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended June 30, 1996:
U.S. Federal $ --- $ --- $ ---
State and local 800 --- 800
------- ------- -------
$ 800 $ --- $ 800
======= ======= =======
</TABLE>
Continued
F-20
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 9 - INCOME TAXES, continued
- --------------------------------
<TABLE>
<CAPTION>
Year ended June 30, 1995:
<S> <C> <C> <C>
U.S. Federal $ 63,292 $ --- $ 63,292
State and local 60,417 --- 60,417
------- ------- -------
$123,709 $ --- $123,709
======= ======= =======
</TABLE>
Income tax expense was $800 and $123,709, respectively, for the years ended June
30, 1996 and 1995, respectively, and differed from the amounts computed by
applying the U.S. Federal income tax rate of 34 percent to income (loss) from
operations before provision for income taxes and extraordinary item as a result
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Computed "expected" tax expense
(benefit) $ (248,476) $ 870,349
Increase (reduction) in
income taxes resulting
from:
Change in valuation allowance
for deferred tax assets 245,945 (408,589)
Meals and entertainment 2,803 1,686
Utilization of net operating
loss carryforwards --- (442,904)
Federal alternative minimum
taxes --- 63,292
State taxes, net of benefit 528 39,875
--------- ---------
$ 800 $ 123,709
========= =========
</TABLE>
Continued
F-21
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 9 - INCOME TAXES, continued
- --------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at June 30, 1996 are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 6,854
Inventories, principally due to allowance
for obsolete inventory 27,737
Compensated absences, principally due to
accrual for financial reporting
purposes 22,316
Property, primarily due to differences
in depreciation methods 82,763
Net operating loss carryforwards 1,270,945
Research tax credit carryforwards 126,181
Alternative minimum tax credit carryforwards 50,447
----------
Total gross deferred tax assets 1,587,243
Less valuation allowance (1,587,243)
----------
Net deferred tax assets $ ---
==========
</TABLE>
The valuation allowance for deferred tax assets as of July 1, 1995 was
$1,349,467. The net change in the total valuation allowance for the year ended
June 30, 1996 was an increase of $237,776.
At June 30, 1996, the Company had net operating loss carryforwards of
approximately $3,680,000 and $323,000 available to offset future taxable Federal
and state income, respectively. The carryforward amounts expire in varying
amounts between 2001 and 2011.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net operating
loss carryforwards may be limited as to use in future years.
Continued
F-22
<PAGE>
LUTHER MEDICAL PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For Each Of The Years In The Two-Year Period Ended June 30, 1996
NOTE 10 - PROFIT SHARING PLAN
- -----------------------------
The Company amended its 401(k) profit sharing plan on January 1, 1994. The plan
covers all employees who have completed one year of service, consisting of at
least 1,000 hours of service, and have attained the age of 21 years, unless
otherwise excluded. The plan permits eligible employees to contribute to the
plan up to 20% of their pre-tax earnings, up to the annual maximum. The Company
can make qualified non-elective contributions to employees not classified as
highly compensated. Additionally, the Company can make profit sharing
contributions to qualifying participants on a pro-rata basis. Qualified
participants become fully vested in the profit sharing contribution over a
period of six years of service. The Company has not made contributions to the
plan since its inception.
F-23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
10.4a Amendment, dated April 11, 1996, to License and Sales Agreement,
dated April 1, 1987, between the Registrant and Tyndale Plains-Hunter,
Ltd., relating to modifications of the field of the Agreement and the
Registrant's royalty obligations.
10.15b Payment Agreement, dated as of November 3, 1995, between the
Registrant and Pharmacia Deltec Inc., in respect of Replacement Note,
dated as of January 1, 1994, of the Registrant in favor of Pharmacia
Deltec Inc.
10.30a Employment Agreement, dated September 25, 1995, between the Registrant
and Ronald B. Luther.
10.34 Purchase Agreement, dated September 12, 1995, between the Registrant
and Apria Healthcare, Inc.
10.35 Vendor Agreement, dated November 2, 1995, between the Registrant and
Health Services Corporation of America.
10.36 Standard Proposal, dated November 9, 1995, between the Registrant and
Mid Atlantic Group Network of Shared Services, Inc.
10.37 National Contract, dated July 1, 1996, between the Registrant and
Teamcare, the institutional pharmacy subsidiary of GranCare, Inc.
10.38 License Agreement for Use of Alliance of Children's Hospitals' Seal of
Acceptance by the Manufacturer, dated December 1, 1995, between the
Registrant and Alliance of Children's Hospitals.
10.39 Distributorship Agreement, dated September 21, 1995, between the
Registrant and Boston Scientific Corporation.
23.1 Consent of Thelen, Marrin, Johnson & Bridges.
23.2 Consent of Robert L. Pike, Esq.
23.3 Consent of Corbin & Wertz
</TABLE>
<PAGE>
EXHIBIT 10.4(a)
THIRD AMENDMENT TO LICENSE AND SALES AGREEMENT
----------------------------------------------
THIS AMENDMENT made as of the 11th day of April, 1996 with respect to a
License and Sales Agreement between TYNDALE PLAINS-HUNTER LTD., (hereinafter
"TPH"), and LUTHER MEDICAL PRODUCTS, INC., (hereinafter "Luther");
W I T N E S S E T H:
WHEREAS, on April 1, 1987 the parties hereto entered into a certain License
and Sales Agreement; and
WHEREAS, the parties hereto entered into an Amendment to License and Sales
Agreement dated December 4, 1987; and
WHEREAS, the parties hereto entered into a Second Amendment to License and
Sales Agreement dated August 6, 1991; and
WHEREAS, the parties hereto desire to amend that Agreement in the manner
hereinafter set forth and to rescind both the First Amendment and Second
Amendment;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:
1. Both the First Amendment and Second Amendment to the License and
Sales Agreement are hereby revoked. Paragraph 1(c) of the aforesaid License and
Sales Agreement is deleted and the following substituted in its place and stead:
<PAGE>
1(c) "Field of the Agreement" shall be the use of
TPH's Resins to make a hard tip of not more than
one-half inch for a PIC or PICC catheter in
connection with Luther's One-Cath technology.
2. Luther shall pay to TPH upon execution of this Amendment the sum of
Five Thousand ($5,000.00) Dollars, representing the minimum royalty payment due
under paragraph 4(a) for the month of April, 1996, and shall pay upon execution
of this amendment the additional sum of Sixty Thousand ($60,000.00) Dollars.
Luther shall not be obligated to make any further minimum royalty payments
during the term of the agreement, and, therefore, paragraphs 4(a) and 4(d) are
hereby deleted from the Agreement.
3. Except for the aforementioned, the License and Sales Agreement between
the parties shall remain as is.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
set forth above.
TYNDALE PLAINS-HUNTER, LTD.
By: _____________________________
LUTHER MEDICAL PRODUCTS, INC.
By: ____________________________
President
2
<PAGE>
EXHIBIT 10.15(b)
PAYMENT AGREEMENT
THIS PAYMENT AGREEMENT, effective as of the third day of November, 1995, is
between SIMS DELTEC, INC., a Minnesota corporation formerly known as Pharmacia
Deltec Inc. maintaining its principal place of business at 1265 Grey Fox Road,
St. Paul, Minnesota 55112 ("SIMS"), and LUTHER MEDICAL PRODUCTS, INC., a
California corporation maintaining its principal place of business at 14332
Chambers Road, Tustin, California 92680 ("Luther").
W I T N E S S E T H:
WHEREAS, SIMS and Luther entered into a Release and Termination Agreement
on March 9, 1994, pursuant to which, inter alia, (i) Luther executed and
delivered to SIMS a promissory note (the "8% Replacement Note") and (ii) Luther
and SIMS executed the Amendment to Loan and Security Agreement (the "Amended
Loan Agreement");
WHEREAS, SIMS and Pharmacia Inc., a Minnesota corporation ("Pharmacia"),
contemplated an assignment of the 8% Replacement Note from SIMS to Pharmacia
and, in respect thereof, prepared a document entitled "Assignment of Promissory
Note";
WHEREAS, the Assignment of Promissory Note never became effective and, as
of the date hereof, SIMS retains full ownership of the 8% Replacement Note;
WHEREAS, Luther owes SIMS an aggregate sum in excess of $400,000, including
interest to November 6, 1995, under the 8% Replacement Note;
WHEREAS, the parties recognize that SIMS desires to protect its investment
and, therefore, has agreed with Luther to settle the outstanding amounts due
under the 8% Replacement Note on the basis of this Agreement;
WHEREAS, accordingly, Luther and SIMS desire for Luther to pay to SIMS the
sum of $400,000 in full satisfaction of (i) the 8% Replacement Note and (ii) the
8% Convertible Note, dated as of March 24, 1992, from Luther to SIMS in the
principal amount of $1,000,000, as amended by that certain Amendment Agreement,
dated September 3, 1992, between Luther and SIMS (collectively, the "Original
Note");
NOW, THEREFORE, in consideration of these presents, the covenants contained
herein, and the performance thereof, the parties hereto agree as follows:
1. Substantive Terms of the Repayment.
a. Payment by Luther. On or before November 6, 1995, Luther shall
tender to SIMS the sum of $400,000 by means of wire transfer into the bank
account of SIMS' parent, Smiths Industries Inc., Bank Account No. 0117-
7289, ABA No. 031000011, at Philadelphia National Bank, in Philadelphia,
Pennsylvania (the "Luther Payment"), as full and final payment of each and
every obligation of Luther, whether of principal or in-
-1-
<PAGE>
terest, or as otherwise more particularly set forth in (i) the 8%
Replacement Note and (ii) the Original Note.
b. Return of the Original Note and of the 8% Replacement Note. As
soon as practicable following SIMS' receipt of the Luther Payment, SIMS
shall forward to Luther the original of each of the Original Note, if not
previously delivered to Luther, and the 8% Replacement Note with the
following statement written in indelible ink on a diagonal on the first and
last page of each: "THIS NOTE HAS BEEN REPAID TO THE FULL SATISFACTION OF
SIMS DELTEC INC., AS SUCCESSOR-IN-INTEREST TO PHARMACIA DELTEC INC., THIS
6TH DAY OF NOVEMBER, 1995."
c. Termination of the Original Loan Agreement and of the Amended Loan
Agreement. Upon SIMS' receipt of the Luther Payment, all terms and
conditions of the Original Loan Agreement and of the Amended Loan
Agreement shall become null and void.
2. Holder of 8% Replacement Note; No Prior Assignment. SIMS is the
Holder (as that term is defined in the 8% Replacement Note) of the 8%
Replacement Note. SIMS has not assigned, pledged, hypothecated, sold, or
otherwise transferred any or all of its interest in and to the Original Note
(except to Luther) or in the 8% Replacement Note or any documentation related
thereto, including, without limitation, the Original Loan Agreement and the
Amended Loan Agreement, and any security interests referenced therein, to
Pharmacia or any third party and has the full right, title, and interest in and
to the benefits to which the Holder of the Original Note and of the 8%
Replacement Note is entitled.
3. Voluntary Agreement. SIMS and Luther acknowledge that they are now
entering into this Agreement freely and voluntarily; that they have ascertained
and weighed all of the facts and circumstances likely to influence their
judgment herein; that they are aware that they may hereafter discover facts
different from or in addition to the facts which they now know or believe to be
true with respect to the claims released herein, that they have had the
opportunity to seek and obtain competent legal advice of their own respective
choices, independently of each other; that all of the provisions hereof, as
well as all questions pertinent hereto, have been fully and satisfactorily
explained to them, that they have given due consideration to such provisions
and questions, and that they clearly understand and assent to all of the
provisions hereof.
4. Mutual Releases; Waiver of Section 1542. Subject to the parties's
respective obligations hereunder, from and after the date hereof, SIMS and
Luther, on behalf of themselves, and their respective successors and assigns,
hereby release, forgive, relinquishes, and forever discourages any and all
claims, causes of action, debts, obligations, accounts, demands, and/or rights
that they may have, individually or collectively, now and/or in the future
against the other and their respective successors and assigns, and their
respective shareholders, directors, officers, employees, and/or agents (and each
of their respective heirs, executers, administrators, successors, and assigns),
arising out of or in connection with their respective obligations under the
Original Note, the 8% Replacement Note, the Original Loan Agreement, the Amended
Loan Agreement, and all agreements related thereto.
-2-
<PAGE>
The parties hereto each acknowledge that they are familiar with section
1542 of the Civil Code of the State of California, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
The parties hereto each hereby waive and relinquish all rights and benefits
they have, or may have, under section 1542 of the Civil Code. The parties
hereto each hereby acknowledge that they have read the above provision of Civil
Code section 1542, and indicate their understanding thereof by signing this
Agreement.
5. Supersession of all Prior Negotiations. This Payment Agreement
supersedes and replaces all prior negotiations and proposed agreements, written
or oral, concerning the payment by Luther of certain principal and interest due
and owing to SIMS pursuant to the terms and conditions of inter alia the 8%
Replacement Note. The parties hereto each acknowledge that no other party, or
agent or attorney of any other party, has made any promise, representation, or
warranty whatsoever, express or implied, not contained in this Payment Agreement
concerning the subject matter hereof, to induce this Payment Agreement, and the
parties hereto each acknowledge that they have not executed this Payment Agree-
ment in reliance upon any such promise, representation, or warranty not
contained herein.
6. Authority. Each party represents and warrants to the other that it
has the full power and authority to execute and deliver this Agreement and to
perform the undertakings required herein.
7. Binding Effect; Governing Law. This Payment Agreement shall be
binding upon the parties hereto, their successors and assigns, and shall be
construed and interpreted in accordance with the laws of the State of California
without giving effect to principles of conflict of laws.
8. Counterparts. This Payment Agreement, including a facsimile copy
thereof, may be executed in more than one counterpart, each of which shall be
deemed an Original, but all of which shall constitute one and the same
instrument. A facsimile copy of an executed Payment Agreement shall be
sufficient to constitute due execution. If this Payment Agreement is executed
in counterparts, no signatory hereto shall be bound until each of the parties
shall have duly executed or caused to be executed a counterpart of this Payment
Agreement.
9. No Modifications to Distribution Agreement. For the sake of clarity,
the parties hereby agree and declare that nothing in this Agreement shall affect
or in any way amend that certain Distribution Agreement dated March 9, 1994,
between Luther and SIMS, the terms of which shall continue in full force and
effect.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST SIMS DELTEC, INC.
[SIGNATURE ILLEGIBLE] By: /s/ Karen B. Linard
- --------------------- ----------------------------------------------
Karen B. Linnard, Vice President of Finance
ATTEST LUTHER MEDICAL PRODUCTS, INC.
Petra Darling By: /s/ David Rollo
- --------------------- ----------------------------------------------
David Rollo, President
-4-
<PAGE>
EXHIBIT 10.30(a)
EMPLOYMENT AGREEMENT
This AGREEMENT is made by and between Luther Medical Products, Inc., a
California corporation (the "Company"), and RONALD B. LUTHER (the "Executive").
WHEREAS, the Company wishes to retain Executive as a Vice President,
Research and Development; and
WHEREAS, the Executive possesses an intimate knowledge of the business
affairs of the Company, its policies, methods, personnel, and products; and
WHEREAS, the Executive is desirous of continuing to commit himself to serve
the Company on the terms herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Employment. The Company hereby agrees to continue to employ the
----------
Executive on the terms and conditions set forth herein and the Executive hereby
agrees to continue to serve the Company, on the terms and conditions set forth
herein.
2. Position and Duties. The Executive shall serve as Vice President,
-------------------
Director of Research and Development of the Company and shall be accountable to
the Board of Directors for the research and development activities of the
Company, shall report directly to the Chief Executive Officer of the Company
("CEO") and shall have such other powers and duties as may from time to time be
prescribed by the Board or the CEO consistent with this position, including
ongoing direct interaction with and support of patent counsel in support of
existing patents and prosecution of future patent applications on the Company's
behalf. During the term of this Agreement, the Executive shall devote
substantially all of his working time and efforts to the business and affairs of
the Company.
Page 1 of 11
<PAGE>
3. Compensation and Related Matters.
--------------------------------
(a) Base Salary. The Company shall pay to the Executive a base salary
-----------
at the annual rate of not less than $115,000.00 ("Base Salary"), payable in
substantially equal semi-monthly installments. Executive's salary will only be
reduced in the event, and to the same proportionate extent, there is a reduction
in the salary of the Chief Executive Officer.
(b) Royalties. Subject to Section 8(a) hereof, during each of the
---------
five (5) years following the earlier of (i) the termination of this Agreement,
pursuant to the terms of Section 5 hereof for any reason (other than if the
Executive has been convicted of committing a felony involving malfeasance or
moral turpitude) or (ii) November 19, 1998 the Company shall pay to the
Executive compensation ("Royalties") equivalent to two percent (2%) of the "net
sales price" of all products manufactured by, or on behalf of the Company for
which the Company received a 510(k) notification from the United States Food and
Drug Administration that bears a date on or after November 19, 1993. No
Royalties shall accrue in favor of the Executive during the period that the
Company is responsible to pay Base Salary to the Executive. All Royalties shall
be paid in cash, quarterly, in arrears.
For purposes of this Agreement, "net sales price" shall mean all revenues
from sales of relevant royalty products received by the Company in arms-length
transactions for commercial purposes, whether a sale, lease, or other
transaction, less sales, excise, and use taxes; export or import duties;
freight; credits for claims; and allowances for returns from, and samples to,
purchasers. Notwithstanding the above, in the event that the Company shall
grant licenses or shall otherwise transfer to unaffiliated third parties certain
patent rights to sell relevant royalty products, sales or leases thereof by such
third parties shall be deemed to be sales or leases by the Company; provided,
however, that the calculation of such "third-party generated" Royalties shall be
reduced from two percent (2%) to one percent (1%) of the royalty revenues and/or
lump sum payments received by the Company.
Page 2 of 11
<PAGE>
Notwithstanding the above, in the event that, during the period that
Royalties are to be paid by the Company to the Executive, and the Executive has
not been terminated under the provisions of Paragraph 5(c), the Executive elects
to engage in business activities related to the Company's that are the same or
substantially similar to the businesses, products, services, or markets of the
Company, or any division or subsidiary thereof, the Executive shall so advise
the Company in advance of the commencement of such activities by him. Unless
the Company shall consent in writing to his commencement of such business
activities, then, during the period that Royalties are to be paid by the Company
to the Executive, the Executive shall not, directly or indirectly, compete with
the Company, or any division or subsidiary thereof, in the business of the
Company or any division or subsidiary thereof, whether such competition shall be
as an officer, director, owner, employee, partner, or consultant. For the
purposes of this Agreement, the Company's "business" shall be deemed to consist
of research and development, design, manufacture, fabrication, production,
licensure and marketing of intra-vascular catheters, split, peel-away needles
and medical devices and products related thereto. Notwithstanding anything to
the contrary set forth above, in the event the Executive elects to engage in a
business competitive to the Company's without its consent, he may elect to do so
by voluntarily terminating the obligation of the Company under this Agreement to
pay Royalties to him; such termination shall fully discharge the Company's
obligations hereunder.
(c) Bonus Payments. In addition to Base Salary, the Executive shall
--------------
be entitled to receive such bonus payments, if any, as the Compensation
Committee may determine pursuant to the Company's bonus plan, if, when, and as
adopted and modified from time to time.
(d) Expenses. During the term of his employment hereunder, the
--------
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with the policies and procedures
presently established by the Board for
Page 3 of 11
<PAGE>
the Company's senior executive officers) in performing services hereunder,
provided that the Executive properly accounts by submitting receipts therefor in
accordance with Company policy. Expenses in excess of $1,000 must be approved
in advance by the CEO.
(e) Vacations. The Executive shall be entitled to three weeks'
---------
vacation in any Company fiscal year (earned pro rata in any Company fiscal year
during which the Executive is employed hereunder for less than the entire such
year in accordance with the number of days in such Company fiscal year during
which he is so employed). The Company's fiscal year commences July 1 and
concludes June 30. The Executive shall also be entitled to all paid holidays
given by the Company to its senior executive officers.
4. Representations and Covenants of the Executive.
----------------------------------------------
(a) Office Space. Executive hereby confirms his approval of the floor
------------
plans for his new office space, in substantially the form attached hereto as
Exhibit A.
- ---------
(b) Covenants. Executive further agrees that:
---------
(i) he recognizes and is bound by the terms of the
Confidentiality and Patent Assignment Agreement dated February 14, 1992 between
the Company and Executive;
(ii) while employed by the Company, he will not take any other
action which is harmful to the Company, its operations or its prospects,
including, but not limited to, acting as a consulting or testifying expert
witness on behalf of or against any medical device manufacturer in connection
with medical devices or in any U.S. federal or state court or any other foreign
court unless compelled to do so by subpena or court order, copy of which is hand
delivered to the Chief Executive Officer of the Company within 48 hours of
receipt by Executive;
Page 4 of 11
<PAGE>
(iii) while employed by the Company, he will abide by lawful
actions taken by resolution of the Board of Directors at a duly convened meeting
or by unanimous written consent so long as such actions are not in contravention
of this Agreement;
(iv) while employed by the Company, he will not talk to
shareholders, the press, the Investment Community or the Peer Group regarding
the Company's confidential results and condition unless and until the Board
adopts a resolution specifically authorizing him to engage in such discussions
or he is directed to do so by the Company's Chief Executive Officer; or
(v) while employed by the Company, he will fully disclose to the
Board any transaction affecting in any way the Company in any material respect
which is of personal benefit.
(c) Patents. All patents and patent applications prepared by or in
-------
connection with Executive on behalf of the Company shall be subject to the prior
written approval of the Chief Executive Officer, or a person authorized thereby,
prior to filing of such patent or patent application.
5. Termination. The Executive's employment hereunder may be terminated
-----------
under only the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
his death.
(b) Disability. If, as a result of the Executive's incapacity due to
----------
physical or mental illness, the Executive shall have been absent from his duties
hereunder on a full time basis for 90 consecutive calendar days, and within 30
days after written notice of termination is given (which may occur only after
the end of such 90-day period) shall not have returned to the performance of his
duties hereunder substantially on a full-time basis, the Company may terminate
the Executive's employment hereunder.
Page 5 of 11
<PAGE>
(c) At Will Termination. The Company may terminate the Executive at
-------------------
will, without cause, upon written notice, but only after December 31, 1995.
However, if the Company elects to terminate the Executive at will, then the
Company shall pay the Executive (i) his full Base Salary to the Date of
Termination, subject to the provisions of Section 3(a) hereof, (ii) a sum
equivalent to sixteen (16) months' salary in equal monthly installments for
sixteen (16) months payable beginning the month following the last month the
Base Salary was paid, and (iii) the payment of Royalties in the manner specified
in Subsection 3(b), and such payments shall fully discharge the Company's
obligations hereunder.
(d) Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder at any time with thirty (30) days prior written notice to
the Company in which case no further payments will be made except pursuant to
paragraph 3(b).
6. Notice of Termination; Date of Termination. Any termination of the
------------------------------------------
Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall state the
effective date thereof.
7. Compensation Upon Death or Disability.
-------------------------------------
(a) If the Executive's employment shall be terminated by reason of his
death, the Company shall pay to such person as he shall designate in a notice
filed with the Company, or, if no such person shall be designated to his estate
(i) his Full Base Salary to the date of his death, (ii) a sum equivalent to one
month's salary for each year following the effective date of the Company's
Registration Statement on Form S-18, i.e., November 12, 1980, which sum shall be
paid in equal monthly installments for the relevant number of months, (iii) the
payment of Royalties in the manner specified in Subsection 3(c), and (iv) any
payments the Executive's spouse, beneficiaries, or estate may be entitled to
receive pursuant to any pension
Page 6 of 11
<PAGE>
or employee benefit plan or life insurance policy presently maintained by the
Company for the Executive or his spouse's benefit, and such payments shall fully
discharge the Company's obligations hereunder.
(b) During any period that the Executive fails to perform his duties
hereunder as a result of disability due to physical or mental illness, the
Executive shall continue to receive his full Base Salary and bonus payments
unless and until the Executive's employment is terminated. After termination,
the Executive shall be paid (i) his full Base Salary to the Date of Termination,
(ii) a sum equivalent to one month's salary for each year following the
effective date of the Company's Registration Statement on Form S-18, i.e.,
November 12, 1980, which sum shall be paid in equal monthly installments for the
relevant number of months, and (iii) the payment of Royalties in the manner
specified in Subsection 3(b), and such payments shall fully discharge the
Company's obligations hereunder.
8. Successors; Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place and such successors shall be entitled to all benefits under the
Agreement; provided, however, that such successor may, at its sole discretion,
limit the Royalties payable to the Executive during the five year period
specified in section 3(b) of this Agreement to the greater of (i) nothing if
Executive has already received from Company Royalties in excess of $2,000,000 as
of the effective date of any such succession or (ii) a maximum aggregate payment
by the Company and any successor of $2,000,000; and provided
Page 7 of 11
<PAGE>
further that such successor may, as an alternative to the foregoing option (ii)
pay a lump sum as full payment for all Royalties to be paid under this
Agreement. In the event that the successor chooses the lump sum payment method
then the lump sum shall be calculated as shown in Exhibit B. Failure of the
---------
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as if
this Agreement were terminated pursuant Section 5(c), above, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbe fore defined and any
successor to its business and/or assets as aforesaid that executes and delivers
the agreement provided for in this Section 8 or that otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights and obligations, including the
obligations of Section 4 hereof, of the Executive hereunder shall be binding on
and inure to the benefit of and be enforceable by the Executive's devisee,
legatee, or other designee or, if there be no such designee, by the Executive's
estate.
9. Notice. For purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Ronald B. Luther
530 Kings Road
Newport Beach, California 92660
Page 8 of 11
<PAGE>
With a copy to:
Kenneth M. Kaplan, Esq.
Pillsbury Madison & Sutro
600 Anton Boulevard, Suite 1100
Costa Mesa, CA 92626-7147
If to the Company:
Luther Medical Products, Inc.
14332 Chambers Road
Tustin, California 92680
Attention: David Rollo
With a copy to:
Bruce R. Hallett, Esq.
Brobeck, Phleger & Harrison
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660-1846
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Miscellaneous. This Agreement supersedes all prior agreements
-------------
except (i) the Warrant Agreement dated May 6, 1994 between the Company and
Executive, (ii) the Confidentiality and Patent Assignment Agreement dated
February 14, 1992 between the Company and the Executive, (iii) that certain
Letter Agreement between the Company and the Executive dated September 25, 1995,
and (iv) rights arising from agreements to be entered into pursuant to the
Unanimous Written Consent of Action in Lieu of Board Meeting dated September 18,
1995, and contains the entire Agreement between the parties and has been jointly
drafted after negotiation and advice of counsel. No provisions of this
Agreement may be modified, waived, or discharged, unless such waiver,
modification, or discharge is agreed to in writing signed by the Executive and
such officer as may be specifically designed by the Board. No waiver by either
party hereto of, or in compliance with, any condition or provision of this
Page 9 of 11
<PAGE>
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party that are not set forth expressly in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of California.
11. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. Attorney's Fees. If either party to this Agreement seeks to
---------------
enforce his or its rights under this Agreement, the prevailing party shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
14. Arbitration. In the event of any dispute or claim relating to or
-----------
arising out of this Agreement that cannot be settled amicably by agreement of
the parties, the Company and the Executive agree that all such disputes or
claims shall be fully and finally resolved by binding arbitration conducted by
the American Arbitration Association ("AAA") in Orange County, California.
Arbitration shall be conducted by three (3) arbitrators, one of whom shall be
selected by each party, and the third by the other two (2) arbitrators, all
within the time limits
Page 10 of 11
<PAGE>
established by the then existing rules of the AAA. The provisions of California
Code of Civil Procedure Section 1283.05 (Right to Discovery) shall be
applicable in any such arbitration. It is agreed that in any such arbitration,
the duly appointed arbitrators may consider and award relief on any and all
remedies available under this Agreement to either of the parties thereto. The
decision of the arbitrators shall be final and without appeal, and may be
enforced in any court having jurisdiction over the parties or their current
assets.
Any dispute arising out of or in connection with this Agreement shall be finally
settled without recourse to the courts.
DATED: ____________, 1995
LUTHER MEDICAL PRODUCTS, INC. ("Company")
By:
_______________________________________
David Rollo, Chairman of the Board and
Chief Executive Officer
APPROVED AS TO FORM:
____________________________________
D. Ross Hamilton
Member of the Compensation Committee
____________________________________
Jack W. Payne
Chairman of the Compensation Committee
____________________________________
Mark S. Isaacs
Director
RONALD B. LUTHER ("Executive")
______________________________
RONALD B. LUTHER
Page 11 of 11
<PAGE>
EXHIBIT B
---------
The period over which Royalties are to continue to be paid shall be
determined by subtracting the period over which Royalties had already been paid,
if any, under this Agreement, from a total of five (5) years.
A monthly Royalty stream shall be projected to be paid, over the
period calculated above.
The payment rate shall be assumed to start at a rate equal to the
average of the three (3) months immediately preceding the date of succession.
The Royalty rate will be assumed to have a constant monthly rate of
growth, over the period, such that the total Royalties paid over the period
equals the contract level. ($2,000,000, less any Royalties paid prior to the
date of succession.)
The lump sum shall be calculated by performing a "net present value
calculation" assuming the federal discount rate in effect on the date of
succession.
<PAGE>
Exhibit 10.34
APRIA HEALTHCARE, INC.
----------------------
PURCHASE AGREEMENT
This Agreement is made as of this twelfth day of September, 1995, by and
between Apria Healthcare, Inc. ("Purchaser") located at 3560 Hyland Avenue,
Costa Mesa, CA 92626, and Luther Medical, located at 14332 Chambers Road,
Tustin, CA 92680-6912 ("Seller").
WHEREAS, the parties wish to enter into a contractual relationship to
establish terms, delivery periods, and pricing for the purchase and sale of
certain products described herein (hereinafter the "Equipment/Material").
NOW THEREFORE, in consideration of the mutual covenants contained herein
the parties agree as follows:
1. Term
1.1 Subject to prior termination under Section 12 below, the term of this
Agreement shall be for a period of twelve months commencing October 1, 1995 and
ending September 30, 1996 (the "Initial Term"). Upon completion of the Initial
Term of this Agreement, the parties may renegotiate with respect to extension or
renewal hereof.
1.2 If upon the expiration of the Initial Term, an agreement has not been
negotiated by the parties and Equipment/Material continues to be ordered and
delivered between the parties, this Agreement shall continue on a month-to-month
basis upon the same terms and conditions as were in effect prior to expiration,
subject to termination by either party with or without cause upon thirty days'
written notice to the other.
2. Purchase Requirement
2.1 Subject to the terms and conditions of this Agreement the Purchase
Requirement of Purchaser is specified in Exhibit "A", attached hereto, and
applies solely to the Equipment/Material identified in Exhibit "A".
2.2 Seller accepts that the Purchase Requirement may be subject to
unilateral adjustment by Purchaser without the consent of Seller based on
significant decreases in reimbursement for the Equipment/Material, a significant
change in the method of reimbursement (Cap, Rental, Sale, etc.) or if new
technology is introduced which offers advances which Seller cannot duplicate
within an acceptable time frame and Purchaser deems necessary to its business.
If any of the foregoing circumstances set forth in this Section 2.2 exist, then
Seller will not hold Purchaser liable for Purchaser's inability to meet the
Purchase Requirement.
<PAGE>
2.3 Seller agrees to supply Purchaser with monthly reports in accordance
with Purchaser's specifications to be given to Seller by Purchaser, which will
show all purchases of the Equipment/Material made by Purchaser by product or
product categories. Year-to-date figures in addition to previous year's figures
FROM THE START OF THE SECOND YEAR will also be provided. In addition, if
required by Purchaser, Seller agrees to supply each branch office of Purchaser a
monthly report of local sales activity and FROM THE START OF THE SECOND YEAR a
comparison of the same period for the prior year.
3. Pricing and Discounts
3.1 The prices which Purchaser shall pay to Seller for all
Equipment/Material covered by this Agreement shall be limited to those specified
on price list attached hereto, entitled Exhibit "B".
3.2 Seller represents and warrants that prices offered to Purchaser under
this Agreement are and will be equal or less than any prices offered by Seller
to any other purchaser, OF LIKE COMPANIES WITH LIKE VOLUMES of the same
Equipment/Material
3.3 Prices specified under this Agreement are not subject to change except
by mutual written agreement between the parties.
4. Payment and Delivery
4.1 Purchaser will remit payment to Seller for the amounts stated on
invoices submitted to Purchaser by Seller in the following manner:
2% 30 DAYS-NET 90 DAYS
4.2 All shipments of the Equipment/Material ordered by Purchaser will be
delivered by Seller in the following manner:
FOB DESTINATION, FREE FREIGHT TO PURCHASER AND ASSUMES UPS GROUND OR
EQUIVALENT.
5. Trade-in Credit
5.1 Purchaser may, at any time, require Seller to substitute any upgraded
or laterdeveloped products supplied hereunder for products purchased pursuant to
these terms and conditions. In such event, Seller shall allow a trade-in credit
for the old products toward the purchase price of the new products equal to its
depreciated value using straight line depreciation and a five year life.
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<PAGE>
6. National Meetings Sponsorship
Seller will contribute QUARTERLY 1% of net purchases to Purchaser for the
express purpose of supporting Purchaser's national meetings. In the event that
Purchaser does not hold national meetings, these monies may be applied to
mutually agreed upon joint marketing and/or training/giveaway promotions.
7. Emergency Equipment/Material
Seller shall make every effort to assist Purchaser in locating
Equipment/Material compatible with that furnished by Seller hereunder in the
event of an emergency ("Emergency Equipment/Material"). Purchaser, at its
option, may accept or reject the offer of use of Emergency Equipment/Material if
accepted. If accepted, the charge for such use, if any, shall be a limited
arrangement between Purchaser and Seller until permanent Equipment/Material is
received and accepted.
8. Equipment/Material Warranties
8.1 Warranties of Merchantability
SEE EXHIBIT "C"
8.2 Survival of Warranty
All warranties granted or assigned hereunder shall continue in full force and
effect notwithstanding transfer of title to the equipment by Purchaser. All
warranties shall also survive inspection, acceptance and payment.
8.3 Repairs (if applicable to Equipment/Material provided)
SEE EXHIBIT "C"
9. Purchaser's Right of Inspection and Return
Purchaser reserves the right to inspect all products and to reject any or all
the products which are, in the judgement of Purchaser, incorrectly shipped,
defective, damaged, contaminated or otherwise not in compliance with the
warranty granted or assigned hereunder. Such returns will be sent back to
Seller, FOB point-of-origin. Seller will not charge Purchaser a re-stocking fee
for such returns.
10. Instruction and manuals
10.1 Documentation
10.1(a) Seller agrees to furnish to Purchaser's branches, as the
case may be, at no charge, Documentation (as
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<PAGE>
defined below), and any succeeding changes thereto, as described herein.
Purchaser may reproduce such Documentation for use hereunder. For purposes of
this section, "Documentation" shall mean three copies of appropriate literature,
satisfactory to the Purchaser, describing the product, its performance
characteristics, technical features, etc., as well as literature sufficient for
Purchaser to operate, install and maintain the Equipment/Material.
10.1(b) This Documentation and any subsequent changes or updates
shall reference Seller's serial numbers, lot numbers, and date of issue.
10.1(c) Seller agrees to maintain a list of Purchaser's branches
(provided by Purchaser) in order to provide Purchaser with any changes to
Documentation at no charge.
10.2 Technical Support
Purchaser shall be entitled to ongoing technical support, including field
service and assistance; provided, however that the availability or performance
of this technical support service shall not be construed as altering or
affecting Seller's obligations as set forth in Section 8 ("Equipment/Material
Warranties") or as elsewhere provided for herein. Seller's technical support via
telephone shall be provided to Purchaser without charge. Charges, if any, for
field service technical support shall be mutually agreed upon by Purchaser and
Seller.
10.3 Training
Seller shall develop and provide to Purchaser, at no additional charge, a
training program covering the Equipment/Material purchased hereunder, if
requested by Purchaser.
11. Public Release of Information
Unless prior written consent of Purchaser is obtained, the Seller shall not,
except as required by law or regulations, in any manner advertise or publish or
release for publication any statement or information mentioning the Purchaser,
or the fact that the Seller has furnished or contracted to furnish to the
Purchaser the items required by this agreement, or quote the opinion of any
employee of the Purchaser.
12. Termination
12.1 Purchaser's Right to Terminate
Purchaser may unilaterally terminate this agreement without any liability to the
Seller for damages caused thereby upon the occurrence of any of the following
circumstances:
4
<PAGE>
12.1(a) Without Cause
Upon giving written notice to the Seller of such termination to be
effective thirty days after the date such notice is given.
12.1(b) Merger/Reorganization
Upon the entering of Purchaser or its parent company into an agreement of merger
or plan of reorganization.
12.1(c) Seller's Default
12.1(c)(i) Upon Seller's repeated failure to deliver any
Equipment/Material as requested in Purchaser's purchase orders, or respond to
Purchaser's requests concerning the Equipment/Material (such failure being
defined as more than two times in any thirty day period). Seller's cure or
attempt to cure such default will not affect Purchaser's right to unilateral
termination granted hereunder.
12.1(c)(ii) Upon Seller's repeated delivery of
Equipment/Material which fails in any respect to meet Seller's or the
manufacturer's warranty as granted or assigned hereunder, (such failure being
defined as more than two times in any thirty day period). Seller's cure or
attempt to cure such default will not affect Purchaser's right to unilateral
termination granted hereunder.
12.1(d) Seller's Discriminatory Pricing
Upon Purchaser's discovery that Seller has offered lower net prices covering the
Equipment/Material to other purchasers OF LIKE COMPANIES WITH LIKE VOLUMES while
this Agreement remains in force.
12.1(e) Assignment Without Consent
Upon Seller's attempt to assign any of its rights or obligations under this
Agreement without the prior written consent of Purchaser.
12.2 Seller's Right to Terminate
Seller may unilaterally terminate this agreement without any liability to the
Purchaser for damages caused thereby upon the occurrence of any of the following
circumstances:
12.2(a) Without Cause
Upon giving written notice to the Purchaser of such termination to be effective
thirty days after the date such notice is given.
5
<PAGE>
12.2(b) Merger/Reorganization.
Upon the entering of Seller or its parent company into an agreement of merger or
plan of reorganization
12.2(c) Assignment Without Consent
Upon Purchaser's attempt to assign any of its rights or obligations under this
Agreement without the prior written consent of Seller.
13. Limitation of Remedies
13.1 The parties agree that any remedies either party may be entitled
to against the other for any breach or termination of this Agreement will be
limited to the following:
13.1(a) for Purchaser, rescission and recovery of the purchase price
for any purchases of Equipment/Material for which there was a Seller's Default
as defined in Section 12;
13.l(b) for Seller, payment for any accrued or outstanding balances
owed to Seller for Equipment/Material previously delivered AND NOT REJECTED by
Purchaser.
13.2 The parties agree that under no circumstances will either party
be held liable to the other for indirect, special, consequential or incidental
damages, such as loss of use, revenue or profit.
14. Time of Essence
Seller's obligation to meet the delivery dates or any other time periods set
forth herein or from a branch is of the essence. Seller's inability to
repeatedly respond to Purchaser's purchase orders or requests concerning the
Equipment/Material (defined as more than two times in any thirty day period),
which inability adversely affects Purchaser's business relations with a referral
source, is grounds for unilateral termination under Section 12 of this
Agreement.
15. Indemnity
Seller shall indemnify and hold harmless Purchaser, its agents and employees
from and against any and all claims, losses, damages and liabilities (including
reasonable attorneys' fees and court costs) caused by the negligent or wrongful
acts or omissions of Seller, its agents and employees. Purchaser shall indemnify
and hold harmless Seller, its agents and employees from and against any and all
claims, losses, damages and liabilities (including reasonable attorneys'fees and
court costs) related to the use of the Equipment/Material and caused by the
negligent or
6
<PAGE>
wrongful acts or omissions of Purchaser, its agents and employees.
16. Complete Agreement
This Agreement, including all matters expressly incorporated herein by
reference, constitutes the entire Agreement between the parties respecting the
subject matter hereof, and there are merged herein all prior and preexisting
representations and agreements made by and between Purchaser and Seller.
17. Notices
All notices, reports, and other communications made with respect to this
Agreement will be given in writing, addressed to the parties at the following
addresses or such other addresses as may be designated in writing by either
party to the other. All notices required to be given hereunder will be effective
when delivered by hand or when deposited in the United States Mail, with proper
prepaid postage for First Class Mail.
TO PURCHASER
Apria Healthcare, Inc.
3560 Hyland Avenue
Costa Mesa, CA 92626
TO SELLER
Luther Medical Products, Inc.
14332 Chambers Road
Tustin, CA 92680-6912
18. Amendments and Waivers
18.1 No terms or provisions of this Agreement may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against whom the enforcement of such change, waiver, discharge, or
termination is sought.
18.2 Any waiver of any provision of this Agreement shall not constitute a
waiver of any other provision nor shall it constitute a continuing waiver
19. Assignments
This Agreement may not be assigned in whole or in party by either party, unless
the non-assigning party consents to the assignment in writing. Any attempt to
assign this Agreement without the consent of the non-assigning party will give
rise to the
7
<PAGE>
non-assigning party's right to unilateral termination pursuant to Section 12.
20. Choice of Law/Choice of Forum
20.1 The parties agree that except as expressly set forth in the terms of
this Agreement, the rights and obligations of the parties with respect thereto
shall be governed by the Uniform Commercial Code as applied and construed under
California Law by the California Courts, without regard to any rules of conflict
of laws which may apply.
20.2 The parties agree to submit to the exclusive jurisdiction of the
courts of the State of California for all actions concerning this Agreement.
21. Attorney's Fees
If any legal action is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorney's fees and other costs incurred
in that action or proceeding, in addition to any other relief that may be
granted.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed.
APRIA HEALTHCARE, INC.
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
Date: _______________________ Date: ______________________
LUTHER MEDICAL PRODUCTS, INC.
By: _________________________ By: _________________________
Title: ______________________ Title: ______________________
Date: _______________________ Date: ______________________
8
<PAGE>
EXHIBIT "A"
-----------
LUTHER-CONTRACTED PRODUCT LINES
PICC Primary
Midline Primary
Port Access Primary
9
<PAGE>
EXHIBIT "B"
-----------
APRIA HEALTHCARE
NATIONAL CONTRACT
FOR
LUTHER MEDICAL PRODUCTS, INC.
OMITTED
10
<PAGE>
EXHIBIT C
---------
1. Seller warrants to Purchaser that the Equipment/Material will be free from
defects in material and workmanship for a period of twelve (12) months from the
date of shipment.
2. The sole responsibility of Seller under the foregoing warranty shall be
limited, at its option, to the repair or replacement, F.O.B. its factory or
authorized facility, of defective Equipment/Material returned prepaid by
Purchaser.
3. All seller warranties herunder are conditioned upon proper use of the
Equipment/Material in the application for which it is intended, and no warranty
shall apply to: (I) any modification, service or repair of the
Equipment/Material made by or on behalf of Purchaser, without the written
approval of Seller; or (ii) damage to the Equipment/Material caused by accident,
neglect, misuse, failure to comply with applicable directions for use, or any
cause other than ordinary use.
4. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED(INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE). REPAIR OR REPLACEMENT IN THE MANNER PROVIDED ABOVE SHALL BE
THE SOLE AND EXCLUSIVE REMEDY OF PURCHASER FOR BREACH OF WARRANTY AND SHALL
CONSTITUTE FULFILLMENT OF ALL LIABILITIES OF SELLER WITH RESPECT TO THE QUALITY
AND PERFORMANCE OF THE EQUIPMENT/MATERIAL.
5. Purchaser shall promptly notify Seller in writing of any information or
data which it may receive, directly or indirectly, relating to any claimed or
actual defects or deficiencies in the Equipment/Material. In no event shall
Purchaser attempt to repair or remedy any such defect or deficiency without the
express authorization and approval of Seller. In all cases, Purchaser shall
proceed as instructed by Seller, subject, however, to Purchaser's compliance
with all applicable laws and regulations (e.g. FDA medial devices).
11
<PAGE>
EXHIBIT 10.35
DATE: November 2, 1995
- -----
CONTRACT NUMBER:
PRODUCT DESCRIPTION: Port Access Catheter System
VENDOR AGREEMENT
----------------
WHEREAS, Health Services Corporation of America (hereinafter referred to as
"HSCA"), a Missouri for-profit corporation serving as broker or contracting
agent, is a National Healthcare Support System engaged in providing group
purchasing agreements for numerous client hospitals and other healthcare
facilities (hereinafter referred to as "Member Organizations"), and;
WHEREAS Luther Medical Products, Inc. (hereinafter referred to as "Vendor"),
provides healthcare related products or services for private consumption by
HSCA's Member Organizations, and;
WHEREAS:
VENDOR desires to provide products and/or services to HSCA and its Member
Organizations, at the net price, discounts, or mark-ups hereinafter set
forth, ALL IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH HEREIN.
HSCA desires to work closely with Vendor and Member Organizations in
arranging for and coordinating marketing, sales and educational programs at
various times for Member Organizations and for HSCA's national sales
representatives.
VENDOR desires to participate in these programs and provide HSCA with
adequate numbers of program brochures and marketing material for
distribution to Member Organizations and for use by HSCA marketing and
sales personnel at no cost to HSCA.
HSCA desires to market Vendor's products and services as defined in this
Agreement to its current and future Member Organizations.
Both HSCA and Vendor desire to identify to the other party marketing
opportunities that can lead to new or incremental business for Vendor as
well as additional Member Organizations for HSCA.
This Agreement includes all terms and conditions as herein stated and
supporting attached material are made part of this Agreement.
<PAGE>
Acceptance of this Agreement by Vendor shall be construed as an assurance
to HSCA of Vendor's ability to provide any items for which this Agreement
is awarded to all Member Organizations for the duration of the Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises herein
contained, the parties agree as follows:
TERMS AND CONDITIONS
--------------------
1.0 TERM
* THIS AGREEMENT covers a period of one year, (12 months), commencing
February 1, 1996, and terminating See Addendum A.1.0.
RENEWAL
This Agreement shall renew automatically for an additional period of twelve
(12) months upon expiration of the stated term, unless terminated by either
party by written notice given not less than sixty (60) days prior to the
termination of the stated term.
ASSIGNMENT AND SUBCONTRACTING
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but may not be
assigned without the written consent of the other party. Such consent shall
not be unreasonably withheld provided that the acquiring company has the
expertise, experience, personnel, and capability and agrees to assume and
duly perform all of Vendor's duties and obligations hereunder.
Except for those subcontracts specifically authorized by this Agreement,
Vendor shall not enter into subcontracts for any of the products and
services contemplated under this Agreement without obtaining prior written
approval of HSCA, such approval not to be unreasonably withheld if
subcontrac tor(s) appear to be qualified to perform the subcontract work.
TERMINATION FOR CAUSE
In the event either party materially breaches this Agreement and fails to
cure said breach within thirty (30) days of having received written notice
of said breach, the non breaching party in its sole option may terminate
this
2
<PAGE>
Agreement on thirty (30) days written notice to the breaching party.
TERMINATION FOR BANKRUPTCY OR INSOLVENCY
If the other party makes an assignment for the benefit of creditors, files
a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions
or applies to any tribunal for any receiver or any trustee, commences any
proceeding under any reorganization, arrangement, readjustments of debt of
similar law or statute of any jurisdiction, whether now or hereafter in
effect, or if there is commenced against the other party any such
proceeding which remains undismissed, unstayed (or, if stayed, such stay
shall have been set aside) or unvacated for a period of thirty (30) days,
the other party shall have the right to immediately terminate this
Agreement. In addition, such termination of the provisions of this
Agreement shall not affect obligations which accrued prior to the effective
date of such termination.
2.0 AGREEMENT ATTACHMENTS
Affixed to this Agreement are applicable attachments germane to the
Agreement between HSCA and Vendor. These attachments are incorporated
herein and are fully enforceable as terms and conditions.
3.0 MEMBERSHIP LISTS AND UPDATES
HSCA shall provide Vendor with its membership list and any updates thereto
on a monthly basis. All Member Organizations shall be entitled to purchase
any products or services pro vided hereby. Any new Member Organizations, as
provided to Vendor by way of the monthly update, shall be entitled to
purchase any products or services provided hereby under the same terms and
conditions as set forth herein, no later than 30 days after written
notification. Any individual Agreement between Vendor and new Member
Organization shall: 1) if pro viding superior pricing than this Agreement,
remain in effect with HSCA receiving credit for the purchases made
thereunder until said Agreement's natural termination or; 2) if providing
inferior pricing than this Agreement, terminate immediately.
Likewise, upon notification by HSCA to Vendor of a Member Organization's
deletion by way of the monthly update member organization shall be deleted
from making purchases here under effective when written notice is received.
Vendor shall pay HSCA all administrative fees due with respect to purchases
made by deleted Member Organization through date
3
<PAGE>
of termination irrespective to when payment is received by Vendor from
deleted Member Organization.
4.0 PERFORMANCE
CUSTOMER SERVICE: Vendor agrees to provide a trained customer service
representative to handle inquiries and orders via telephone from Member
Organization(s).
SALES REPRESENTATION: Vendor shall provide adequate sales representation,
as mutually agreed to by Vendor and Member Organization, to cover the
normal business needs of the Member Organization. Vendor shall supply HSCA
with a list of the representatives and the territories which they cover.
Vendor agrees to meet with HSCA staff and Member Organiza tion(s) to
discuss contract performance. Such meetings, with advance notification,
will be held at a location mutually agreed upon.
FILL RATE: Vendor will maintain a first deliver fill rate of at least
ninety-five (95%) percent for Member Organization(s) that provide
historical usage data to Vendor. Any line item where less than fifty
percent (50%) of the quantify ordered is shipped will count as a stock-out.
Manufacturer backorders and recalls are excluded. Fill rate will be
monitored by HSCA and Member Organization(s). Should the Vendor fill rates
fall below ninety-five (95%) percent, Vendor weill be notified by HSCA and
given thirty (30) days to remedy. Failure to remedy may result in
cancellation of the contract by HSCA.
Vendor must have available product and applicable product pricing for all
participating Member Organization(s) within thirty (30) days of receipt of
Member Organization(s) monthly update.
5.0 ORDERING METHODS
Member Organization(s) shall be responsible for the placement of their
purchase order(s) directly with the Vendor. It will be the Vendor's
responsibility to obtain payment from participating Member Organization(s).
All disputes and controversies concerning services and products or any
purchase order, invoice, goods, materials, shipments, performance,
scheduling, and delivery or performance dates shall be handled by Vendor on
a direct basis with the participating Member Organization(s).
Vendor agrees to offer zero (0%) percent additional discount to those
Member Organization(s) that order product through
4
<PAGE>
an electronic order entry device. (Include pertinent details in an
attachment.)
6.0 DELIVERY
All items furnished by Vendor shall be packaged and labeled in accordance
with good manufacturing practices and shall be shipped in containers that
conform to all shipping regulations. No merchandise which has been
repackaged from original containers or which has been relabeled or which
contains any effacement reducing its value shall be acceptable without the
express prior consent of the Member Organization.
Vendor will not substitute product to any Member Organization without
advance approval from the Member Organization. If substitutions are
approved, the cost to the Member Organization shall be equal to or less
than the cost of the originally ordered product.
Vendor shall present to Member Organization(s) a packing slip or invoice
copy upon delivery of merchandise. Information to be contained on these
documents shall include, but not be limited to date of shipment,
description or merchandise, quantities shipped, purchase order number, and
any special information required by the member institution.
Should Vendor fail to make delivery against orders which were placed with
adequate lead time whereas such failure causes a Member Organization to
purchase in the open market at a higher cost, then Vendor shall provide
reimbursement to said Member Organization for the difference between
contract costs and excess costs occasioned by such open market purchase(s).
Such open market purchase(s) shall be limited to a two Weeks supply within
the order Member Organization, after which, if Vendor is still unable to
supply, Member Organization may again go to the open market for another
four weeks' supply for which Vendor shall provide reimbursement.
Reimbursement shall be made within thirty (30) days of receipt by Vendor of
documentation from Member Organization(s). If, after that period, Vendor is
not able to supply, then HSCA shall have just cause for terminating this
Agreement with thirty (301 days' notice.
7.0PRICING
* The net price list, cost plus fees or discounts for services as quoted in
this Agreement shall be guaranteed firm for the period specified. Any price
decreases or discount increases received by Vendor from manufacturers shall
immediately be
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<PAGE>
passed on to the Member Organization(s). During the term of this contract,
HSCA retains the right to audit or to have audited Vendor's records, such
audits to include but not be limited to verifying Vendor's costs and
Vendor's freight charges. Should any audit produce evidence that
overcharges were incurred by Member Organization(s), then Vendor shall
respond to such evidence and cure the situation within fif teen (15) days.
Properly authorized representatives of HSCA shall have the right to inspect
the premises, facilities and storage methods of all items covered under
contracts awarded as a result of this contract.
In the event price increases occur during the term of this Agreement,
Vendor shall give HSCA at least thirty (30) days' prior written notice
before implementing the increases on the next month following said notice.
* Vendor agrees not to sell the services and products covered by this
Agreement to any HSCA Member Organization(s) on terms different than those
stated herein without the prior approval of HSCA. Vendor further agrees
that the discount offered HSCA's Member Organization(s) under the terms of
this Agreement shall be equal to or better than offered by Vendor to other
accounts or clients. See Addendum A.7.0.
Vendor agrees to provide at least ninety (90) days' price protection on all
non-contract manufacturer products.
Vendor agrees to provide, at no charge, net price lists in hard copy,
microfiche form or computer media format to HSCA for distribution to the
Member Organization(s).
8.0 SOLE USE
Vendor and HSCA jointly agree that benefits of this contract shall accrue
solely to the Member Organization, specified by HSCA. Products offered
under this Agreement are for Member Organization's own use for the care and
treatment of their patients.
9.0 See Luther's Returned Goods Policy - Addendum B
Credit shall be issued by Vendor to Member Organization(s) within thirty
(30) days of the date of return. Failure to credit Member Organization's
accounts within thirty (30) days will result in a penalty of one (1%)
percent per month added to the credit amount due.
*10.0 WARRANTY
All commodities supplied by Vendor shall be warranted to be free from
defects and imperfections in design, material and
6
<PAGE>
workmanship, to be in conformity with all product specifica tions, to be
merchantable and, if intended for a particular rational purpose, to be fit
for such purpose. See Addendum C.
11.0 SUSPENSION OF SERVICE
Service may not be suspended to a Member Organization unless the Director
of Purchasing, the Chief Financial Officer of the Member Organization, and
the Vice President, Corporate Negotiations for HSCA have been notified in
writing ten (10) days prior to the proposed action. A suspended Member
Organization will be reinstated when the cause for suspension has been
rectified and notification has been given to all parties.
* 12.0 REPORTING
Vendor is required to submit quarterly sales tracing reports within thirty
days after the end of each calendar month. Refer to Exhibit 11 for detailed
instructions. Reports must identify line item detail on sales of contracted
and non-contracted items to each HSCA Member Organization. See Addendum A-
12.0
13.0. NON-COMPETITION AGREEMENT
Vendor will not, for any purpose whatsoever, solicit, directly or
indirectly, any HSCA Member Organization(s) or HSCA affiliated member
facilities for any of the services set forth in this Agreement on terms
different from those set forth in this Agreement, without the written
approval of HSCA.
14.0 HOLD HARMLESS
Vendor shall defend, indemnify and hold harmless HSCA and its participating
Member Organization(s) against any and all suits, claims, and expenses
arising out of the use or sale of any article, product, or program
hereunder as to any tax due or being in violation of any rights under
patent, trademark, or copyright or products liability.
15.0 PERSONAL OR CORPORATE LIABILITY
No director, officer, agent, or employee of HSCA shall be charged
personally or held contractually liable by or to Vendor or Member
Organization(s) under any term or provision of this Agreement or because of
the execution, approval, or attempted execution of this Agreement.
7
<PAGE>
16.0 ARBITRATION
Any controversy or claim arising out of or relating to this Agreement shall
be settled by binding arbitration in accord ance with the rules of the
American Arbitration Association, and judgment upon the award rendered by
the arbitrator may be entered in any Court having jurisdiction thereof,
subject to the following terms, conditions and exceptions:
The demand for arbitration shall be initiated in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in the
form existing at the time the arbitration is initiated.
There shall be a single arbitrator who shall be an attorney and whose
selection shall be made in accordance with the procedure then existing for
the selection of such arbitrators by the American Arbitration Association.
The jurisdiction of the arbitrator and the arbitrability of any issue
raised by the parties shall be decided by the arbitrator in the first
instance.
The venue of any arbitration shall be in the State of Missouri and such
arbitration shall be conducted in accordance with the laws of the State of
Missouri.
Notwithstanding any provisions of the Missouri Code of Civil Procedure or
the Commercial Arbitration Rules of the American Arbitration Association to
the contrary, each party shall have all of the rights of discovery
pertaining to civil litigation as provided in the Missouri Code of Civil
Procedure. Unless the parties agree, any arbitration conducted hereunder
shall be in accordance with the rules of evidence existing in the State of
Missouri at the time of arbitration.
Insofar as possible, sufficient time shall be designated in consecutive
days to allow for completion of the arbitration proceedings without
interruptions or adjournments.
Each of the parties will share equally in the costs and expenses of
arbitration unless the arbitrator finds that the position of the non-
prevailing party in any such arbitration was without substantial
jurisdiction or frivolous, in which event the arbitrator may assess all of
such costs and expenses together with reasonable attorney's fees against
the non-prevailing party.
8
<PAGE>
17.0 FORCE MAJEURE
If either of the parties hereto is delayed or prevented from fulfilling any
of the obligations under this Agreement by force majeure, said party shall
not be liable under this Agreement for said delay or failure. "Force
Majeure" means any cause beyond the reasonable control of a party includ
ing, but not limited to, the reason for the delay, the length of time that
the product or services may be delayed and alternate proposals, if any,
which the Vendor wishes to make to alleviate any difficulties or hardships
which may be suffered by HSCA and affect Member Organization(s) as a result
of the delay. Methods of notification shall be by telephonic
communications, confirmed by letter, facsimile transmission or telegram.
Neither party to this Agreement shall be deemed to be in default by reason
of delay or failure due to force majeure.
18.0 WAIVER
A waiver by either party of a breach or failure to perform shall not
constitute a waiver of any subsequent breach or failure.
19.0 SEVERABILITY
If any part of this Agreement should be held to be void or unenforceable,
such part will be treated as severable, leav ing valid the remainder of
this Agreement notwithstanding the part or parts found void or
unenforceable.
20.0 AUTHORIZATION
Each of these respective persons executing this Agreement on behalf of a
corporation or other legal entity personally warrants and represents that
they do have the requisite and necessary approval and authority to execute
this Agreement on behalf of the corporation or other legal entity on whose
behalf that person signed.
21.0 NON-COLLUSION
Vendor in signing this Agreement certifies that it has prepared its
proposal and is entering into this Agreement without any collusion
whatsoever among or between any other potential or actual contractors of
HSCA.
It is understood and agreed that nothing herein contained is intended or
shall be construed to, in any respect, create or establish the relationship
between Vendor and HSCA of co partners, independent contractor, joint
venture, general
9
<PAGE>
representative or general agent for any purpose whatsoever under this
Agreement.
22.0 COMPLETE AGREEMENT
This Agreement and any other supporting documents which have been so
identified, initiated and dated by the signatories to this Agreement shall
constitute the complete understanding of the parties and supersedes any and
all other Agreements, either oral or in writing, between the parties hereto
with respect to the subject matter hereof, and no other Agreement statement
or promise relating to the subject matter of this Agreement which is not
contained herein shall be valid or binding.
23.0 COUNTERPARTS
24.0 GOVERNING LAW
This Agreement shall be constructed and governed in accordance with the
laws of the state of Missouri.
25.0 REGULATORY COMPLIANCE
Vendor represents and warrants that in furnishing the products and services
offered hereunder, Vendor will comply at all times with all applicable
local, state, and federal laws and regulations relating thereto and, if
requested, Vendor will supply applicable certification of quality or
similar documents issued by the appropriate regulatory authority. Vendor
and HSCA agree to comply with the Omnibus Reconciliation Act.
26.0 NOTICE
Any notice or other communication by either party to the other shall be in
writing and shall be given, and be deemed to have been given, if either
delivered personally or by certified mail addressed to the Vice President,
Materials Management, or to such other address, and to the attention of
such other person or officer as either party may designate in writing.
HSCA: Vice President, Trade Relations
Health Services Corporation of America
3221 McKelvey Road, Suite 301
Bridgeton, MO 63044
10
<PAGE>
VENDOR NAME: Luther Medical
Janis Adams
ADDRESS: 14332 Chambers Road
Tustin, CA 92680-6912
REPRESENTATIVE Mr. Ed. Staten
NAME/TITLE Marketing Manager
NCI
ACCEPTED BY: ACCEPTED BY:
"HSCA" "Vendor"
HEALTH SERVICES CORPORATION
OF AMERICA
SIGNED:______________________ SIGNED:_______________________
TITLE: _____________________ TITLE: _______________________
DATE: ______________________ DATE: _______________________
COUNTERSIGNED: ______________ COUNTERSIGNED: _______________
Vice President Trade Relations
11
<PAGE>
SCHEDULE OF EXHIBITS
Exhibit I Contract Pricing
Exhibit II Reporting Requirements
Exhibit III Contract Summary Sheet
Exhibit IV Administrative Fees
<PAGE>
CONTRACT PRICING
INSTRUCTIONS FOR COMPLETING EXHIBIT I
Vendor requesting an agreement with HSCA shall submit most competitive contract
proposal, utilizing the following price options for submission:
1. The proposal will identify NET sell prices to Member Organization(s) for
---
each product submitted by Vendor.
2. The proposal will identify a discount percentage from Vendor's best
published hospital sell price. In the event that Vendor's price list, other
than that one currently in effect is utilized, said price list must be
specifically referenced in proposal and attached hereto.
3. If the proposal products will be sold to Member Organizations through HSCA
authorized distributors, the proposal will identify the distributor cost
for each product code. Cost is defined as HSCA's negotiated cost for
contracted items and shall not include any alterations for considerations
such as freight charges, handling charges, cash discounts for prompt
payment, financial allocation of direct or indirect expenses, service
charges, carrying charges, etc. Each HSCA authorized distributor will use
this cost to calculate the selling price to HSCA Member Organization(s).
Vendor shall state length of time which cost, discount percentage or net sell
prices will remain unchanged.
After acceptance of this agreement by both parties, HSCA will notify Vendor of
acceptance as an authorized HSCA Vendor of said products/equipment, and/or
services to HSCA Member Organization(s).
Vendor utilizing a distributor network to supply product to HSCA member
hospitals will have sole responsibility for providing contract distributor costs
negotiated jointly with HSCA to all authorized HSCA distributors. HSCA will
provide current list of authorized distributors.
<PAGE>
EXHIBIT II
----------
REPORTING REQUIREMENTS
SEE ADDENDUM A.12.0
Vendor Is required to submit quarterly sales tracing reports on Magnetic Media
to HSCA within thirty (30) days after the end of each calendar quarter. A
report Is required for each separate contract between Vendor and HSCA and each
report must clearly identify:
1. HSCA Contract Number.
2. HSCA Member Organizations' full name.
3. HSCA Member Organizations' full address (including zip code).
4. HSCA Member Organizations' Healthcare Identification Number (HIN).
5. The calendar period which this report represents.
6. The quantity and unit price of each product/service sold to each HSCA
Member Organization for those products/services appearing in Exhibit 1.
7. That number, which represents the total sales made to each HSCA Member
Organization for products/equipment and/or services listed in Exhibit 1.
8. That number, which represents the combined sales to all HSCA Member
Organizations for products/equipment and/or services listed in Exhibit 1.
<PAGE>
CONTRACT SUMMARY SHEET
INSTRUCTIONS FOR COMPLETING EXHIBIT III
HSCA desires to collect and distribute certain information to be used by HSCA
Member Organizations and staff personnel to enhance contract utilization.
Information specific to each Vendor and relative to this agreement is required
to allow rapid, consistent, and frequent application for use.
Additionally, HSCA continues development of electronic data interchange
capabilities between Vendors, Member Organizations and HSCA. To meet the data
processing requirements, each category on Exhibit III is limited to a specific
number of characters per field. While current systems may be limited to the
amount of data in the specific field, overflow is allowed into other areas and
all information is made available to Member Organizations.
<PAGE>
EXHIBIT III
CONTRACT SUMMARY SHEET
Vendor Luther Medical Products Fax (714)-544-7273
--------------------------------------- -------------------
Products/Services: PORT ACCESS CATHETER SYSTEM
Price or Discount: SEE NET PRICE LIST
Payment Terms: NET 30
Delivery: PER AUTHORIZED DISTRIBUTOR
F.O.B. Point: CUSTOMER
Minimum Order: N/A
Price Protection: PER DURATION OF CONTRACT
Orders Placed With: LUTHER MEDICAL CUSTOMER SERVICE
1+800+227+2981 OR PER
AUTHORIZED DEALER
Contract Period: TWO YEAR 2/1/96 - 1/31/98
Additional Terms and Conditions:
Individual responsible for submission of contract usage reports to HSCA
Name _________________________________ Title___________________________
Address ______________________________ Telephone_______________________
City/State/Zip_________________________________________________________
Individual responsible for updating and receiving all membership information
Name _________________________________ Title___________________________
Address ______________________________ Telephone_______________________
City/State/Zip_________________________________________________________
Individual responsible for contract administration
Name _________________________________ Title___________________________
Address ______________________________ Telephone_______________________
City/State/Zip_________________________________________________________
<PAGE>
EXHIBIT IV
----------
ADMINISTRATIVE FEES
SEE ADDENDUM A. EXHIBIT IV
1. Vendor agrees to pay HSCA an administrative fee equal to three (3) percent
of total sales made to each Member Organization for products/equipment
and/or services in Exhibit I.
2. Checks for administrative fee payments to HSCA should be made payable to
"Health Services Corporation of America" and mailed to:
Health Services Corporation of America
Accounts Receivable Department
280 South Mount Auburn Road
P.O.Box 1689
Cape Girardeau, MO. 63702-1689
A remittance advice must accompany each check and include at least the
following:
1. HSCA Contract Number (if Vendor has more than one contract with HSCA, each
HSCA contract number must be referenced, clearly indicating the amount of
the total payment allocated to each HSCA contract number).
2. The-report period for which this administrative fee payment is being made.
3. Vendor name (if payment is being made by a parent or other organization
whose name is not the same as that Vendor name appearing on the HSCA
contract).
<PAGE>
SAMPLE REPORT II
MINIMUM REPORTING REQUIREMENTS
TO: HSCA
FROM: XYZ MANUFACTURER
CONTRACT NUMBER: MS 1004
<TABLE>
<CAPTION>
EXHIBIT I
HIN MEMBER ORGANIZATION LINE ITEM DETAIL SALES
- -------- ------------------------ --------------------------- ----------
<S> <C> <C> <C>
075632 St. Johns Hospital 4 EA Model 100 Gizmos $ 1,111.11
123 Main Street 24 Ea Model 200 Thigamabobs 2,222.22
Anytown, USA 32254 13 Ea Model 220 Widgets 3,333.33
------------------------ --------------------------- ----------
TOTAL SALES THIS MEMBER: $ 6,666.66
195721 St. Joseph Hospital 127 Cs Model 2572 Bulbs $ 1,212.12
987 First Avenue 310 Cs Model 1800 Pads 2,121.21
New York, NY 07251 22 Ea Model 91 Anchors 2,211.12
------------------------ --------------------------- ----------
TOTAL SALES THIS MEMBER $ 5,544.45
GRAND TOTAL: $12,211.11
----------
</TABLE>
<PAGE>
ADDENDUM A
----------
1.0 TERM
Agreed upon terms are to commence on February 1, 1996 and terminate on
January 31, 1998.
7.0 PRICING
Vendor agrees not to sell the services and products covered by this
Agreement to any HSCA Member Organization(s) on terms different than those
stated herein without the prior approval of HSCA. Vendor further agrees
that the discount offered HSCA's Member Organization(s) under the terms of
this Agreement shall be equal to or better than offered by Vendor to OTHER
LIKE COMPANIES WITH LIKE VOLUMES.
12.0 REPORTING
All reporting is to be conducted on a quarterly basis, thirty (30) days
after the end of each calendar quarter.
EXHIBIT IV
Luther Medical Products, Inc. agrees to pay HSCA an administrative fee
equal to three (3)%, thirty days after the end of each calendar QUARTER.
<PAGE>
ADDENDUM B
----------
LUTHER MEDICAL PRODUCTS, INC.
RETURN GOODS POLICY
The following guidelines have been established as a return goods policy to
determine proper credit amounts to be given for all products distributed by
Luther Medical Products, Inc.
1. No merchandise will be accepted for return without prior authorization from
Luther Medical Products, Inc.
2. Authorization for return can be secured by calling Luther Medical Products
customer service department during normal business hours, 1-800-227-2918.
3. Return of stock (inventoried) merchandise within 30 days of the original
shipment date shall be credited in full provided it is in the original
unopened package. This is to say no restocking charge will apply. Products
returned not in saleable condition will be returned to the customer and no
credit will be issued.
4. Merchandise returned 30-90 days from original shipment date will be subject
to a 25% restocking charge. Stock must be in saleable condition.
5. Merchandise being requested for return after 90 days will be subject to
approval by Luther Medical Products, Inc. and will have a substantially
greater restocking charge than the standard 25%. Restocking charge to be
determined by Luther Medical Products, Inc.
6. All authorized RGA numbers issued by Luther Medical Products, Inc. are
valid for a period not to exceed 60 days. Merchandise returned after the 60
day period, on an expired RGA number will need prior approval from Luther
Medical Products, Inc. before a credit will be issued.
7. Merchandise returned must clearly show the RGA number issued on the outside
of the shipping carton. Do not have the customer print, write, label or
otherwise disfigure the display packaging. Any disfiguring of the package
or display carton will be subject to an additional restocking/replacement
charge.
Luther Medical Products, Inc. Tustin, CA
1-800-227-2918 or 714-544-3002
<PAGE>
ADDENDUM C
----------
WARRANTY
1. Seller warrants to Purchaser that the Equipment/Material will be free from
defects in material and workmanship for a period of twelve (12) months from
the date of shipment.
2. The sole responsibility of Seller under the foregoing warranty shall be
limited, at its option, to the repair or replacement, F.O.B. its factory or
authorized facility, of defective Equipment/Material returned prepaid by
Purchaser.
3. All seller warranties hereunder are conditioned upon proper use of the
Equipment/Material in the application for which it is intended, and no
warranty shall apply to: (I) any modification, service or repair of the
Equipment/Material made by or on behalf of Purchaser, without the written
approval of Seller; or (II) damage to the Equipment/Material caused by
accident, neglect, misuse, failure to comply with applicable directions for
use, or any cause other than ordinary use.
4. THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED (INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE). REPAIR OR REPLACEMENT IN THE MANNER PROVIDED
ABOVE SHALL BE THE SOLE AND EXCLUSIVE REMEDY OF PURCHASER FOR BREACH OF
WARRANTY AND SHALL CONSTITUTE FULFILLMENT OF ALL LIABILITIES OF SELLER WITH
RESPECT TO THE QUALITY AND PERFORMANCE OF THE EQUIPMENT/MATERIAL
5. Purchaser shall promptly notify Seller in writing of any information or
data which it may receive, directly or indirectly, relating to any claimed
or actual defects or deficiencies in the Equipment/Material. In no event
shall Purchaser attempt to repair or remedy any such defect or deficiency
without the express authorization and approval of Seller. In all cases,
Purchaser shall proceed as instructed by Seller, subject, however, to
Purchaser's compliance with all applicable laws and regulations (e.g. FDA
medical devices) .
<PAGE>
Exhibit 10.36
LUTHER MEDICAL
REQUEST FOR PROPOSAL
Submitted to
Steven Duke, MAGNET
November 9, 1995
<PAGE>
STANDARD PROPOSAL REQUIREMENTS
------------------------------
I. GENERAL:
- -----------
All proposal documents must be signed by an authorized representative of the
vendor. The burden of assurance that the signer is authorized is on the vendor.
In addition, each page of the proposal requirements (and any special
requirement(s), if included) must be initialed as accepted where indicated, and
---- -- ---------
the final page must be signed and dated.
---- -- ------ --- -----
THREE (3) COMPLETE SETS of original executed documents are to be returned to the
aforementioned MAGNET office. Documents to include:
- "Accepted" standard proposal requirements, and any special
requirement(s) if included
- Copy of any documentation a facility must execute in order to access
an agreement
- Current published price list showing discount OR net prices being offered
---
- Competitive product cross reference information
- Current catalogues
- A complete sales representative listing with phone numbers, by territory
--------
for entire United States
------
- Most recent financial statement and/or annual report
- Any other pertinent information you wish to include such
as current marketing brochure
II. ACCEPTANCE:
- ---------------
Vendor agrees that this proposal constitutes a firm offer for a period of no
less than ninety (90) days, and not more than one hundred twenty (120) days from
the date the proposal is due and that acceptance of the proposal by MAGNET
during this period will result in this document becoming an agreement for sale
and purchase of the products/services described herein. This document will then
constitute a firm agreement on the terms and conditions hereof, and no further
agreement or contract will be required between the parties. This proposal will
be considered an accepted agreement upon the signed acknowledgement by MAGNET.
The selected vendor will receive a fully executed copy of the agreement.
Vendor further acknowledges this agreement is available to all MAGNET member
organizations and participating facilities (including for-profit contract
management firms specifying for and/or ordering on behalf of participating
facilities). Additionally, MAGNET may add or delete facilities during the term
of this agreement by providing the vendor thirty (30) days written notice. When
new facilities are added, the vendor will
<PAGE>
be notified by the MAGNET office and will then be allowed thirty (30) days from
the date of notification, to implement coverage for the new participating
facility.
________________________________ ______________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
*III. AWARD: See Addendum A.III
-----------
The proposals will be reviewed in a closed session meeting of all MAGNET member
organizations, and MAGNET reserves the right to reject any and all proposals and
waive all formalities. Offers to sell as submitted by means of this proposal are
not matters of public record and will be confidential.
While it is MAGNET's intention to make single source awards only, MAGNET
nonetheless reserves the right to award the business in total or by category,
and the award may not necessarily be made on price alone. MAGNET shall have the
right to make a single award or multiple awards, based upon such factors as are
deemed pertinent upon the examination of the proposals.
Vendor acknowledges that pricing submitted in their response to the Request For
Proposal was determined as a result of the competitiveness of the bid process,
and does not reflect, unless otherwise stated, any other type of preferred
pricing.
Vendor warrants that in the performance of this agreement, he will comply with
the Uniform Commercial Code and with all applicable federal, state and local
laws, ordinances, and all lawful orders thereunder, now in effect or as
hereafter amended.
*The laws of the state of California shall govern any agreement resulting from
this proposal.
IV. AGREEMENT TERM:
- -------------------
The selected vendor will have sales and servicing rights; with an agreement term
of THREE years commencing upon formal acknowledgement of a signed MAGNET, Inc.
agreement to be effective JANUARY 1, 1996 THROUGH DECEMBER 31, 1998 for the
following:
ALL PRODUCTS ON ADDENDUM C
2
<PAGE>
V. PRICING REQUIREMENTS: See Addendum A.V
- ------------------------
*"Please Check"
* X Prices are protected for the full term of this agreement
-----
_____ Prices are not protected for the full term of this agreement (Indicate
---
period(s) of price protection and maximum escalation percentages.
Please note that escalator percentage(s) must be applied on a per line
-------------
item basis. Weighted average increases are acceptable)
---------- -----------------------------------------
Period(s) Maximum Escalation(s)
_____ to _____ _______________
_____ to _____ _______________
_____ to _____ _______________
_______________________________ ______________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
In any event, vendor agrees that NO price changes will go into effect without
--
minimally sixty (60) days written notice along with a full complement (three
copies) of price lists being delivered via traceable method to MAGNET offices,
and an appropriate number of copies being available for MAGNET participating
facilities.
*Further, vendor warrants that prices charged (hereby defined as net selling
price to MAGNET participating facilities) for products/services covered by this
agreement are not in excess of prices charged to other MAGNET customers
(excluding institutions under state or federal contracts) for these
products/services.
If vendor offers to sell products/services covered by any agreement resulting
from this proposal to any MAGNET member organization or MAGNET participating
facility at a lower price than herein proposed, vendor hereby agrees to
simultaneously reduce the price for such products/services to all MAGNET members
organizations and participating facilities to the newly offered price.
In the even the market prices for any covered products/services decrease during
an agreement term, MAGNET pricing shall be subject to renegotiation.
3
<PAGE>
Are you able to currently provide price lists on computer disk?
* [X] YES [_] NO
VI. PRODUCT/SERVICE AVAILABILITY:
- ---------------------------------
The selected vendor agrees to immediately notify MAGNET of any problem in the
manufacture or production of the products herein listed and of any back order
situation which would affect the vendor's ability to meet his contractual
obligation.
The vendor agrees to maintain sufficient inventory in quantities adequate to
meet the requirements of MAGNET participating facilities. Failure to maintain
sufficient inventory and/or deliver merchandise which meets the approved quality
standards and specifications of the MAGNET participating facilities will be
grounds for immediate cancellation by one or all MAGNET participating facilities
of an agreement.
VII. BUYER/SELLER RELATIONSHIP:
- -------------------------------
Vendor acknowledges that all MAGNET participating facilities will deal directly
with the vendor (manufacturer or distributor) specified in this agreement.
Neither MAGNET nor its member organizations will be held responsible for
payment, ordering, inventory, or shipping of any products/services covered by
this proposal. All shipping and billing will be directly to MAGNET participating
facilities.
_______________________________ _____________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
VIII. OTHER CONTRACTS:
- ----------------------
Vendor hereby represents a detailed listing of agreements currently in effect
with MAGNET member organizations, noting products/services covered and annual
gross sales volumes:
ORGANIZATION PRODUCT/SERVICE ANNUAL GROSS SALES
N/A ______________ __________________
- --------------
______________ ______________ __________________
4
<PAGE>
In addition, vendor currently holds contracts with the following national "super
groups" for the following products/services:
ORGANIZATION PRODUCT SERVICES
Luther currently holds no "super group" contracts. Luther does, however, hold
- ------------------------------------------------------------------------------
regional contracts including a recently signed agreement with Apria. Luther is
- -------------------------------------------------------------------------------
also in the final stages of completing a proposal for CHCA's "Seal of
- ---------------------------------------------------------------------
Acceptance" program.
- -------------------
IX. HISTORICAL PRICE INCREASES:
- -------------------------------
Vendor hereby documents the effective dates and percentages of each of the last
TWO price increases for the requested products/services to be:
Effective Date Percentage Increase
3/1/95 5%
-------------- -------------------
3/1/92 5%
-------------- -------------------
X. PAYMENT TERMS:
- -----------------
Normal cash terms are: Net 30 Days .
---------------
It should be noted that not all participating facilities potentially using this
agreement can meet optimum payment of invoices as desired by the vendor;
therefore, the vendor is encouraged to accommodate a variety of payment plans.
Listed below the incentives you will offer for facilities which pay within each
category:
Payment Within Vendor Offers
10 days 2% cash discount
------
11-30 days 1% cash discount
------
31+ days 0% cash discount
------
_______________________________ ______________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
*XI. F.O.B. POINT: See Addendum A. XI
-----------------
Vendor agrees F.O.B. point to be DESTINATION FREIGHT PREPAID for the full term
of this agreement.
5
<PAGE>
XII. RETURNED GOODS POLICY:
- ---------------------------
Vendor agrees that any incorrect/damaged products will be accepted for return to
vendor in an expeditious manner with NO restocking charge.
--
Restocking charge for reasons other than above are:
See Addendum "B" for Luther's standard return policy.
----------------------------------------------------
*XIII. PRODUCT CHANGES: See Addendum A.XIII
----------------------
Vendor agrees to provide MAGNET with a minimum of sixty (60) days notice of
product additions, deletions, and/or changes. Furthermore, vendor agrees to
offer any replacement products, newly added products, or additions to the
vendors product line, not available at the origination of this agreement, to
MAGNET for acceptance under terms and prices/discounts set forth in this
proposal.
*XIV. DEMONSTRATION PRODUCTS/EQUIPMENT: See Addendum A.XIV
--------------------------------------
Vendor agrees that if an evaluation is required or requested by a MAGNET
participating facility, vendor will provide, at no charge, equipment for trial
or sample product for a two (2) week evaluation period in a mutually agreed upon
area(s).
XV. MATERIAL SAFETY DATA SHEETS:
- --------------------------------
As required by state, federal, and JCAHO regulations, vendor agrees to provide
Material Safety Data Sheets (MSDS) with each shipment of hazardous materials
that fall within these guidelines. In order to more completely coordinate and
communicate with the end users, vendor will assist the MAGNET participating
facility by identifying those products sold that fall within the guidelines.
XVI. WARRANTY:
- --------------
Vendor warrants that products supplied and work or services performed under this
agreement are merchantable and fit for the particular purposes for which the
products/services are ordinarily employed.
______________________________ ______________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
6
<PAGE>
*XVII. Indemnity: See Addendum A.XVII
----------------
Vendor agrees to indemnify, defend and hold harmless MAGNET, its member
organizations, participating facilities, Board of Directors, officers, agents
and employees from any and all liabilities, lawsuits, penalties, claims or
demands (including the costs, expenses and reasonable attorney's fees) arising
out of selection, possession, use, operation, and return of any product/service.
XVIII. PATENT AND COPYRIGHT:
- ----------------------------
Vendor agrees to indemnify, defend and hold harmless MAGNET, member
organizations, participating facilities, Board of Directors, officers, agents
and employees from any and all claims, actions, losses, damages, liability, and
expense, (including the costs, expenses and reasonable attorney's fees) based
upon the use or sale of any article hereunder being in violation of any rights
under patent or copyright.
XIX. LIENS, CLAIMS AND ENCUMBRANCES:
- ------------------------------------
Vendor warrants and represents that all products/services will, when delivered
hereunder, be free of all liens, claims and/or encumbrances of every kind.
XX. AFFIRMATIVE ACTION:
- -----------------------
Vendor certifies compliance with Executive Orders, regu-lations and statutes
prohibiting discrimination based upon race, creed, color, sex, national origin,
age, or handicap.
XXI. ACCESS TO RECORDS:
- -----------------------
Vendor shall, until the expiration of four (4) years after the furnishing of any
products/services pursuant to this agreement, provide to the Secretary of the
United States Department of Health and Human Services, or to the Comptroller
General of the United States, or to any of their duly authorized
representatives, access to the agreement and to books, documents, and records of
vendor in accordance with, and to the extent required by federal law.
7
<PAGE>
*XXII. MANAGEMENT REPORTING: See Addendum A.XXII
---------------------------
Vendor agrees to supply MAGNET with, at minimum, a quarterly (monthly preferred)
written report. This report to include:
- Name and address of MAGNET participating facility
utilizing the agreement
- Participating facility's MAGNET I.D. number
- Net sales per reporting period
_______________________________ ______________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
Vendor further agrees to a 2% Contract Administration Fee (CAF) on all net
purchases by participating MAGNET facilities covered by this agreement. All CAFs
should be in check form, made payable to Mid-Atlantic Group Network of Shared
Services, Inc., and be submitted on, at minimum, a calendar quarter (monthly
preferred) basis to:
MAGNET, Inc.
4750 Lindle Road
P.O. Box 2323
Harrisburg, PA 17105-2323
Vendor acknowledges that the possibility exists, whereby, due to extended
purchase approval processes and delivery cycles, product/services may be
ordered, delivered, and invoiced after the conclusion of this agreement.
Vendor designates the following individual to be MAGNET'S contact person for
purchase volume reports and Contract Administration Fees:
Janis Adams 714-544-3002 x223
--------------- --------------------
Name Telephone Number
XXIII. SPECIAL REPORTING:
- -------------------------
*The vendor will provide to MAGNET, annually or upon request with no less than
90 days notice, reports of total line item usage, by facility and for all of
MAGNET, for any and all business transacted under this agreement.
XXIV. DISCLOSURE OF INFORMATION:
- --------------------------------
Vendor agrees to allow MAGNET staff or their designees to audit sales/billing
records to ensure full and complete reporting of agreement purchase volumes and
Contract Administration Fees.
8
<PAGE>
Further, vendor agrees to provide to MAGNET, upon request, a copy of vendor's
previous year's audit report prepared by an independent auditor.
XXV. ADVERTISING AND PUBLICITY:
- -------------------------------
Vendor agrees that MAGNET shall have the right to review and approve any and all
materials used for promotion, advertising and publicity of this agreement PRIOR
-----
to printing or dissemination. Such approval will not be unreasonably withheld.
______________________________ ______________________________
Initial for Vendor Acceptance Initial for MAGNET Acceptance
*XXVI. CONFIDENTIALITY OF INFORMATION: See Addendum A. XXVI
---------------------------------------
All data and information not already in the public domain, developed or
disclosed during the life of this agreement, will be the property of MAGNET and
will be held in confidence by the vendor. Vendor will keep confidential all such
data and information until it comes into public domain or until MAGNET consents,
in writing, to disclosure.
XXVII. ASSIGNMENT:
- --------------------
Assignment of this agreement or any interest therein without written consent of
MAGNET shall be void.
XXVIII. ATTACHMENT(S):
- -----------------------
x Special Proposal Requirements (EQUIPMENT) (Addendum A) are part
----- of this proposal.
______________________________________ ______________
Vendor SIGNATURE for Acceptance Date
______________________________________ _____________
MAGNET SIGNATURE for Acknowledgment Date
9
<PAGE>
ADDENDUM "A"
III. AWARD:
The proposal and any agreement for sale and purchase of products/services
resulting therefrom shall be governed and construed in accordance with The
internal substantive laws of the State of California and the California State
courts or Federal courts located in California shall have jurisdiction over all
matters relating to any agreement resulting from this proposal.
V. PRICING REQUIREMENTS:
Prices quoted are protected from increase for the duration of the agreement.
Should Luther deem it necessary to provide pricing to an individual MAGNET
facility which is lower than the contracted MAGNET price, Luther will notify
MAGNET corporate of the situation prior to taking such action.
XI. FOB POINT:
FOB Destination, free freight to purchaser and assumes UPS ground or equivalent
and no more than two deliveries per month to each site. Purchaser will remit
payment to Seller for the difference.
XIII. PRODUCT CHANGES:
Purchaser may, at any time, require Seller to substitute any upgrade or later
developed products supplied hereunder for products purchased pursuant to these
terms and conditions. In such event, Seller shall allow a trade-in credit for
the old products toward the purchase price of the new products equal to its
depreciated value using straight line depreciation and a five year life.
XIV. DEMONSTRATION PRODUCTS/EQUIPMENT
Quantity of evaluation products to be evaluated will be mutually agreed upon
between both Luther Medical and MAGNET facilities.
XVII. INDEMNITY:
Seller shall indemnify and hold harmless Purchaser, its agents and employees
from and against any and all claims, losses, damages and liabilities (including
reasonable attorneys' fees and court costs) caused by the negligent or wrongful
acts or omissions of Seller, its agents and employees. Purchaser shall indemnify
and hold harmless Seller, its agents and employees from and against any and all
claims, losses, damages and liabilities (including reasonable attorneys' fees
and court costs) related to the use of the Equipment/Material and caused by the
negligent or wrongful acts or omissions of Purchaser, its agents and employees.
XXII. MANAGEMENT REPORTING:
Luther agrees to provide MAGNET with a quarterly written report of contract
activities.
Luther does not agree to pay a CAF after the contract expiration, unless the
contract is renewed and/or renegotiated with mutually agreed upon terms and
conditions.
XXVI. CONFIDENTIALITY OF INFORMATION
MAGNET and all affiliated groups agree to keep confidential all such data and
information until it comes into public domain or until Luther consents, in
writing, to disclosure.
__________
Initial
__________
Initial
<PAGE>
ADDENDUM "B"
LUTHER MEDICAL PRODUCTS, INC.
RETURN GOODS POLICY
The following guidelines have been established as a return goods policy to
determine proper credit amounts to be given for all products distributed by
Luther Medical Products, Inc.
1. No merchandise will be accepted for return without prior authorization from
Luther Medical Products, Inc.
2. Authorization for return can be secured by calling Luther Medical Products
customer service department during normal business hours, 1-800-227-2918.
3. Return of stock (inventoried) merchandise within 30 days of the original
shipment date shall be credited in full provided it is in the original
unopened package. This is to say no restocking charge will apply. Products
returned not in saleable condition will be returned to the customer and no
credit will be issued.
4. Merchandise returned 30-90 days from original shipment date will be subject
to a 25% restocking charge. Stock must be in saleable condition.
5. Merchandise being requested for return after 90 days will be subject to
approval by Luther Medical Products, Inc. and will have a substantially
greater restocking charge than the standard 25%. Restocking charge to be
determined by Luther Medical Products, Inc.
6. All authorized RGA numbers issued by Luther Medical Products, Inc. are
valid for a period not to exceed 60 days. Merchandise returned after the 60
day period, on an expired RGA number will need prior approval from Luther
Medical Products, Inc. before a credit will be issued.
7. Merchandise returned must clearly show the RGA number issued on the outside
of the shipping carton. Do not have the customer print, write, label or
otherwise disfigure the display packaging. Any disfiguring of the package
or display carton will be subject to an additional restocking/replacement
charge.
Luther Medical Products, Inc. Tustin, CA
1-800-227-2918 or 714-544-3002
<PAGE>
EXHIBIT 10.37
TEAMCARE
NATIONAL CONTRACT FOR
---------------------
LUTHER MEDICAL PRODUCTS, INC.
-----------------------------
PRODUCT QUALITY:
Luther Medical Products, Inc. offers the most complete range of PICC and midline
extended dwell catheter systems in the industry. We offer two catheter
materials, polyurethane and silicone. Both materials have been reviewed by the
FDA and were found to be appropriate for long term infusion therapy. Our
preferred material is polyurethane due to the strength of the material. In
addition, due to thinner wall thickness, a smaller overall catheter is available
for any given flow rate. Our product offering encompasses the widest range of
gauges and lengths. We also offer a range of dual lumen catheter systems.
Our field experience demonstrates that our ratio of all field complaints to
products sold is substantially less than 1%. Note that all field complaints
includes incidents of clinician misuse, etc. The number of actual complaints
attributable to the products are therefore significantly less. We have data to
support this statement. We will furnish a current Luther Medical user list on
request.
Based on all of the above we are confident in our statement that Luther Medical
is offering excellent quality products.
PRODUCT AVAILABILITY:
Luther Medical has 18 stocking distributors situated at locations across the
country. It is expected that each distributor holds 2 to 3 months worth of
inventory. In addition Luther Medical holds inventory valued at almost $1.5
million. This equates to another five months of inventory. We manufacture the
products in Southern California and have excellent employee relations. We are,
therefore, structured to give excellent delivery performance. Our track record
with respect to service level is exemplary.
RETURNED GOODS POLICY:
Our standard returned goods policy is enclosed. This policy is in line with
industry standards. We can agree to modifications to this if you have any
particular concerns. Our commitment to training, discussed later, should
alleviate most, if not all, of your concerns. Luther Medical can use surplus
materials during training programs. All such training and materials is at our
cost.
<PAGE>
SHIPPING AND FREIGHT:
The prices quoted are FOB one of 18 separate warehouses across the country.
PRODUCT INFORMATION:
We agree to keep you informed of any recall notification or any packaging or
labeling changes.
EDUCATION:
It is in this area that Luther Medical has differentiated itself from all of our
competitors. We have decided to focus the majority of our resources towards the
education and training of clinicians on our PICC and midline catheter systems.
For the last two years we have been running 10 to 15 classes per month, at
locations across the country, training an average of 25 nurses per class. We
have, therefore, trained over 8,000 nurses on the use of our PICC and midline
products during the last two years. Many of our classes are tailored towards
the special needs of the participants. All of our training courses offer
continuing education units (CEUs). Our training program is spearheaded by The
IV Institute and Mr. Joseph Brown, a highly respected clinical educator. In
addition, Luther Medical employs four nurse clinicians who provide 24 hour
customer service and clinical support. We have an extensive array of clinical
support materials in the form of published papers, clinical video tapes,
training manuals, sample policies and procedures, and other related support
materials.
Luther Medical is prepared to train the entire Teamcare clinical staff who are
involved with PICC and/or midline insertions. We will also retrain as required.
THIS SERVICE WILL BE PROVIDED FREE OF CHARGE ASSUMING A REASONABLE DEGREE OF
COMMITTMENT TO PURCHASE LUTHER MEDICAL CATHETER PRODUCTS.
TECHNOLOGY:
Luther Medical has the most extensive range of technology in the industry.
We offer the L-CATH(R) Catheter Systems:
Polyurethane or silicone catheters.
Single lumen and dual lumen.
The widest range of gauges and lengths, 16ga-28ga.
The T-Peel plastic peel away introducer.
The stainless steel U-Wing peel away needle introducer.
2
<PAGE>
In addition we have:
The ONECATH(R) Catheter System, which allows a PICC or midline
catheter to be inserted using an over-the-needle technique with an
introducer offering needlestick protection.
The L-Cath(R) for Ports, which allows a soft catheter to be inserted
into an implanted port as an alternative to a Huber needle. This
comfortable antineedlestick device with extended dwell times, offers
significant quality features in addition to cost reduction
opportunities.
PRICING:
Our pricing is shown in Appendix 1. Payment Terms are NET 30 days.
As stated above, Luther Medical will provide training for all designated
Teamcare PICC and midline nurse clinicians FREE OF CHARGE for the duration of
the contract.
In addition, the training offered in this proposal will save Teamcare
significant costs by allowing Teamcare to cut back on "in-house" training
budgets.
TERM:
Due to the initial cost of training we require a two year term to start on the
date of the last signature.
IMPLEMENTATION:
Assuming that we agree to work together, as outlined above, we ask that there be
an implementation meeting. At that meeting Teamcare and Luther Medical will
jointly specify the layout of the clinical education and training program.
We provide you with a quarterly (or monthly if required) report of Teamcare
facility purchases.
If Teamcare agrees to the terms and conditions as outlined above, please
indicate by a signature and date below:
_____________________________ _______________________________
Name Date Name Date
_____________________________ _______________________________
Title Title
3
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
RETURN GOODS POLICY
The following guidelines have been established as a return goods policy to
determine proper credit amounts to be given for all products distributed by
Luther Medical Products, Inc.
1. No merchandise will be accepted for return without prior authorization from
Luther Medical Products, Inc.
2. Authorization for return can be secured by calling the Luther Medical
Products customer service department during normal business hours, 1-800-
227-2918 x 212 or 211.
3. Return of stock (inventoried) merchandise within 30 days of the original
shipment date shall be credited in full provided it is in the original
unopened package. This is to say no restocking charge will apply.
Products returned not in saleable condition will be returned to the
customer and no credit will be issued.
4. Merchandise returned 30-90 days from original shipment date will be subject
to a 25% restocking charge. Stock must be in saleable condition.
5. Merchandise being requested for return after 90 days will be subject to
approval by Materials Management and will have a substantially greater
restocking charge than the standard 25%. Restocking charge to be
determined by Materials Management.
6. All authorized R.G.A. numbers issued by Luther Medical Products are valid
for a period not to exceed 60 days. Merchandise returned after the 60 day
period, on an expired R.G.A. number will need prior approval from Materials
Management before a credit will be issued.
7. Merchandise returned must clearly show the R.G.A. number issued on the
outside label of the shipping carton. Do not have the customer print,
write, label or otherwise disfigure the display packaging. Any disfiguring
of the package or display carton will be subject to an additional
restocking/repackaging charge.
4
<PAGE>
EXHIBIT 10.38
LICENSE AGREEMENT FOR
USE OF ALLIANCE OF CHILDREN'S HOSPITALS'
SEAL OF ACCEPTANCE BY THE MANUFACTURER
This License Agreement (the "Agreement") made December 1st, 1995, between Luther
Medical Products, Inc. a California corporation (hereinafter "Manufacturer")
with principal offices at 14332 Chambers Road, Tustin, CA, and the Alliance of
Children's Hospitals, Inc., a Kansas corporation (hereinafter "Alliance") with
principal offices at 6803 West 64 Street, Suite 208, Shawnee Mission, Kansas
66202.
WHEREAS the Alliance is principally involved in the study, evaluation and
dissemination of information with regard to pediatric health products and their
adjuncts which are offered to the public or to the pediatric health
professional; and
WHEREAS the Manufacturer wishes to obtain from the Alliance a license to use, in
a manner and under conditions herein set forth, the Alliance's Seal of
Acceptance trademark, described and identified in Appendix 1; and
WHEREAS the Manufacturer, which is principally involved in the manufacture and
distribution of health care products, agrees that this license is issued to and
in accordance with the terms and conditions of this Agreement and the Alliance's
Provisions and Procedures (Appendix 2), and the Alliance's Advertising Standards
(Appendix 3), copies of which are attached hereto and incorporated herein by
this reference; and
WHEREAS the Alliance has accepted for its Seal of Acceptance under its
guidelines and procedures the products identified in Exhibit A (hereinafter the
"Products").
IT IS THEREFORE AGREED:
1. Grant of License
----------------
a. The Alliance hereby grants to the Manufacturer the exclusive right and
license in North America (including the United States of America, its
territories and possessions) to utilize the name and depiction of the
Alliance's Seal of Acceptance trademark, which is more fully described in
<PAGE>
Appendix 1 (hereafter the "Seal"), on and in connection with the
advertising, promotion and sale of the products identified in Exhibit A.
b. The Products are listed in Exhibit A attached. Also included are
otherproducts which may be added my mutual agreement to the product line
during the term of this Agreement
c. The purpose of the license from the Alliance is to grant Manufacturer
the right to disseminate the fact that the Products with the Seal have been
reviewed by the Alliance and accepted by the Alliance as being useful in
pediatric applications and for use in children's hospitals, in accordance
with the procedures outlined in the attached Provisions and Procedures (see
Appendix 2).
d. Manufacturer shall use the Seal only in accordance with the guidelines
set out in Appendix 3.
e. Manufacturer may not grant sublicenses of Manufacturer's license for
use of the Seal, except for the sole purpose of authorizing a subcontractor
to product packaging or Products with the Seal for Manufacturer.
2. License Fees: Share of Revenues
--------------------------------
In consideration for the license granted hereunder, Manufacturer agrees to pay
the Alliance a yearly License fee of $5,000.00 to be paid in cash or 144 Stock
and 3% percent of net sales of each L-Cath for Ports Product sold to all Child
Health Corporation of America (CHCA) member hospital and 3% of net sales of all
other Product sold in the United States to the extent the combined sales of the
above Product exceed a quarterly base of $180,000.00.
"Net sales" is defined as all sales derived from sales orders which are placed
on Products during the term of this Agreement less discounts, allowances,
credits and returns (except that no attempt will be made to subtract a portion
of Corporate Program discounts, allowances or rebates).
3. Payment of Licensing Fees
-------------------------
The yearly License Fee shall be due upon execution of this agreement and
thereafter upon each anniversary. The Manufacturer shall keep and maintain
accurate records of all sales of Products with and without the Seal and shall
provide the Alliance a written sales summary within sixty (60) days after the
end of each calendar quarter during the term of this Agreement and
2
<PAGE>
shall, concurrently with the rendering of such a statement, pay to the Alliance
the license fees identified in Section 2 accrued during that calendar quarter.
The Alliance shall have the right, at its own expense and not more often than
once each calendar quarter, to examine the books of the Manufacturer to verify
the written sales summaries and calculate the license fees due the Alliance
pursuant to this Agreement.
4. Term
----
The term of this Agreement shall commence on the date hereof and extend for
three (3) years, subject to the following:
a. Manufacturer's Breach
---------------------
If the Manufacturer commits a breach of this Agreement, the Alliance may
give thirty (30) days written notice to the Manufacturer of the Alliance's
intention to terminate this Agreement and the license granted hereunder. If
breach is not cured within thirty (30) days after receipt of such notice by
the Manufacturer (or steps have not been taken to cure the Breach within a
reasonable time if the breach is one which cannot be cured within the
thirty (30) day period and which shall be approved in writing by the
Alliance), this Agreement shall terminate upon the date set forth in such
notice without prejudice, however, to the payments due to the Alliance
hereunder.
b. Abandonment
-----------
If the Manufacturer fails for a period of one (1) calendar year to sell any
of the Products described under this Agreement, the Alliance may on thirty
(30) days written notice to the Manufacturer terminate this Agreement and
the License granted hereunder with regard to that Product, without
prejudice, however, to the payments due to the Alliance hereunder.
5. Changes in the Product
----------------------
The Manufacturer shall not utilize the Seal for any Product which has been
changed or modified from the specifications exhibited when it was accepted by
the Alliance, except for minor changes which would not affect the safety,
efficacy or use of Product and that would not in Manufacturer's reasonable
opinion require a premarket notification to or approval from the FDA under the
Federal Food Drug and Cosmetic Act. The Manufacturer will notify the Alliance in
writing of all proposed changes other than minor changes, and the Alliance will
have sixty (60) days after receipt to approve or disapprove the proposed change.
If the Alliance fails to respond within the time period provided, the proposed
change shall be deemed accepted.
3
<PAGE>
6. Removal of Seal
---------------
The Manufacturer shall not apply the Seal to any Product, packaging, advertising
or promotional material for that Product after ninety (90) days after the
effective date of termination or cancellation of this Agreement or withdrawal of
the Alliance's approval of the Product.
7. Manufacturer's Representations, Warranties and Indemnities
----------------------------------------------------------
a. Manufacturer warrants and represents that (i) it has full authority to
enter into this Agreement; (ii) it owns all right, title and interest in or
has the right to sell Products with the Seal that it sells; (iii) it owns
all right, title and interest in and to, or has been licensed the right to
use, all trademarks, tradenames and trade dress other than the Seal used on
or in connection with the promotion of Products with the Seal; (iv) such
trademarks, tradenames and trade dress do not infringe the trademark or
other property rights; and (v) the Products do not infringe the patent or
other property rights of others.
b. Manufacturer agrees to indemnify and hold the Alliance harmless
against any claim, liability, loss or expense (including attorneys' fees)
arising out of any breach of any warranty contained in Paragraph 7.a.
8. Alliance's Representations, Warranties and Indemnities
------------------------------------------------------
a. The Alliance represents and warrants that (i) it has full authority to
enter into this Agreement; (ii) it has full right title and interest in the
Seal; and (iii) the Seal does not infringe the trademark or property rights
of others.
b. The Alliance agrees to indemnify and hold Manufacturer harmless
against any claim, liability, loss or expense (including attorneys' fees)
arising out of any breach of any warranty contained in Section 8.a. above.
9. Alliance's Rights
-----------------
The Manufacturer recognizes the Alliance's property and rights in and to the
Seal and agrees that it will not knowingly perform any act in derogation of such
rights, nor permit others under its contract that are engaged in the subcontract
manufacturing, distribution, merchandising, performance or production of the
Product to do so. If such others under its contract perform such acts, the
manufacturer agrees that it will take all reasonable steps as requested by the
Alliance to prevent the continuation of such acts. In the event the Manufacturer
makes any unauthorized
4
<PAGE>
reference to the Seal or in any other manner obligates the Alliance in violation
of the terms of this Agreement, the manufacture agrees to indemnify and hold
harmless the Alliance against all damages suffered, and to reimburse the
Alliance to the extent of such damages, including but not limited to reasonable
attorney's fees.
10. Indemnification
---------------
The Manufacturer shall indemnify and hold harmless the Alliance from and against
all claims, liabilities, losses, damages, costs or expenses (including
attorney's fees) incurred by the Alliance which are caused by the negligent acts
or omissions of Manufacturer pursuant to this Agreement, except to the extent
due to the negligence or willful acts of the Alliance.
The Alliance shall indemnify and hold harmless the Manufacturer from and against
all claims, liabilities, losses, damages, costs or expenses (including
attorneys' fees) incurred by the Manufacturer which are caused by the negligent
acts or omissions of the Alliance pursuant to this Agreement, except to the
extent due to the negligence or willful acts of the Manufacturer.
11. Limitation of Liability
-----------------------
The Alliance, its directors, officers, agents and employees shall not be liable
to Manufacturer or to any other entity or persons for the acts of omissions of
Manufacturer.
12. Disclosures
-----------
a. Financials
----------
For each fiscal year of Manufacturer with respect to which this Agreement
is in effect, the Manufacturer shall provide the Alliance with its annual
financial statements within a reasonable time of their preparation. If such
statements are not audited, they shall be certified by the President or
Chief Financial Officer of the Manufacturer.
b. Product
-------
The Manufacturer shall assist the Alliance in completing a Product Review
for submission of a report on Products to the Council on Children's
Hospital Products. The Product Review will typically include a plant tour
for review of the manufacturing process and certification by the
Manufacturer of the items listed in Exhibit A, attached.
5
<PAGE>
13. Notice
------
Any notice required to be given pursuant to this Agreement shall be in writing,
postage prepaid, and shall be sent by first class mail or certified mail, return
receipt requested, to Manufacturer or the Alliance at the addresses below. Any
party may change the address to which notices are to be sent by notice given in
accordance with the provisions of this paragraph. All notices shall be deemed to
have been given, and shall be effective, upon receipt by the other party:
If to Manufacturer:
President
Luther Medical Products, Inc
14332 Chambers Road
Tustin, CA 92680
If to Alliance:
President
Alliance of Children's Hospitals, Inc
6803 West 64 Street, Suite 208
Shawnee Mission, KS 66202
14. Binding on Successors
---------------------
This Agreement is binding upon and inures to the benefit of the parties and
their respective legal representative(s), successors, and permitted assigns.
15. Assignment
----------
The Manufacturer may not assign or otherwise transfer any of its rights or
obligations under this Agreement without the prior written consent of the
Alliance, which consent shall not be unreasonable withheld; provided, however,
that Manufacturer may assign to any affiliate.
16. Governing Law/Maintenance of Action
-----------------------------------
This Agreement has been executed and delivered and shall be construed and
enforced in accordance with the laws of the state of Kansas.
17. Entire Agreement
----------------
This Agreement and the attachments hereto contain the entire agreement between
the Manufacturer and the Alliance relating to
6
<PAGE>
the subject matter of this Agreement. It supersedes all previous contracts and
all prior representations or agreements between the parties, whether written or
oral, relating to the subject matter of this Agreement, and any matters not
expressly incorporated.
18. Waiver
------
Waiver of a breach of any provision(s) of this Agreement shall not be deemed a
waiver of any other breach of the same or any different provisions(s).
19. Headings
--------
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date
set forth above.
ATTEST: ALLIANCE OF CHILDREN'S HOSPITALS, INC.
_____________________________ By___________________________
(Corporate Seal) TITLE _________________________
ATTEST: MANUFACTURER
_____________________________ By___________________________
(Corporate Seal) TITLE _________________________
7
<PAGE>
APPENDIX 1
----------
ALLIANCE OF CHILDREN'S HOSPITALS, INC.
SEAL OF ACCEPTANCE
Camera-ready artwork will be provided following execution of Agreement.
8
<PAGE>
APPENDIX 2
----------
ALLIANCE OF CHILDREN'S HOSPITALS, INC.
PROVISIONS AND PROCEDURES FOR PRODUCT CONSIDERATION BY
COUNCIL ON CHILDREN'S HOSPITAL PRODUCTS
Purpose of the Alliance
- -----------------------
The Alliance of Children's Hospitals, Inc., (Alliance) gathers and disseminates
information to assist pediatricians, children's hospitals, related health
professionals and parents in the selection and use of products, therapeutic
agents and their adjuncts.
The Alliance desires to provide children's health care providers with prompt,
reliable information on the status of recently developed hospital and physician
products and other products and services relating to children or child health.
In evaluating new items, special emphasis is placed on considerations of
evidence of safety, child health, nutritional value and/or clinical acceptance
under the conditions of use.
The Alliance encourages research in the field of child health.
Articles Considered for Acceptance
- ----------------------------------
Under the Bylaws of the Alliance of Children's Hospitals, Inc., the Alliance is
directed "to study, evaluate and disseminate information with regard to
pediatric health products and their adjuncts which are offered to the public or
to the profession." The Alliance has appointed individuals to its Council on
Children's Hospital Products. The Council is responsible for product review and
granting licenses for the Alliance's Seal of Acceptance to manufacturers.
Classification of Products Evaluated by the Alliance
- ----------------------------------------------------
Commercial products are examined either upon the request of the manufacturer of
distributor or upon the initiative of the Alliance. Any firm may submit its
appropriate products to the Alliance for consideration for acceptance. Products
will be listed in the Alliance of Children's Hospitals Newsletter and other
-------------------------------------------
leading publications for child health if they meet standards of acceptance with
respect to usefulness, composition, advertising and labeling. Products are
usually accepted for three years. Acceptance is renewable and may be
reconsidered at
<PAGE>
any time. If ownership or manufacturing rights of the product change, the period
of acceptance expires automatically unless the Alliance has otherwise given its
consent. Products which are obsolete, markedly inferior, useless or dangerous to
the health of the user will be declared unacceptable. When it is in the best
interest of the public or the profession, the Alliance may submit reports on
hazardous and/or unsafe products to the Editor for publication in The Journal of
--------------
Pediatrics or other applicable journals. In all cases the manufacturer will be
- ----------
provided a full explanation of all reasons for the non acceptance.
Decisions of the Alliance are based upon the available scientific evidence and
product applicability and are subject to reconsider ation at any time that
pertinent new evidence becomes available.
Communications with the Alliance shall be in writing and shall be transmitted
through the Secretary of the Alliance. The Alliance will feel free to use the
information in these communications.
After consideration of a product has been completed, the Alliance will classify
the product as accepted or unaccepted.
-------- -----------
Accepted products include those for which there is an adequate evidence for
- --------
safety and effectiveness. They will be listed in the Newsletter of the Alliance
--------------------------
of Children's Hospitals and may use the Seal of Acceptance or an authorized
- -----------------------
statement in accordance with the Advertising Standards and assigned license
---------------------
agreement.
Unaccepted products will include those which the Alliance has determined do not
- ----------
meet the pre-established criteria as set forth in this document.
General Provisions for Acceptance
- ---------------------------------
I. Composition
A. Required Information: A quantitative statement of composition shall be
provided to the Alliance. Adequate information on the properties of all
ingredients shall also be provided when requested. The Alliance shall agree
to all necessary confidentiality agreements.
B. Change in Composition: The firm shall agree to notify the Alliance of
any change in composition of an accepted product before the modified
product is marketed.
2
<PAGE>
C. Manufacturing Standards: The firm shall provide, upon request,
evidence of compliance with government standards addressing the supervision
of qualified personnel and the procedures in place to assure purity and
uniformity of products and accuracy of labeling at all manufacturing and
laboratory control facilities.
II. Name
A. Established or Generic names: The selection and use of established or
generic names must conform to the requirements of the Federal Food, Drug,
and cosmetic Act.
B. Trade Names: Proprietary names will be acceptable to the Alliance
provided the names meet certain professional standards:
1. Misleading Names: Names which are misleading or which suggest diseases
or symptoms are not acceptable. This provision may not apply to certain
biologic products such as serums or vaccines.
2. Numbers or Initials in Names: The product name shall not include
initials or numbers except when deemed necessary to designate the
concentration or amount of active ingredient.
3. Titles in Names: Titles such as Pediatrician, Doctor or Dentist or the
designation M.D., D.O., or D.D.S. shall not be included in the name of a
product, unless approved by the Alliance at the time the Product is
accepted.
4. Legal Right: Evidence of the legal right to use the name of a product
shall be provided to the Alliance.
III. Evidence of Usefulness and Safety
A. Submission of Evidence: Evidence pertaining to properties, actions,
dosage, usefulness, suitability, quality and safety shall be submitted by
the firm where applicable and shall meet federal and state requirements for
that Product.
B. Nature of Evidence: The firm shall provide objective data from
critical clinical and laboratory studies. Extended clinical experience may
be utilized, in part, as a basis for evaluation of a product.
C. Independent Evaluation: The firm may be required to provide data from
independent testing facilities, pertaining
3
<PAGE>
to the product's properties, actions, dosage, usefulness, suitability,
quality and safety.
IV. Government Regulations
The manufacturer shall provide appropriate evidence that the product conforms to
all applicable laws and governmental regulations.
V. Promotional Material
A. Name: The established or generic name of the product shall be
displayed in a prominent manner in all promotional material directed to the
pediatric profession.
B. Claims: Claims of significance to pediatric health that appear in
labels, labeling or all advertising for products shall be clear and
accurate.
C. Review/Approval Before Use: Pediatric product labeling and
advertising/promotional material must be developed in accordance with the
Advertising Standards (Appendix 3 of the License Agreement) or be submitted
---------------------
to the Alliance for review and approval prior to use in the public and
pediatric media. This review shall be to assure compliance with the Seal of
Acceptance advertising standards. If the Alliance does not respond within
ten (10) days, the proposed material shall be deemed accepted.
D. Unwarranted Disparagement of Other Products: Advertising of accepted
products shall not result in the disparagement of other useful products.
E. Point-of-Purchase Advertising: The Alliance's name and the Seal may
appear in point of-purchase advertising if it is presented in good taste
and professional dignity and is only part of the commercial message.
F. Implied Acceptance: Accepted products shall not be advertised or
displayed with unaccepted products in a manner that implies acceptance of
the unaccepted products. This provision does not apply to conventional
price lists or catalogs.
G. Standards: The advertising must conform to the Advertising Standards.
----------------------
Appendix 3 of the License Agreement.
VI. Reference to Alliance Acceptance
A. Purpose: Any reference to the Alliance in labeling or advertising of
an accepted product is permitted solely to indicate to the profession or
public that the product has been accepted by the Alliance of Children's
Hospitals, Inc.
4
<PAGE>
B. The Seal of Acceptance, except as otherwise provided, may be used
after acceptance of the product has been announced or at the discretion of
the Alliance. The Seal shall not appear in conjunction with the seal of any
other investigative group unless approval for such display has been
obtained from the Alliance. The Seal is to be used without comment on its
significance unless such comment has been previously approved by the
Alliance.
C. When a statement is authorized by the Alliance to define specifically
the areas of usefulness of a product or to indicate its acceptance status,
the same principles established for the use of the Seal shall apply.
D. There shall be no reference to Alliance acceptance in labeling or
public advertising for any non prescription product which requires a
professional diagnosis for appropriate use.
E. In the event that the product, based on continued review, is no longer
found to be acceptable to the Alliance, the manufacturer agrees to comply
to the Advertising Standards of the Alliance and the manufacturer will
---------------------
cease distribution of the product containing reference to the Seal of
Acceptance with all deliberate speed but no later than ninety (90) days.
All use of the Seal or an authorized statement in connection with the
product must be discontinued within ninety (90) days of the date of
notification of the firm by the Alliance.
VII. Changes in Provisions
Any amendment to these provisions which may be made after acceptance of a
product shall not apply to such product until the current period of acceptance
has terminated. At the end of this period, the product must comply with the
amended provisions of acceptance is to be renewed. (This provision shall not
apply to termination of acceptance of a product on the basis of new evidence
regarding lack of usefulness.)
VIII. Fees
The Alliance of Children's Hospitals, Inc., at its sole discretion, may require
both a fee for initial review of products and an ongoing license fee for
products which bear the Seal of Acceptance. These arrangements will be
negotiated on an individual basis.
5
<PAGE>
IX. Council on Children's Hospital Products
The Council on Children's Hospital Products of the Alliance of Children's
Hospitals, Inc., is an appointed group charged with recommending the Seal to
acceptable products. It may be comprised of the following:
A. Representatives of children's hospitals.
B. Physicians specializing in pediatrics.
C. Registered nurses with expertise in pediatrics
D. Independent consultant specializing in product liability and quality
control issues.
X. Board of Directors
The Alliance of Children's Hospitals, Inc., Board of Directors shall consist of
the following:
A. CHCA CEO
B. Two Shareholder CEO's
Procedures for Submission of Product
- ------------------------------------
The following procedures have been established or submission of a product to the
Alliance:
A. Please send four (4) original trade packages of the product.
----
B. Please send two (2) labels from each form of preparation, and four (4)
--- ----
samples of all current and projected advertising, educational material and
package inserts.
C. If the product is submitted for a clinical evaluation, then the
manufacturer will supply agreed upon amounts of product at the
manufacturer's expense.
D. Please supply the following information:
1. Trade name and all synonyms. Indicate if the name is registered
or the label copyrighted.
2. Number of any patent relating to the product.
6
<PAGE>
3. If applicable, the chemical name and chemical formula for each
ingredient and the amount of each ingredient per 100 grams of the
product.
4. Physical constants for all ingredients not listed in the U.S.
----
Pharmacopeia, or National Formulary: melting point, boiling point,
------------ ------------------
solubility in common solvents, etc., if applicable.
5. Product specification by type of product suggested usage and
productingredients.
6. Incompatibilities.
7. Present standards (U.S.P., N.F. or other standards of purity) and
tests for individual ingredients and finished product.
8. Names of owners, officers of the firm and other individuals who
are authorized to furnish information to the Alliance and to make
commitments for the firm.
9. Names and qualifications of scientific personnel responsible for
the manufacturing and testing of the product.
10. Any litigation, claims, disputes, controversies or investigations
pertaining to the product or any of its components.
11. Most recent audited financial statements, annual report or report
10-K. If such statements are not audited, they should be certified by
the President or Chief Financial Officer of the company.
E. Please furnish detailed information concerning the recommended doses
and uses and any extension of claims for actions or uses beyond those
currently recognized.
1. It will be necessary to provide adequate evidence for the safety
and claimed usefulness of the product. This evidence may be in the
form of published reports or unpublished information obtained from
appropriate scientific studies employing laboratory, animal and
clinical observation.
a. Evidence should be both sufficient in quantity and adequate in
quality to permit sound conclusions. This requirement is especially
important since most clinical studies involve subjective
interpretations on the part of both the observer and the patient.
b. In order to provide a sufficient quantity of data, not only
should the number of clinical cases available for observation in a
single study be adequate, but reports of investigations by several
independent groups are usually required.
7
<PAGE>
c. In order to obtain evidence which is adequate in quality, it
is usually necessary in a study to employ placebo controls or
comparison products under the same conditions of use as the test drug.
It is further essential that, wherever possible, those observations or
interpretations be made without either the observer or the patient
being aware of which product is employed in each individual case.
8
<PAGE>
APPENDIX 3
----------
ALLIANCE OF CHILDREN'S HOSPITALS, INC.
ADVERTISING STANDARDS
Authorized Format
- -----------------
The reproduction of the Seal of Acceptance of the Alliance of Children's
Hospitals, Inc. (hereinafter "Alliance"), must be of sufficient size that the
type (or wording) is legible and distinct in detailing.
The type style is Helvetica 67. Seal of Acceptance is always in upper and lower
case; Alliance of Children's Hospitals, Inc. shall always appear in upper and
lower case. The minimum diameter in any reproduction of the Seal art is 1/2"
unless otherwise approved by the Alliance.
The Seal's form must always appear as shown in Appendix 1. No portion or detail
may be eliminated. (It shall be in wording, form and proportion, an exact
reproduction of the logo as shown in Appendix 1.)
If printed in 1 color reproduction: that color shall be black or blue PMS 287.
If two color, the star shall be yellow, PMS 116, and the type and other design
elements shall be blue, PMS 287.
Authorized Use
- --------------
The Seal may appear, upon granting by the Alliance:
* on tags or labels attached or affixed to the product;
* on the container of the product, provided the container accurately identifies
the product contained;
* on package inserts or other material accompanying or promoting the product at
the time or point of retail sale;
* in advertisements, except stationery and letterhead, initiated, prepared or
authorized by the Advertiser;
<PAGE>
* in radio broadcasts and telecasts, only the following statement may be used:
"(Trade name of product) has earned the Seal of Acceptance from the Alliance of
Children's Hospitals, Inc." The written broadcast copy in which this statement
is used must first be approved in writing by the Alliance, and the Advertiser
shall not deviate therefrom. In telecasts the Seal may be televised provided it
is of sufficient size to make the wording thereof legible and the detail
distinct.
It may not be used on stationery, letterheads, billheads, price lists or
business cards without prior written permission of the Alliance. It is not to be
used on trucks or vehicles, or affixed to any building windows or doors so as to
mislead the public of the scope of approval of the Seal. It may not be used on
the covers of catalogs, booklets, etc., when they include merchandise for which
the Seal of Acceptance has not been granted. The same condition applies to
individual pages or sections or catalog sheets, unless location of the Seal is
clearly related to the accepted product(s).
The purpose of these conditions is to insure the integrity of the Seal and its
approval for specific products. All other advertising must be submitted in their
entirety to the Alliance for review and approval when the materials contain
reference to or reproduction of the Seal.
Changes in Product
- ------------------
Regarding changes in the product, see Paragraph 5 of the License Agreement.
Delegation
- ----------
No product supplier or manufacturer may in any manner whatsoever apply the Seal
of Acceptance to other products they may manufacture or sell that are similar or
dissimilar to the product that has been granted the Seal. The granting of the
Seal of Acceptance is the responsibility of the Alliance. Only the Alliance has
the authority to grant the Seal for use by any individual, institution,
association, firm or corporation, or to any manufacturer, dealer or distributor.
2
<PAGE>
EXHIBIT A
---------
PRODUCTS COVERED BY THIS AGREEMENT
The full range of 23, 23 and 28 gauge single lumen pediatric and neonatal
products, of various lengths, supplied with or without procedure trays. Note
that the 23 gauge products are manufactured from silastic material while all
other catheters are manufactured from polyurethane.
The 20 gauge dual lumen polyurethane catheter, with or without procedure tray.
The "L-Cath for Ports" port access device (an alternative to a Huber needle).
Note that the seal and applicable royalty apply only to "L-Cath for ports" sold
to CHCA hospitals.
The product numbers are as follows:
Placement set of Catheter plus needle Placement set plus procedural tray
- ------------------------------------- ----------------------------------
Pediatric, 24 gauge
PE-24PC8T 8cm. fixed length PE-24PC8TK
PE-24P19 19cm. " " PE-24P19K
PE-24P30 30cm. " " PE-24P30K
PE-24PIC30 30cm. trimable PE-24PIC30K
Pediatric, 23 gauge
PE-23PIC30S (30cm. trimable silastic w/needle) PE-23PIC30SK
PE-23PIC30ST (30cm. trimable silastic w/T-Peel) PE-23PIC30STK
Neonatal, 28 gauge
NE-28NN8 8cm. fixed length NE-28NN8K
NE-28NN14 14cm. " " NE-28NN14K
NE-28NN20 20cm. " " NE-28NN20K
NE-28NN25 25cm. " " NE-28NN25K
NN-28PIC25 25cm. trimable NE-28PIC25K
Pediatric/neonatal procedural tray only
- ---------------------------------------
PE-NN-01
Dual Lumen 20 gauge catheter and introducer (T-Peel or needle)
- --------------------------------------------------------------
PE-20PIC60D (with needle) PE-20PIC60DK (plus a procedure tray)
PE-20PIC60DT (with T-Peel) PE-20PIC60DTK (plus a procedure tray)
L-Cath for Ports
- ----------------
PE-20 PAC5 (5cm long 20 gauge)
PE-20PAC5E (as above with extension set included)
PE-22PAC5 (5cm. long 22 gauge)
PE-22PAC5E) (as above with extension set)
<PAGE>
CHCA HOSPITALS
<TABLE>
<CAPTION>
HOSPITAL STATE CITY
- -------- ----- ----
<S> <C> <C>
Children's National Medical Center Washington, DC
The Children's Hospital Alabama Birmingham
Arkansas Children's Hospital Arkansas Little Rock
Children's Hospital and Health Center California San Diego
Children's Hospital Medical Center
of North. CA California Oakland
Children's Hospital of Los Angeles California Los Angeles
Children's Hospital of Orange County California Orange
Valley Children's Hospital California Fresno
Lucile Salter Packard Children's
Hospital California Palo Alto
The Children's Hospital Colorado Denver
All Children's Hospital Florida St. Petersburg
Miami Children's Hospital Florida Miami
Egleston Children's Hospital Georgia Atlanta
The Children's Memorial Hospital Illinois Chicago
Children's Hospital Louisiana New Orleans
Children's Hospital Massachusetts Boston
Children's Hospital Michigan Detroit
St. Louis Children's Hospital Missouri St. Louis
The Children's Mercy Hospital Missouri Kansas City
Children's Memorial Hospital Nebraska Omaha
Children's Hospital of Buffalo New York Buffalo
Children's Hospital Ohio Columbus
Children's Hospital Medical Center Ohio Cincinnati
Children's Hospital Medical Center
of Akron Ohio Akron
The Children's Medical Center Ohio Dayton
Children's Hospital of Pittsburgh Pennsylvania Pittsburgh
The Children's Hospital of Philadelphia Pennsylvania Philadelphia
Le Bonheur Children's Medical Center Tennessee Memphis
Children's Medical Center of Dallas Texas Dallas
Cook-Fort Worth Children's
Medical Center Texas Fort Worth
Driscoll Children's Hospital Texas Corpus Christi
Texas Children's Hospital Texas Houston
Children's Hospital of the
King's Daughters Virginia Norfolk
Children's Hospital and Medical Center Washington Seattle
Children's Hospital of Wisconsin Wisconsin Milwaukee
</TABLE>
<PAGE>
EXHIBIT 10.39
DISTRIBUTORSHIP AGREEMENT
-------------------------
THIS AGREEMENT, effective as of the 21st day of September, 1995, by and
between Luther Medical Products, Inc., a California corporation with a principal
place of business at 14332 Chambers Road, Tustin, California 92680-6912
(hereinafter referred to as "Company"), and Boston Scientific Corporation, a
Delaware corporation with a principal place of business at One Boston Scientific
Place, Natick, Massachusetts 01760 (hereinafter referred to as "Distributor").
WITNESSETH
----------
WHEREAS, the Company manufactures peripherally inserted central catheters
which the parties hereto believe offer advantages over other central catheters;
WHEREAS, Distributor desires to market the Company's peripherally inserted
central catheters as an exclusive distributor in the field of interventional
radiology; and
WHEREAS, Company desires to appoint Distributor as its exclusive world-wide
distributor in the field of interventional radiology and to supply the
peripherally inserted central catheters to Distributor.
NOW THEREFORE, in consideration of the premises and the mutual benefits to
be derived hereunder, Company and Distributor hereby agree as follows:
1. DEFINITIONS.
-----------
For the purposes of this Agreement, the following words and phrases shall
have the following meanings:
1.1 "Affiliate" shall mean an entity or person controlling,
controlled by, or under common control with Company or Distributor, as the case
may be.
1.2 "Average Selling Price" shall mean, for any time period, Net
Sales in the United States divided by the number of PICC Products sold in the
United States.
1.3 "Company Cost of Goods Sold" shall mean the sum of the costs of
direct labor, direct materials, fixed manufacturing equipment (capitalized over
the useful life of the equipment) and indirect labor reasonably allocable to
PICC Products sold in the
<PAGE>
United States in accordance with generally accepted accounting principles
consistently applied.
1.4 "Company Margin" shall mean the percentage obtained by dividing
(a) the difference of the Transfer Price for PICC Products sold in the United
States minus Company Cost of Goods Sold by (b) the Transfer Price for PICC
Products sold in the United States.
1.5 "Confidential Information" shall mean all information and data
provided by the parties to each other hereunder in writing, or if disclosed
orally, confirmed in writing within thirty (30) days, and marked as
confidential, except any portion thereof which:
(a) is known to the receiving party, as evidenced by the receiving
party's written record, before receipt hereof under this Agreement;
(b) is disclosed to the receiving party by a third person who has a
right to make such disclosure;
(c) is or becomes generally known in the trade through no fault of the
receiving party; or
(d) is independently developed by the receiving party, without access
to the Confidential Information, as evidenced by the receiving party's
written record.
1.6 "Contract Year" shall mean the period commencing with the date of
the first general sale of PICC Products by Distributor to unaffiliated third
parties under this Agreement and ending on the anniversary of such date, and
thereafter, each consecutive twelve (12) month period during the term of this
Agreement.
1.7 "Distributor Cost of Goods Sold" shall mean the sum of the
Transfer Price, the costs of direct labor, direct materials and indirect labor
reasonably allocable to PICC Products in the United States in accordance with
generally accepted accounting principles consistently applied.
1.8 "Distributor Margin" shall mean the percentage obtained by
dividing (a) Average Selling Price minus Distributor Cost of Goods Sold by (b)
Average Selling Price.
1.9 "Execution Date" shall mean the date hereof.
1.10 "Field" shall mean interventional radiology.
1.11 "Net Sales" shall mean the gross sales by Distributor and its
Affiliates to unaffiliated third parties of
2
<PAGE>
PICC Products, less reasonable commissions (excluding commissions paid by
Distributor to its internal sales representatives) allowed to distributors,
reasonable discounts allowed dealers, reasonable cash discounts, refunds,
replacements or credits allowed to purchasers for return of PICC Products or as
reimbursement for damaged PICC Products, freight, postage, insurance and other
shipping charges, sales and use taxes, customs and any other governmental tax or
charge (except income taxes) imposed on or at the time of production,
importation, use, or sale of PICC Products, including any VAT taxes. Should any
PICC Products be sold in combination with other components or products, then the
computation of Net Sales shall be based on the average selling price charged
during the applicable quarter for such PICC Products when separately invoiced or
priced. In the event PICC Products have not been separately invoiced or priced
during the applicable quarterly period, the Net Sales computation shall be based
on the fair market price which Distributor would have charged for PICC Products
to an unrelated purchaser in an arm's length transaction.
1.12 "Patent Rights" shall mean all patents, patent applications and
rights to file patent applications relating to PICC Products, licensed to, owned
or controlled by Company now or hereafter, including those listed in Exhibit B,
including but not limited to the manufacture, sale, use or design of PICC
Products, and including reissues or extensions thereof in any division,
continuation or continuation-in-part of any applications or substitutes
therefor. It is anticipated that Exhibit B may be amended from time to time as
necessary.
1.13 "PICC Products" shall mean peripherally inserted central
catheters for use in the Field, generally consisting of a catheter, clamps and
caps and including those peripherally inserted central catheters described in
the specifications attached hereto as Exhibit A (referred to herein as the "PICC
Product Specifications"), as modified by mutual written agreement from time to
time as provided herein and including, but not limited to, modifications and/or
improvements as provided in Section 10.1 of this Agreement, but excluding for
purposes of determining the price for which the Acquired Assets would be
purchased under Section 16.1 hereof, Micro Puncture Kits.
1.14 "Proprietary Rights" shall mean all proprietary rights and
interests of every nature in, to or covering the PICC Products, their
manufacture or their use to the extent that such rights and interests are of
such legal status and nature to be capable of being lawfully licensed or sold by
Company and shall include but not be limited to, inventions, ideas,
manufacturing know-how, technology and trade secrets.
3
<PAGE>
2. EXCLUSIVE DISTRIBUTORSHIP APPOINTMENT.
-------------------------------------
2.1 Company hereby appoints Distributor and Distributor hereby
accepts appointment as Company's exclusive distributor in the Field for PICC
Products in all countries of the world and their respective territories and
possessions (the "Territory") on the terms and subject to the conditions herein
set forth. Distributor shall not promote the sale of PICC Products outside the
Field. Company shall not manufacture or license for manufacture, whether in the
Company's own name or in the name of a third party, PICC Products for use in the
Field for any party other than Distributor. Subject to Company's ability to
supply Distributor's requirements, Distributor agrees that it shall purchase
PICC Products exclusively from Company during the term of this Agreement.
2.2 Distributor shall use commercially reasonable efforts to sell
PICC Products in the Field. In the event that Distributor does not purchase from
Company, in any Contract Year after the first Contract Year, at least $20,000 of
PICC Products, then Company may give written notice to Distributor, within
thirty (30) days after the close of the Contract Year in which Distributor
failed to make such purchases, that Distributor's appointment as exclusive
Distributor in the Field in thirty (30) days after the date of such written
notice shall become non-exclusive, provided, that, within thirty (30) days from
the date of written notice, Distributor has the right to pay Company an amount
equal to the shortfall and maintain its exclusive distributorship. In addition,
in the event that Distributor shall manufacture or engage a third party to
manufacture PICC products competitive with PICC Products for sale in the Field,
then Company may give written notice to Distributor that Distributor's
appointment in the Field shall become non-exclusive.
3. ORDERING AND MANUFACTURING OF PICC PRODUCTS.
-------------------------------------------
3.1 Company agrees to manufacture and sell PICC Products to
Distributor subject to the terms and conditions set forth herein.
3.2 All orders of PICC Products shall be on Distributor's standard
purchase order. Any term or condition on any purchase order which is
inconsistent with the terms and conditions of this Agreement shall be of no
effect.
3.3 Distributor shall provide Company, on a monthly basis, a non-binding
rolling forecast of orders of PICC Products with respect to the next six (6)
months, which forecasts shall be binding for the first two (2) months of such
six (6) months. Binding portions of Distributor's order forecasts shall continue
4
<PAGE>
to be binding even if delivery of PICC Products occurs after termination of this
Agreement for any reason.
4. DELIVERY AND ACCEPTANCE OF PICC PRODUCTS.
----------------------------------------
4.1 PICC Products shall be shipped to Distributor F.O.B., Tustin,
California. PICC Products shall conform to the PICC Product Specifications
current at the time of shipment. PICC Products will be shipped in sterile
condition, packaged as reasonably requested by Distributor in writing and in
conformance with the PICC Product Specifications.
4.2 Company shall label all PICC Products for sale under the name of
Distributor in the form provided in writing by Distributor to Company from time
to time, which form shall be reasonably acceptable to Company. PICC Products
labels, instructions for use and product inserts shall contain a statement
substantially similar to the following, "Manufactured for Meditech by Luther
Medical Products, Inc."
4.3 Within forty-five (45) days after receipt of PICC Products at the
facility specified by Distributor, Distributor may reject any of such PICC
Products which fail to meet the PICC Product Specifications by sending Company
notice of the lot numbers of rejected PICC Products, together with an indication
of the specific basis for rejection, and Distributor shall within ninety (90)
days of delivery return to Company, at Company's expense, any such rejected PICC
Products. Distributor shall not be required to pay Company for any such rejected
PICC Products which have been properly rejected. Any PICC Products not rejected
by Distributor within such forty-five (45) days shall be deemed to meet the
applicable PICC Product Specifications.
4.4 The PICC Product Specifications may be supplemented, modified and
updated from time to time as changes are agreed upon and expressed in writing
signed by the parties hereto without necessitating formal amendment of this
Agreement. Neither Company nor Distributor will unreasonably withhold agreement
on changes to the PICC Product Specifications; provided, both parties must
approve any changes which affect product performance or safety.
5. PRICE AND PAYMENT.
-----------------
5.1 Transfer prices for PICC Products (the "Transfer Price") for the
first two (2) Contract Years of this Agreement are set forth as Exhibit D
---------
hereto. Thereafter, thirty (30) days prior to the end of each Contract Year,
Distributor or Company may request that the parties renegotiate the Transfer
Price, in the event of a decline in the Average Selling Price, with the
5
<PAGE>
goal of providing at least a sixty-five percent (65%) Distributor Margin and a
fifty percent (50%) Company Margin (each, the "Goal"). In the event that the
parties are not able to reach agreement on a negotiated Transfer Price, then the
Transfer Price for the next year shall be adjusted as necessary to provide,
based on the reasonable estimates of the financial data for the then-current
year, a Company Margin and a Distributor Margin that represent the same
percentage of their respective Goals.
5.2 Distributor shall pay Company for PICC Products delivered as
provided herein within thirty (30) days after receipt of Company's invoice.
6. TERM AND TERMINATION.
--------------------
6.1 This Agreement shall become effective upon its execution and
unless sooner terminated as provided herein, shall remain in effect until end of
the fifth Contract Year (the "Original Term"). At least ninety 90 days prior to
the end of the Original Term, Distributor may, at its option, renew this
Agreement for an additional three (3) year term.
6.2 Either party may terminate this Agreement for the following
reasons:
(a) Upon the filing of a petition in bankruptcy, the appointment
of a receiver, or the insolvency of the other party if such petition, proceeding
or financial condition is not dismissed with prejudice or cured within sixty
(60) days of such event;
(b) Upon the breach of any material provision of this Agreement
by the other party if the breach is not cured within thirty (30) days for
Section 5.2 and sixty (60) days for any other section after written notice
thereof to the party in default; or
(c) As provided in Article 12.
6.3 The provisions of Articles 12, 13, 15, 17 and 23 shall survive
the termination of this Agreement notwithstanding the reason for such
termination.
7. PICC PRODUCTS MANUFACTURING FACILITY.
-------------------------------------
7.1 Company will manufacture PICC Products in accordance with (1) the
PICC Product Specifications; (2) Good Manufacturing Practices ("GMP") as
required by the United States Food, Drug and Cosmetic Act; and (3) pertinent
rules and regulations of the United States Food and Drug Administration
6
<PAGE>
("FDA"). Notwithstanding any other provision of this Agreement, Company shall
not manufacture PICC Products for delivery to Distributor and Distributor shall
have no obligation to purchase PICC Products from Company until Company's plant
has been inspected and approved in writing by an authorized third party
representative of Distributor. Such inspection shall be conducted within a
reasonable time after execution of this Agreement.
7.2 During the term of this Agreement, Company will provide written
notice to Distributor of any proposed changes in Company's manufacturing
processes or procedures related to PICC Products in order for Distributor to
determine if such changes would jeopardize the quality or integrity of the PICC
Products. No changes in Company's manufacturing processes or procedures related
to the safety and efficacy of PICC Products will be made without Distributor's
prior written approval.
7.3 Distributor shall have the right to have qualified employees of
Distributor present at Company's plant during normal business hours to inspect
Company's facilities and manufacturing procedures for compliance with GMP's and
Distributor's quality assurance requirements and to inspect Company's inventory
of PICC Products, work-in-process, raw materials to be used for PICC Products,
production records and such other matters as may be pertinent to proper quality
assurance of PICC Products to be delivered hereunder.
7.4 Company will permit authorized representatives of the FDA to
inspect Company's plant and production facilities relating to or used in
connection with the manufacture of PICC Products and will promptly notify
Distributor when Company receives notice of any such inspection. Company will
advise Distributor of the findings of any FDA inspection and will immediately
take steps to correct any deficiencies found by the FDA relating to the
production of PICC Products.
8. REGULATORY MATTERS. Company shall use its best efforts to obtain
------------------
promptly all registrations and regulatory approvals necessary to manufacture and
market PICC Products in the United States. Distributor shall obtain such
registration and regulatory approvals outside the United States for PICC
Products as Distributor, in Distributor's sole discretion, shall deem necessary
or advisable. Distributor and Company agree to cooperate as reasonably requested
by the other party hereof to fulfill the purpose of this Section.
9. WARRANTIES.
----------
9.1 Company warrants that all PICC Products delivered hereunder will
conform to and meet the PICC Product Specifications.
7
<PAGE>
9.2 Company guarantees that no article delivered hereunder is
adulterated or misbranded within the meaning of the U.S. Food, Drug and Cosmetic
Act, as amended, or within the meaning of any applicable state or municipal law
in which the definitions of adulteration or misbranding are substantially the
same as those contained in the U.S. Food, Drug and Cosmetic Act as said Act and
such laws are constituted and effective at the time of such shipment or
delivery, or as an article which may not, under the provisions of Sections 404
or 505 of said Act be introduced into interstate commerce.
10. PRODUCT IMPROVEMENTS.
--------------------
10.1 During the term of this Agreement, Company shall use commercially
reasonable efforts to continue the development of PICC Products. As marketing
experience is gained and with advances in medical technology new customer needs
are identified, Distributor may, from time to time, request and it may become
necessary or desirable for the PICC Products to be modified and improved (the
"Improved Models"), or for additional models of PICC Products with different
specifications (the "Additional Models") to be considered for addition as a
product hereunder. Company will use commercially reasonable efforts to develop
and incorporate such Improved Models or Additional Models as PICC Products for
distribution by Distributor in the Field. No such Improved Models or Additional
Models will be incorporated into PICC Products without Distributor's prior
written approval. Upon Distributor accepting Improved Models or Additional
Models, the parties will negotiate in good faith as set forth in Section 5.1 to
establish prices and other terms of purchase and sale with the goal of providing
at least a 65% Distributor Margin and a 50% Company Margin. The Improved Models
or Additional Models of PICC Products will be deemed PICC Products for all
purposes hereunder.
10.2 Distributor shall fund the development of the PICC Products as
set forth on the PICC Product Specifications and may fund the development of
other Improved Models and Additional Models for use in the Field pursuant to a
budget mutually-agreed by the Company and the President of the Medi-Tech
division of Distributor (the "Budget"), which shall include development
engineering, regulatory affairs, and manufacturing engineering. The Budget shall
provide for hourly rates of $50.00 for engineering work and $30.00 for technical
work. The total monthly charges billed to Distributor pursuant to this Section
10 shall not exceed Ten Thousand Dollars ($10,000), exclusive of tooling costs,
without the prior approval of Distributor. Company and Distributor shall agree
upon the necessary tooling for the purposes of this Section, which tooling shall
be purchased by Company and billed to and owned by Distributor.
11. MICRO PUNCTURE KIT. Company shall identify and consult with vendors
------------------
and suppliers in order to develop and to manufacture
8
<PAGE>
or assemble a micro puncture kit, consisting of a needle, mandrel wire
andsheath, (the "Micro Puncture Kit"), meeting specifications agreed to by
Company and Distributor. The Micro Puncture Kit shall be designed to be packaged
with PICC Products and shall be sold by Company to Distributor at fifteen
percent (15%) above Company's actual cost of the Micro Puncture Kit initially as
set forth on Exhibit D hereto.
---------
12. ALTERNATIVE MANUFACTURING WITH COMPANY ASSISTANCE. If during the term
-------------------------------------------------
of this Agreement, Company becomes unable to manufacture or deliver at least
ninety percent (90%) of Distributor's orders for PICC Products during any ninety
(90) day period, provided that such orders shall not exceed one hundred and
twenty percent (120%) of Distributor's forecast for such ninety (90) day period,
for any reason and fails to satisfactorily remediate the deficiency within
ninety (90) days following receipt of written notice or is unwilling to put in
place capacity to meet the reasonable forecast provided pursuant to Section 3.3,
then notwithstanding the provisions of Paragraph 18 hereof, Distributor may (i)
elect to terminate this Agreement effective immediately upon the delivery of
written notice to Company or (ii) require the Company to take all steps
reasonably necessary to either establish another source to manufacture PICC
Products for Distributor, or assist Distributor in establishing the capacity to
manufacture PICC Products. Company shall provide to any manufacturer pursuant to
this Section 12 reasonable technical assistance and any licenses necessary to
establish the capability to manufacture PICC Products. All such PICC Products
manufactured pursuant to this Section 12 are to be sold only for use in the
Field.
13. INDEMNIFICATION - PRODUCT LIABILITY: NOTICES: PATENT RIGHTS
-----------------------------------------------------------
ENFORCEMENT.
-----------
13.1 Company will indemnify and hold Distributor harmless against any
and all liability, loss, damages, costs or expenses which Distributor may
hereafter incur, suffer or be required to pay by reason of any products made,
furnished or sold by Company which result in injury, illness and/or death of any
person if it is established that such injury, illness and/or death resulted from
the negligent act of Company or Company's omission to perform any act which, as
between Company and Distributor, was Company's responsibility or from a product
defect for which Company was responsible or from any product description or
claim made by Company in writing and upon which Distributor has relied.
13.2 Distributor will indemnify and hold Company harmless from and
against any and all liability, loss, damages, costs or expenses which Company
may hereafter incur, suffer or be required to pay by reason of any products
made, furnished or sold by Company which results in injury, illness and/or death
of any
9
<PAGE>
person if it is established that such injury, illness and/or death resulted from
the negligent act of Distributor, or Distributor's omission to perform any act,
related to the marketing and sale of PICC Products which, as between Company and
Distributor, was Distributor's responsibility or from any product description or
claim made by Distributor which was not approved in writing by Company.
13.3 In any case in which either party receives a written claim for
damages for bodily injury alleged to have been caused by the products referred
to herein, such party shall promptly, and in any case within sixty (60) days
thereafter, give notice of any possible claim to the other party and shall
cooperate fully with the other party in the defense of all such claims. The
giving of such notice promptly shall be a condition precedent to the right to be
indemnified hereunder. No settlement or compromise entered into without its
prior written consent shall be binding upon a party hereto or used in any way as
evidence by a party hereto against the other party.
13.4 During the term of this Agreement, Company and Distributor shall
review the patentability of the design and manufacture of the PICC Products,
Improved Models and Additional Models, as each is developed, and shall develop a
mutually agreeable intellectual property protection strategy for the PICC
Products, Improved Models and Additional Models. The cost of patent protection,
maintenance and defense shall be divided equally between Company and
Distributor, and any patents obtained shall be owned jointly by Company and
Distributor, regardless of inventorship and subject to the exclusive
manufacturing obligations set forth in Section 2.1 of this Agreement. Pursuant
to Section 16.5, the exclusive manufacturing limitation with respect to Section
2.1 and this Section 13.4 shall terminate one year after the Acquisition Closing
Date.
13.5 Each party shall promptly notify the other after it becomes aware
of any of the following events: alleged infringement of any Patent Rights by any
third party; unauthorized disclosure of Confidential Information; alleged
infringement of the trademark, patent or proprietary rights of others in
connection with actions taken hereunder; and any other event that may reasonably
be expected to have a material adverse effect upon the sale or distribution of
PICC Products in the Field.
13.6 Distributor shall advise Company in writing whenever Distributor
believes a person is infringing any Patent Rights. Such notice shall give the
identity of the infringer and provide such other information known to
Distributor concerning the nature of the infringement. If, after giving such
notice to Company, Company does not file suit or cause such alleged infringement
to cease within a period of six (6) months from the
10
<PAGE>
date of such notice, then Company agrees to grant Distributor the right to sue
in its own name, at its own expense and for its own benefit, any such infringer
under any of the Patent Rights.
13.7 Each party agrees, at its own expense, to maintain insurance from
a recognized insurance company, providing at least $1,000,000 of protection per
occurrence against claims, suits, losses, and damages for which it is
responsible pursuant to this Section 13. Each party further agrees to name the
other as an additional insured under such policies and to provide the other with
a certificate of insurance evidencing its obligations hereunder. Such
certificate shall provide the other with thirty (30) days written notice of
cancellation, modification or termination.
14. TRADEMARKS. Distributor shall have the right to market and advertise
----------
PICC Products under Distributor's name, trademarks, trade names, labels or other
designations, and all of the same shall remain property of Distributor, and
Company shall have no rights thereto. Distributor shall have no rights to use
trademarks or trade names of Company without the prior written consent of
Company.
15. RECALL AND RECALL EXPENSE. If, in the judgment of Company or
-------------------------
Distributor, any product defect or any governmental action requires a recall of
or the issuance of an advisory letter regarding PICC Products, either party may
undertake such recall after consultation with the other party. Notwithstanding
the foregoing, the Company shall not be permitted to undertake any recall with
respect to any of the PICC Products after the Acquisition Closing Date, except
as may be required by law and after consultation with Distributor. Each party
shall notify the other party in a timely manner prior to making such recall or
issuing any advisory letter. Each party shall endeavor to reach an agreement
prior to making any such recall or issuing any such advisory letter regarding
the manner, text and timing of any publicity to be given such matters in time to
comply with any applicable FDA requirements, but such agreement shall not be a
precondition to any action that either party deems necessary to protect users of
the PICC Products or to comply with any applicable governmental orders. The
party responsible for that aspect of the PICC Products upon which the recall is
based, shall reimburse the other party for its reasonable expenses incurred in
handling the recall.
16. PURCHASE RIGHT.
--------------
16.1 Grant of Purchase Right; Purchase Price. Company hereby grants
----- -- -------- ----- -------- -----
to Distributor an option (the "Purchase Right") to purchase all property, plant
and equipment of Company that are unique to the development, manufacture and
preparation of PICC
11
<PAGE>
Products (the "Acquired Assets") at a purchase price equal to the sum of
aggregate amount of the Transfer Price of Company's sales of PICC Products (not
including the Micro Puncture Kit) to Distributor for the one-year period ending
on the last day of the month preceding the closing date of the purchase of the
Acquired Assets (the "Acquisition Closing Date"). The Acquired Assets shall
include, but not be limited to, all rubber or plastic molds, all tooling and all
packaging dies and all heat sealers that are unique to the development,
manufacture or preparation of PICC Products and a paid-up irrevocable license to
all Patent Rights and know-how of the Company related to PICC Products, but
shall not include Company's inventory of PICC Products or any property, plant
and equipment of Company that are used, in the ordinary course, for purposes
other than PICC Products by Company (the "Dual Use Assets"). Exhibit E hereto
---------
sets forth those assets of Company that would constitute Acquired Assets and
Dual Use Assets as of the date hereof. Exhibit E shall be updated from time to
---------
time so that upon exercise of the Purchase Option Exhibit E would set forth all
---------
Acquired Assets then in use and necessary or desirable for BSC to manufacture
the PICC Products. Distributor shall enter into good faith negotiations to
purchase the inventory of PICC Products which was subject to a binding forecast
under Section 3.3. Company shall use its best efforts to assist Distributor in
the acquisition of similarly effective and reasonably priced Dual Use Assets.
After the Acquisition Closing Date, licensed Patent Rights and know-how shall be
used only in the Field.
16.2 Exercise of Purchase Right; Limits on Exercise. The Purchase
-------- -- -------- ----- ------ -- --------
Right may only be exercised by Distributor after the expiration of the third
Contract Year or upon notice of the sale of either Company or the PICC Product
line to an unaffiliated third party. The Purchase Right shall be exercisable by
Distributor through delivery to Company of (i) notice of Distributor to exercise
the Purchase Right setting forth a proposed Acquisition Closing Date, which date
shall be not less than thirty (30) days, and not more than sixty (60) days after
the date of such notice, (ii) a certificate of Distributor's Controller, or
equivalent financial officer, setting forth the amount of Distributor's Net
Sales for the one-year period ending on the last day of the month preceding the
month which includes Distributor's proposed Acquisition Closing Date (the
"Transfer Revenue Certificate"), and (iii) a purchase order for the Acquired
Assets on Distributor's then-standard purchase order.
16.3 Closing. Upon receipt of notice of Distributor's intention to
-------
exercise the Purchase Right, Company shall use its best efforts to prepare the
Acquired Assets for transfer on the proposed Acquisition Closing Date. In the
event that Company is able to demonstrate to Distributor's satisfaction that it
is unable to transfer the Acquired Assets on Distributor's proposed Acquisition
Closing Date, Company and Distributor shall negotiate
12
<PAGE>
in good faith to determine a substitute Acquisition Closing Date not more than
fifteen (15) days after Distributor's proposed Acquisition Closing Date. On the
Acquisition Closing Date, upon receipt by Company of the amount of the purchase
price for the Acquired Assets, Company shall transfer to Distributor the
Acquired Assets pursuant to a Bill of Sale substantially in the form of Exhibit
C hereto and use its best efforts to convey physical possession of the Acquired
Assets to Distributor on such date. Company agrees to execute and deliver such
other documents or instruments as may be necessary to convey the Acquired Assets
to Distributor.
16.4 Completion of Transfer. Company covenants to use its best
---------- -- --------
efforts to complete the transfer of the Acquired Assets on and after the
Acquisition Closing Date. Company shall also use its best efforts, prior to or
after the Acquisition Closing Date, to transfer or duplicate any registration
and regulatory approvals necessary for Distributor to manufacture and market
PICC Products after the Acquisition Closing Date.
16.5 Non-Competition. In the event that the Distributor exercises the
---------------
Purchase Right, until the first anniversary of the Acquisition Closing Date, (a)
neither Company nor any Affiliate of Company shall, directly or indirectly,
including by or through any Affiliate, design, manufacture or sell any products
in the Field competitive with PICC Products, and (b) neither Company nor any
Affiliate of Company shall own, manage, operate, control or otherwise be
connected in any manner, directly or indirectly, with any firm, person,
partnership, corporation, company or other entity that designs, manufactures or
sells any products in the Field competitive with PICC Products; provided, that,
an unaffiliated third party purchaser of Company or any Affiliate of Company
shall be permitted to continue a pre-existing product line or design program
that violates the preceding provisions so long as neither Company nor any
employee or consultant of Company participates in the design, manufacture, sales
or management of such products until the expiration of the non-competition
period pursuant to this Section 16.5. Company and Distributor stipulate and
agree that this Section 16.5 contains reasonable limitations as to time and
scope of activity to be restricted that do not impose a greater restraint than
is necessary to protect the goodwill and business of Distributor.
17. CONFIDENTIAL INFORMATION. It is contemplated that in the course of
------------------------
the performance of this Agreement each party may, from time to time, disclose
Confidential Information to the other. Each party agrees to take all reasonable
steps to prevent disclosure of Confidential Information; provided, however, no
provision of this Agreement shall be construed so as to preclude such disclosure
of Confidential Information as may be inherent in or reasonably necessary for
marketing PICC Products pursuant to
13
<PAGE>
this Agreement, or for securing from any governmental agency any necessary
approval or license, or for obtaining patents by the parties relating to the
subject or performance of this Agreement.
18. FORCE MAJEURE. Any delay in the performance of any of the duties or
-------------
obligations of either party hereto shall not be considered a breach of this
Agreement and the time required for performance shall be extended for a period
equal to the period of such delay; provided that such delay has been caused by
or is the result of any acts of God, acts of the public enemy, insurrections,
riots, embargoes, labor disputes, including strikes, lockouts, job actions, or
boycotts, fires, explosions, floods, shortages of material or energy, or other
unforeseeable causes beyond the control and without the fault or negligence of
the party so affected. The party so affected shall give prompt notice to the
other party of such cause and shall take whatever reasonable steps are necessary
to relieve the effect of such cause as rapidly as possible.
19. NOTICES. All notices hereunder shall be in writing and shall be
-------
delivered to the following addresses of the respective parties, or to such other
address as either party may from time to time designate to the other:
Luther Medical Products, Inc.
14332 Chambers Road
Tustin, CA 92680-6912
Attention: Mr. David Rollo
With copy to:
Arter & Hadden
Jamboree Center
Two Park Plaza - Suite 700
Irvine, CA 92714-8517
Attention: Randall Katz, Esq.
Boston Scientific Corporation
One Boston Scientific Place
Natick,MA 01760-1537
Attention: Mr. Alan Kaganov
With copy to:
Boston Scientific Corporation
One Boston Scientific Place
Natick, MA 01760-1537
Attention: General Counsel
Such notice shall be effective upon delivery if personally delivered, or upon
receipt if sent by (i) registered or certified mail, postage prepaid, return
receipt requested, (ii) overnight express courier, or (iii) facsimile with
telephonic verification of receipt of the facsimile transmission.
14
<PAGE>
20. WAIVER - MODIFICATION OF AGREEMENT. This Agreement may not be
----------------------------------
modified except by an instrument or instruments in writing signed by an
authorized representative of the party against whom enforcement of such
modification is sought. Either party may, by an instrument in writing, waive
compliance by the other party with any term or provision of this Agreement. The
waiver of either party hereto of a breach of any term or provision of this
Agreement shall not be construed as a waiver of any subsequent breach.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
----------------
understanding between the parties and supersedes any and all prior agreements
and understandings, whether written or oral.
22. ASSIGNMENT. Neither party shall assign this Agreement or any part
----------
thereof without the prior written consent of the other party; provided, however,
either party, without such consent, may assign or sell the same in connection
with the transfer or sale of substantially its entire business to which this
Agreement pertains or in the event of its merger or consolidation with another
company which has the capability to perform this Agreement. Any permitted
assignee shall assume all obligations of its assignor under this Agreement. No
assignment shall relieve any part of responsibility for the performance of any
accrued obligation which such party then has hereunder.
23. GOVERNING LAW. The validity and interpretation of this Agreement
-------------
shall be governed by and construed in accordance with the internal laws of The
Commonwealth of Massachusetts.
24. HEADINGS. The headings contained in this Agreement are for
--------
convenience and reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
25. PUBLIC ANNOUNCEMENTS: Company and Distributor shall consult with each
--------------------
other before issuing any press release or otherwise making any public statements
with respect to this Agreement and shall not issue any press release to make any
such public statement unless both parties agree to the terms thereof, except as
may be required by applicable law or the requirements of any national securities
exchange to which the Company and Distributor may be subject.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers the day and year first above written.
LUTHER MEDICAL PRODUCTS, INC.
By: ___________________________
Title: President
BOSTON SCIENTIFIC CORPORATION
By: __________________________
Title:
16
<PAGE>
EXHIBITS
--------
A. PICC Product Specifications
B. Patent Rights
C. Bill of Sale
D. Transfer Price
E. Acquired Assets
<PAGE>
EXHIBIT A
---------
PICC KIT SPECIFICATIONS
-----------------------
Rev 04: 9/6/95
Chris Davey/Richard Overton
General:
- -------
The PICC will be manufactured by Luther Medical (Tustin, CA)and covered under
their 510(k) KXXXXXXX. Luther will also purchase the ancillary devices, as
specified below, package, label, and sterilize the kit per BSC specifications.
The product will then be shipped to the BSC distribution center, inspected, and
then stocked for sale.
Catheter:
- --------
HUB SPECIFICATIONS
Material: Tecoflex 85A durometer, clear.
- --------
Dimensional: Refer to Luther dwg Z1068 Rev D.
- -----------
Note: The hub mold is a single cavity, originally with provisions for
insert molding the catheter shaft into the hub. This approach has
been abandoned due to processing problems: the tapered strain relief
tended to become crooked when ejected from the mold. A separate
molded hub is being produced which will be bonded to the catheter
shaft. This hub will incorporate a port in which to UV Bond the
connector tube assembly. The mold will have an exchangeable core pin
to allow the hub to be made for either 4F of 5F single lumen shaft
stock.
CONNECTOR TUBE ASSEMBLY SPECIFICATIONS
Tube Material: Tecoflex 85A durometer, clear (to be UV bonded to hub)
- -------------
Dimensional:
- -----------
Tube ID: .122"
Tube OD: .187"
Connector: Polycarbonate Female luer lock, solvent bonded to tube
Overall Length: 5 cm from proximal edge of hub
SHAFT SPECIFICATIONS
Shaft Material: Tecoflex 85A durometer, white, 5cm marking starting at
- --------------
proximal end
Dimensional:
- -----------------
4F Single lumen ID .034" +/- .002"
OD .052" +/- .002"
Length 60 cm
5F Single lumen ID .046" +/- .002"
OD .066" +/- .002
Length 60 cm
<PAGE>
EXHIBIT A
PICC KIT SPECIFICATIONS
PAGE 2 OF 3
6F Dual lumen ID .028"/.020" +/-.002"
OD .078" +/-.002'
Length 60 Cm
Radiopacifier Loading
- ---------------------
The following three compounds have been ordered:
A 20% by Weight BaSO4* 5% by Volume Density = 1.18 gm/cc
B 30% by Weight BiOCI** 5% by Volume Density = 1.21 gm/cc
C 45% by weight BiOCI*** 10% by Volume Density = 1.67 gm/cc
* Prevalent opacifier loading for PlCCs designed for placement by vascular
surgeons
** PEBAX 7233 with this loading passes biotesting and is routinely used in
angiographic catheters
*** Proposed loading to improve opacity of PlCCs for placement by
radiologists
Market evaluations of the kit will be completed with PICC's incorporating
material A. Biocompatability testing (16w duration) will be performed on
material C. If material C passes biocompatability testing, material B will also
be considered acceptable. Final opacifier loading specification will be
determined after evaluation of mechanical and radiopacity characteristics of
materials B and C.
Guidewire:
- ---------
A guidewire will be included in the PICC Kit which meets the following
specifications:
Type .018" dia mandrel wire
Floppy Tip length 9.5 cm
Material Stainless Steel mandrel/core; platinum coil tip
Length 80 cm
Tip Weld Strength 1 lb min
Markings Every 5 cm starting from proximal end
This wire will be purchased on an OEM basis from Lake Region. It is covered for
vascular use by their 510(K) K871882. This guidewire will be stored in a hoop
measuring no more than 6" in dia.
Obturator: No Longer Required
- ---------
Entry Needle:
- ------------
A Entry Needle will be included in the PICC Kit which meets the following
specifications:
Type 21g single wall, arterial bevel
Length 2.75"
Material Stainless Steel cannula, polymer hub
Cannula Bond Strength: 3 lb min
This needle will be purchased on an OEM basis from Hart Enterprises. It is
covered for vascular use by their 510(K) K843719. This needle will be provided
with a PE protective sleeve to minimize risk of damage to bevel, or damage to
kit package.
<PAGE>
EXHIBIT A
PICC KIT SPECIFICATIONS
PAGE 3 OF 3
Introducer Sheath:
- -----------------
An Introducer Sheath will be included in the PICC Kit which meets the following
specifications:
Type Peel away with locking dilator
Working Length 10 cm
Sheath Size 4F, 5F and 6F (as determined by PICC size)
Dilator length Extend 3 cm beyond the sheath when assembled and locked
Dilator ID Compatible with .018" wire
This Sheath will be purchased on an OEM basis from TFX Medical. It is covered
for vascular use by their 510(K) K840641A.
Y Adaptor/Syringe: No Longer Required
- -----------------
Packaging:
- ---------
All components are to be assembled in a tray, lidded with a tyvek lid, boxed,
and gamma sterilized
. Box Material to be .025 SBA
. Tray Material to be .025 PETG
. Lid Material to be heat seal coated tyvek
<PAGE>
EXHIBIT DIAGRAM OMITTED
<PAGE>
EXHIBIT B
PATENT RIGHTS
-------------
Patent No. Country Filed Issue Date Title
- ---------- ------- ----- ---------- -----
NONE
<PAGE>
EXHIBIT C
BILL OF SALE
------------
THIS BILL OF SALE is made, executed and delivered as of the ____ day
of __________, 1995, by LUTHER MEDICAL PRODUCTS, INC., a California corporation,
having an office located at 14332 Chambers Road, Tustin, California 92680-6912
("Seller") to BOSTON SCIENTIFIC CORPORATION, a Delaware corporation, having its
------
principal office at One Boston Scientific Place, Natick, Massachusetts 01760
("Buyer").
-----
WITNESSETH:
WHEREAS, Seller and Buyer are parties to a Distributorship Agreement dated
June __, 1995 (the "Agreement"), providing for among other things, the
---------
distribution of PICC Products and transfer and sale of the Acquired Assets by
the Seller to the Buyer for consideration in the amount (the "Purchase Price")
-------- -----
and on the terms and conditions provided in the Agreement. Terms defined in the
Agreement and not otherwise defined herein shall have the same meanings as
ascribed to them in the Agreement;
NOW, THEREFORE, in consideration of the payment of the Purchase Price and
of other valuable consideration by Buyer to Seller at or before the execution
and delivery hereof, the Seller by this Bill of Sale does hereby convey, grant,
bargain, sell, transfer, set over, assign, alien, remise, release, deliver and
confirm unto Buyer, its successors and assigns forever, all of Seller's right,
title and interest in and to the Acquired Assets as defined in Section 16.1 of
the Agreement.
TO HAVE AND TO HOLD all of the Acquired Assets unto Buyer, its successors
and assigns, forever.
Seller hereby constitutes and appoints Buyer, its successors and assigns,
Seller's true and lawful attorney and attorneys, with full power of
substitution, in Seller's name and stead, but on behalf and for the benefit of
Buyer, its successors and assigns, to demand and receive any and all of the
Acquired Assets, and to give receipts and releases for and in respect of the
same, and any part thereof, and from time to time to institute and prosecute in
Seller's name, or otherwise, for the benefit of Buyer, its successors and
assigns, any and all proceedings at law, in equity or otherwise, which Buyer,
its successors or assigns, may deem proper for the collection or reduction to
possession of any of the Acquired Assets or for the collection and enforcement
of any claim or right of any kind hereby sold, conveyed, transferred and
assigned, or intended so to be, and to do all acts relating to the Acquired
Assets which Buyer, its successors or assigns shall deem desirable, Seller
hereby declaring that the foregoing powers are coupled with an interest and are
and shall be irrevocable by Seller or by its dissolution or in any manner or for
any reason whatsoever.
Seller hereby covenants that, from time to time after the delivery of this
instrument, at Buyer's request and without further consideration, Seller will
do, execute, acknowledge, and deliver, or will cause to be done, executed,
acknowledged and delivered, all and every such further acts, deeds, conveyances,
transfers, assignments, powers of attorney and assurances as reasonably may be
required more effectively to convey, transfer to and vest in Buyer, and to put
Buyer in possession of, any of the Acquired Assets and, in the case of contracts
and rights, if any, which cannot be effectively transferred to Buyer without the
consent of third parties, to endeavor to obtain such consents promptly and if
any be unobtainable, to use its best efforts to assure to Buyer the benefits
thereof.
<PAGE>
Seller hereby warrants, covenants and agrees that it shall take all steps
necessary to put Buyer, its successors and assigns, in actual peaceful
possession and operating control of the Acquired Assets.
This instrument is executed by, and shall be binding upon, Seller and Buyer
and their respective successors and assigns, for the uses and purposes above set
forth and referred to, effective immediately upon its delivery to Buyer.
This instrument is being executed and delivered in The Commonwealth of
Massachusetts and is intended to be construed and enforced in accordance with
the laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be duly executed
as of the date and year first written above.
ATTEST: LUTHER MEDICAL PRODUCTS, INC.
______________________________ By:______________________________
Name: Name:
Title: Title
<PAGE>
EXHIBIT D - OMITTED
<PAGE>
EXHIBIT E
ACQUIRED ASSETS AND DUAL USE ASSETS
-----------------------------------
1. Single lumen hub mold for all French sizes--Acquired Asset
2. Dual lumen hub mold for all French sizes--Acquired Asset
3. Tray mold--Acquired Asset
4. Two up Tyvek lid cutting tool--Acquired Asset
5. Tray sealing nest--Acquired Asset
6. Printing Plate and printing machine, for catheter marking--Dual Use Asset
7. Sealing machine--sealing nest fits this machine--Dual Use Asset
<PAGE>
Exhibit 23.1
We hereby consent to the use of our name in the Prospectus on Form S-8, File No.
33-48850, and the use of our opinion as an exhibit to said registration
Statement with the amendment of said Registration Statement by the incorporation
of the Annual Report on Form 10-KSB of Luther Medical Products, Inc., for the
fiscal year ended June 30, 1996.
THELEN, MARRIN, JOHNSON & BRIDGES
September 26, 1996
<PAGE>
Exhibit 23.2
September 25, 1996
Luther Medical Products, Inc.
14332 Chambers Road
Tustin, California 92680
Gentlemen:
I hereby consent to the use of my name in the Prospectus on Form S-8, File
No. 33-15612, and the use of my opinion as an exhibit to said Registration
Statement with the amendment of said Registration Statement by the incorporation
of the Annual Report on Form 10-KSB, File No. 0-9570, of Luther Medical
Products, Inc. for the fiscal year ended June 30, 1996.
Respectfully submitted,
Robert L. Pike
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Luther Medical Products, Inc.
We hereby consent to the incorporation by reference in Registration Statements
No. 33-48850 and No. 33-15612 on Form S-8 of our report dated August 8, 1996
appearing in you Annual Report on Form 10-KSB of Luther Medical Products, Inc.
for the years ended June 30, 1996 and 1995.
CORBIN & WERTZ
Irvine, California
September 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUN-30-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,598,141
<SECURITIES> 0
<RECEIVABLES> 824,285
<ALLOWANCES> 0
<INVENTORY> 1,587,322
<CURRENT-ASSETS> 4,081,967
<PP&E> 1,179,818
<DEPRECIATION> 772,615
<TOTAL-ASSETS> 4,620,759
<CURRENT-LIABILITIES> 499,910
<BONDS> 0
0
0
<COMMON> 10,204,002
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,620,759
<SALES> 3,882,950
<TOTAL-REVENUES> 4,022,101
<CGS> 2,393,065
<TOTAL-COSTS> 4,752,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (730,813)
<INCOME-TAX> 800
<INCOME-CONTINUING> (731,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 122,958
<CHANGES> 0
<NET-INCOME> (608,655)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> 0
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