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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, 1998
[_] 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 92780
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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 [_]
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 state ments 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.$5,730,513
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The aggregate market value of registrant's common stock held by non-
affiliates of the registrant is $9,080,361 based upon the average bid and asked
price of the common stock on September 21, 1998.
Number of shares of Common Stock outstanding as of September 21, 1998:
3,219,986 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 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 procedures. The Company estimates
that the current domestic market for PICCs is approximately $38 million and
that the Company is the second or third largest domestic supplier of PICCs.
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 contraindicated.
Midlines provide similar economic advantages as PICCs. The Company estimates
that the current domestic market for Midlines is approximately $9 million and
that the Company is the largest domestic supplier of Midlines.
Peripherally Inserted Long-Term Peripheral Catheters ("Long-Term Peripherals")
Long-Term Peripherals are similar to Midlines, except that they are more
likely to be used for shorter time frames. Long-Term Peripherals are an
alternative to traditional, short, hard IV catheters that must be replaced every
48 to 72 hours. Long-Term Peripherals, which
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can remain in place for more than 30 days, if required, bridge the time gap
between such traditional IV catheters and Midlines.
L-Cath/(TM)/ PICC, Midline, and Long-Term Peripheral Catheter Placement Systems.
The Company's patented peel-away needle catheter placement system 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 withdrawn. Rather than attempting to thread
the needle back over the length of the catheter 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/(TM)/ 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/(TM)/ 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 materials.
OneCath/(R)/ Catheter.
The OneCath/(TM)/ 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 needle stick injuries that could result
in AIDS and other infectious diseases.
L-Cath Catheter for Port Access.
The L-Cath/(TM)/ 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/(TM)/ 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/(TM)/ for Ports catheter will
bend in response to external forces applied to it, or to its connections, e.g.,
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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
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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 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,
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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 (the "Pertrach Tracheostomy Product")
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 by 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 Product has been demonstrated to take 30 seconds or less
to perform.
Implantable Vascular Acess Medical Devices
Effective September 23, 1998, the Company entered into a Distributorship
Agreement and a Technology License Agreement with Biocontrol Technology, Inc.
("BICO"), a Pennsylvania manufacturer and marketer of implantable vascular
access medical devices and related products known as theraPORT/(R)/. In the
first agreement, BICO appointed Luther as a non-exclusive distributor of such
products in the United States. The term of the first agreement is one year,
renewable in one year increments. In the second agreement, BICO granted an
irrevocable, non-exclusive right and license to the Company for it to use all
proprietary and intellectual information and property relating to the thereaPORT
implantable vascular access
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system and product lines, and all information useful in the design, development,
manufacture, marketing, use and sale of such products. The rights granted to the
Company are transferable only in the event of a business combination
transaction.
Marketing and Customers
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The Company's current marketing strategy is to distribute its catheter
products primarily 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.
In March of 1992, the Company entered into an exclusive distribution
agreement with Pharmacia Deltec Inc., now known as Sims Deltec Inc. ("Sims")
for the Company's PICC and Midline products. In 1994 the Company and Sims
agreed to terminate the exclusive nature of the agreement. In March 1994, Sims
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, and for the four-year period
thereafter, Sims 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 will be approximately ten percent of the $150
million annual market that is currently served only by Huber steel needle
manufacturers. The Company believes that its distribution network is properly
positioned to address the implanted port catheter market and to gain market
share for the Company. Many of the Company's distributors also sell Huber
needles.
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 Com-
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pany 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 17 distributors, resulting in more
than 150 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 criteria 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 or part
thereof 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.
In August of 1997, the Company entered into a five-year distribution
agreement with Alaris Medical Systems, Inc. ("Alaris"), for the EEC and certain
other foreign countries. The agreement contains certain termination provisions
that may come into effect in the event that the Company and Alaris are unable to
reach agreement regarding Alaris's performance goals for the second through
fifth years of the agreement. In addition, the agreement may be terminated, and
payment of a termination fee will be required, in the event that the Company is
a party to a business combination transaction, the resulting enterprise of which
chooses to terminate the agreement. If the agreement is terminated either
because of the parties' inability to agree on performance goals or because of
the actions of the Company's successor, Alaris shall retain rights to continue
to distribute such products for a period of up to two years.
Licensed Technology.
In October of 1993, the Company signed a "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 relating to the Company's peel-away needles in research and
development, manufacturing, marketing, and selling peel-away needles used in
connection with epidural and/or spinal anesthesia. Under certain circumstances,
Kendall may lose exclusivity to the rights granted in the agreement. As of the
date of this Annual Report, Kendall has not obtained 510(k) clearance to market
such products.
In March of 1992, the Company entered into an exclusive distribution
agreement with Sims for the Company's PICC and Midline products. Effective
March of 1995, and for the four-year period thereafter, Sims was permitted only
to distribute the Company's neonatal products.
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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, 1998, for catheter production was $575,000. The Company expects that all of
such backlog will be filled within the current fiscal year. As of June 30, 1997,
such backlog orders were approximately $558,000 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. During the 1997 fiscal year, the Company expended
$317 thousand to modify its internal quality assurance and regulatory affairs
system. Of such sum, $49 thousand was included in the Company's cost of
revenues, $262 was included in the Company's general and administrative
expenditures, and six thousand dollars was included in the Company's research
and development expenditures. See Item 6. Management's Discussion and Analysis
or Plan of Operation -- Results of Operations.
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
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intends to market the product. Management believes that the Company's
distributors have obtained all necessary international approvals for products
currently being sold.
Patents
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Patents.
During the fiscal years ended June 30, 1998, 1997, five patent applications
were filed, of which one has been issued, two are in the issuance process, and
two are pending as of the date of this Annual Report. In addition, in respect
of patent applications filed during prior years that had not been granted as of
June 30, 1996, seven were issued during such two-year period, two were in the
issuance process, and three remained pending.
The Company is the assignee of three patents related to the Pertrach
Tracheostomy Product. See "Item 1. Description of Business -- Products --
Pertrach Technology."
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. Subsequently, Gesco was acquired by Bard Access Systems. 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., Abbott Laboratories, Bard Access
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Systems, Baxter Healthcare Corp., B. Braun Medical Inc., Becton-Dickinson
Vascular Access, Johnson & Johnson Medical, Inc. Vascular Access, 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 such larger companies neither offer a range of products
that better suits the needs of the patients nor utilize better 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 primarily through its network of specialty distributors,
as well as through selective licensing arrangements.
Research and Development
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Since the 1987 introduction of stickless technology with PROTECTIV (a
catheter product licensed by the Company to Critikon, Inc., a Johnson & Johnson
company ("Critikon"), the
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Company has concentrated on the development of additional products for its
distribution network, which products include other stickless product designs, as
well as the OneCath catheter, L-Cath for Ports, high flow-rate catheters, dual
lumen products, and closed-end, slit-valve intravenous catheters.
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. 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, 1998, and 1997, the Company expended an
aggregate of approximately $368,000 and $521,000, respectively, on catheter
research and development efforts.
Employees
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The Company employs 55 individuals. The Company's employees are not
covered by any collective bargaining agreement, and management believes its
relationship with its employees is good.
Item 2. Description of Property.
The Company's executive office and manufacturing facility is 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 Company leases
such facility on a month-to-month basis, subject to termination with not less
than six months' written notice by either party.
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, 1998, to a vote of security holders through the solicitation of proxies
or otherwise.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's Common Stock is publicly traded is quoted on the Nasdaq Stock
Market (SmallCap) 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 Nasdaq Stock Market.
<TABLE>
<CAPTION>
Calendar Year Quarter High Low
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<S> <C> <C> <C>
1996 Third Quarter 5.87 3.93
Fourth Quarter 5.25 3.00
1997 First Quarter 4.87 3.00
Second Quarter 4.12 2.87
Third Quarter 3.50 2.31
Fourth Quarter 5.25 2.88
1998 First Quarter 3.88 2.69
Second Quarter 3.00 2.38
</TABLE>
The closing price of the Company's Common Stock as of September 21, 1998,
was $2.88. At September 21, 1998, the Company had approximately 3,000 record
holders of its Common Stock.
The Company did not declare or pay any dividends during either of its
fiscal years ended June 30, 1998, and 1997. 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 through
product sales, licensing revenues, and net proceeds from 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 Johnson & Johnson Medical, Inc. ("JJMI").
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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
additional commercially feasible products will result from such current
development activities.
Historically, the Company focused on research and development, rather than
marketing. 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 Sims 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, Sims was permitted only to
distribute the Company's neonatal products for an additional four years. See
Item 1. Description of Business.
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 17
distributors, resulting in more than 150 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, 1998, Compared To Fiscal Year Ended June 30, 1997.
Total revenues for 1998 increased five percent to $5.7 million from $5.5
million in 1997. Domestic sales revenues for 1998 increased 15% to $5.04
million from $4.39 million in 1997, primarily as a result of increased OEM sales
and the contribution from the "extended dwell peripheral" product line.
International sales revenues for 1998 decreased 37% to $640 thousand from $1.0
million, primarily as a result of reduced sales to the Company's Japanese
distributor. In August of 1998, the Japanese Ministry of Health approved the
modified and improved version of the Company's neonate products for sale in
Japan and the Company recommenced shipment of its products to Japan. Interest
and royalty income decreased 38% to $47 thousand from $76 thousand in 1997,
primarily as a result of a decrease in interest earned on available cash which
was invested in U.S. treasury bills. There were no production costs associated
with any royalty income.
Cost of revenues for 1998 increased to $3.5 million from $3.3 million in
1997. Cost of revenues as a percentage of product sales remained at 61%.
Selling expenses for 1998 decreased 6% to $1.1 million from $1.1 million in
1997. General and administrative expenses for 1998 increased slightly to $1.1
million from $1.0 million in 1997. Research and development expenses for 1998
decreased 29% to $368 thousand from $521 thousand in 1997, as a result of
reduced compensation and project expenses.
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Depreciation and amortization expenses decreased in 1998 to $201 thousand from
$234 thousand in 1997. The Company recorded a provision for minimum income
taxes of $800 for 1998 and 1997. At June 30, 1998, the Company had net
operating loss carryforwards of approximately $4.8 million and $719 thousand
available to offset future taxable federal and state income, respectively. The
carryforwards amounts expire in varying amounts between 2001 and 2013.
Liquidity and Capital Resources
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At June 30, 1998, the Company had working capital of $2.7 million and its
principal sources of liquidity consisted of $411 thousand in cash and cash
equivalents. The Company used cash for operations of $389 thousand during 1998,
mainly as the result of the net loss for the year and an increase in inventories
resulting from higher sales levels. With respect to investing activities, the
Company made purchases of property and equipment totaling $88 thousand.
Financing activities provided $76 thousand, resulting from the collection of a
note receivable from a shareholder and the sale of common stock through the
exercise of options.
The Company has no long-term capital commitments other than an annualized
lease obligation of $164,000, which lease is subject to termination with not
less than six months' written notice by the Company or its lessor.
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. As
of the date of this Annual Report, the Company does not have any credit
facilities in place.
Impact of Year 2000
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Some of the Company's older accounting programs were written using two
digits rather than four digits to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company has completed an
assessment of its internal computer programs and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project cost is estimated at approximately $25,000, which will be capitalized
upon acquisition of the appropriate hardware and software.
Forward-Looking Statements
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Certain statements made above relating to plans, conditions, objectives,
and economic performance go beyond historical information and may provide an
indication of future results. To that extent, they are forward-looking
statements within the meaning of either or both of Section 27A of the Securities
Act of 1933 or Section 21E of the Securities Exchange Act of 1934, and each is
subject to factors that could cause actual results to differ from those in the
forward-looking statements. These forward-looking statements include statements
based on
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<PAGE>
current expectations that involve a number of risks and uncertainties and are
based on assumptions regarding the Company's business and technology. Such
assumptions involve judgments with respect to, among other things, future
scientific, economic, and competitive conditions, and future business decisions,
all of which are difficult or impossible to predict accurately and many of which
are beyond the control of the Company, e.g., (i) future research and
----
development, manufacturing, and marketing plans, expenditures, and potential
results, (ii) potential collaborative arrangements, (iii) the potential utility
of the Company's products and proposed products, and (iv) the potential need
for, and availability of, additional financing. Although the Company believes
that the assumptions underlying the forward-looking statements are reasonable,
such risks and uncertainties may materialize and actual results may vary
materially from those anticipated, estimated or projected.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as representations by the Company or any other person that the
objectives or plans of the Company can, or will, be achieved. In any event,
these forward-looking statements speak only as of their dates, and the Company
undertakes no obligation to update or revise any of them, whether as a result of
new information, future events, or otherwise. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
sections of such Acts.
Item 7. Financial Statements.
See Index to Financial Statements at page 27.
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.
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<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 57 President, Chief Executive 1993
Officer, Chief Financial
Officer, and a Director
George C. Brdlik 44 Vice President of Quality
Assurance and Regulatory Affairs -
Petra Darling 54 Secretary -
Randolf W. Katz 44 Assistant Secretary -
Jack W. Payne 68 Director 1992
D. Ross Hamilton 60 Director 1993
William R. Dahlman 56 Director 1995
William C. Huck 59 Director 1998
</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. 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, he was employed by Telectronics Inc. (or by certain of its
affiliates), a Denver, Colorado, based heart pacemaker manufacturer, in various
positions, including President and Chief Executive Officer.
Mr. Brdlik has served as Vice President of Quality Assurance and Regulatory
Affairs of the Company since January of 1997. From 1994 to 1996, he was
employed as the Regulatory Affairs Manager of the Perfusion Services of Baxter
Healthcare Corporation. From 1985 to 1994, Mr. Brdlik held several positions at
IVAC Corporation, ranging from Senior Quality Engineer to Regulatory/Clinical
Affairs Manager. From 1980 to 1985, he held several positions, including
Biomedical Engineer, at the FDA.
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.
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<PAGE>
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. Mr. Payne was with Baxter International from 1958 until 1977 where he
was employed in various sale 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 through the present, he has served as
President of Hamilton Research, Inc., a Maryland-based financial consulting
firm. Mr. Hamilton is a director of Altris Software, Inc., an electronic
document management software company; from January through July of 1997, he
served as its Chairman of the Board. Since December of 1989 through June of
1997, Mr. Hamilton served as a director of Incstar Corporation, a medical
diagnostics company (52% of which was owned by Fiat S.p.A. until the sale of
the company to American Standard in June of 1997), and between January of 1993
and June of 1996, he served as a director of Belcor. Between 1968 and 1980, Mr.
Hamilton served as a Vice President of Dean Witter Reynolds and, for the six
previous years, an officer of Chemical Bank.
Mr. Dahlman has served as a director of the Company since December of 1995.
From November of 1996 to the present, he has served as the president and chief
executive officer of the Employers Group, a non-profit association providing
human resource support to 5,000 California companies. From 1991 to the present,
Mr. Dahlmann has served as a director, and from 1997 to the present, Mr. Dahlman
has served as the Chairman of the Board, of Palomar Mountain Spring Water
Company, a San Diego, California, a bottled water packaging company, and from
1996 to the present, as a director of California Casualty Insurance Company, a
San Mateo, California, insurance company. From January of 1991 to November of
1996, he 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. Huck has served as a director of the Company since May of 1998. From
1989 to the present, he has served as Chairman of the Board and Chief Executive
Officer of Columbia Vital Systems, Inc. ("Columbia"), a Westmont, Illinois,
company that, until September 1, 1998, was primarily a specialty medical device
distribution company. (See Item 12. Certain Relationships and Related
Transactions.) From 1984 to July 1997, Mr. Huck served as President of Vitalcor,
Inc., an initial importer and U.S. distributor of open heart surgery equipment
and devices. From January of 1990 to July of 1997, Mr. Huck served as President
of Interstat Biomedical, Inc., a specifications developer and distributor of
custom anesthesia kits. In 1997, both entities were merged with and into
Columbia. From October 1997 to the present, Mr. Huck has served as president of
Applied Fiberoptics, Inc., a manufacturer of fiber optic surgical illumination
systems. In May of 1992, Mr. Huck formed the Specialty Medical Marketing
Association and served as the Chairman of the Board until October 1995.
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<PAGE>
Mr. Katz has served as Assistant Secretary of the Company since May of
1998. For more than the past five years, he has been a partner of Arter &
Hadden llp, a national law firm, in its Irvine, California, office.
Committees; Meetings.
The Company has a standing audit committee, the members of which are
Messrs. Hamilton and Huck; a standing compensation committee, the members of
which are Messrs. Payne and Dahlman; and a standing nominating committee, the
members of which are Rollo and Dahlman.
The Company's Board of Directors met a total of eight times during the
fiscal year ended June 30, 1998.
Item 10. Executive Compensation.
Employment Agreements
- ---------------------
David Rollo.
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 January of 1998. Mr. Rollo's annual base compensation
thereunder currently is $157,646, 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 each of December of
1994, 1995, and 1996. The exercise price of the warrants (the average of the
closing bid and asked prices as quoted on the Nasdaq Stock Market (SmallCap) on
December 6, 1993) is $2.94.
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.
George C. Brdlik.
The Company has employed Mr. Brdlik as its Vice President of Quality
Assurance and Regulatory Affairs since January of 1997, pursuant to an
employment agreement that provides for the "at will" employment of Mr. Brdlik,
subject to the occurrence of two specified events. Mr. Brdlik reports directly
to Mr. Rollo, as the Company's president, and his duties emphasize daily review
and analysis of the Company's operations in respect of quality assurance and
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<PAGE>
regulatory affairs compliance in connection with the quality systems
requirements of the FDA and analogous international regulatory agencies.
Mr. Brdlik's annual base compensation currently is $100,000.
Notwithstanding the at-will status of Mr. Brdlik's employment, if the Company
sells all or substantially all of its assets or a change of control of the
Company occurs, the Company may become obligated to pay to him (i) his full base
compensation through the date of termination at the rate in effect at the time
of such termination and (ii) a lump sum equal to 100% of his annual base
compensation at the highest rate in effect during the 12 months immediately
preceding the date of termination.
A "change in control of the Company" means a change in control of a nature
that would be required to be reported in response to Item 5(f) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided, however, that such "person" (as such
term is used in Section 13(d) and 14(d) of the Exchange Act), other than the
Company or any "person" who on the date hereof is a director or officer of the
Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
80% or more of the combined voting power of the Company's then outstanding
securities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------------------------------
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Rollo 1998 $161,071 -- -- -- - 0 - -- --
(President, 1997 $150,000 -- -- -- - 0 - -- --
CEO, and CFO) 1996 $150,000 -- -- -- - 0 - -- --
All executive
officers as a group
(3 persons)/1/ 1998 $331,071 -- -- -- 7,000 -- --
(4 persons) 1997 $380,208 -- -- -- - 0 - -- --
(3 persons) 1996 $326,870 -- -- -- 100,000 -- --
</TABLE>
- -------------------
/1/ Excludes compensation, in the form of salary and severance payments (for an
aggregate of $117,266), paid to one then-current executive officer, who
resigned effective October 31, 1998.
-17-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- ----------------------------------------------------------------------------------------------------
Percent of Total
Options/SARs
Options/ Granted to Market Price
SARs Employees in Exercise or Base on Date Expiration
Name Granted(#) Fiscal Year Price($/Sh) of Grant($/Sh) Date
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David Rollo - 0 - N/A N/A N/A N/A
</TABLE>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($) Unexercisable Unexercisable
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David Rollo -0- -- 150,000 / 0 0 / 0
</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.
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 21, 1998, (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 153,175 (3) 4.55
Jack W. Payne 60,000 (4) 1.83
D. Ross Hamilton 151,500 (5) 4.60
William R. Dahlman 12,000 (6) *
William C. Huck 297,500 (7) 9.24
Ronald B. Luther 257,982 (8) 7.62
All executive officers
and directors as a
group (8 persons) 955,800 (9) 25.85
- --------------
</TABLE>
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<PAGE>
* Represents less than one percent.
(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.
(2) Assumes the exercise of options and warrants to purchase 417,715 shares
held by executive officers and directors of the Company, which options and
warrants are, or will become, exercisable within 60 days of the date of
this Annual Report. Such number does not include shares underlying
warrants previously granted to the Company's directors, which warrants, as
of September 21, 1998, are, or will become, exercisable within 60 days of
the date of this Annual Report, but which will become immediately
exercisable upon the closing of a business combination transaction in which
the Company is not the survivor. During the Company's fiscal year ended
June 30, 1998, the Company cancelled an aggregate of 9,000 of such then-
unvested warrants and reduced the exercise prices of the remaining 45,000
warrants from $4.81 to $2.22.
(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
150,000 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 warrants to purchase 5,000 shares at an exercise price of $2.50
per share, expiring on January 21, 1999; warrants to purchase 25,000 shares
at an exercise price of $2.75 per share, expiring on January 23,
1999; warrants to purchase 9,000 shares at an exercise price of $2.55 per
share, expiring on January 27, 2000; warrants to purchase 9,000 shares at
an exercise price of $3.85 per share, expiring on December 8, 2000;
warrants to purchase 6,000 shares at an exercise price of $4.81 per share,
expiring on December 8, 2001; and warrants to purchase 6,000 shares at an
exercise price of $4.81 per share, expiring on December 8, 2002. Mr.
Payne's address is 4515 S. Meadow Drive, Boulder, Colorado 80301.
(5) Includes 7,500 shares beneficially owned by Mr. Hamilton and 74,000 shares
owned by a partnership, of which Mr. Hamilton and two unaffiliated third
parties each own 33.3%; warrants to purchase 5,000 shares at an exercise
price of $2.50 per share, expiring on January 21, 1999; warrants to
purchase 35,000 shares at an exercise price of $2.75 per share, expiring on
January 23, 1999; warrants to purchase 9,000 shares at an exercise price of
$2.55 per share, expiring on January 27, 2000; warrants to purchase 9,000
shares at an exercise price of $3.85 per share, expiring on December 8,
2000; warrants to purchase 6,000 shares at an exercise price of $4.81 per
share, expiring on December 8, 2001; and warrants to purchase 6,000 shares
at an exercise price of $4.81 per share, expiring on December 8, 2002. Mr.
Hamilton's address is 9440 Gregory Road, Easton, Maryland 21601.
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<PAGE>
(6) Includes warrants to purchase 6,000 shares at an exercise price of $4.81
per share, expiring on December 8, 2001; and warrants to purchase 6,000
shares at an exercise price of $4.81 per share, expiring on December 8,
2002. Mr. Dahlman's address is 215 N. Marengo Avenue, Pasadena, California
91101.
(7) Includes 297,500 shares beneficially owned by Mr. Huck. Mr. Huck's address
is C/O Columbia Vital Systems, Inc., 100 E. Chestnut Avenue, Westmont,
Illinois 60559.
(8) Includes 88,074 shares beneficially owned by Mr. Luther, 5,622 shares owned
by Mr. Luther's spouse, as to which shares Mr. Luther disclaims beneficial
ownership, 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 80,000 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 80,000 warrants are
exercisable as of, or within 60 days of, the record date. Mr. Luther's
address is 530 Kings Road, Newport Beach, California 92663.
(9) Includes all shares, options, and warrants described in notes (3) through
(7), inclusive, above; 2,214 shares beneficially owned by an executive
officer who is not a director, plus options to purchase 2,143 shares at an
exercise price of $3.25 per share, expiring on April 22, 1999; options to
purchase 2,000 shares at an exercise price of $2.82 per share, expiring on
July 22, 1999; options to purchase 9,286 shares at an exercise price of
$3.19 per share, expiring on January 27, 2000; options to purchase 5,800
shares at an exercise price of $4.56 per share, expiring on July 26, 2001;
options to purchase 1,200 shares at an exercise price of $3.06 per share,
expiring on August 15, 2003; and as granted to another executive officer
who is not a director, options to purchase 1,000 shares at an exercise
price of $3.06 per share, expiring on August 15, 2003.
Item 12. Certain Relationships and Related Transactions.
As of June 30, 1998, the spouse of a then-current officer of the Company
was indebted to the Company in the aggregate amount of $49,979. Such
indebtedness was incurred in connection with the exercise of options previously
granted to such individual. Such obligation was extinguished through the
return by such individual of 16,643 shares of the Company's common stock that
had served as security for such obligation. In addition, during the 1998 fiscal
year, the maximum aggregate obligation to the Company of such then-current
officer and a then-current director of the Company was $235,409, which was
repaid to the Company during such year.
During the Company's fiscal year ended June 30, 1998, the Company sold
approximately $565,000 of its products to Columbia in the ordinary course of
their respective businesses. Such sales represented less than ten percent of the
Company's overall sales and 11.2% of its domestic sales and, management of the
Company believes, less than four percent of Columbia's purchases of products
from all of its sources. Mr. Huck, one of the Company's directors, serves as
Chairman of the Board and Chief Executive Officer of Columbia, which,
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<PAGE>
effective September 1, 1998, disposed of its specialty medical device
distribution (Midwest) division, which division had purchased and resold the
Company's products.
During the Company's fiscal year ended June 30, 1998, Arter & Hadden LLP
provided certain legal services to the Company. Such services totaled less than
$60,000. Mr. Katz, the assistant secretary of the Company, is a partner in
Arter & Hadden LLP.
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.
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<PAGE>
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.
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, filed as Exhibit 10.4a to the to
the Registrant's Annual Report on Form 10-KSB for the Fiscal Year
Ended June 30, 1996, (the "1996 10-KSB") and is incorporated herein by
reference.
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 Johnson & Johnson
Medical, Inc., 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.
10.7a* Amendment to Lease, dated April 23, 1998, to Lease dated December
9, 1992, among the Registrant, as Lessee, and the "Survivors Trust"
under the Beecher Family Trust and the "Exemption Trust" under the
Beecher Family Trust, as lessors, as to facilities located at 14332
Chambers Road, Tustin, California.
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<PAGE>
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.
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.
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<PAGE>
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, filed as Exhibit 10.15B to the to the 1996 10-KSB and is
incorporated herein by reference.
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.
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.
-24-
<PAGE>
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.
10.30a Employment Agreement, dated September 25, 1995, between the
Registrant and Ronald B. Luther, filed as Exhibit 10.30a to the to the
1996 10-KSB and is incorporated herein by reference.
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.
10.31b* Employment Agreement, dated January 29, 1998, between the
Registrant and David Rollo.
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., filed as Exhibit 10.34a to the 1996 10-KSB
and is incorporated herein by reference.
10.35 Intentionally omitted.
10.36 Standard Proposal, dated November 9, 1995, between the Registrant
and Mid Atlantic Group Network of Shared Services, Inc., filed as
Exhibit 10.36 to the 1996 10-KSB and is incorporated herein by
reference.
-25-
<PAGE>
10.37 National Contract, dated July 1, 1996, between the Registrant and
Teamcare, the institutional pharmacy subsidiary of GranCare, Inc.,
filed as Exhibit 10.37 to the 1996 10-KSB and is incorporated herein
by reference.
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., filed as Exhibit
10.38 to the 1996 10-KSB and is incorporated herein by reference.
10.39 Distributorship Agreement, dated September 21, 1995, between the
Registrant and Boston Scientific Corporation., filed as Exhibit 10.39
to the 1996 10-KSB and is incorporated herein by reference.
10.40 Employment Agreement, dated December 2, 1996, between the Registrant
and George Brdlik.
10.40a Amendment No. 1, dated July 16, 1997, to Employment Agreement,
dated December 2, 1996, between the Registrant and George Brdlik.
10.41 Distribution Agreement, dated August 11, 1997, between the
Registrant and ALARIS Medical Systems, Inc.
10.42* Distribution Agreement, dated September 23, 1998, between the
Registrant and Biocontrol Technology, Inc.
10.43* Technology License Agreement, dated September 23, 1998, between the
Registrant and Biocontrol Technology, Inc.
23.1* Consent of Arter & Hadden LLP.
23.2* Consent of Ernst & Young LLP.
27.1* Financial Data Schedule.
(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.
-26-
<PAGE>
Luther Medical Products, Inc.
Financial Statements
Years ended June 30, 1998 and 1997
CONTENTS
Report of Independent Auditors.................................................1
Financial Statements
Balance Sheet..................................................................2
Statements of Operations.......................................................3
Statements of Stockholders' Equity.............................................4
Statements of Cash Flows.......................................................5
Notes to Financial Statements..................................................6
-27-
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Board of Directors of
Luther Medical Products, Inc.
We have audited the accompanying balance sheet of Luther Medical Products, Inc.
as of June 30, 1998, and the related statements of operations, stockholders'
equity and cash flows for each of the two years ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Luther Medical Products, Inc.
as of June 30, 1998 and the results of its operations and its cash flows for the
two years then ended in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Irvine, California
August 14, 1998
1
<PAGE>
Luther Medical Products, Inc.
Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 410,645
Accounts receivable, less allowance for doubtful accounts of $16,772 795,824
Inventories 2,089,066
Prepaid expenses and other assets 24,737
-----------
Total current assets 3,320,272
Property and equipment:
Production equipment 990,579
Office equipment 215,475
Leasehold improvements 123,748
Automobiles 4,706
-----------
1,334,508
Less accumulated depreciation and amortization (1,074,959)
-----------
Property and equipment, net 259,549
Intangible assets, net 56,070
Deposits 10,199
-----------
$ 3,646,090
===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 359,130
Accrued payroll and related expenses 176,453
Other accrued liabilities 46,053
-----------
Total current liabilities 581,636
Stockholders' equity:
Preferred stock - no stated par value; 10,000,000 shares authorized;
none issued
Common stock - no stated par value; 25,000,000 shares authorized;
3,236,629 shares issued and outstanding 10,377,947
Common stock purchase warrants 50,000
Note receivable from stockholder (49,979)
Accumulated deficit (7,313,514)
-----------
Net stockholders' equity 3,064,454
-----------
$ 3,646,090
===========
</TABLE>
See accompanying notes to Financial Statements.
2
<PAGE>
Luther Medical Products, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Year ended June 30
1998 1997
-----------------------------
Revenues:
<S> <C> <C>
Product sales $5,683,711 $5,400,907
Royalties 11,164 16,488
Interest income and other 35,638 59,174
-----------------------------
Total revenues 5,730,513 5,476,569
Costs and expenses:
Costs of revenues 3,483,126 3,273,322
Research and development 368,151 520,834
General and administrative 1,082,892 1,017,995
Selling 1,094,964 1,159,886
Depreciation and amortization 200,915 233,758
-----------------------------
Total costs and expenses 6,230,048 6,205,795
Loss before taxes (499,535) (729,226)
Income tax expense 800 800
-----------------------------
Net loss $ (500,335) $ (730,026)
=============================
Basic and diluted loss per share $ (.15) $ (.23)
=============================
</TABLE>
See accompanying notes to Financial Statements.
3
<PAGE>
Luther Medical Products, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Common Stock Notes
------------------------ Purchase Receivable - Accumulated
Shares Amount Warrants Stockholders Deficit Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 3,173,100 $10,154,002 $50,000 $ - $(6,083,153) $4,120,849
Common stock issued for
cash 12,543 45,976 - - - 45,976
Common stock issued for
notes receivable 77,143 287,500 - (287,500) - -
Collection of notes
receivable from
stockholder - - - 52,091 - 52,091
Net loss (730,026) (730,026)
-----------------------------------------------------------------------------------------
Balance at June 30, 1997 3,262,786 10,487,478 50,000 (235,409) (6,813,179) 3,488,890
Common stock issued for
cash 7,200 27,990 - - - 27,990
Common stock issued for
notes receivable 16,643 49,979 - (49,979) - -
Collection of notes
receivable from
stockholder - - - 47,909 - 47,909
Common stock redeemed
and retired upon
cancellation of note (50,000) (187,500) - 187,500 - -
receivable
Net loss - - - - (500,335) (500,335)
-----------------------------------------------------------------------------------------
Balance at June 30, 1998 3,236,629 $10,377,947 $50,000 $ (49,979) $(7,313,514) $3,064,454
=========================================================================================
</TABLE>
See accompanying notes to Financial Statements.
4
<PAGE>
Luther Medical Products, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
1998 1997
------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(500,335) $ (730,026)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 167,255 202,098
Amortization 33,660 31,660
Changes in operating assets and liabilities:
Accounts receivable 29,540 (1,079)
Inventories (245,641) (256,103)
Prepaid expenses and other assets 34,840 12,642
Accounts payable 67,570 (38,987)
Other accrued liabilities 23,684 29,459
------------------------
Net cash used in operations (389,427) (750,336)
Cash flows from investing activities
Purchases of property and equipment (87,801) (133,898)
------------------------
Net cash used in investing activities (87,801) (133,898)
Cash flows from financing activities
Issuance of common stock 27,990 45,976
Collection of notes receivable from stockholder 47,909 52,091
------------------------
Net cash provided by financing activities 75,899 98,067
------------------------
Net decrease in cash and cash equivalents (401,329) (786,167)
Cash and cash equivalents, beginning of year 811,974 1,598,141
------------------------
Cash and cash equivalents, end of year $ 410,645 $ 811,974
========================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ - $ -
========================
Income taxes $ 800 $ 800
========================
</TABLE>
See accompanying notes to Financial Statements.
5
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements
June 30, 1998
1. Summary of Significant Accounting Policies
Description of Business
Luther Medical Products, Inc. (the Company) was organized in 1980 to design,
development, manufacture and sale of catheter placement systems. 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 89% and 81% of product sales during 1998 and 1997,
respectively, were domestic. The Company considers its business to be in the
medical devices industry.
Use of Estimates
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.
Revenue Recognition
Revenues on product sales are recognized at the time of shipment. Royalty fees
are recognized as earned.
Certain Concentrations
The Company provides credit in the normal course of business to customers
throughout the United States and foreign markets. During 1998, two customers
accounted for approximately 9% and 8%, respectively, of total product sales, and
during 1997 two customers accounted for approximately 12% and 9%, respectively,
of total product sales. At June 30, 1998, two customers accounted for
approximately 18% and 9%, 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
provides for potential credit losses based upon the Company's historical
experience related to credit losses.
6
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Certain Concentrations (continued)
During 1998, two of the Company's vendors accounted for approximately 37% and
12%, respectively, of material and supply purchases, and during 1997, two
vendors accounted for approximately 26% and 9% of the Company's material and
supply purchases. At June 30, 1998, two vendors accounted for approximately 32%
and 7%, 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.
Fair Value of Financial Instruments
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 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, 1998.
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 holds Certificates of Deposit
totaling $300,000 which are considered to be cash equivalents at June 30, 1998.
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".
The Company has no investments which qualify for such treatment under SFAS 115
at June 30, 1998.
7
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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.
Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amount of those assets. No impairment losses were recorded in 1998
or 1997.
Advertising
The Company expenses all advertising as incurred. Advertising expense was
$39,558 and $28,801 in 1998 and 1997, respectively.
Income Taxes
The Company provides for income taxes under the liability method. Accordingly,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and the tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the period in which the differences are expected to
affect taxable income. Valuation
8
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Income Taxes (continued)
allowances are established when necessary to reduce deferred tax assets to
amounts which are more likely than not to be realized. The provision for income
taxes represents the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
Per Share Amounts
In 1997, the FASB issued Statement No. 128, Earnings Per Share, which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is similar to fully diluted earnings per share.
Loss per share for June 30, 1998 and 1997 is calculated based on Statement of
Financial Accounting Standards No. 128. The following table sets forth the
computation of loss per share for the years ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------------------------
Numerator:
<S> <C> <C>
Net loss $ (500,335) $ (730,026)
============================
Denominator for basic and diluted loss per share
Weighted-average shares outstanding 3,238,655 3,206,615
============================
Basic and diluted loss per share $ (.15) $ (.23)
============================
</TABLE>
Stock-Based Compensation
The Company grants options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. The
Company accounts for stock option grants in accordance with APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25") and, accordingly,
recognizes no compensation expense for the stock option grants. However, the
Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-based Compensation ("SFAS No.
123").
9
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
2. Inventories
Inventories at June 30, 1998 consist of the following:
<TABLE>
<S> <C>
Raw materials $ 660,919
Work in process 583,379
Finished goods 844,768
----------
$2,089,066
==========
</TABLE>
3. Intangible Assets
Intangible assets consist of the following at June 30, 1998 and are being
amortized using the straight-line method over three and five years for license
and manufacturing rights, respectively:
<TABLE>
<S> <C>
Licensing rights $ 65,000
Manufacturing rights 60,000
---------
125,000
Less accumulated amortization (68,930)
---------
$ 56,070
=========
</TABLE>
4. Income Taxes
The provision from income taxes for 1998 and 1997 consists of minimum state
taxes.
Differences between the Company's income tax expense and an amount computed by
using the federal statutory rate of 34 percent are as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
Income tax benefit at statutory rate $(170,100) $(247,900)
Change in valuation allowance for deferred tax assets 148,300 201,400
Nondeductible expenses 22,100 46,800
State taxes, net of federal benefit 500 500
-----------------------
$ 800 $ 800
=======================
</TABLE>
10
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
4. Income Taxes (continued)
Significant components of the Company's deferred tax assets for June 30, 1998
are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Asset valuation reserves $ 33,100
Accruals 23,300
Depreciation methods 93,500
Net operating loss carryforwards 1,683,700
Research tax credit carryforwards 92,200
Alternative minimum tax credit carryforwards 50,400
-----------
Total gross deferred tax assets 1,976,200
Less valuation allowance (1,976,200)
-----------
Net deferred tax assets $ -
===========
</TABLE>
At June 30, 1998 the Company had net operating loss carryforwards of
approximately $4,755,400 and $719,000 available to offset future taxable Federal
and state taxable income, respectively. The carryforward amounts expire in
varying amounts between 2001 and 2013. The Company also has research and
development credits of $92,000 which begin to expire in 2001.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal and state 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.
5. Stockholders' Equity
Stock Compensation Plans
The Company has various stock-based compensation plans, which are described
below. The Company applies the provisions of APB No. 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized upon granting of options under its fixed stock
option and warrant plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the
11
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Stock Compensation Plans (continued)
method prescribed by SFAS No. 123, the Company's net loss and loss per share
would have been increased to the pro forma amounts indicated below. The
provisions of SFAS No. 123 have been applied to awards with grant dates in 1996,
1997 and 1998 only. Therefore, until the new rules are applied to all
outstanding, nonvested awards, the compensation cost reflected in the pro forma
amounts presented below is not indicative of future amounts.
<TABLE>
<CAPTION>
1998 1997
----------------------------
Net loss:
<S> <C> <C>
As reported $(500,335) $(730,026)
Pro forma $(625,578) $(924,500)
Net loss per share:
As reported $ (.15) $ (.23)
Pro forma $ (.19) $ (.29)
</TABLE>
Stock Option Plans
The Company has various fixed stock option plans that provide for the granting
of incentive or non-statutory options to its key employees, non-employee members
of the Board of Directors, consultants and independent contractors. In the case
of incentive stock options, the exercise price may not be less than the fair
market value of the Company's stock on the date of the grant, and may not be
less than 110% of the fair market value of the Company's stock on the date of
the grant for any individual possessing 10% or more of the voting power of all
classes of stock of the Company. The options are generally exercisable
immediately upon grant and expire not later than 10 years from the date of
grant. Approximately 779,000 shares of common stock are reserved for future
issuance upon exercise of fixed options.
For purposes of pro forma disclosure, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 1998 and 1997,
respectively: risk-free interest rate of 6% and 6.5%; dividend yield of 0% and
0%; volatility of 58% and 47%; and a weighted average expected life of the
option of 4 years and 4 years.
12
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Stock Option Plans (continued)
A Summary of the status of the Company's fixed stock option plans as of June 30,
1998 and 1997, and the activity during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997
--------------------------- -------------------------
Weighted- Weighted-
average average
exercise exercise
Number of price per Number of price per
shares share shares share
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 207,528 $3.44 162,057 $3.07
Granted 48,600 3.06 58,300 4.56
Exercised (23,843) 3.27 (5,400) 3.32
Expired (72,428) 3.43 (7,429) 4.15
--------- --------
Outstanding - end of year 159,857 3.35 207,528 3.44
========= ========
Exercisable at end of year 71,329 3.20 98,462 3.30
========= ========
Weighted-average fair value of
options granted during the year $1.34 $2.02
</TABLE>
Options outstanding at June 30, 1998 have exercise prices ranging from $2.63 to
$4.56 and a weighted average remaining contractual life of 2.1 years.
Stock Warrant Plans
The Company has 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 warrants to purchase 30,000 shares of the Company's common
stock at fair market value as of the date of grant. The warrants vest, ratably
over a five year period
13
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
5. Stockholders' Equity (continued)
Stock Warrant Plans (continued)
commencing one year following the date of grant and ending upon cessation of the
grantee's services as a director of the Company. In the event of a sale of the
Company while the grantee is a director, the warrants immediately vest and
become exercisable.
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, 1998:
<TABLE>
<CAPTION>
1998 1997
--------------------------- -------------------------
Weighted- Weighted-
average average
exercise exercise
Number of price per Number of price per
shares share shares share
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 758,671 $3.38 965,457 $3.63
Granted 30,000 2.75 - -
Exercised - - (84,286) 3.74
Expired (105,285) 3.78 (122,500) 5.13
--------- ---------
Outstanding - end of year 683,386 3.29 758,671 3.38
========= =========
Exercisable at end of year 559,386 3.23 558,672 3.12
========= =========
Weighted-average fair value of
warrants granted during the year $1.53 $ -
</TABLE>
Warrants outstanding at June 30, 1998 have exercise prices ranging from $2.50 to
$4.81 and a weighted average remaining contractual life of 2.6 years.
6. Profit Sharing Plan
The Company has a 401(k) profit sharing plan covering 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 may make qualified non-elective
contributions to employees not classified as highly compensated. Additionally,
the Company may 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 did not
make contributions to the plan in 1998 and 1997.
14
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
7. Commitments and Contingencies
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 was fixed for the first two years of the
Distributorship Agreement and subject to revision thereafter by either party in
accordance with the terms of said agreement. The distributorship may become non-
exclusive in certain circumstances. The Distributorship Agreement is effective
through September 2000, at which time it may be renewed for an additional three
years unless sooner terminated. The Distributor Agreement also 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 in September 1998
or upon certain events.
During August 1994, the Company entered into an exclusive five-year distribution
agreement for the sale of intra-vascular catheters in certain western U.S.
states. The agreement provides certain termination privileges for the Company
and for the distributor. The Company's sales to this distributor represented 8%
and 9% of total product sales for 1998 and 1997, respectively.
Effective August 11, 1997, the Company entered into a distribution agreement
(Distribution Agreement), with an unrelated company (Distributor), thereby
appointing the Distributor as the Company's semi-exclusive distributor for
peripherally inserted central and midline catheters and related products and
accessories in the countries of the European Economic Union (EU), Australia,
Norway, Switzerland, Kuwait, Bahrain, Saudi Arabia, United Arab Emirates (UAE),
Yemen and Oman. The agreement is effective through August 2002.
15
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
7. 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 requires the payment of certain royalties based on amounts derived
from the application of the then-relevant royalty percentage to the "gross sales
price" for all products utilizing the patented technology. The royalty
percentages are as follows:
<TABLE>
<CAPTION>
Period Percentage
- -------------------------------------------------------------------------------
<S> <C>
March 1996 through February 1997 15%
March 1997 through expiration of patents (ranging from December
1999 through December 2007) 10%
</TABLE>
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 the
patents and shall cease upon the death of the former owner. Royalty expense
relating to this agreement amounted to $33,985 and $18,322 in 1998 and 1997,
respectively.
The purchase price for the assignment of the patents was $60,000 which is
included in intangible assets at June 30,1998.
Operating Lease
The Company leases its corporate and manufacturing facility on a month to month
basis, subject to termination with not less than six months written notice by
either party. Rent expense was $147,704 and $144,408 in fiscal year 1998 and
1997, respectively.
16
<PAGE>
Luther Medical Products, Inc.
Notes to Financial Statements (continued)
7. Commitments and Contingencies (continued)
Year 2000 (unaudited)
Many existing computer systems and applications, and other control devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming changes in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major aspects
of its business, including financial systems (such as general ledger, accounts
payable and payroll modules), customer services, infrastructure, networks and
telecommunications equipment and end products. The Company also relies, directly
and indirectly, on external systems of business enterprises such as customers,
suppliers, creditors, financial organizations, and governmental entities, both
domestic and international, for accurate exchange of data. The Company's current
estimate is that the costs associated with the year 2000 issue, and the
consequences of incomplete or untimely resolution of the year 2000 issue, will
not have a material adverse effect on the results of operations or financial
position of the Company in any given year. However, despite the Company's
efforts to address the year 2000 impact on its internal systems, the Company has
not fully identified such impact or whether it can resolve it without disruption
of its business and without incurring significant expense. In addition, even if
the internal systems of the Company are not materially affected by the year 2000
issue, the Company could be affected through disruption in the operation of the
enterprises with which the Company interacts.
17
<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 25, 1998 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 25, 1998
- -------------------------- President, Chief Executive
David Rollo Officer, Principal Financial
Officer, Principal Accounting
Officer, and a Director
/s/ JACK PAYNE Director September 25, 1998
- --------------------------
Jack Payne
/s/ D. ROSS HAMILTON Director September 25, 1998
- --------------------------
D. Ross Hamilton
/s/ WILLIAM R. DAHLMAN Director September 25, 1998
- --------------------------
William R. Dahlman
/s/ WILLIAM C. HUCK Director September 25, 1998
- --------------------------
William C. Huck
28
<PAGE>
INDEX TO EXHIBITS
Page
10.7a Amendment to Lease, dated April 23, 1998, to Lease dated
December 9, 1992, among the Registrant, as Lessee, and the
"Survivors Trust" under the Beecher Family Trust and the
"Exemption Trust" under the Beecher Family Trust, as lessors,
as to facilities located at 14332 Chambers Road, Tustin,
California.
10.31b Employment Agreement, dated January 29, 1998, between the
Registrant and David Rollo.
10.42 Distribution Agreement, dated September 23, 1998, between
the Registrant and Biocontrol Technology, Inc.
10.43 Technology License Agreement, dated September 23, 1998,
between the Registrant and Biocontrol Technology, Inc.
23.1 Consent of Arter & Hadden LLP.
23.2 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.7a
AMENDMENT TO LEASE
The Standard Industrial/Commercial Single-Tenant Lease - Net dated
December 9, 1992 between The Beecher Family Trust, Charles A. Beecher, Jr.,
Trustee, and Betty Jean Beecher, Trustee as Lessor and Luther Medical Products,
a California corporation, as Lessee (the "Lease") is hereby amended as set forth
below.
1. Section 1.1 of the Lease is amended to reflect the following:
Lessor's interest in the property and Lease was transferred by Quitclaim
Deed dated May 16, 1997 to Charles A. Beecher, Jr. and First American
Trust Company as Trustees of the "Survivor's Trust" under The Beecher
Family Trust restated November 18, 1991, as to an undivided one-half (1/2)
interest; and to Charles A. Beecher, Jr. and First American Trust Company
as Trustees of the "Exemption Trust" under The Beecher Family Trust
restated November 18, 1991, as to an undivided one-half (1/2) interest, as
tenants in common (collectively the "Trusts"). All references to Lessor
shall be deemed references to the Trusts.
2. The initial Lease term expires on April 30, 1998 and Lessee has requested
that Lessor extend the term and modify Lessee's extension rights to allow
Lessee to extend the Lease term for less than five (5) years. Lessor has
agreed to extend the term to June 30, 1998 and to modify Lessee's rights
to extend on the terms set forth herein.
3. Section 1.3 of the Lease is amended to reflect the following:
The Lease term is hereby extended beginning July 1, 1998. The initial
extended term shall be for a period of one (1) month and shall continue to
be extended thereafter on a monthly basis, subject to not less than six
(6) months written notice of termination of the Lease by either party
delivered to the other party (herein, "notice of termination").
4. Section 1.5 of the Lease is amended to reflect the following:
The base rent beginning May 1, 1998, and, until changed thereafter in the
manner set forth herein below, shall be fixed at $13,650.00 per month.
At any time, commencing on or after July 1, 1998, either part may request
a revision of the amount of the basic rent (herein, "request for
revision"). The parties shall then negotiate, in good faith, the
prospective, revised basic rental rate. If an agreement in writing is
reached in respect of such revised basic rental rate within ninety (90)
days of such request for revision, then such revised basic rental rate
shall become effective
<PAGE>
six (6) months following the date of such agreement. If an agreement,
however, is not reached with respect to such revised basic rental rate
within ninety (90) days of such request for revision, then the Lessee's
right to occupy the Premises shall cease six (6) months following the
earlier of any outstanding notice of termination of the Lease (e.g., if
such notice is given before the request for basic rental adjustment but
before the expiration of the ninety (90) day period for negotiation of
rent) or such ninetieth (90th) day after receipt of the request for
revision of the basic rental rate. No request for revision in the basic
rental rate need be acted upon if made after either party has given the
other party a notice of termination of the Lease under amended paragraph
1.3 above.
5. Paragraphs 50 and 51 of the Lease, "Right of First Refusal to Purchase" and
"Option to Extend Term" are hereby deleted.
6. Any notices to be given to Lessor shall be addressed as follows:
"Charles A. Beecher, Jr., Trustee
First American Trust Company, Trustee
2161 San Joaquin Hills Road
Newport Beach, CA 92660"
7. Except as set forth above, the Lease shall remain in full force and effect.
This Amendment to Lease is executed on the dates set forth below and shall
become effective as of the last date set forth below.
LESSOR:
Charles A. Beecher, Jr. and First American Trust Company as Trustees of the
"Survivor's Trust" under The Beecher Family Trust restated November 18, 1991
By: First American Trust Company, Trustee
By: /s/ S.L. ROSS Date: 4/23/98
----------------------------- -------------
By: /s/ CHARLES A. BEECHER, JR. Date: 4-23-98
----------------------------- -------------
Charles A. Beecher, Jr., Trustee
-2-
<PAGE>
Charles A. Beecher, Jr. and First American Trust Company as Trustees of the
"Exemption Trust" under The Beecher Family Trust restated November 18, 1991
By: First American Trust Company, Trustee
By: /s/ S. L. Ross Date: 4-23-98
--------------------------------- -------
By: /s/ CHARLES A. BEECHER JR. Date: 4-23-98
---------------------------------- -------
Charles A. Beecher, Jr., Trustee
LESSEE:
Luther Medical Products, Inc.
By: /s/ D. ROLLO Date: 4/17/98
-------------------------------------- -------
Its President
-3-
<PAGE>
EXHIBIT 10.31b
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 29th day of January, 1998, between Luther Medical
Products, Inc., a California corporation (the "Company"), and DAVID ROLLO (the
"Executive").
WHEREAS, the Board of Directors (the "Board") of the Company desires that
the Executive remain as President and Chief Executive Officer of the Company;
and
WHEREAS, the Executive desires to continue to serve the Company on the
terms herein provided, which terms expressly supersede the terms of the
Employment Agreement, dated May 31, 1995, between the Company and the Executive;
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 employ the Executive and the
----------
Executive hereby agrees to serve the Company, on the terms and conditions set
forth herein for an unspecified period of time. Notwithstanding any other
provision of this Agreement, and unless this Agreement has been terminated in
accordance with the provisions of Sections 6 and 7, below, (in which event the
provisions of Section 8, below, shall control), either the Company or the
Executive may, at any time, advise the other party, in writing, of its or his
decision to terminate the employment relationship set forth herein by providing
to the other party a written notice thereof in the manner specified in Section
10, below. Upon such occurrence, the employment relationship shall terminate
12 months following the date on which such notice, pursuant to the provisions of
Section 10, shall be deemed to have been given.
2. Position; Duties; Place of Performance. The Executive shall serve as
--------------------------------------
the President and Chief Executive Officer of the Company, reporting only to the
Board, and shall have supervision and control over, and responsibility for, the
general management and operation
-1-
<PAGE>
of the Company, and shall have such other powers and duties as may from time to
time be prescribed by the Board, provided that such duties are consistent with
the Executive's position as the senior executive officer in charge of, among
other items, the general management of the Company. During the term of this
Agreement, the Executive shall devote substantially all his working time and
efforts to the business and affairs of the Company.
The Company shall not, without the written consent of the Executive,
relocate or transfer the facilities at which the Executive performs his duties
for the Company to a location outside of the geographic boundaries of the
County of Orange, State of California. Any such alternative facilities, whether
within or without such geographical boundaries shall be no less suited for the
performance of the Executive's duties hereunder than the current principal
executive offices of the Company.
The Executive's performance under this Agreement may be excused and the
Executive may terminate this Agreement without recourse if (i) the Executive's
duties hereunder are altered such that they are no longer consistent with the
Executive's position and duties (as set forth above) or (ii) the Company
relocates or transfers its facilities in a manner or to a location at variance
with the terms of the Agreement set forth in the preceding paragraph.
3. Compensation and Related Matters.
--------------------------------
(a) Base Salary. During each year that this Agreement is effective, the
-----------
Company shall pay to the Executive an annual base salary ("Base Salary") of not
less than $150,000, all payable in substantially equal semi-monthly
installments; provided, however, that the Base Salary (including the initial
Base Salary) shall be subject to cost of living increases in the manner
hereinafter set forth. The Base Salary shall be adjusted annually to reflect
the increase, if any, in the cost of living by adding to the initial or then-
current Base Salary, as relevant, an amount obtained by multiplying the then-
current Base Salary by a percentage increase in the
-2-
<PAGE>
level of the Consumer Price Index for the LA-Long Beach, Anaheim Metropolitan
Area (the "CPI"), as reported by the Bureau of Labor Statistics of the United
States Department of Labor, as follows:
(i) for the Agreement period of December 6, 1995, through December
5, 1996, the percentage increase in the level of the CPI between November
of 1994 and November of 1995;
(ii) for the Agreement period of December 6, 1996, through December
5, 1997, the percentage increase in the level of the CPI between November
of 1995 and November of 1996;
(iii) for the Agreement period of December 6, 1997, through December
5, 1998, the percentage increase in the level of the CPI between November
of 1996 and November of 1997; and
(iv) for the Agreement period commencing December 6, 1998, and for
each subsequent anniversary of such date, the Base Salary shall be adjusted
using the same principles set forth above.
Any increase in Base Salary not resulting from any such cost of living
adjustments or other compensation granted by the Compensation Committee of the
Board (the "Compensation Committee") shall in no way limit or reduce any other
obligation of the Company hereunder and, once established at an increased
specified rate, the Executive's Base Salary hereunder
-3-
<PAGE>
shall not thereafter be reduced. The Compensation Committee shall review the
Base Salary annually and shall cause the Base Salary and other compensation to
be increased, if appropriate, in relation to the Executive's performance and
progress of the Company.
(b) Warrants. During the term of this Agreement, the Board may, but shall
--------
not be required to, grant to the Executive warrants to purchase shares of the
Company's common stock, no par value per share. Such grants, if any, shall be
appropriate in relation to the Executive's performance and progress of the
Company.
(c) Bonus Payments. In addition to Base Salary, the Executive shall be
--------------
entitled to receive bonus payments as the Compensation Committee may determine
in accordance with the Company's past practice, if any, pursuant to the
Company's bonus plan, if, when, and as adopted and as the same thereafter may be
amended or modified from time to time (the "Plan"); provided, however, that such
bonus payments, if any, shall be appropriate in relation to the Executive's
performance and progress of the Company.
(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 the Company's senior executive officers) in
performing services hereunder, provided that the Executive properly accounts
therefor in accordance with Company policy.
(e) Vacations. The Executive shall be entitled to the number of paid
---------
vacation days in each Company fiscal year determined by the Compensation
Committee from time to time for its senior executive officers, but not less than
three weeks in any Company fiscal year (prorated 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
-4-
<PAGE>
concludes June 30. The Executive shall also be entitled to all paid holidays
given by the Company to its senior executive officers.
4. Offices. During the term of this Agreement, the Board shall cause the
-------
Executive to be nominated, and the Company shall use its best efforts to cause
the Executive to be elected, to the Board; provided, that the Executive shall
not have provided written notice of his intention to the contrary. The
Executive agrees to serve as a director of the Company and each of its
subsidiaries, whether now owned or acquired during the term of this Agreement,
and in one or more executive offices of each of such subsidiaries, provided he
is indemnified for serving in any and all such capacities on a basis no less
favorable than is currently provided by the Company's Articles or By-laws.
5. Unauthorized Disclosure.
-----------------------
(a) During the period of his employment hereunder, the Executive shall not,
without the written consent of the Board or a person authorized thereby,
disclose to any person, other than an employee of the Company or a person to
whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as a senior executive officer of the
Company, any material confidential information obtained by him while in the
employ of the Company with respect to any of the Company's products,
improvements, formulas, designs or styles, processes, customers, methods of
distribution, or methods of manufacture, the disclosure of which he knows will
be materially damaging to the Company; provided, however, that confidential
information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Executive) or any
information of a type not otherwise considered confidential by persons engaged
in the same business or a business similar to that conducted by the Company.
For the period
-5-
<PAGE>
ending two years following the termination of employment hereunder, the
Executive shall not disclose any confidential information of the type described
above.
(b) The foregoing provisions of this Section 5 shall be binding upon the
Executive's heirs, successors, and legal representatives.
6. Termination. The Executive's employment hereunder may be terminated
-----------
without any breach of this Agreement only under 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 on a full-time basis, the Company may terminate the Executive's
employment hereunder.
(c) Cause. The Company may terminate the Executive's employment hereunder
-----
for Cause. For purposes of this Agreement, the Company shall have "Cause" to
terminate the Executive's employment hereunder upon (i) the willful and
continued failure by the Executive substantially to perform his duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness) after demand for substantial performance has been
delivered by the Board specifically identifying the manner in which the Board
believes the Executive has not substantially performed his duties, or (ii) the
willful engaging by the Executive in misconduct that is materially injurious to
the Company, monetarily or otherwise, or (iii) the willful violation by the
Executive of the provisions of Section 5 hereof, provided that such violation
results in material injury to the Company. For purposes of this paragraph, no
act, or failure to act, on the Executive's part shall be considered "willful"
unless
-6-
<PAGE>
done, or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution, duly adopted by the affirmative vote of not
less than majority of the entire membership of the Board of a meeting of the
Board called and held for such purpose (after reasonable notice to the Executive
and an opportunity for him, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Executive was
guilty of conduct set forth above in clause (i), (ii), or (iii) of the second
sentence of this subparagraph, and specifying the particulars thereof in
detail.
(d) Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder if (i) the Company sells all or substantially all of its
assets, (ii) a "Change of Control of the Company" shall occur, or (iii) if his
health should become impaired to an extent that makes the continued performance
of his duties hereunder hazardous to his physical or mental health or his life;
provided, however, that the Executive shall have furnished the Company with a
written statement from a qualified doctor to such effect; and provided, further,
that, at the Company's request and expense, the Executive shall submit to an
examination by a doctor selected by the Company and such doctor shall have
concurred in the conclusion of the Executive's doctor.
For purposes of this Agreement, a "change in control of the Company" shall
mean 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
-7-
<PAGE>
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.
7. Notice of Termination; Date of Termination. Any termination of the
------------------------------------------
Executive's employment by the Company or by the Executive (other than
termination pursuant to Subsection 6(c), above) shall be communicated by
written Notice of Termination to the other party hereto (which Notice of
Termination shall be delivered in conjunction with the resolution referenced in
Subsection 6(c) for a termination pursuant to Subsection 6(c), above). 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 set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
"Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death; (ii) if the Executive's
employment is terminated pursuant to Subsection 6(b), above, 30 days after
Notice of Termination is given (provided that the Executive shall not have
returned to the performance of his duties on a full-time basis during such 30-
day period); (iii) if the Executive's employment is terminated pursuant to
Subsection 6(c), above, the date specified in the Notice of Termination; and
(iv) if the Executive's employment is terminated for any other reason, the date
on which a Notice of Termination is given; provided, that if within 30 days
after any Notice of Termination is given, the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding and final arbitration award, or
-8-
<PAGE>
by a final judgment order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
8. Compensation Upon Termination or During 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
as a lump sum death benefit, his full Base Salary to the date of his death in
addition to any payments the Executive's spouse, beneficiaries, or estate may
be entitled to receive pursuant to any pension or employee benefit plan or life
insurance policy then maintained by the Company, 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 incapacity 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 pursuant to
Subsection 6(b) hereof, or until the Executive terminates his employment
pursuant to Subsection 6(d)(iii) hereof, whichever first occurs. After
termination, the Executive shall be paid 50% of his Base Salary, at the rate in
effect at the time Notice of Termination is given, for the one-year period
thereafter.
(c) If the Executive's employment shall be terminated for Cause, the
Company shall pay the Executive through the Date of Termination his full Base
Salary, at the rate in effect at the time Notice of Termination is given, and
the Company shall have no further obligations to the Executive under this
Agreement.
(d) If the Company shall terminate the Executive's employment for any
reason other than pursuant to Subsections 6(a), 6(b), or 6(c) hereof (it being
understood that a purported termination pursuant to Subsection 6(b) or 6(c)
hereof that is disputed and finally
-9-
<PAGE>
determined not to have been proper shall be a termination by the Company in
breach of this Agreement), or if, within 90 days of the occurrence of an event
specified in Subsection 6(d)(i) or 6(d)(ii) hereof, the Executive terminates his
employment hereunder, or, if within such 90-day time period, the Company, or any
successor-in-interest thereof, shall terminate the Executive's employment
hereunder for any reason, then the Company shall pay the Executive, through the
Date of Termination, his full Base Salary at the rate in effect at the time
Notice of Termination is given and in lieu of any further Base Salary payments
to the Executive for periods subsequent to the Date of Termination, the Company
shall pay as severance pay to the Executive on the fifth day following the Date
of Termination, a lump sum amount equal to 100% of the annual Base Salary at the
highest rate in effect during the 12 months immediately preceding the Date of
Termination.
9. 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, by agreement in form and substance
satisfactory to the Executive, 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. 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 8(d), 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 hereinbefore defined and any
successor to its business and/or assets as aforesaid that executes and
-10-
<PAGE>
delivers the agreement provided for in this Section 9 or that otherwise becomes
bound by all the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's devisee, legatee, or
other designee or, if there be no such designee, to the Executive's estate.
10. 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:
David Rollo
25700 Nellie Gail Road
Laguna Hills, California 92653
If to the Company:
Luther Medical Products, Inc.
14332 Chambers Road
Tustin, California 92780
Attention: Corporate Secretary
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.
11. Miscellaneous. 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 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 representa-
-11-
<PAGE>
tions, 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.
12. 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.
13. 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.
14. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
Orange County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, that the Company
shall be entitled to seek a restraining order or injunction in any court of
competent jurisdiction to prevent any continuance of any violation of Section 5
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
LUTHER MEDICAL PRODUCTS, INC.
/s/ DAVID ROLLO By: /s/ WILLIAM DAHLMAN
_______________________________ _______________________________
DAVID ROLLO William Dahlman
Member, Board of Directors
By: /s/ MARK ISSACS
_______________________________
Mark Isaacs
Member, Board of Directors
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EXHIBIT 10.42
DISTRIBUTORSHIP AGREEMENT
-------------------------
THIS DISTRIBUTORSHIP AGREEMENT (the "Agreement") is entered into as of this
23rd day of September, 1998, by and between Biocontrol Technology, Inc., a
Pennsylvania corporation with principal offices at 300 Indian Springs Road,
Indiana, Pennsylvania 15701 ("BICO"); and Luther Medical Products, Inc., a
California corporation with principal offices at 14322 Chambers Road, Tustin,
California 92780 ("Luther").
R E C I T A L S
---------------
1. BICO is engaged in the manufacture and sale of implantable vascular
access medical devices and related products known as BICO's theraPORT/(R)/
product line as more fully described in Exhibit A hereto.
---------
2. BICO desires to enter into a non-exclusive distribution agreement with
Luther for BICO's theraPORT/(R)/ products in the United States.
3. Luther desires to undertake the marketing, distribution and sales of
BICO's theraPORT/(R)/ products on the terms and conditions contained herein.
4. The parties previously executed a Proprietary Information Agreement
(the "Information Agreement") in anticipation of the execution of this Agreement
and a Technology License Agreement (the "License Agreement"). The parties agree
that any provisions of the Information Agreement that conflict with the
provisions hereof or of the License Agreement shall be terminated hereby.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
BICO'S THERAPORT/(R)/ PRODUCT LINE
1.1 Products. The products subject to this Agreement shall be BICO's
entire theraPORT/(R)/ line of implantable vascular access medical devices
manufactured by and sold by BICO (hereinafter the "Products"). Exhibit "A"
hereto sets forth descriptions and model numbers for the Products. If necessary
during the term of this Agreement, Exhibit "A" will be amended from time to time
to reflect new Products that will be made available to Luther pursuant to
Section 2.4 hereunder.
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ARTICLE II
APPOINTMENT AS DISTRIBUTOR AND GRANT OF NON-EXCLUSIVE RIGHTS
2.1 Appointment. BICO hereby appoints Luther as a non-exclusive
distributor of the Products during the Term (as hereinafter defined) in the
United States.
2.2 Acceptance. Luther hereby accepts such non-exclusive distributorship,
and shall use such efforts as it deems commercially reasonable during the term
of this Agreement to promote and to sell the Products on the terms and
conditions contained herein. In connection with its distribution activities,
Luther shall undertake such commercially appropriate activities which, in its
sole judgment, it deems advisable and proper for the promotion and sale of the
Products.
2.3 Non-Exclusive Rights; Mutual Cooperation. Although it is understood
that Luther shall take a role in the sale, marketing, and distribution of the
Products, Luther shall have non-exclusive rights to do so. For purposes of this
Agreement "non-exclusive" means BICO may continue its own efforts to sell,
market, and cooperate with Luther in distributing the Products throughout the
Territory. BICO may also enter into additional third-party distributor
agreements in respect of the Products.
2.4 Additions to theraPORT/(R)/ Product Line. Prior to the time BICO
proposes to introduce any additions to the theraPORT/(R)/ product line, BICO
will give Luther ninety (90) days prior written notice to allow Luther to decide
whether to distribute said product in the Territory. If Luther agrees to
distribute said product, Exhibit "A" shall be amended and said product shall be
a Product hereunder and subject to all of the terms and conditions of this
Agreement.
2.5 Termination of Information Agreement. The parties agree that their
respective rights, duties, and obligations hereunder and under the License
Agreement shall supersede any rights, duties, and obligations granted or
undertaken pursuant to the Information Agreement. Any provisions of the
Information Agreement that conflict with the provisions hereof or of the License
Agreement are hereby terminated.
ARTICLE III
INDEPENDENT CONTRACTOR
3.1 Independent Contractor; No Agency Relationship. Luther shall perform
its duties as an independent contractor and not as an agent of BICO for any
purpose whatsoever. Luther shall not have any right or authority to assume or
to create any obligation or responsibility, express or implied, on behalf of or
in the name of BICO, or to bind BICO in any manner.
3.2 Tradenames. Luther shall have the right to market and sell the
Products in the Territory under one or more trade names of its choice,
including, but not limited to such trade names as may be the common law property
of, or registered to, BICO; however, Luther shall not use any trade name which
could cause any third party to confuse Luther with BICO except to
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designate the Products purchased under the terms of this Agreement. Nothing
contained in this Article, however, shall be construed to forbid Luther from
holding itself out as BICO's authorized distributor of the Products within the
Territory.
ARTICLE IV
PRODUCT FLOW
4.1 Availability. BICO shall make the Products available to Luther at all
times during this Agreement. Luther shall not be obligated to purchase any
Products or any specific quantity of Products; however, during the initial term
of this Agreement, BICO shall make available to Luther no fewer than 350 Units.
(A "Unit" means one count of any of the Products.) All orders placed by Luther
shall be on purchase orders or like forms established by mutual agreement. All
sales to Luther shall be subject to this Agreement. Any provision that is
inconsistent with the provisions of this Agreement, or that shall impose any
greater burden upon Luther than the obligations assumed by Luther hereunder,
shall be of no effect whatsoever unless expressly accepted by Luther in a
writing that specifically refers to the inconsistency or added burden.
4.2 Orders; Confirmation. Luther shall place orders in minimum quantities
of fifty (50) Units. Purchase orders shall be confirmed by facsimile by BICO,
within two (2) business days of receipt of the order from Luther. Any
quantities ordered, which make up the first 350 units ordered during the life of
this Agreement, shall be delivered within seven (7) days of receipt of the order
from Luther. In the event that Luther orders more than 350 units and BICO
accepts such orders, then the deliveries, for such units in excess of 350 units,
shall be agreed between the parties at the time of placement of such orders.
ARTICLE V
PACKING AND DELIVERY
5.1 Packing. Products to be supplied to Luther shall be packed by BICO in
protective packages suitable for export and including a protective outer
covering for the carton itself.
5.2 Delivery. All accepted orders placed by Luther shall be filled
according to the purchase orders of Luther, as confirmed by BICO. Products will
be delivered to the overnight express carrier designated in the shipping or
routing instructions received from Luther. In the absence of such instructions,
shipping shall be arranged through an overnight express delivery common carrier,
which, on the basis of its past dealings with Luther, BICO has reasonable
grounds to believe is acceptable to Luther. BICO shall arrange for all shipping
F.O.B. Indiana, Pennsylvania.
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ARTICLE VI
QUALITY AND WARRANTIES; COMPLAINTS AND NOTICE
6.1 Standards. BICO warrants that the Products shall be inspected by it
and pass the quality standards established by BICO and such governmental
agencies that generally regulate the Products. Such standards, at a minimum,
shall conform to all performance specifications and the design and physical
characteristics set forth in BICO's printed specifications and literature for
said Products as of the date of this Agreement. BICO shall have the right to
make changes in the Products without the prior written consent of Luther only if
such changes, a) do not adversely affect the operation or performance
characteristics of the Products, or b) do not affect the appearance, size or
shape of the Products.
6.2 Defects Due to Workmanship. Luther shall inspect the Products
purchased from BICO within a commercially reasonable time following receipt. If
Luther finds any damaged or patently defective Products or any loss or damage
arising directly or indirectly from any defect, nonconformity of or defective
workmanship in the Products supplied, Luther shall notify BICO of such fact in
detail within 15 business days. Luther's sole remedy in respect of any Products
damaged during shipment, or patently defective Products, discovered within such
15-day period is limited to receiving replacement units or cash, credit or
refund, and to reimbursement for all out of pocket costs incurred thereto.
6.3 Product Liability and Warranty. BICO is solely responsible for the
integrity of all the Products and all product liability arising from use by
third-party customers or end-users. BICO warrants that the Products supplied
hereunder are merchantable, fit for the particular purpose designed, and free
from all defects in workmanship and material.
6.4 Notice of Defects; Complaints. In the event that Luther, or any third
party customer or enduser, claims that any Product supplied under this Agreement
is defective, Luther shall give prompt written notice to BICO providing detailed
information establishing the nature and extent of the claimed defect. In
addition to notifying Luther and the customer or end-user of whether BICO has
liability for the claim or defect, BICO shall inform Luther within five business
days of its receipt of such notice whether BICO at its option, shall (i) replace
the Product at its expense; or (ii) refund the purchase price therefor to Luther
plus the costs set forth in Section 6.5 below. In the event that BICO does not
elect the replacement or refund remedy herein within 5 business days after
written notice from Luther of the defect, then Luther may notify BICO of its
election of the replacement or refund remedies provided for in this section.
6.5 Costs. In addition to bearing the cost of any product liability or
end user replacement or refund remedy described in Section 6.4 above, BICO shall
reimburse Luther (after receipt of Luther's invoice) for all costs incurred by
Luther in connection with the inspection, handling and storage of Products with
established defects.
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ARTICLE VII
PRICE AND PAYMENT
7.1 Price. The purchase price for each of the 350 Units of product that
BICO shall make available hereunder shall be USD $120.00 for Models 1001 and
1601 and shall be USD $135.00 for Models 1002 and 1602. The price shall
represent the price of the Products FOB factory. The purchase price for each
Unit in excess of such 350 Units and for units of any future models will be
subject to good faith negotiations between the parties.
7.2 Payment. The purchase price of the Products shall be paid by Luther
to BICO by company check or other good cash funds, dispatched by first class
U.S. Mail within 30 calendar days of receipt of BICO's invoice at the principal
offices of Luther.
ARTICLE VIII
AVAILABLE INVENTORY; POST-TERMINATION SALES
8.1 During the term of this Agreement, BICO shall maintain and make
available to Luther an aggregate of no fewer than 350 Units of the Products.
Luther shall have the right to sell its excess inventory at any time, including
after termination of this Agreement.
ARTICLE IX
MARKETING AND INDEMNITY
9.1 Credit Risk. Luther shall assume the credit risk arising out of all
sales of the Products to its customers. Luther shall have sole responsibility
for setting the selling price to its customers.
9.2 Luther's Responsibility and Indemnity. Luther shall be responsible
for all loss or damage arising from the acts or omissions of Luther or any of
its employees, sales personnel, agents, or other representatives in connection
with the rendering of distribution services by Luther, as well as all claims for
damage to property of or injury or death of any persons directly or indirectly
resulting from its distribution services. Luther shall indemnify and hold BICO
harmless against and from any and all claims, losses, and damages, including
reasonable attorneys' fees, resulting from the acts or omissions of Luther, its
agents or employees, in relation to Luther's distribution services.
9.3 BICO's Responsibility and Indemnity. BICO shall be responsible for
all loss or damage arising from or relating to the fitness of the Products, the
acts or omissions of its employees in connection with the design, development,
regulatory status, manufacturing, quality control, or quality assurance of the
Products, and all claims for damage to property of or injury or death of any
persons therefrom. BICO shall indemnify and hold Luther harmless against and
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from any and all claims, loss, and damages, including attorneys' fees, resulting
from the acts or omissions of BICO, its agents and employees, in relation to the
Products.
9.4 Luther's Marketing Efforts. Luther shall use such efforts as it deems
commercially reasonable during the term of this Agreement to market and sell the
Products in the Territory.
9.5 Luther's Marketing Expenses. Luther shall be solely responsible for
its own expenses incurred in connection with the promotion, marketing, and sale
of the Products, including, without limitation, the wages, salaries, and
expenses of its employees, agents, and representatives and all other expenses
directly related to its promotion, marketing, and sale of the Products for its
benefit.
9.6 Luther's Rights and Customer Representations. The rights granted to
Luther hereunder are limited to the marketing and sale of the Products within
the Territory only. Luther shall not make any representations or give any
warranties or other benefits in favor of any proposed purchaser or customer
beyond those authorized by this Agreement, or those specifically approved in
writing by BICO.
9.7 BICO's Intellectual Property. During the term of this Agreement
(except as allowed by the parties' Technology Transfer and License Agreement of
even date herewith), Luther shall not make use of any of BICO's proprietary or
confidential information, trade secrets, or know-how, directly or indirectly, to
engage in manufacturing, assembling, promoting, or selling any goods,
merchandise, equipment, or devices that are the same or similar to, or that
perform the same or similar functions as, the Products. Luther shall not be
prevented from marketing and selling products that are competitive with the
Products.
ARTICLE X
TRADEMARKS
10.1 BICO's Trademarks. If Luther uses the trademarks listed in Exhibit
"B" hereto or such trademarks as may be designated from time to time by BICO
(the "Trademarks"), in advertising, marketing, or in any other manner
whatsoever, such use shall conform to the style and logo-types set forth
therein. Luther acknowledges that the Trademarks are the exclusive property of
BICO and can be lawfully employed only in connection with the advertising,
marketing, or selling of the Products or otherwise with the express written
consent of BICO. Luther shall not contest or dispute the validity thereof for
any purpose whatsoever.
10.2 Registration; Assignment. Luther shall not register, nor seek or
cause the registration of, the Trademarks, or any form thereof, nor oppose,
object, or in any other way interfere, directly or indirectly, with the
registration or use of the Trademarks by BICO, for any product or service in any
country, state, or other political entity whatsoever whether during the term of
this Agreement or thereafter. Any rights in the Trademarks acquired by Luther
anywhere in the world by reason of the use or registration of the Trademarks
shall inure to the benefit of BICO
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and shall, without any further consideration, be promptly assigned to BICO by
Luther at BICO's request.
10.3 Usage. If so requested by BICO at any time during the term of this
Agreement, whenever Luther shall use the Trademark in advertising, marketing, or
in any other manner whatsoever permitted by this Agreement, Luther shall clearly
and explicitly indicate BICO's ownership of the Trademarks, and the rights
thereto, in the manner as may hereafter from time to time be specified by
written notice from BICO to Luther. Upon request of BICO, Luther shall provide
BICO with accurate samples of all literature, packages, labels, and other
labeling forms, devices, or materials prepared by Luther for use in connection
with Luther's sale or other distribution of the Products. Luther's use of the
Trademarks as permitted by this Agreement shall comply with all laws pertaining
to trademarks in force at any time in the county or state where the Trademarks
shall be used.
10.4 Title. Luther is not granted any right, title, or interest in or to
the Trademarks or their respective registrations, except as expressly provided
herein, and Luther shall not use the Trademarks in any way whatsoever except in
accordance with this Agreement.
ARTICLE XI
TERM AND TERMINATION
11.1 Term. The initial term of this Agreement shall be one year from the
date hereof. It shall be renewable thereafter for successive oneyear periods,
unless sooner canceled or terminated as otherwise provided herein (the "Term").
Either party may terminate this Agreement after the first anniversary hereof by
giving notice in accordance with Article XIV hereof at least 60 calendar days
prior to any such expiration date.
11.2 Termination Events. Any of the following events shall be deemed a
material breach of this Agreement:
(i) Any statement, report, certification, representation, or warranty
hereunder is materially false;
(ii) Any indebtedness of Luther to BICO not paid when due;
(iii) Either party fails in some material respect to perform any of
its respective obligations, undertakings, or agreements hereunder;
(iv) Either party is adjudicated bankrupt, becomes insolvent, executes
any assignment for the benefit of creditors, or a receiver or trustee is
appointed for any of its property under any bankruptcy or insolvency law
(provided that the appointment of any such receiver or trustee is not dismissed
within 30 days from the date of such appointment);
(v) Either party fails within 20 days to pay or otherwise discharge
any one or more judgments or attachments against it, unless such judgment is
being appealed in good faith;
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(vi) Either party for any reason suspends the operation of its
business or if Luther ceases marketing, promoting, or selling the Products, in
each case for a period in excess of 30 consecutive calendar days.
11.3 Breach. If either party commits a material breach of this Agreement
or violates or defaults in the due observance or performance of any obligation
or provision, and if such default or violation is not corrected within 30
calendar days after being called to the attention of the defaulting party by
notice from the other party hereto, then the notifying party, at its option, may
terminate this Agreement by notice given pursuant to Article XIV.
11.4 Carry-Over. In the event of termination, this Agreement shall remain
applicable to any orders for the Products which Luther has submitted in
accordance with this Agreement and which BICO has accepted prior to the
effective date of termination.
11.5 Return of Materials. On termination of this Agreement, Luther shall,
with the exception of actions required to sell all inventory of Products,
immediately cease to use the Trademarks, and shall immediately return to BICO
all stationery, advertising, and other printed material containing the
Trademarks in its possession or under its control.
11.6 Remedies Cumulative. The right of termination shall not be exclusive
of any other remedies or means of redress to which either party may be lawfully
entitled.
ARTICLE XII
PATENT INDEMNITY
12.1 Indemnity. BICO will, subject to the conditions set forth in this
Article, defend and indemnify Luther against any final award or damages awarded
in a suit, proceeding, or claim brought by a third party claiming that the sale
or other use of the Products supplied hereunder constitutes an infringement of
one or more of the patent rights of such third party, together with the actual
justifiable costs and expenses incurred by Luther in connection with such a
claim. This indemnity is conditional upon Luther giving BICO prompt written
notice of the commencement or threat of such suit, proceeding, or claim of
infringement by such third party, full authority, at the option of BICO, either
to settle or to defend such claim, suit, or proceeding and full assistance and
cooperation in case BICO decides to defend such a claim, suit or proceeding.
12.2 Expenses. It is understood that no cost or expense will be incurred
by Luther in connection with such a claim, suit, or proceeding for the account
of BICO without the prior written consent of BICO. However, in the event that
Luther is named as a party in such suit or proceeding and BICO has not settled,
is not actively engaged in settlement discussions with respect to such suit or
proceeding, and has not engaged with due diligence in the defense of such suit
or proceeding, Luther shall have the right to defend such suit or proceeding and
may incur expense in connection therewith. Any costs spent by Luther for such
defense shall be considered actual justifiable costs and shall be reimbursed by
BICO to the extent not recovered from the third party that brought such suit or
proceeding.
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12.3 Other Damages. BICO will be liable for any collateral, incidental,
or consequential damages suffered by Luther or by any other person due to
Products having been held to constitute infringement of third parties' patent
rights.
ARTICLE XIII
CONFIDENTIALITY
13.1 Each party undertakes to use its best efforts to ensure that any and
all information regarding the Products, and all designs, manufacturing
processes, know-how, marketing and sales plans, projections and similar matters
thereto, now or in the future used by the other party, and any information
regarding the business or business prospects of the other party and its
customers obtained by such party or its employees, shall be kept strictly
confidential, shall not be disclosed to third parties, and shall not be used by
either party (except as allowed by the parties' Technology Transfer and License
Agreement of even date herewith) for any purpose whatsoever other than that
party's performance under this Agreement without the express written permission
of the other party.
ARTICLE XIV
NOTICES
14.1 All notices hereunder shall be in writing and shall be deemed
received and effective five calendar days after being sent by registered or
certified mail, postage prepaid, return receipt requested, or one calendar day
after being sent by an overnight courier, fees prepaid or by confirmed facsimile
transmission. All notices, requests, or demands shall be sent to the following
addresses:
To BICO:
Biocontrol Technology, Inc.
300 Indian Springs Road
Indiana, Pennsylvania 15701
Facsimile: (724) 349-8610
Attention: President
To Luther:
Luther Medical Products, Inc.
14322 Chambers Road
Tustin, California 92780-6912
facsimile: (714) 544-7273
Attention: Mr. David Rollo
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Either party shall notify the other of any change of address or facsimile
number, in the manner set forth in this Article.
ARTICLE XV
DISPUTE RESOLUTION
15.1 Arbitration. Any dispute between the parties regarding the terms
and conditions of this Agreement or the interpretation or enforcement thereof
(the "Arbitration Proceeding") shall be determined by binding arbitration before
the American Arbitration Association in accordance with its rules for commercial
arbitration.
15.2 Venue. If BICO commences an Arbitration Proceeding, it shall be
held at the offices of the American Arbitration Association in Orange County,
California. If Luther commences an Arbitration Proceeding, it shall be held at
the offices of the American Arbitration Association in Pittsburgh, Pennsylvania.
15.3 Governing Law. If BICO commences an Arbitration Proceeding, this
Agreement shall be governed by the laws of the State of California. If Luther
commences an Arbitration Proceeding, this Agreement shall be governed by the
laws of the State of Pennsylvania.
ARTICLE XVI
MISCELLANEOUS
16.1 Written Amendment. This Agreement may only be modified or amended in
writing and signed by the parties hereto or their duly authorized
representatives or agents.
16.2 Waiver. No claim or right arising out of a breach of this Agreement
may be discharged in whole or in part by a waiver or renunciation of the claim
or right unless the waiver or renunciation is supported by consideration and is
in writing signed by the aggrieved party.
16.3 Assignment. No right or interest in this Agreement shall be assigned
by either party without the written consent of the other, and no delegation of
any material duty or material obligation, or of the performance of any material
duty or material obligation, owed by either party shall be made without the
written permission of the other. This prohibition against such assignment,
delegation, or performance shall not apply in the event of a business
combination transaction involving Luther or the sale of all, or substantially
all, of its assets.
16.4 Successors. This Agreement and all of its provisions and obligations
shall be binding upon and inure to the benefit of the parties and their heirs,
successors, and assigns.
16.5 Complete Agreement. This writing is intended by the parties to be a
final expression of their agreement and is intended also as a complete and
exclusive statement of the terms of their agreement. No course of prior
dealings between the parties and no usage of the trade shall be relevant to
supplement or explain any term used in this Agreement. Acceptance or
acquiescence
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in a course of performance rendered under this Agreement shall not be relevant
to determine the meaning of this Agreement even if the accepting or acquiescing
party has knowledge of the nature of the performance and opportunity for
objection.
16.6 Severability. If any provision or provisions herein are held to be
invalid, illegal, or unenforceable by a body of competent jurisdiction, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
16.7 Force Majeure. If the performance of this Agreement or of any
obligation hereunder, except the making of payments, is prevented, restricted,
or interfered with by reason of fire or other casualty or accident, strikes or
labor disputes, inability to procure power or supplies, war or other violence,
any law, order proclamation, regulation, ordinance, demand or requirement of any
governmental agency, or any other act or condition whatsoever beyond the
reasonable control of a party hereto, the party so affected, upon giving prompt
notice to the other party, shall be excused from such performance to the extent
of such prevention, restriction or interference provided that such party shall
use its best efforts to avoid or remove such causes for nonperformance and shall
continue performance hereunder with the utmost dispatch as and when such causes
have been removed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BIOCONTROL TECHNOLOGY, INC. LUTHER MEDICAL PRODUCTS, INC.
By: /s/ David L. Purdy By: /s/ David Rollo
----------------------------- ----------------------------
Name (Print): David L. Purdy David Rollo, President
-------------------
By: /s/ Nancy J. Saxman By: /s/ George C. Brdlik
----------------------------- ----------------------------
Name (Print): Nancy J. Saxman Name (Print): George C. Brdlik
----------------- ------------------
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BICO-LUTHER
DISTRIBUTORSHIP AGREEMENT
Exhibit A
---------
Product shall mean BICO's theraPORT/(R)/ implantable vascular access system
products, including model number(s) 1001, 1002, 1601, and 1602., and any future
models under the same product line, to the extent that such products exist, on
the date of execution of this Agreement., or are otherwise added hereto by
mutual agreement.
Unit shall mean one count of any theraPORT/(R)/ model number 1001, 1002,
1601, 1602, or future model added to this Exhibit A.
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BICO-LUTHER
DISTRIBUTORSHIP AGREEMENT
Exhibit B
---------
BICO's Trademarks
-----------------
1. theraPORT/(R)/
2.
3.
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EXHIBIT 10.43
TECHNOLOGY LICENSE AGREEMENT
----------------------------
THIS TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is entered into as
of this 23rd day of September, 1998, by and between Biocontrol Technology, Inc.,
a Pennsylvania corporation with principal offices at 300 Indian Springs Road,
Indiana, Pennsylvania 15701 ("BICO"), and Luther Medical Products, Inc., a
California corporation with principal offices at 14322 Chambers Road, Tustin,
California 92780 ("Luther").
R E C I T A L S:
- - - - - - - -
1. BICO owns technology in the field of implantable vascular access
medical devices as more fully set forth in Exhibit "A" hereof (the
-----------
"Technology").
2. BICO has certain know how, background data, manufacturing, quality
assurance and regulatory documents and approvals, techniques, records,
expertise, protocols, devices and other confidential information which may be
useful in the design, development, manufacture, marketing, use and sale of
products utilizing the Technology as more fully set forth in Exhibit "B" hereof
-----------
(the "Know-How").
3. Luther desires to use under license the Technology and the
Know-How, and to develop the Technology for its own use in the manufacture and
marketing of medical devices.
4. It is the intention of the parties hereto to allow Luther to gain
rapid entry into the market for implantable vascular access medical devices by
making a clone of BICO's theraPORT/(R)/ implantable vascular access system and
lines of products thereto, including model number(s) 1001, 1002, 1011, 1012,
1601, and 1602.
5. Luther desires for BICO to use its best efforts to ensure that
Luther is capable of an early market entry into the field of implantable
vascular access medical devices and BICO has so agreed to use its best efforts
in that regard.
6. BICO has agreed to assist Luther's efforts to enter into the field
of implantable vascular access medical devices by providing Luther with full and
free access to all of BICO's design, manufacturing, quality assurance, and
regulatory affairs documents that exist at September 23, 1998, relating solely
to the technology described in Exhibit A.
7. The parties previously executed a Proprietary Information
Agreement (the "Information Agreement") in anticipation of the execution of this
Agreement and a Distributorship Agreement (the "Distribution Agreement"). The
parties agree that any provisions of the Information Agreement that conflict
with the provisions hereof or of the Distribution Agreement shall be terminated
hereby.
8. BICO desires to grant to Luther an irrevocable, non-exclusive
license to use the Technology and the Know-How and Luther desires to obtain use
of the Technology and Know-How from BICO for a one-time cash consideration.
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NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
GRANT OF LICENSE FOR THE TECHNOLOGY AND KNOW-HOW
1.1 Subject to Luther's fulfillment of its obligations in this
Agreement, BICO hereby grants to Luther (a) an irrevocable, non-exclusive right
and non-transferable license (other than as set forth in Section 6.1, below) to
use the Technology and the Know-How for design, development, manufacture, and
sale of Luther's products; and (b) to Luther, and all purchasers and users of
Luther's products using the Technology and Know-How, a grant of immunity from
suit by BICO with respect thereto.
Luther recognizes that the Technology and Know-How furnished by BICO
pursuant to the terms of this Agreement may include proprietary and secret
information of BICO which would not otherwise be available to Luther. Luther
therefore agrees to receive such confidential Technology and Know-How only for
the performance of this Agreement. However, BICO recognizes that, in the
manufacture, sale and servicing of products, technical information must be given
to persons not under the control of Luther and such required information may
include confidential information derived from the Technology and Know-How, and
BICO expressly agrees and assents to the dissemination of all information
necessary for the proper manufacture and servicing of Luther's products.
1.2 Contemporaneously with the execution of this Agreement, BICO will
make available to Luther at BICO's principal offices, the Technology and
Know-How.
1.3 Luther shall use its best efforts to preserve and protect the
Technology and the Know-How at its own cost and expense. Luther will be
responsible for and will bear all its ongoing expenses in connection with the
development of the Technology and Know-How and carrying out of Luther's
operations.
1.4 While it is expected that the Technology and the Know-How will
enable Luther to develop commercially acceptable products, it is understood that
BICO does not warrant or guarantee that such results will be obtained.
1.5 No license or right is granted by implication or otherwise with
respect to any matter except as specifically set forth herein.
1.6 The use and disclosure of the Technology and the Know-How, or of
any technical information acquired pursuant to this Agreement in the exercise of
the rights granted by this Agreement, shall be subject to the export, assets and
financial control regulations of the United States of America including, without
limitation, restrictions under regulations of the United States that may be
applicable to direct or indirect re-exportation of such Technology and Know-How,
or the technical information or equipment, products or services directly
produced by use of such Technology and Know-How.
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1.7 No right is granted by this Agreement to use any registered or
unregistered trademark or trade name of BICO other than the registered or
unregistered trademarks or trade names of BICO's theraPORT/(R)/ product line as
granted in the parties' Distributorship Agreement of even date herewith. In
addition to the above, Luther, for its internal purposes, may continue to use
any such trademarks or trade names of BICO as were on any materials provided by
BICO to Luther in connection with the technology transfer contemplated by this
Agreement. The intent of this provision, and this limited grant in respect of
such technology transfer, is to remove any requirement for Luther to redraft any
of such documents, all of which may be retained by Luther indefinitely.
1.8 The parties agree that their respective rights, duties, and
obligations hereunder and under the Distribution Agreement shall supersede any
rights, duties, and obligations granted or undertaken pursuant to the
Information Agreement. Any provisions of the Information Agreement that
conflict with the provisions hereof or of the Distribution Agreement are hereby
terminated.
ARTICLE II
PAYMENT BY LUTHER
2.1 In consideration for the grant of license for use of the
Technology and Know-How to Luther by BICO, Luther agrees to pay BICO cash
consideration of $50,000 upon execution and performance of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LUTHER
Luther represents and warrants to BICO as follows:
3.1 Luther is a corporation duly organized, validly existing and in
good standing under the laws of the State of California.
3.2 The execution and delivery by Luther of this Agreement and the
entering into of all transactions contemplated hereby have been duly authorized
by appropriate corporation action lawful under the laws of the State of
California.
3.3 This Agreement constitutes valid and legally binding obligations
of Luther, enforceable in accordance with its terms.
3.4 Neither the execution, nor the performance of Luther's
obligations under this Agreement will result in the breach of the terms of or a
default under any instrument, agreement, contract, order, judgment, law,
regulation or rule to which Luther is subject or the Articles of Incorporation
or Bylaws of Luther.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BICO
BICO represents and warrants to Luther as follows:
4.1 BICO is a corporation duly organized, validly existing and in
good standing under the laws of the State of Pennsylvania.
4.2 The execution and delivery by BICO of this Agreement and the
performance of the transactions contemplated hereby have been duly authorized by
all appropriate corporate action, lawful under the laws of the State of
Pennsylvania.
4.3 This Agreement constitutes valid and legally binding obligations
of BICO, enforceable in accordance with its terms.
4.4 Neither the execution and delivery nor the performance of the
terms and conditions of this Agreement will result in a breach of the terms of
or a default under any instrument, agreement, contract, order, judgment, law,
regulation or rule to which BICO is subject or the Articles of Incorporation or
Bylaws of BICO.
4.5 BICO is the owner of the entire right, title, and interest in and
to the Technology and Know-How and there are no outstanding assignments, grants,
licenses, encumbrances, obligations, or agreements, written or oral, express or
implied, inconsistent with this Agreement. To the best knowledge of BICO, after
due inquiry, there are no material claims, disputes, actions, proceedings, or
investigations of any nature pending or threatened against or involving the
Technology, or the Know-How, or BICO's rights thereto.
4.6 There are no known defects in the drawings, designs, technical
information, or specifications furnished hereunder as part of the Technology or
Know-How.
4.7 Luther will suffer from no inability to manufacture its products
to any given specifications furnished hereunder as part of the Technology or
Know-How.
4.8 Neither the Technology nor the Know-How infringes any third
party's rights, including United States patent rights.
4.9 There is no pending or threatened claim or litigation contesting
BICO's rights with respect to the Technology or the Know-How.
ARTICLE V
DOMINATING OR CONFLICTING RIGHTS
5.1 BICO agrees to indemnify and hold harmless Luther, its officers,
directors, and agents, against claims of unrelated persons asserting United
States patent or copyright infringement or unfair competition arising from
Luther's license and use of the Technology and Know-How and all liability or
loss, including reasonable attorneys' fees stemming therefrom.
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Any changes or additions made to the Technology by Luther shall not be subject
to the indemnification rights set forth herein.
ARTICLE VI
NO SUBLICENSING OF RIGHTS
6.1 Luther believes that all of the BICO technology to be transferred
by BICO to Luther in accordance with this Agreement is already in the public
domain and that the value thereof is that it is organized in such a manner that
will allow Luther to make a rapid entry to the port market. Both parties to
this Agreement recognize that it is the intention of Luther initially to produce
a product that is substantially identical, e.g., a clone, to the BICO products
referenced in Recital 4, above. The parties also recognize that, shortly
following the execution of this Agreement, Luther may (i) produce products that
utilize both the Technology and Luther-developed or otherwise acquired
technology and (ii) continue to develop its product range by the addition of
further Luther-developed or otherwise acquired technology.
The parties recognize that, within three years following the execution
of this Agreement, it will be impossible to identify which elements of Luther's
technology were the subject of the license under this Agreement. Therefore, for
such three-year period, neither this Agreement nor any other rights herein
granted to Luther by BICO shall be the subject of any sublicense by Luther
without the prior written consent of BICO. Any purported assignment in
violation of this Section 6.1 shall be null, void and of no effect whatsoever.
Luther shall not have the right to sell, license, or otherwise grant rights to
third parties in the Technology and the Know-How, except in respect of
manufacturing for, or sales on behalf of, Luther. This prohibition against such
sales, sublicensing, or other granting of rights to third parties shall not
apply in the event of a business combination transaction involving Luther or the
sale of all, or substantially all, of its assets.
ARTICLE VII
COOPERATION
7.1 Luther, at its expense, shall be allowed full and free access
during reasonable business hours to view the operations and manufacturing
processes of BICO that utilize the Technology and Know-How. During such periods,
BICO shall demonstrate to Luther BICO's manufacturing process in action, or in
simulated action, in order to identify additional Know-How information for
Luther.
7.2 BICO shall provide to Luther on such schedule as Luther shall
require access to all documents and Know-How that BICO believes to be relevant
to enable Luther to manufacture and market a clone of the products. Such access
shall include, but not be limited to, BICO's relevant 510Ks, device master
records, device history records, design dossiers, technical files, validation
protocols, validation reports, vendor lists, bills of materials, and purchasing
information. The foregoing list is not intended to be a complete listing of the
relevant information that Luther may require that BICO provide to complete a
successful transfer of the Technology and Know-How in order to allow Luther to
manufacture and market such products. BICO shall
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<PAGE>
promptly provide to Luther copies of all documents and Know-How as Luther may
request. Luther shall be permitted to make notes on any Know-How that Luther
identifies, in its sole discretion, as relevant.
7.3 BICO shall cooperate with Luther in soliciting continuous
cooperation from and providing access to BICO's vendors and suppliers, and BICO
shall specifically notify same that each is permitted to supply materials,
components, services, or other items of value to Luther on terms equally as
favorable as those provided to BICO.
7.4 During the three-year period following the date of this
Agreement, BICO shall make available to its vendors and suppliers specifically
for Luther's benefit all of BICO's tooling and all related process information
as necessary for vendors and suppliers to supply and service Luther's design and
manufacturing requirements.
7.5 BICO shall provide reasonable support, cooperation, and technical
assistance necessary to ensure that Luther's products utilizing the Technology
and Know-How are capable of an early market entry.
7.6 BICO shall make available to Luther all current employee and
consultant contact information, as required by Luther to enable it to contact
such individuals for assistance in support of the transactions contemplated by
this Agreement and shall permit Luther to communicate with such individuals in
order to maximize Luther's potential use of the Technology and Know-How. In the
event Luther deems it necessary to contact BICO's past employees and BICO deems
it appropriate to do so due to some inability to address a specific matter
pertaining to the Technology and Know-How, BICO shall communicate its approval
of the release of confidential or potentially confidential information by said
individuals to Luther, and if necessary, provide each affected individual a
written waiver of confidentiality.
ARTICLE VIII
CONFIDENTIALITY
8.1 Each party undertakes to use its best efforts to ensure that any
and all information regarding the Technology and Know-How, and any information
regarding the business or business prospects of the other party and its
customers obtained by such party or its employees, shall be kept strictly
confidential, shall not be disclosed to third parties, and shall not be used by
either party for any purpose whatsoever other than that party's performance
under this Agreement without the express written permission of the other party.
ARTICLE IX
NOTICE
9.1 All notices hereunder shall be in writing and shall be deemed
received and effective five calendar days after being sent by registered or
certified mail, postage prepaid, return receipt requested, or one calendar day
after being sent by an overnight courier, fees prepaid or by confirmed facsimile
transmission. All notices, requests, or demands shall be sent to the following
addresses:
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To BICO:
Biocontrol Technology, Inc.
300 Indian Springs Road
Indiana, Pennsylvania 15701
Facsimile: (724) 349-8610
Attention: President
To Luther:
Luther Medical Products, Inc.
14322 Chambers Road
Tustin, California 92780-6912
facsimile: (714) 544-7273
Attention: Mr. David Rollo
Either party shall notify the other of any change of address or
facsimile number, in the manner set forth in this Article.
ARTICLE X
DISPUTE RESOLUTION
10.1 Arbitration. Any dispute between the parties regarding the
terms and conditions of this Agreement or the interpretation or enforcement
thereof (the "Arbitration Proceeding") shall be determined by binding
arbitration before the American Arbitration Association in accordance with its
rules for commercial arbitration.
10.2 Venue. If BICO commences an Arbitration Proceeding, it shall be
held at the offices of the American Arbitration Association in Orange County,
California. If Luther commences an Arbitration Proceeding, it shall be held at
the offices of the American Arbitration Association in Pittsburgh, Pennsylvania.
10.3 Governing Law. If BICO commences an Arbitration Proceeding,
this Agreement shall be governed by the laws of the State of California, without
regard for choice of laws provisions. If Luther commences an Arbitration
Proceeding, this Agreement shall be governed by the laws of the State of
Pennsylvania, without regard for choice of laws provisions.
ARTICLE XI
MISCELLANEOUS
11.1 Written Amendment. This Agreement may only be modified or
amended in writing and signed by the parties hereto or their duly authorized
representatives or agents.
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11.2 Waiver. No claim or right arising out of a breach of this
Agreement may be discharged in whole or in part by a waiver or renunciation of
the claim or right unless the waiver or renunciation is supported by
consideration and is in writing signed by the aggrieved party.
11.3 Continuing Cooperation. Each party hereto shall upon the
written request of another, promptly execute, acknowledge and deliver to such
parties such additional documents and/or instruments, and take such other steps,
as such party may reasonable require to evidence, maintain and/or effectuate the
intent of this Agreement and/or any and all of the rights granted to such party
hereunder.
11.4 Assignment. No right or interest in this Agreement shall be
assigned by either party without the written consent of the other, and no
delegation of any material duty or material obligation, or of the performance of
any material duty or material obligation, owed by either party shall be made
without the written permission of the other.
11.5 Successors. This Agreement and all of its provisions and
obligations shall be binding upon and inure to the benefit of the parties and
their heirs, successors, and assigns.
11.6 Complete Agreement. This writing is intended by the parties to
be a final expression of their agreement and is intended also as a complete and
exclusive statement of the terms of their agreement. No course of prior
dealings between the parties and no usage of the trade shall be relevant to
supplement or explain any term used in this Agreement. Acceptance or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even if the accepting or
acquiescing party has knowledge of the nature of the performance and opportunity
for objection.
11.7 Severability. If any provision or provisions herein are held to
be invalid, illegal or unenforceable by a body of competent jurisdiction, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
11.8 Force Majeure. If the performance of this Agreement or of any
obligation hereunder, except the making of payments, is prevented, restricted or
interfered with by reason of fire or other casualty or accident, strikes or
labor disputes, inability to procure power or supplies, war or other violence,
any law, order proclamation, regulation, ordinance, demand or requirement of any
governmental agency or any other act or condition whatsoever beyond the
reasonable control of a party hereto, the party so affected, upon giving prompt
notice to the other party, shall be excused from such performance to the extent
of such prevention, restriction or interference provided that such party shall
use its best efforts to avoid or remove such causes for non-performance and
shall continue performance hereunder with the utmost dispatch as and when such
causes have been removed.
///
///
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BIOCONTROL TECHNOLOGY, INC. LUTHER MEDICAL PRODUCTS, INC.
By: /s/ David L. Purdy By: /s/ David Rollo
----------------------------- -----------------------------
Name (Print): David L. Purdy David Rollo, President
-------------------
By: /s/ Nancy J. Saxman By: /s/ George C. Brdlik
----------------------------- -----------------------------
Name (Print): Nancy J. Saxman Name (Print): George C. Brdlik
------------------- -------------------
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BICO-LUTHER
TECHNOLOGY LICENSE AGREEMENT
Exhibit A
---------
The Technology is all proprietary and intellectual information and
----------
property relating to BICO's theraPORT/(R)/ implantable vascular access system
and lines of products thereto, including model number(s) 1001, 1002, 1011, 1012,
1601, and 1602.
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<PAGE>
BICO-LUTHER
TECHNOLOGY LICENSE AGREEMENT
Exhibit B
---------
The Know-How includes, but is not limited to, all background data,
--------
manufacturing, quality assurance and regulatory documents and approvals,
techniques, records, expertise, protocols, devices and other confidential
information which may be useful in the design, development, manufacture,
marketing, use and sale of BICO's theraPORT/(R)/ product line together with
copies of all 510K documents, device master records, device history records,
design dossiers, technical files, validation protocols, validation reports,
vendor lists, all bills of materials and purchasing information, designs,
specifications, research notes, other technical data, and patent information,
and all records and books of account relating to all prior activities of BICO in
connection with the development of the theraPORT/(R)/ product line.
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EXHIBIT 23.1
We hereby consent to the use of our name in the Prospectus on Form S-8,
File No. 333-25005, 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, 1998.
ARTER & HADDEN LLP
September 25, 1998
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-25005) pertaining to the 1997 Stock Plan of Luther Medical
Products, Inc. of our report dated August 14, 1998, with respect to the
financial statements of Luther Medical Products, Inc. incorporated by reference
in the Annual Report (Form 10-KSB) for the year ended June 30, 1998.
ERNST & YOUNG LLP
Irvine, California
September 25, 1998
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 410,645
<SECURITIES> 0
<RECEIVABLES> 795,824
<ALLOWANCES> 0
<INVENTORY> 2,089,066
<CURRENT-ASSETS> 3,320,272
<PP&E> 1,334,508
<DEPRECIATION> 1,074,959
<TOTAL-ASSETS> 3,646,090
<CURRENT-LIABILITIES> 581,636
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<COMMON> 10,427,947
<OTHER-SE> (49,979)
<TOTAL-LIABILITY-AND-EQUITY> 3,646,090
<SALES> 5,683,711
<TOTAL-REVENUES> 5,730,513
<CGS> 3,483,126
<TOTAL-COSTS> 6,230,048
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (499,535)
<INCOME-TAX> 800
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