SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended August 31, 1995.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 0-7578
ELECTRO-CATHETER CORPORATION
(Exact name of the Registrant as specified in Charter)
New Jersey 22-1733406
(State of Incorporation) (I.R.S. Employer ID Number)
2100 Felver Court, Rahway, New Jersey 07065
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number including Area Code: 908-382-5600
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT
Common Stock
$.10 par value per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
(See definition of affiliate in Rule 405, 17 CFR 230.405).
The aggregate market value of the Registrant's common stock, $.10 par
value, held by non-affiliates as of November 17, 1995 is $1,697,854.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of November 17, 1995, the number of shares outstanding of the
Registrant's common stock was 6,347,345 shares, $.10 par value.
Exhibits Index - Page 20
<PAGE>
PART I
Item 1. Business
Electro-Catheter Corporation (the "Company") is engaged in the business of
developing, manufacturing and marketing products for hospitals and physicians.
The majority of these products are utilized in connection with illnesses of the
heart and circulatory system and make use of catheters and related devices. The
Company has targeted electrophysiology as its focal area for future growth, but
intends to maintain and develop products for the emergency care, cardiac
surgery, invasive and non-invasive cardiology and invasive radiology markets.
The Company operates in one business segment, but markets its products both
nationally and internationally. Export sales were approximately $1,964,000 in
1995, $1,718,000 in 1994, and $2,164,000 in 1993, representing approximately
27%, 24%, and 27% of net sales for the years 1995, 1994 and 1993, respectively.
Products
The Company produces a wide range of catheter products intended to be
utilized by doctors and other trained hospital personnel for diagnostic or
therapeutic purposes. Catheters are hollow tubes that can be passed through
veins, arteries and other anatomical passageways. The Company considers the
market within which it sells its present and proposed products as a single
industry segment.
The selling prices for the products marketed by the Company typically range
from thirty-five dollars to five hundred dollars.
Electrophysiology Catheters
The field of cardiac electrophysiology is one of the most rapidly growing
areas of medical technology. During approximately the past ten years, the
development of transcatheter diagnosis of the heart's conduction system and
transcatheter correction of certain conduction dysfunctions have increasingly
attracted the attention of cardiologists. The Company believes that its lengthy
experience in pacing and mapping the heart's conduction system, as well as
designing and manufacturing cardiovascular catheters, place the Company in
position to take advantage of this developing market.
Cardiac electrophysiology is the study of the electrical system of the
heart. Cardiac electrophysiologists are concerned with electrical disorders in
the heart, their etiology, diagnosis and treatment. The medical problems which
cardiac electrophysiologists focus on are conduction problems of the heart,
which include tachyarrhythmic episodes which can lead to sudden cardiac death.
Diagnostic Catheters
The Company's line of diagnostic catheters are made of flexible radiopaque
materials which are visible in use through fluoroscopy. The catheters have a
variety of tips, shapes and internal configurations and can be manipulated by an
experienced physician through the anatomy to the desired location. Through the
use of these catheters, electrophysiological data, pressure and flow readings
and blood samples may be obtained. In addition, the Company's catheters may be
utilized as conduits for the injection of radiopaque materials into the
bloodstream to permit fluoroscopic observation of abnormalities in the
vasculature.
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Diagnostic catheters are marketed under the following names: Baltherm(R)
Flow Directed Balloon Catheters, Pacewedge(R) Balloon Guided Catheters and
Balwedge(R) Catheters.
Therapeutic Catheters
The Company's therapeutic catheters are fabricated from a number of
materials and frequently consist of an electrode-bearing tube. The tube is
guided into the body and the electrode is delivered through the venous system to
the heart where it is then used for pacing. This procedure involves the delivery
to the heart muscle, from a source outside the body, of an electrical stimulus
causing contractions like the natural heartbeat. Such pacing is necessary where
there is a conduction blockage in the heart causing the heart to contract
- --"beat"-- at a slow or irregular rate.
One of the therapeutic catheters manufactured by the Company is the
Balectrode(R) Bipolar Pacing Probe. With this product, both the amount of
manipulation of the catheter required to cause the stimulating electrode to be
positioned in the proper location of the heart and the time required from the
commencement of the procedure until it is completed, are substantially less than
they would be if a non-balloon catheter were used as the delivery system.
The therapeutic products usually are sold in kits containing the catheter,
a placement needle, connectors and various other devices. These kits are sold
under various names, including the following: Baltherm(R), Balectrode(R)
Flow-Directed Temporary Pacing Kit, Silicore(R) Semi-Floating Pacing Kit and
Multipace.
Multi-Purpose Catheters
Diagnostic and therapeutic catheters both have features or uses which,
under certain circumstances, result in the combining of purposes. Further, the
Company manufactures certain electrode-bearing catheters used to make electrical
measurements within the heart and provide electrical stimulation for both
therapeutic and diagnostic purposes.
Transthoracic Pacing Stylet
The Company has developed and patented a product for transthoracic pacing
and intra-cardiac medication which it is marketing under the name PaceJector(R).
The pacing electrode is delivered to the heart directly through the chest wall
rather than through the veins. The technique of transthoracic pacing for
emergency treatment of cardiac arrest and certain types of life-threatening
heart rhythms was pioneered by the Company.
Drainage Catheters
Although the Company's principal activities have been in the cardiovascular
area, it currently is manufacturing and marketing the Elecath(R) One Step(TM)
Fluid Drainage System which is used for draining fluid collections from various
locations in the body. This system consists of a catheter, composed of a unique
formulation developed by the Company, mounted on a simple penetration apparatus.
In the Company's opinion, the product is useful to many physicians, in addition
to radiologists, and results in more complete and safer drainage.
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Personnel
At November 17, 1995 the Company had approximately 134 employees. Of the
total employees, 92 were engaged in manufacturing and quality control, 11 in
general administration and executive activities, 15 in engineering and research
and development, and 16 in sales and marketing. The Company is not a party to
any collective bargaining agreement and considers its relations with its
employees to be good.
Sales and Marketing
At November 17, 1995 the Company employed 10 salespersons in the field and
a home office staff of marketing and sales support of 6 people. The Company also
employs an International Marketing Manager based in Europe on an independent
contractor basis. The Company had one significant distributor in the United
States which was responsible for sales in all or part of thirteen Eastern states
plus the District of Columbia. This distributor accounted for approximately 11%,
17% and 16% of net sales for the years 1995, 1994 and 1993, respectively. The
Company terminated this arrangement with this distributor on May 31, 1995 and
the Company now markets its products directly in this territory. Outside the
U.S., the Company is represented by distributors.
Advertising
Advertising of the Company's products consists primarily of displays at
medical conventions and meetings, advertisements in medical journals and direct
mail. The Company also cooperates in the publication of technical papers written
by medical authorities in areas relating to the Company's products.
Backlog
At October 31, 1995, the Company had a backlog of orders for its products
which aggregated approximately $692,000, as compared to approximately $381,000
at October 31, 1994.
Production
The Company manufactures its products in a 25,000 square foot facility it
owns and another 10,000 square foot facility which it leases. The Company
designs its catheters and manufactures a portion of the tubing, balloons, and
many components with tooling and formulations developed by it or especially for
it. The Company maintains facilities to manufacture sophisticated tubing and
balloons and for the production of catheters in the unique configurations
required for their use. In addition, where more convenient or when the level of
sophistication warrants it, the Company uses outside suppliers for certain
components.
Competition
The medical technology industry is a highly competitive field, and the
Company competes with many other companies on current products and products in
the development stages. Many of these competitors have significantly greater
financial, marketing, sales, distribution and technical resources than the
Company. Rapid technological advances by the Company's competitors could at any
time require that the Company redesign a portion of its product line.
The Company's older products compete with those of larger companies that
have greater resources and better distribution capabilities. The current
principal basis of competition in these markets is price. The Company's limited
resources make it less capable than larger competitors of offering aggressive
pricing to meet competition. In addition, certain customers purchase their
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catheters in blanket contracts which include products offered by the
Company's larger competitors but not by the Company. For these reasons, the
Company has not been able to compete as effectively as it would like during
recent years in the market for non-EP products.
The electrophysiology market is also highly competitive and competition is
expected to increase. These competitors currently include USCI, a division of
C.R. Bard, Inc.; Mansfield, a division of Boston Scientific Corporation;
CardioRhythm, Inc., a division of Medtronic, Inc.; EP Technologies and Webster
Laboratories, a division of Cordis Corporation. The Company's electrophysiology
products compete with other treatments, including prescription drugs,
implantable cardiac defibrillators and open heart surgery.
Additionally, some of the Company's competitors have been acquired by
major corporations to be able to offer a broader range of products to the
cardiologist. The Company's ability to compete effectively in the future, could
be dependent upon broadening its range of products and/or an alliance with
another company.
Competitors have developed products, specifically for use in catheter
ablation, which are currently FDA approved. The Company plans to begin its
clinical trials for ablation in 1996. Currently, the Company does not have an
approved device for catheter ablation to allow it to compete effectively in this
market. Because this is a new and developing market, the primary competitive
factors are technical superiority, financial resources, the timing of regulatory
approval, commercial introduction and quality. The Company's competitive
position also depends on its ability to attract and retain qualified personnel,
develop effective proprietary products, implement production and marketing plans
and secure sufficient capital resources. The Company hopes that it can
effectively compete in this market.
There can be no assurance that the Company will be able to compete
successfully in its current markets.
Patents and New Products
The Company's policy is to protect its proprietary position by, among other
methods, filing United States and select foreign patent applications to protect
the technology that is important to the development of the business. Although
the Company holds patents or has patents pending related to several of its
products, it believes that its business as a whole is not or will not be
materially dependent upon patent protection. However, the Company will continue
to seek such patents as it deems advisable to protect its research and
development efforts and to market its products.
The Company develops new products as a result of its own analysis of the
needs of the market which it serves and as a result of needs perceived by
physicians and researchers who work with the Company on the design and the
development of the devices and systems needed by them. In certain instances, the
Company pays the cooperating physician or researcher a royalty based upon the
revenues derived from the sales of the product to others.
Regulation
The Company's products are subject to regulation by the Food and Drug
Administration ("FDA") and, in some jurisdictions, by state and foreign
governmental authorities. In particular, the Company must obtain specific
clearance from the FDA before it can market new products to the public. An
amendment to the Federal Food, Drug and Cosmetics Act providing for the
classification of medical devices and the establishment of standards relating
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<PAGE>
to their safety and efficacy, scientific review of certain devices, and the
registration of manufacturers and others, has been in effect since 1976 and has
been augmented by the new Safe Medical Devices Act of 1991. Under the new Act, a
manufacturer must obtain approval from the FDA for a new medical device or a new
use for an existing device or a major change to a prior approved item, before it
can be marketed. The approval process requires, in the case of certain classes
of medical devices, that the safety and efficacy of such devices be demonstrated
by the manufacturer to the satisfaction of the FDA. The process of obtaining
such pre-marketing approval can be time-consuming and expensive and there can be
no assurance that all approvals sought by the Company will be granted or that
the FDA review will not involve delays adversely affecting the marketing and
sale of the Company's products. The Company's products are "medical devices"
within the meaning of the amendment and new Act.
The Company is also required to adhere to applicable regulations setting
forth current Good Manufacturing Practices ("GMP") requirements, which include
testing, control, design and documentation requirements. During fiscal years
1994 and 1995 the Company corrected deficiencies identified by the FDA, and the
Company believes it is currently in compliance with GMP.
In accordance with the Federal Food, Drug and Cosmetics Act, the Company
has received approval from the FDA to market all of its present products, or is
exempt from formal approval requirements as provided by law for those devices
already in distribution before May 28, 1976.
In addition, certain other classes of medical devices must comply with
industry-wide performance standards with respect to safety and efficacy
promulgated by the FDA. The FDA has not yet developed industry-wide performance
standards with respect to the safety and efficacy of those products manufactured
by the Company which will be subject to such standards. When and if such
standards are adopted, the Company will be required to submit data demonstrating
compliance with the standards (during which period the Company may be permitted
to continue to market products which have been previously approved by the FDA).
In recent years the FDA has pursued a more rigorous enforcement program to
ensure that regulated businesses, like the Company, comply with applicable laws
and regulations. The Company cannot predict the extent or impact of future
federal, state or local legislation or regulation.
Various countries in which the Company markets its products have regulatory
agencies which perform functions comparable to those of the FDA. To date,
foreign regulations have not adversely affected the Company's business. The
Company intends to make every effort to comply with applicable foreign
regulations.
Research and Development
For the three years ended August 31, 1995, the Company incurred
aggregate direct expenses of approximately $3,477,000 for research and
development activities, including new product development, of which approxi
mately $932,000 was attributable to fiscal 1995, $1,212,000 to fiscal 1994, and
$1,333,000 to fiscal 1993. All of such activities were sponsored by the Company.
The major portion of such expenses was related to salaries and other expenses of
personnel employed on a regular basis in research and development efforts.
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Item 2. Properties
The Company's principal manufacturing facilities and executive offices are
located at 2100 Felver Court, Rahway, New Jersey, in premises which it purchased
in fiscal 1976. The Company also leases a 10,000 square foot facility located in
Avenel, New Jersey. These premises are suitable for all of the Company's current
and immediately foreseeable production, development and administrative
functions. The lease for the Avenel facility is on a month-to-month basis.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on May 24, 1995. The following
persons were elected to serve as members of the Board of Directors until the
next annual meeting of shareholders and until their successors are elected and
qualify:
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
Dr. Robert I. Bernstein 4,616,301 592,574
Dr. Michael Bernstein 4,616,301 592,574
George M. Pavia, Esq. 4,626,401 582,474
Abraham H. Nechemie 5,197,101 11,774
Ervin Schoenblum 5,197,101 11,774
</TABLE>
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PART II
Market for the Company's Common Stock and Related
Security Holder Matters
The Company's common stock is traded in the NASDAQ System under the Symbol
ECTH. The table below shows for the periods indicated the closing daily bid
figures of the Company's stock, as reported by NASDAQ. These prices represent
prices between dealers and do not include retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
----------- -----------
<CAPTION>
Quarter High Low High Low
<S> <C> <C> <C> <C> <C>
1 1 1/4 1 2 3/4 2 1/2
2 1 3/16 1 1/16 2 3/4 2
3 1 1/16 3/4 2 1 1/2
4 13/16 3/4 1 1/2 1 1/4
</TABLE>
On November 3, 1995, the number of shareholders of record was 817.
No cash dividends have been paid by the Registrant during the last five
fiscal years.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales........... $ 7,263 $ 7,248 $ 8,155 $ 7,842 $ 7,920
Net loss............ (1,136) (1,372) (804) (419) (366)
Working capital..... 2,505 2,362 2,798 3,888 2,680
Total assets........ 4,382 4,270 4,956 6,034 4,340
Long term liabilities...... 1,200 638 32 544 744
Loss per share.... ($.18) ($.24) ($.14) ($.11) ($.10)
Dividends on common stock none none none none none
Weighted average number
of shares of common
stock and common stock
equivalents outstanding.......... 6,027 5,711 5,572 3,932 3,788
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Year Ended August 31, 1995 Compared to Year Ended August 31, 1994
Net sales for the fiscal year ended August 31, 1995 increased $15,764
(0.2%) as compared to the fiscal year ended August 31, 1994. Total domestic
sales decreased $231,256 (4.2%) and international sales increased $247,020
(14.4%) for fiscal 1995 as compared to fiscal 1994. The decline in domestic
sales is attributed predominantly to a decline in the volume of business from
the Company's sole domestic distributor. The Company terminated its agreement
with this distributor as of May 31, 1995, pursuant to the terms of the
agreement. The Company is now selling in this territory with direct sales
representatives. Sales declines occurred in most of the Company's product lines,
except its diagnostic steerable catheters, which increased as a result of the
extension of its product line offerings. The decrease in domestic sales was
partially offset by shipments to an OEM customer for a special-design catheter
which will be used by this customer in its clinical trials for its own product.
However, there is no assurance that sales to the OEM customer will continue in
the future. The increase in international sales is attributed to an increase in
sales of certain of the Company's traditional and electrophysiology products,
including sales to distributors in countries where the Company had not been
previously represented. The Company's plans to increase its sales include
additional emphasis on its pacing and monitoring products, new product
introductions and aggressive pricing strategies. However, there can be no
assurance that the Company will be successful in its efforts to increase sales.
Gross profit dollars increased $281,162 (9.0%) in fiscal 1995 as
compared to the prior year. This increase in gross profit is attributed
primarily to the increase in operating yields and further absorption of overhead
as a result of the additional personnel required to manufacture some of the new
and more sophisticated products. Gross profit has been negatively affected by
the Company's aggressive pricing policy. The gross profit percentage for 1995
was 46.8% as compared to 43.1% for 1994.
Selling, general and administrative expenses increased by $41,505 for
fiscal 1995 as compared to fiscal 1994. This increase is attributed primarily to
an increase in marketing/sales expenses of $264,376 (12.1%) associated with the
addition of new sales representatives, the hiring of a National Sales Manager
and the addition of an International Marketing Manager. The increase is offset
by a decrease in corporate and administrative expenses of $222,871 (18.3%) due
to lower administrative salaries as a result of reduction in personnel, legal
costs, consulting fees and expenses associated with the Company's former Chief
Executive Officer who retired on March 1, 1994.
Research and development expenditures decreased by $280,029 (23.1%) for
fiscal 1995 as compared to fiscal 1994. The decrease is attributed to a
reduction in personnel, decreased purchases of research and development
materials and supplies and a reduction in required support from manufacturing
for new product development.
Interest expense increased in fiscal 1995 as a result of increased
borrowings from the T-Partnership and higher interest rates, including the
amortization of the value of warrants issued in conjunction with these
borrowings.
In August 1994, the Company received $200,000 in settlement of its
litigation with a previous supplier and such amount was included in other
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income in fiscal 1994, thereby accounting for the reduction in other income in
fiscal 1995.
The net loss for fiscal year 1995 was $1,135,890 or $.18 per share as
compared to a loss of $1,371,915 or $.24 per share for fiscal year 1994.
Year Ended August 31, 1994 Compared to Year Ended August 31, 1993
Net sales decreased $907,598 or 11.1% in fiscal year 1994 as compared to
fiscal year 1993. International sales decreased $445,888 or 20.6% and total
domestic sales decreased $461,710 or 7.7%. International sales decreased as the
result of competition, budgetary constraints in certain countries, a decline in
demand for a custom-designed catheter sold to an international distributor and
lower sales volumes in certain of the Company's older product lines. Domestic
sales declined primarily as a result of a decline in the market for the
Company's pacing products. However, this decline was partially offset by the
Company's multifunction catheters which increased $481,738 or 55.2% domestically
to $1,354,951 or 24.5% of total domestic sales, as a result of an increase in
demand for this product.
Gross profit decreased $882,237 or 22.0% in fiscal year 1994 as compared to
the prior fiscal year. The gross profit percentage was 43.1% for fiscal year
1994 as compared to 49.1% for fiscal year 1993. The decrease is primarily
attributed to the decline in sales volume, lower operating yields and start-up
costs associated with new products.
Selling, general and administrative expenses decreased $65,653 or 1.9% in
fiscal year 1994 as compared to the previous fiscal year. Increased selling and
marketing expenses and legal costs associated with litigation against one of the
Company's previous suppliers (discussed below) were more than offset by a
reduction in expenses associated with the September 1993 resignation of the
Company's President and the March 1, 1994 retirement of the Company's Chief
Executive Officer.
Research and development expenditures decreased $120,770 or 9.1% for the
current fiscal year as compared to the prior fiscal year. The decrease is the
result of lower hiring expenses and a decrease in personnel and lower purchases
of materials and supplies for research and development purposes.
Interest income decreased as a result of lower cash balances. Interest
expense increased as a result of increased borrowings from the T-Partnership and
higher interest rates (including amortization of warrants issued in connection
with these borrowings - see Note 7 to Notes to Financial Statements).
In August 1994 the Company received $200,000 in settlement of its
litigation with a previous supplier and such amount was included in other
income.
The net loss for fiscal year 1994 was $1,371,915 or $.24 per share as
compared to a loss of $803,641 or $.14 per share in fiscal year 1993.
On April 26, 1993, the Company received a warning letter from the FDA
resulting from an earlier inspection of its facilities and operations,
indicating that the Company's manufacturing methods were not in conformance with
Good Manufacturing Practice Regulation (GMP). In addition, the letter stated
that certain products do not have the required pre-market notification
approvals. The FDA completed a reinspection on August 27, 1993 which resulted in
additional observations indicating non-conformance with GMP and questioned the
pre-market notification approvals of other catheters currently being sold by
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the Company. During fiscal year 1994, the Company corrected the deficiencies
identified in FDA's GMP observations. In June 1994, the Company received FDA
approval of export applications which the Company believes would not have been
received if the Company had not corrected the GMP related matters.
During the first quarter of fiscal 1995, the Company underwent an
additional inspection by the FDA which resulted in two observations. The Company
believes that it has satisfactorily resolved both issues and that it is now in
substantial conformance with GMP.
During fiscal 1994, the Company responded to the FDA's allegations that the
necessary pre-market notification approval applications (510(k)s) were not filed
for the products mentioned in the warning letter and the reinspection. The FDA
further stated that it is the Company's responsibility to withhold distribution
of such products until the FDA has acted upon the 510(k) submissions. While the
Company did not agree with the determination of the FDA, the Company submitted
the 510(k)s for all products in question in order to show its intent to comply
with the FDA regulations and continues to distribute such products. These
products in question represent approximately 31% of the Company's sales in
fiscal 1994. During fiscal year 1995, the Company received final approval on all
outstanding 510(k)s.
Liquidity and Capital Resources
Working capital increased $143,564 to $2,505,417 from August 31, 1994. The
current ratio was 3.2 to 1 at August 31, 1995 as compared to 3.3 to 1 at August
31, 1994. Net cash used in operating activities was $1,143,975 for the year
ended August 31, 1995 as compared to $500,285 for the year ended August 31,
1994. During 1995, the Company continued to devote significant resources to the
development of new products and sales activities. The increase in net cash used
in operating activities is the result of the loss from operations and increases
in accounts receivable and inventories.
In March 1995, the Company received from the T-Partnership approximately
$500,000 for the purchase of 571,500 shares of restricted common stock, $.10 par
value, in a private placement at $.875 per share. In connection with this
private placement, the Company also issued to the T-Partnership a warrant to
purchase 83,344 shares of the Company's common stock at an exercise price of
$1.425 per share. This warrant expires on February 23, 2000. Ervin Schoenblum,
the Company's Acting President and director and another member of the Company's
Board of Directors are members of the T-Partnership.
On October 11, 1993, the Company entered into an agreement with the
T-Partnership to borrow up to $1,000,000. As of August 31, 1995, the Company had
drawn down all of the $1,000,000.
On August 31, 1995, the Company entered into an agreement with the
T-Partnership to borrow an additional $500,000 and combine such loan with the
original $1,000,000 for a total loan due to the T-Partnership of $1,500,000. The
T-Partnership agreed to lend the Company $200,000 on the execution of this
agreement and, at the Company's request, an additional sum of $300,000.
The rate of interest is 12% per annum and is payable monthly on any
outstanding balance. Principal payments of $20,000 were scheduled to commence on
September 1, 1995 for the original $1,000,000. However, the new agreement
provides for repayment to begin on September 1, 1996 with installments of
$25,000 each month. Any remaining balance is due on August 1, 2001. The loan is
secured by the Company's property, building, accounts receivable, inventories
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<PAGE>
and machinery and equipment. The Company must prepay the outstanding balance in
the event the Company is merged into or consolidated with another corporation
or the Company sells all or substantially all of its assets.
Under the provisions of the original agreement, the T-Partnership was
granted purchase warrants which permitted the T-Partnership to purchase 166,667
shares of the Company's common stock at a price of $3.25 per share. The new
agreement states that the T-Partnership will surrender its original purchase
warrant to purchase 166,667 shares of common stock and be granted a new purchase
warrant to purchase 500,000 shares of the Company's common stock at a price of
$0.9875 per share. The warrants are immediately exercisable and expire on August
1, 2001.
In October 1995, the Company borrowed an additional $150,000 under this
agreement and in November 1995, the remaining $150,000 was borrowed.
The report of the Company's independent auditors on the Company's
financial statements, included elsewhere herein, includes an explanatory
paragraph which states that the Company's recurring losses and limited working
capital raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. During 1995, the Company was
able to satisfy its cash shortfall from operating activities with the borrowings
from the T-Partnership, the proceeds from the sale of stock to the T-Partnership
and cash on hand. The Company's ability to continue in business is dependent
upon its ability to generate sufficient cash flow from operations or to obtain
additional financing. The Company continues to re-evaluate its plans and adopt
certain cost reduction measures. The Company is attempting to increase sales by
examining and, where appropriate, modifying its distribution network, utilizing
aggressive pricing and introducing new products to market.
The Company does not plan to pay dividends in the near future.
In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of",
which is effective for fiscal years beginning after December 15, 1995. In
October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which is effective for fiscal years beginning after December 15,
1995. Neither of these standards is expected to have a significant effect on
either the results of operations or financial position of the Company.
Inflation
Inflation did not have a material impact on the results of the Company's
operations during the last three fiscal years.
Item 8. Financial Statements and Supplementary Data
Response to this Item is contained in Item 14.
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure
None.
12
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth certain information concerning Registrant's
directors and executive officers:
Name, Age and Positions
and Offices Held with Business Experience During Past 5
the Company Years and Principal Occupation
Robert I. Bernstein, Chairman of the Company. Chief Executive
Sc.D., Age 68; Officer of the Company for over five years
Director since 1969(1)(2) until his retirement on March 1, 1994
Michael Bernstein, Chairman, Department of Medical
M.D., M.A.C.P., Age 66; Education, Director of Internal
Director since 1969 (1)(2) Medicine, Overlook Hospital, Summit,
New Jersey; Clinical Professor of
Medicine, Columbia University College
of Physicians and Surgeons.
George M. Pavia Partner in the law firm, Pavia &
Age 67; Director Harcourt for over the past five years
since 1986(2)
Abraham H. Nechemie Business Consultant. Formerly a partner
Age 71; Director since in Wiss & Company, a certified public
1992(2) accounting firm. Retired from the firm
in 1985.
Ervin Schoenblum Acting President since December, 1993.
Age 55; Director since Management Consultant for over five
1992 years. Advisor to the Company since
February 1989.
Lee W. Affonso, Age 46; Vice President of the Company since July,
Vice President 1992 except for the period from September,
1993 to December, 1993 when he served as
Senior Sales Specialist; Director of
Marketing & Sales from 1989 to 1992.
Robert W. Kokowitz Vice President of the Company since July
Age 40; Vice President 1992. Director of Operations from 1989 to
1992.
Joseph P. Macaluso Chief Financial Officer since May, 1987.
Age 43; Treasurer and
Chief Financial Officer
Arlene C. Bell Secretary since May 1987. Executive
Age 50; Secretary Assistant to the Chairman since 1981,
and to the Acting President since March 1,
1994.
- ----------------------
(1)Michael Bernstein is the brother-in-law of Robert I. Bernstein.
(2)Member of audit committee.
The Company's directors' terms will expire when their successors are
elected and qualify at the annual meeting of shareholders. The Company's
officers serve for a period of one year and until their successors are elected
by the Board of Directors.
On December 6, 1993 the Board of Directors elected Mr. Ervin Schoenblum
Acting President replacing Mr. Max Lee Hibbs, former President, who resigned in
September, 1993.
13
<PAGE>
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (SEC). Officers, directors
and greater than ten percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period
September 1, 1994 to August 31, 1995 all filing requirements applicable to its
officers and directors were complied with, except as follows:
Number of
Transactions
Relationship Number of Late Not Reported
Name To Company Reports On A Timely Basis
Ervin Schoenblum Acting President 2 2
Item 11. Executive Compensation
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all compensation awarded to, earned by, or
paid by the Company to the following persons for services rendered in all
capacities to the Company during each of the fiscal years ended August 31, 1995,
1994 and 1993: the Company's Chief Executive Officer or person acting in a
similar capacity, and (2) the Company's next most highly compensated executive
officer whose total compensation for the fiscal year ended August 31, 1995
exceeded $100,000.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
Awards
Annual Securities
Compensation Underlying All Other
Name and Salary Options(2) Compensation
Principal Position Year $ # $
- ------------------- ------- --------- --------- ------------
<S> <C> <C> <C> <C>
Ervin Schoenblum(1) 1995 $ 86,000 25,000 -
Acting President 1994 $ 50,000 25,000 16,000
1993 - - 26,000
Lee W. Affonso 1995 $117,000 - -
1994 $105,000 24,000 -
1993 $113,000 - -
<FN>
(1) Mr. Schoenblum serves as Acting President for the Company based upon a
salary of $100,000 per annum. Prior to becoming Acting President in December
1993, Mr. Schoenblum served as a consultant to the Company. His compensation
shown in the last column represents consulting fees.
(2) The table reflects the number of options granted under the Company's
Incentive Stock Option Plan.
</FN>
</TABLE>
Stock options are also granted to officers and are determined by the Board
of Directors based upon the individual's contribution to the Company.
14
<PAGE>
The following table provides information on stock option grants during
fiscal year 1995.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
Potential Realized Value at Assumed
Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
(A) (B) (C) (D) (E) (F) (G)
% of
Total
Options
Options Granted to Exercise
Granted Employees in or Base Expiration
Name (#) Fiscal Year Price ($/Sh) Date 5% ($) 10%($)
- ---- -------- ------------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ervin Schoenblum 25,000(1) 69.4% 1.00 10/4/99 $6,925 $15,250
<FN>
(1) These options were granted under the Company's Incentive Stock Option
Plan. These options represent only new options granted and excludes options
previously held at a price greater than $1.00 that were replaced by options at
$1.00.
</FN>
</TABLE>
The following table provides information on option exercises during the
fiscal year 1995 by the named executive officers and the value of each of their
unexercised options at August 31, 1995.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<CAPTION>
(A) (B) (C) (D) (E)
Number of Value of
Unexercised Unexercised
Options In-the-Money
FY-End (#) Options
FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ----- --------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Ervin Schoenblum - - 40,000/40,000 $0/$0
</TABLE>
The following table provides information concerning repricing of options
and Stock Appreciation Rights ("SARs") held by the named executive officers
during the last 10 completed fiscal years.
<TABLE>
<CAPTION>
Ten-Year Option/SAR Repricings
Length of
Original
Option Term
Number of Remaining
Securities Underlying Market Price of Stock Exercise Price at New at Date of
Options/SARs Repriced at Time of Pricing Time of Repricing Exercise Repricing
or Amended or Amendment or Amendment Price or
Name Date # $ $ $ Amendment
<S> <C> <C> <C> <C> <C> <C>
Ervin Schoenblum
Acting President 2/94 25,000 1.00 2.375 1.00 53 months
7/92 5,000 1.00 1.50 1.00 34 months
7/89 25,000 1.00 1.125 1.00 21 months
Lee W. Affonso 2/94 24,000 1.00 2.25 1.00 53 months
7/92 12,500 1.00 1.50 1.00 34 months
</TABLE>
15
<PAGE>
Remuneration of Directors
Each non-officer director is compensated $1,000 for each meeting attended.
Item 12. Security Ownership of Certain Beneficial Owners and Management
A.Set forth below is information concerning persons (including any "group"
as that term is used in Section 13(d) (3) of the Securities Exchange Act of
1934) known to the Registrant to own 5% or more of the common stock of the
Company as of November 17, 1995:
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percentage
Title of Class Beneficial Ownership Ownership of Class(2)
<S> <C> <C> <C>
Common stock Robert I. Bernstein 454,367 shares 8.2%
$.10 par value 2100 Felver Court
Rahway, NJ 07065
T Partnership 2,381,500 shares(1) 34.8%
c/o Wiss & Co.
354 Eisenhower Parkway
Livingston, NJ 07039
Bruce Paul 568,500 shares 9.5%
1 Hampton Road
Purchase, NY 10577
<FN>
- ----------------------
(1)Includes 500,000 shares, which the T-Partnership has the right to acquire
pursuant to outstanding warrants, which warrants are immediately exercisable at
a price of $.9875 per share.
(2)The common stock deemed to be owned which is not outstanding but
subject to currently exercisable options is deemed to be outstanding for the
purpose of determining the percentage of all outstanding common stock owned.
</FN>
</TABLE>
16
<PAGE>
B. The following table sets forth the equity securities of the Company
or any of its parents or subsidiaries beneficially owned directly or indirectly
by all directors of the Company, each of the named executive officers and by the
directors and executive officers of the Company as a group. The figures given
are as of November 17, 1995:
Name of Beneficial Amount and Nature of Percentage of
Title of Class Owner Beneficial Ownership of Class(6)
Common stock Robert I. Bernstein 454,367 shares 7.2%
$.10 par value
Common stock Michael Bernstein 94,228 shares(1) 1.5%
$.10 par value
Common stock George M. Pavia 57,366 shares(2) 0.9%
$.10 par value
Common stock Abraham H. Nechemie 124,075 shares(3) 1.9%
$.10 par value
Common stock Ervin Schoenblum 174,075 shares(3) 2.6%
$.10 par value
Common stock Lee W. Affonso 28,000 shares(4) 0.4%
$.10 par value
Common stock All executive officers
$.10 par value and directors as a group 996,686 shares(5)(3) 15.3%
(9 persons)
- ----------------------
(1)Includes 28,500 shares subject to currently exercisable options.
(2)Includes 36,000 shares subject to currently exercisable options and 16,276
shares owned by Pavia & Harcourt, a law firm of which Mr. Pavia is a member.
(3)Messrs. Nechemie and Schoenblum each have a 5% equity interest in the
T-Partnership, which owns 1,881,500 shares of the Company's common stock.
Accordingly, Messrs. Nechemie and Schoenblum each reports beneficial ownership
of 94,075 shares of the Company's common stock. In addition, Messrs. Nechemie
and Schoenblum each reports beneficial ownership of 25,000 warrants that were
issued to the T-Partnership pursuant to the August 31, 1995 Lending Agreement
with the Company. Also included in the table above are currently exercisable
options for 5,000 and 55,000 shares held by Messrs. Nechemie and Schoenblum,
respectively.
(4)Includes 14,600 shares subject to currently exercisable options.
(5)Includes 173,500 shares subject to currently exercisable options held by all
executive officers and directors of the Company (including those individually
named in the table above).
(6)The common stock deemed to be owned which is not outstanding but subject to
currently exercisable options is deemed to be outstanding for the purpose of
determining the percentage of all outstanding common stock owned.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no compensation committee or Board Committee performing similar
functions. Ervin Schoenblum, the Company's Acting President, participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation.
17
<PAGE>
BOARD COMPENSATION REPORT ON EXECUTIVE COMPENSATION
The Company has no compensation committee or other committee of the Board
of Directors performing similar functions. All members of the Board of Directors
review and determine executive compensation for all executive officers on an
annual basis. Ervin Schoenblum, the Company's Acting President, is the only
executive officer of the Company also serving on the Board. Mr. Schoenblum's
compensation as Acting President was negotiated between the parties and was
based in part on the amount of compensation paid to him while he was a
consultant to the Company and the level of compensation historically paid by the
Company for this position.
The Board of Directors has implemented an executive compensation
philosophy that seeks to relate executive compensation to corporate performance,
individual performance and creation of stockholder value. Historically, this has
been achieved through compensation programs which focus on both short and long
term results.
In accordance with the Board of Directors' executive compensation
philosophy, the major component of executive compensation has been base salary.
Salaries for executive officers are based on current individual and
organizational performance, affordability and competitive market trends.
Additional incentives are provided through issuance of incentive stock options.
Board of Directors: Robert I. Bernstein, Sc.D.
Michael Bernstein, M.D.
Abraham H. Nechemie
George M. Pavia, Esq.
Ervin Schoenblum
PERFORMANCE TABLE
The table below shows a comparison of the five-year cumulative total
return assuming $100 invested on August 31, 1990 in Elecath Common Stock, the
S & P 500 Index and the S & P Medical Products and Supplies Index.
<TABLE>
TOTAL SHAREHOLDERS RETURN
ELECTRO-CATHETER CORPORATION
Indexed \ Cumulative Returns
<CAPTION>
Base
Period Return Return Return Return Return
Company \ Index Name 1990 1991 1992 1993 1994 1995
- ------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ELECTRO CATHETER CORP 100 266.67 266.67 333.33 166.67 108.27
S&P 500 INDEX 100 126.91 136.96 157.80 166.43 202.12
MEDICAL PRODUCTS & SUPPLIES 100 156.22 158.43 121.57 142.10 218.76
</TABLE>
18
<PAGE>
Item 13. Certain Relationships and Related Transactions
During fiscal year 1993, Ervin Schoenblum, a director of the Company,
and a member of the T-Partnership, was retained as a management consultant for
the Company. The Company incurred fees from this individual in the amount of
approximately $26,000 in fiscal year 1993. In December 1993, this individual
became Acting President of the Company and still holds that position. In
addition, prior to his becoming Acting President, this individual received
approximately $16,000 in consulting fees in fiscal year 1994.
On October 11, 1993, the Company entered into an agreement with the
T-Partnership to borrow up to $1,000,000. Ervin Schoenblum, the Company's Acting
President and director and another member of the Company's Board of Directors
are members of the T-Partnership. As of August 31, 1995, the Company had
drawn down all of the $1,000,000.
On August 31, 1995, the Company entered into an agreement with the
T-Partnership to borrow an additional $500,000 and combine such loan with the
original $1,000,000 for a total loan due to the T-Partnership of $1,500,000. The
T-Partnership agreed to lend the Company $200,000 on the execution of this
agreement and, at the Company's request, an additional sum of $300,000.
The rate of interest is 12% per annum and is payable monthly on any
outstanding balance. Principal payments of $20,000 were scheduled to commence on
September 1, 1995 for the original $1,000,000. However, the new agreement
provides for repayment to begin on September 1, 1996 with installments of
$25,000 each month. Any remaining balance is due on August 1, 2001. The loan is
secured by the Company's property, building, accounts receivable, inventories
and machinery and equipment. The Company must prepay the outstanding balance in
the event the Company is merged into or consolidated with another corporation or
the Company sells all or substantially all of its assets.
Under the provisions of the original agreement, the T-Partnership was
granted purchase warrants which permitted the T-Partnership to purchase 166,667
shares of the Company's common stock at a price of $3.25 per share. The new
agreement states that the T-Partnership will surrender its original purchase
warrant to purchase 166,667 shares of common stock and be granted a new purchase
warrant to purchase 500,000 shares of the Company's common stock at a price of
$0.9875 per share. The warrants are immediately exercisable and expire on August
1, 2001.
In October 1995, the Company borrowed an additional $150,000 under this
agreement and in November 1995, the remaining $150,000 was borrowed.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) The following documents are filed as a part of the Report:
1. Financial Statements
See: Index to Financial Statements
2. Financial Statement Schedules
See: Index to Financial Statements
All other schedules are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements and the notes thereto.
3. Exhibits
(3)(a) Registrant's Certificate of Incorporation as amended
through April 11, 1978 - filed as an Exhibit to
Registrant's Report on Form 10-K for the fiscal year
ended August 31, 1981, and incorporated by reference
herein as an exhibit hereto.
(3)(b) Amendment to Registrant's Certificate of Incorporation, dated
March 20, 1985 - filed as an Exhibit to Registrant's Report on
Form 10-Q for fiscal quarter ended May 31, 1985, and
incorporated by reference herein as an exhibit hereto.
(3)(c) Amended and Restated By-laws - filed as an Exhibit to
Registrant's Report on Form 10-K for the fiscal year ended
August 31, 1989, and incorporated by reference herein as an
exhibit hereto.
(10)(d) Registrant's 1984 Employee Stock Purchase Plan, filed as an
Exhibit to Registrant's Report on Form 10-Q for the second
quarter of fiscal year 1984 ended February 29, 1984, and
incorporated by reference herein as an exhibit hereto.
(10)(h) Registrant's 1987 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1987, and incorporated by refer-
ence as an exhibit hereto.
(10)(i) Registrant's 1990 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1990, and incorporated by refer-
ence as an exhibit hereto.
(10)(j) Registrant's 1992 Incentive Stock Option Plan filed as an
Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended August 31, 1992, and incorporated by refer-
ence as an exhibit hereto.
20
<PAGE>
(10)(k) Agreement dated October 11, 1993 between Registrant and the
T-Partnership filed as an exhibit to Registrant's Report
on Form 10-K for the fiscal year ended August 31, 1993, and
incorporated by reference as an exhibit hereto.
(10)(l) Amendment dated November 21, 1994 to Agreement between
Registrant and the T-Partnership filed as an exhibit to
Registrant's Report on Form 10-K for the fiscal year ended
August 31, 1994, and incorporated by reference as an
exhibit hereto.
(10)(m) Lending Agreement dated August 31, 1995 between Registrant
and the T-Partnership filed as an exhibit hereto.
(22) Subsidiaries - Electro-Catheter International Corp.
(24) Consent of KPMG Peat Marwick LLP filed as an exhibit hereto.
(27) Financial Data Schedule filed as an exhibit hereto.
(b) Report on Form 8-K : None.
(c) Exhibits: Reference is made to the list of exhibits contained
in item 14(a) 3 above.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ELECTRO-CATHETER CORPORATION
(Registrant)
By: /s/Ervin Schoenblum
Ervin Schoenblum
Acting President
Dated: December 12, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and the
capacities and on the dated indicated:
Dated: December 12, 1995 /s/Robert I. Bernstein
Robert I. Bernstein
Chairman of the Board
Dated: December 12, 1995 /s/Ervin Schoenblum
Ervin Schoenblum, Acting President
& Director
Dated: December 12, 1995 /s/Joseph P. Macaluso
Joseph P. Macaluso
Principal Accounting Officer
Dated: December 12, 1995 /s/Michael Bernstein
Michael Bernstein, Director
Dated: December 12, 1995 /s/George M. Pavia
George M. Pavia, Director
Dated: December 12, 1995 /s/Abraham H. Nechemie
Abraham H. Nechemie, Director
22
<PAGE>
ELECTRO-CATHETER CORPORATION
Index to Financial Statements
Page
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets - August 31, 1995 and 1994 F-2
Statements of Operations - Years ended August 31, 1995,
1994 and 1993 F-3
Statements of Stockholders' Equity - Years ended August 31,
1995, 1994 and 1993 F-4
Statements of Cash Flows - Years ended August 31, 1995,
1994 and 1993 F-5
Notes to Financial Statements F-7
Financial Statement Schedule:
VIII - Valuation and Qualifying Accounts F-18
All other schedules are omitted for the reason that they are not required
or are not applicable or the required information is shown in the financial
statements or notes thereto.
<PAGE>
Independent Auditors' Report
The Board of Directors
Electro-Catheter Corporation:
We have audited the financial statements of Electro-Catheter Corporation as
listed in the accompanying index. In connection with our audits of the financial
statements, we have also audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule 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 Electro-Catheter
Corporation at August 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three-year period ended August 31,
1995 in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has limited working capital resources which raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Short Hills, New Jersey
November 9, 1995
F-1
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Balance Sheets
August 31, 1995 and 1994
<CAPTION>
August 31, August 31,
1995 1994
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 304,385 376,388
Accounts receivable, less
allowance for doubtful
accounts of $76,796 in 1995
and $21,776 in 1994 1,206,288 1,064,774
Inventories 2,093,079 1,803,290
Prepaid expenses and other current assets 43,030 139,779
------ -------
Total current assets 3,646,782 3,384,231
Property, plant and equipment, net 598,787 723,750
Other assets, net 135,947 162,432
------- -------
Total assets $ 4,381,516 4,270,413
============ =========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 13,055 18,196
Accounts payable, trade 702,137 594,411
Accrued expenses 426,173 409,771
------- -------
Total current liabilities 1,141,365 1,022,378
Subordinated debentures due to
T-Partnership 1,200,000 625,000
Long-term debt, excluding current installments - 13,043
--------- ------
Total liabilities 2,341,365 1,660,421
--------- ---------
Stockholders' equity:
Common stock $.10 par value.
Authorized 20,000,000 shares;
issued 6,336,300 in 1995 and
5,762,324 in 1994 633,630 576,232
Additional paid-in capital 10,615,298 10,106,647
Accumulated deficit (9,208,777) (8,072,887)
---------- ----------
Total stockholders' equity 2,040,151 2,609,992
--------- ---------
- -
Commitments and contingencies --------- ---------
Total liabilities and
stockholders' equity $ 4,381,516 4,270,413
============= =========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
ELECTRO-CATHETER CORPORATION
<TABLE>
Statements of Operations
Years ended August 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 7,263,424 7,247,660 8,155,258
Cost of goods sold 3,861,591 4,126,989 4,152,350
--------- --------- ---------
Gross profit 3,401,833 3,120,671 4,002,908
Operating expenses:
Selling, general and
administrative 3,438,811 3,397,306 3,462,959
Research and development 931,956 1,211,985 1,332,755
------- --------- ---------
Operating loss (968,934) (1,488,620) (792,806)
Other income (expense):
Interest income 1,102 2,761 36,358
Interest expense (168,058) (92,656) (47,193)
Other, principally proceeds from
settlement of litigation - 206,600 -
------- ------- -------
Net loss $(1,135,890) (1,371,915) (803,641)
=========== ========== ========
Net loss per common share $ (0.18) (0.24) (0.14)
===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Statements of Stockholders' Equity
Years ended August 31, 1995, 1994 and 1993
<CAPTION>
Additional Total
Common paid-in Accumulated stockholders'
stock capital deficit equity
<S> <C> <C> <C> <C>
Balances at August 31, 1992 $ 547,899 9,722,367 (5,897,331) 4,372,935
Conversion of debentures to
common stock 16,000 184,000 - 200,000
Stock options exercised 3,928 31,936 - 35,864
Employee stock plan 1,045 20,061 - 21,106
Net loss - - (803,641) (803,641)
-------- -------- -------- --------
Balances at August 31, 1993 568,872 9,958,364 (6,700,972) 3,826,264
Stock options exercised 6,620 55,168 - 61,788
Employee stock plan 740 14,990 - 15,730
Proceeds from issuance of
stock warrants - 78,125 - 78,125
Net loss - - (1,371,915) (1,371,915)
------- ------ ---------- ----------
Balances at August 31, 1994 576,232 10,106,647 (8,072,887) 2,609,992
Employee stock plan 248 1,988 - 2,236
Common stock issued under private placement 57,150 442,913 - 500,063
Proceeds from issuance of stock warrants - 63,750 - 63,750
Net loss - - (1,135,890) (1,135,890)
------- ------ ---------- ----------
Balances at August 31, 1995 $ 633,630 10,615,298 (9,208,777) 2,040,151
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Statements of Cash Flows
Years ended August 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Decrease in cash and cash equivalents:
Cash flows from operating activities:
Cash received from customers $ 7,066,890 7,041,259 8,166,474
Cash paid to vendors and employees (8,110,000) (7,692,414) (9,706,515)
Interest received 1,102 2,761 38,988
Interest paid (101,967) (51,891) (51,195)
Proceeds from settlement of litigation - 200,000 -
------- ------- -------
Net cash used in operating activities $(1,143,975) (500,285) (1,552,248)
Cash flows from investing activities:
Proceeds from sales of property, plant
and equipment - 6,600 -
Purchases of property, plant
and equipment (12,143) (44,952) (147,741)
------- ------- --------
Net cash used in investing activities $ (12,143) (38,352) (147,741)
------------ ------- --------
Cash flows from financing activities:
Net proceeds from issuance of stock 500,063 - -
Net proceeds from issuance of
subordinated debentures and warrants 575,000 625,000 -
Proceeds from exercise of
stock options - 61,788 35,864
Proceeds from employee stock
purchase plan 2,236 15,730 21,106
Proceeds from loan on officer's
life insurance policy 25,000 100,000 -
Repayment of debt (18,184) (312,405) (230,090)
------- -------- --------
Net cash provided by (used in)
financing activities 1,084,115 490,113 (173,120)
--------- ------- --------
Net decrease in cash (72,003) (48,524) (1,873,109)
Cash and cash equivalents
at beginning of year 376,388 424,912 2,298,021
------- ------- ---------
Cash and cash equivalents
at end of year $ 304,385 376,388 424,912
============ ======= =======
Non-cash financing activities:
Conversion of subordinated
debentures to common stock $ - - 200,000
=========== ======= =======
</TABLE>
(Continued)
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
ELECTRO-CATHETER CORPORATION
Statements of Cash Flows, Continued
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net loss to net cash
used in operating activities:
Net loss $(1,135,890) (1,371,915) (803,641)
Adjustments:
Depreciation and amortization 137,106 137,795 141,997
Amortization of deferred charges 61,708 30,167 -
Gain on disposal of property, plant
and equipment - (6,600) -
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable, net (141,514) (206,401) 11,216
Increase (decrease)in inventories (289,789) 639,520 (772,374)
Decrease (increase) in prepaid
expenses and other current assets 96,749 29,626 (2,074)
Decrease (increase) in other assets, net 3,527 29,554 (25,857)
Increase (decrease) in accounts
payable and accrued expenses 124,128 217,969 (101,515)
------- ------- --------
Net cash used in
operating activities $(1,143,975) (500,285) (1,552,248)
=========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements
August 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
(a) Revenue Recognition
Revenues are recognized at the time of shipment and provisions,
when appropriate, are made where the right to return exists.
(b) Cash and Cash Equivalents
For purposes of the statements of cash flows, Electro-Catheter
Corporation (the "Company") considers all highly liquid
investments purchased with an original maturity of three months
or less to be cash equivalents. Cash equivalents are carried at
cost which approximates market value.
(c) Inventory Valuation
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost. Plant and
equipment are depreciated using the straight-line method over
the estimated useful lives of the assets.
Repairs and maintenance costs are charged to operations as
incurred.
Betterments are capitalized. Leasehold improvements are amortized
over the term of the lease or the useful life of the asset,
whichever is shorter.
When assets are retired or otherwise disposed, the cost and
related accumulated depreciation are removed from the related
accounts, and any resulting gain or loss is recognized in
operations for the period.
(e) Research and Development
Research and development costs are charged to expense when
incurred.
(f) Income Taxes
Effective September 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". It requires an asset and liability approach for
financial accounting and reporting for deferred income taxes.
Prior to the adoption of SFAS 109, deferred income taxes were
provided to recognize the effect of timing differences between
financial statement and income tax accounting.
(Continued)
F-7
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(1) Summary of Significant Accounting Policies, cont.
(g) Patents and Trademarks
Patents and trademarks are recorded at cost and are amortized on a
straight-line basis over their useful lives. Such costs, net of
accumulated amortization, are included in other assets, net in
the accompanying balance sheets.
(h) Loss Per Share
Loss per share is computed using the weighted average number of
shares outstanding during each year. Shares issuable upon
exercise of outstanding stock options, warrants and conversion
of debentures are not included in the computation of loss per
share because the result of their inclusion would be
anti-dilutive.
The weighted average number of shares of common stock used in the
computation of loss per share was approximately 6,027,000 in
1995, 5,711,000 in 1994 and 5,572,200 in 1993.
(i) Concentration of Credit Risk
The Company's trade accounts receivable are disbursed principally
among various hospitals and distributors of medical products.
As of August 31, 1995 the Company believes it has no
significant concentration of credit risk with its trade
accounts receivable.
(2) Liquidity
The accompanying financial statements have been prepared on a going
concern basis which contemplates the continuation of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. The
Company incurred net losses of $1,135,890, $1,371,915 and $803,641 for the years
ended August 31, 1995, 1994 and 1993, respectively, and at August 31, 1995 had
an accumulated deficit of $9,208,777. The net losses incurred by the Company
have consumed working capital and weakened the Company's financial position.
During 1995, the Company was able to satisfy its cash shortfall from operating
activities with the borrowings from the T-Partnership, the proceeds from the
sale of stock to the T-Partnership and cash on hand. The Company's ability to
continue in business is dependent upon its success in generating sufficient cash
flow from operations or obtaining additional financing. The Company continues to
re-evaluate its plans and adopt certain cost reduction measures. The Company is
attempting to increase sales by examining and, where appropriate, modifying its
distribution network, utilizing aggressive pricing and introducing new products
to market. The Company's ability to continue as a going concern is dependent
upon the successful implementation of the aforementioned programs. There can be
no assurances that these programs can be successfully implemented. The financial
statements do not include any adjustments relating to the recoverability and
classifications of reported asset amounts or the amounts of liabilities that
might result from the outcome of this uncertainty.
(Continued)
F-8
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(3) Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Finished goods $ 938,224 805,120
Work-in-process 644,957 512,525
Materials and supplies 509,898 485,645
------- -------
$ 2,093,079 1,803,290
============ =========
</TABLE>
(4) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 38,400 38,400
Building 153,597 153,597
Building improvements 947,956 947,956
Equipment 2,222,694 2,216,192
Office furniture and
equipment 512,034 506,540
Leasehold improvements 340,382 340,382
Sales equipment and
diagnostic computers 591,965 597,228
------- -------
4,807,028 4,800,295
Less accumulated deprecia-
tion and amortization 4,208,241 4,076,545
--------- ---------
Net property, plant
and equipment $ 598,787 723,750
========= =======
</TABLE>
(5) Accrued Expenses
The components of accrued expenses consisted of the following:
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Accrued salaries, wages and
payroll taxes $ 322,552 272,929
Other expenses 103,621 136,842
------- -------
$ 426,173 409,771
========= =======
</TABLE>
(Continued)
F-9
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(6) Convertible Debentures Due to T-Partnership
In September 1990, the Company issued two convertible subordinated
debentures to the T-Partnership for $100,000 each. The
debentures bore interest at the greater of 12% or one point
over the prime interest rate on the first business day of each
calendar quarter. Each debenture matures ten years from the
date of issuance, except that the Company has the option to
retire the debentures any time subsequent to three years after
the issuance date.
The holder of the debentures had the right, at its option, to
convert the debenture into common stock of the Company at the
conversion price of $1.25 per share. Such debentures were
converted into 160,000 shares of the Company's common stock in
December 1992.
(7) Subordinated Debentures Due to T-Partnership
On October 11, 1993, the Company entered into an agreement with
the T-Partnership to borrow up to $1,000,000. Ervin
Schoenblum, the Company's Acting President and director, and
another member of the Company's Board of Directors are members
of the T-Partnership. As of August 31, 1995, the Company had
drawn down all of the $1,000,000.
On August 31, 1995, the Company entered into an agreement with the
T-Partnership to borrow an additional $500,000 and combine
such loan with the original $1,000,000 for a total loan due to
the T-Partnership of $1,500,000. The T-Partnership agreed to
lend the Company $200,000 on the execution of this agreement
and, at the Company's request, an additional sum of $300,000.
The rate of interest is 12% per annum and is payable monthly on
any outstanding balance. Principal payments of $20,000 were
scheduled to commence on September 1, 1995 for the original
$1,000,000. However, the new agreement provides for repayment
to begin on September 1, 1996 with installments of $25,000 each
month. Any remaining balance is due on August 1, 2001. The loan
is secured by the Company's property, building, accounts
receivable, inventories and machinery and equipment. The
Company must prepay the outstanding balance in the event the
Company is merged into or consolidated with another corporation
or the Company sells all or substantially all of its assets.
Under the provisions of the original agreement, the T-Partnership
was granted purchase warrants which permitted the T-Partnership
to purchase 166,667 shares of the Company's common stock at a
price of $3.25 per share. The new agreement states that the
T-Partnership will surrender its original purchase warrant to
purchase 166,667 shares of common stock and be granted a new
purchase warrant to purchase 500,000 shares of the Company's
common stock at a price of $0.9875 per share. The warrants are
immediately exercisable and expire on August 1, 2001.
In October 1995, the Company borrowed an additional $150,000 under
this agreement and in November 1995, the remaining $150,000 was
borrowed.
(Continued)
F-10
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(8) Other Long-Term Debt
Other long-term debt is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage $13,055 31,239
------- ------
Less current portion 13,055 18,196
------ ------
Long-term portion $ -0- 13,043
====== ======
</TABLE>
The mortgage is payable monthly in installments of $1,684,
including interest at 8.75%, and is secured by the Company's
facility in Rahway, New Jersey. The mortgage was paid in full
in October 1995.
The annual maturities for long-term debt, including subordinated
debentures due to the T-Partnership for the five years
subsequent to August 31, 1995 are as follows:
1996 $ 13,055
1997 300,000
1998 300,000
1999 300,000
2000 300,000
During September 1993, the Company borrowed $100,000 against the
cash surrender value of the life insurance policy of the
Chairman of the Company. During June 1995, the Company borrowed
an additional $25,000 on this policy. Interest on the loan is
6%. The loan was recorded as a reduction in the policy's cash
surrender value which is included in other assets in the
accompanying balance sheets.
(Continued)
F-11
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(9) Stock Options
On May 20, 1987, the Company's stockholders approved the 1987
Incentive Stock Option Plan (the "1987 Plan"). Under the 1987
Plan, 225,000 shares of authorized but unissued shares of
Common Stock, $.10 par value, of the Company were set aside to
provide an incentive for officers and other key employees to
render services and make contributions to the Company. Options
may be granted at not less than their fair market value at the
date of grant and are exercisable at such time provided by the
grants during the five-year period beginning on the date of
grant.
On May 23, 1990, the Company's stockholders approved the 1990
Incentive Stock Option Plan (the "1990 Plan"). The terms of the
1990 Plan are substantially the same as the terms of the 1987
Plan. The 1990 Plan provides for the reservation of 225,000
shares of common stock for issuance thereunder.
On July 15, 1992, the Company's stockholders approved the 1992
Incentive Stock Option Plan (the "1992 Plan"). The terms of the
1992 Plan are substantially the same as the terms of the 1987
and 1990 Plans. The 1992 Plan likewise provides for the
reservation of 225,000 shares of common stock for issuance
thereunder.
On April 1, 1992, the Board of Directors adopted the 1992 Non-
Qualified Stock Option Plan pursuant to which options to
purchase 200,000 shares of common stock may be granted to
directors, officers and key employees. Options may be granted
at a price determined by the Board of Directors, but not less
than 80% of the fair market value at the date of grant. Options
are exercisable at such time provided by the grants, but each
option granted shall terminate no longer than five years after
the date of grant.
On July 15, 1992, the Board of Directors granted five-year options
to purchase 5,000 shares at $1.50 per share, representing the
fair market value at the date of grant to each of its four
non-employee directors in accordance with the Company's 1992
Non-Qualified Stock Option Plan. As of August 31, 1995, all
these options remain outstanding.
On January 24, 1994, the Company granted 25,000 stock options to
the Company's Acting President. These options were issued at
$2.375 per share, the fair market value price on the day of
grant.
In July 1994, the Company extended the expiration date of certain
outstanding options held by two members of its Board of
Directors. The resulting compensation expense is being
amortized over the extension period.
In October 1994, the Board of Directors voted in favor of offering
all employees, officers and directors holding options at a
price greater than $1.00 per share the opportunity to have
those options replaced by stock options at a price of $1.00 per
share, representing the fair market value at that time.
Accordingly, options to purchase 384,300 shares were terminated
and an equal number of new options were issued, which is
reflected in the table below. In addition, the Company also
granted 25,000 stock options to the Company's Acting President
at $1.00 per share.
(Continued)
F-12
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(9) Stock Options, cont.
A summary of all stock option activity follows:
<TABLE>
<CAPTION>
Number Option
of Price
Shares Per share Total
<S> <C> <C> <C>
Year ended August 31, 1993:
Granted 70,000 $ 2.25 - 2.75 182,500
Exercised 39,280 .88 - 1.50 35,864
Cancelled or expired 45,000 .88 - 2.50 91,438
Outstanding at August 31, 1993 638,600 .88 - 5.00 1,117,462
======= ========= =========
Year ended August 31, 1994:
Granted 253,200 $ 2.25 - 2.75 644,625
Exercised 66,200 .88 - 2.50 61,788
Cancelled or expired 344,800 .88 - 2.75 617,225
Outstanding at August 31, 1994 480,800 .88 - 5.00 1,083,074
======= ========= =========
Year ended August 31, 1995:
Granted 405,300 .81 - 1.14 407,025
Cancelled or expired 395,800 1.19 - 2.75 791,338
Outstanding at August 31, 1995 490,300 .81 - 5.00 698,761
======= ========= =========
</TABLE>
Options to acquire 223,060 shares of common stock were exercisable at
August 31, 1995.
(10) Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the Plan) which
provides for the issuance of a maximum of 75,000 shares of the
Company's common stock which will be made available for sale
under the Plan's first offering.
After the first offering, subsequent offerings shall be made only
upon the recommendation of the committee administering the
Plan. Common stock can be purchased through employee-authorized
payroll deductions at the lower of 85% of the fair market value
of the common stock on either the first or last day of trading
of the stock during the calendar year. It is the intention of
the Company that the Plan qualify under Section 423 of the
Internal Revenue Code. The Company's Board of Directors
authorized extension of the Plan to January 1, 1996. During
1995, 1994 and 1993, 2,476, 7,403 and 10,455 shares,
respectively, were purchased under the Plan.
(11) Preferred Stock, Common Stock and Paid-in Capital
The Company is authorized to issue up to 1,000,000 shares of
preferred stock. As of August 31, 1995, no preferred shares
have been issued.
In August 1992, the Company sold 1,666,666 shares of common stock
in a private placement at $1.20 per share for gross proceeds of
approximately $2,000,000. The costs associated with this
private placement were approximately $75,000 and have been
netted against the proceeds of the private placement. As
(Continued)
F-13
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(11) Preferred Stock, Common Stock and Paid-in Capital, cont.
compensation for its services the placement agent was granted
a warrant to purchase 200,000 shares of common stock of the
Company at an exercise price of $1.80 per share. This warrant
expires August 31, 1997. In connection with the aforementioned
private placement, 833,333 shares were purchased by officers
and directors of the Company or by their affiliates.
The Company has a lending agreement with the T-Partnership (see
note 7). Under the agreement with the T-Partnership a purchase
warrant was issued which permits the T-Partnership to purchase
500,000 shares of the Company's common stock at a price of
$0.9875 per share. A portion of the amount borrowed has been
allocated to the warrants based upon their estimated fair
market value at the date of the agreement with a corresponding
amount being credited to additional paid-in capital. Such
amount ($50,000) is amortized as additional interest expense
over the term of the indebtedness. The unamortized balance is
shown in other assets in the accompanying 1995 balance sheet.
In March 1995, the T-Partnership purchased 571,500 shares of the
Company's restricted common stock, $.10 par value, in a private
placement at $.875 per share for gross proceeds of
approximately $500,000. In connection with this private
placement, the Company also issued to the T-Partnership a
purchase warrant to purchase 83,344 shares of the Company's
common stock at an exercise price of $1.425 per share. This
warrant will expire five years from the date of the agreement.
Ervin Schoenblum, the Company's Acting President and director,
and another member of the Company's Board of Directors are
members of the T-Partnership.
(12) Income Taxes
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", as of September
1, 1993. Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences
between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. The effects of
adopting SFAS 109 were not material to the financial statements
at September 1, 1993.
(Continued)
F-14
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(12) Income Taxes, cont.
At August 31, 1995 and 1994, the tax effects of temporary
differences that give rise to the deferred tax assets and
deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1995 1994
---- ----
<S> <C> <C>
Inventories $ 104,000 165,000
Accounts receivable,
due to allowance for
doubtful accounts 18,000 5,000
Contribution carryover 23,000 20,000
Compensated absences 27,000 32,000
Federal and state net
operating loss carryforwards 2,549,000 2,263,000
Research and development
and investment tax credit
carryforwards 850,000 831,000
------- -------
Total gross deferred
tax assets 3,571,000 3,316,000
Less valuation allowance 3,519,000 3,259,000
--------- ---------
Net deferred tax assets 52,000 57,000
Deferred tax liabilities:
Excess of tax over financial
statement depreciation (52,000) (57,000)
------- -------
Net deferred tax $ -0- -0-
======= =======
</TABLE>
A valuation allowance is provided when it is more likely than not
that some portion or all of the deferred tax assets will be
realized. The valuation allowance for deferred tax assets as of
September 1, 1994 was $3,259,000. The net change in the total
valuation allowance for the year ended August 31, 1994 was an
increase of $319,000.
(Continued)
F-15
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(12) Income Taxes, cont.
At August 31, 1995, the Company had available net operating loss
carryforwards, research and development and investment tax
credit carryforwards that expire as follows:
<TABLE>
<CAPTION>
Net Research
operating and Invest-
loss develop- ment
Expiration carry- ment tax
forwards credits credits
<S> <C> <C> <C>
1999 $ - 25,000 -
2000 - 275,000 35,000
2001 4,417,000 246,000 43,000
2002 2,063,000 - -
2003 690,000 - -
2004 268,000 - -
2005 46,000 - -
2006 223,000 - -
2007 454,000 - -
2008 763,000 102,000 -
2009 1,293,000 105,000 -
2010 1,227,000 19,000 -
========= ====== ====
</TABLE>
(13) Segment Data
The Company operates in one business segment. Export sales were
approximately $1,964,000 in 1995, $1,718,000 in 1994 and
$2,164,000 in 1993. Sales to the only domestic distributor of
the Company's products totalled approximately $765,000 in 1995,
$1,261,000 in 1994 and $1,336,000 in 1993, representing
approximately 11% of net sales in 1995, 17% in 1994 and 16% in
1993. The agreement with this distributor was terminated on May
31, 1995.
(14) Related Party Transactions
During fiscal year 1994 and 1993, a director of the Company who is
associated with the T-Partnership was retained as a management
consultant to the Company. The Company incurred fees from this
individual in the amounts of approximately $16,000 in 1994 and
$26,000 in 1993. In December 1993, this individual became the
Acting President of the Company and still holds that position.
(15) Commitments and Contingencies
(a) The Company has agreements to lease facilities and equipment
for use in the operations of the business under operating
leases. The Company incurred rental expenses in connection with
these leases of approximately $148,000 in 1995, $155,000 in
1994 and $152,000 in 1993.
(Continued)
F-16
<PAGE>
ELECTRO-CATHETER CORPORATION
Notes to Financial Statements, Continued
(15) Commitments and Contingencies, cont.
The following is a schedule of future minimum rental payments for
operating leases which expire through 1998:
1996 $ 26,687
1997 22,007
1998 6,877
-----
(b) In October 1995, the Company entered into two leases that meet
the requirements for capitalization. Both leases are for a
duration of five years with combined annual payments of
approximately $13,000.
(c) The Company is involved in certain claims and litigation
arising in the normal course of business. Management believes,
based on the opinion of counsel representing the Company in
such matters, that the outcome of such claims and litigation
will not have a material effect on the Company's financial
position and results of operations.
F-17
<PAGE>
<TABLE>
Schedule VIII
ELECTRO-CATHETER CORPORATION
Valuation and Qualifying Accounts
<CAPTION>
Addition
Balance charged
at begin- to cost Balance
ing of and Write- at end
Description year expenses offs of year
<S> <C> <C> <C> <C>
1995 Allowance for doubtful accounts $ 21,776 55,020 - 76,796
======== ====== ====== ======
1994 Allowance for doubtful accounts $ 28,139 - 6,363 21,776
======== ====== ====== ======
1993 Allowance for doubtful accounts $ 42,000 - 13,861 28,139
======== ====== ====== ======
</TABLE>
F-18
LENDING AGREEMENT
AGREEMENT dated as of August 31, 1995 between ELECTRO-CATHETER CORPORATION,
a New Jersey corporation with offices at 2100 Felver Court, Rahway, New Jersey
07065 (the "Borrower") and THE T-PARTNERSHIP, a New Jersey partnership with
offices c/o Wiss & Co., 354 Eisenhower Parkway, Livingston, New Jersey 07039
(the "Lender").
1. Loan. The Lender agrees to lend to the Borrower on execution of this
Agreement the sum of $1,200,000 and at Borrower's request, additional sums from
time to time after October 2, 1995 up to an additional $300,000 (in one or more
advances of not less than $100,000) for a total loan of $1,500,000. The Lender
shall have no obligation to make further advances hereunder at any time after an
event of default ("Event of Default") by Borrower of any of its obligations
under the Loan Documents (as hereinafter defined), but if Lender shall at the
request of Borrower make additional advances (up to a total loan of $1,500,000),
the terms of this Loan Agreement and the Loan Documents shall be applicable to
all such advances.
2. Procedure for Borrowing. The Borrower is delivering to the Lender
simultaneously with the execution of this Agreement a Debenture in the form of
Exhibit A attached hereto and a Warrant in the form of Exhibit B attached
hereto.
3. Security. As security for the Debentures to be issued to Lender under
this Agreement, the Borrower is, simultaneously with the execution of this
Agreement, executing and delivering to Lender a Security Agreement in the form
of Exhibit C attached hereto. (This Agreement, the Debenture, the Warrant and
the Security Agreement are collectively designated the "Loan Documents").
Borrower shall additionally at Lender's request, at such time as Borrower has
repaid to Valley National Bank indebtedness secured by its first mortgage,
deliver to Lender a first lien mortgage on Borrower's real property in form
reasonably satisfactory to Lender (which mortgage, upon delivery, shall also
constitute a Loan Document).
4. Status of Borrower. The Borrower represents that it is a corporation
duly organized and existing under the laws of the State of New Jersey; that it
is authorized to borrow under this Agreement, to execute and deliver the Loan
Documents and otherwise perform the obligations of this Agreement; that it has
corporate authority and power to own its property and conduct its business as it
is currently carried on; that the performance of its obligations under the Loan
Documents will not conflict with any provision of law, the Certificate of
Incorporation or the By-laws of the Borrower, or any agreement binding on it;
and that, except as previously disclosed in writing to the Lender, it is not a
party to any pending or threatened litigation or to any proceeding or action for
the assessment or collection of additional taxes, and that it knows of no
contingent liabilities not provided for or disclosed in filings made with the
Securities and Exchange Commission ("SEC") and made available to the Lender.
5. Lender Representations. Lender understands and acknowledges that neither
the Warrant nor any shares of Common Stock issuable upon the exercise of the
Warrant, have been registered under the Securities Act of 1933, as amended (the
"Act") or under the state securities laws of any state and that the Warrant is
being issued and the shares of Common Stock issuable upon the exercise of the
Warrant will be issued in reliance on exceptions from the registration
requirements of the Act and applicable state securities laws. Lender and
Borrower are parties to a Purchase Agreement (the "Purchase Agreement") dated
February 24, 1995. As a condition to issuance of the Warrant, Lender hereby
reaffirms its representations set forth as "Purchaser" under Section 5 of the
Purchase Agreement, as if such representations referred to the Warrant to be
issued hereunder, the shares to be issued pursuant to the Warrant and this
Lending Agreement, and as if such representations were set forth at length
herein as applicable to these matters.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed.
ELECTRO-CATHETER CORPORATION
By:___________________________
THE T-PARTNERSHIP
By:____________________________
<PAGE>
EXHIBIT A
ELECTRO-CATHETER CORPORATION
12% DEBENTURE DUE AUGUST 1, 2001
Date of Issuance: August 31, 1995
$1,500,000
ELECTRO-CATHETER CORPORATION, a New Jersey corporation, (hereinafter called
the "Company"), for value received, promises to pay to THE T PARTNERSHIP or
registered assigns (the "Registered Holder" hereof) on August 1, 2001 (the
"Maturity Date") at the offices of the Company, the principal amount of
$1,500,000 (less any amount theretofore paid pursuant to (ii) below) in lawful
money of the United States of America, and to pay at the offices of the T
Partnership in like money (i) interest (computed on the basis of a 30-day month,
360-day year) on the unpaid principal amount from the date of the issuance
hereof at a rate of 12% per annum, payable on the first day of each month in
arrears (the "Payment Date(s)") until the principal hereof is paid, and (ii)
principal, in installments of $25,000 on the first day of each month commencing
September 1, 1996 until the principal is paid in full.
This Debenture has been issued pursuant to a Lending Agreement (the "Loan
Agreement") dated as of August 31, 1995 between the Company and The T
Partnership.
This Debenture is registered as to both principal and interest at the
principal office of the Company.
This Debenture is further subject to the following provisions.
1. Interest and Principal. Interest and principal (when due) on the
Debenture shall be payable on each Payment Date to the Registered Holder of this
Debenture as of the close of business on the day immediately preceding each
Interest Payment Date.
<PAGE>
2. Transfer; Exchange. The Registered Holder may transfer this Debenture
upon surrender of this Debenture at the principal office of the Company, and, in
such event, the Company shall execute and deliver, in the name of the designated
transferee or transferees, one or more new Debentures of any authorized
denominations, of a like aggregate principal amount. The foregoing
notwithstanding, the Company shall have no obligation to transfer this Debenture
on its books, and shall not do so, unless it shall have received evidence
satisfactory to counsel for the Company that the transfer will not violate the
Securities Act of 1933, as amended, or any of the rules and regulations
promulgated thereunder, or the securities laws of any state.
At the option of the Registered Holder, the Debenture(s) may be exchanged
for other Debentures of any authorized denominations, of a like aggregate
principal amount, upon surrender of the Debentures to be exchanged at the
principal office of the Company. Whenever any Debentures are so surrendered for
exchange, the Company shall execute and deliver the Debentures which the
Registered Holder is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of
Debentures shall be valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits as the Debentures surrendered upon such
registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
No service charge will be made for any registration of transfer or exchange
of Debentures, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Debentures.
Prior to due presentment of a Debenture for registration of transfer, the
Company, and any agent of the Company may treat the Person in whose name such
Debenture is registered as the owner of such Debenture for the purpose of
receiving payment of principal of (and premium, if any) and interest on such
Debenture and for all other purposes whatsoever, whether or not such Debenture
be overdue, and neither the Company nor any agent of the company shall be
affected by notice to the contrary.
<PAGE>
3. Remedies.
3.1 Events of Default. "Event of Default", wherever used in this Debenture,
means any one of the following events:
(a) default in the payment of any installment of interest upon this
Debenture on any Payment Date, and continuance of such default for a period of
15 days; or
(b) failure to pay the principal on the Debenture(s) when due and
continuance of such default for a period of 15 days; or
(c) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company (including obligations under
leases required to be capitalized on the balance sheet of the lessee under
generally accepted accounting principles but not including any indebtedness or
obligation for which recourse is limited to property purchased) in an aggregate
principal amount in excess of $300,000 or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company (including such
leases but not including such indebtedness or obligation for which recourse is
limited to property purchased) in an aggregate principal amount in excess of
$300,000 by the Company, whether such indebtedness now exists or shall hereafter
be created, which default shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled within a period of 30 days after
there shall have been given, by registered or certified mail, to the Company by
Registered Holders of at least 50% of the principal amount of the Debentures a
written notice specifying such default and requiring the Company to cause such
acceleration to be rescinded or annulled and stating that such notice is a
"Notice of Default" hereunder; or
<PAGE>
(d) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or composition
of or in respect of the Company, under Federal bankruptcy law, as now or
hereafter constituted, or any other applicable Federal or State bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator, trustee,
or other similar official of the Company or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
60 consecutive days; or
(e) the commencement by the Company of a voluntary case under Federal
bankruptcy law, as now or hereafter constituted, or any other applicable Federal
or State bankruptcy, insolvency, or other similar law, or the consent by it to
the institution or bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under Federal bankruptcy law or any other applicable Federal or State law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action; or
(f) an Event of Default, as defined in the Loan Agreement.
3.2 Acceleration of Maturity: Rescission and Annulment. If an Event of
Default occurs and is continuing, then and in every such case the Registered
Holders of not less than 50% of the principal amount of the Debentures may
declare the principal of all the Debentures to be due and payable immediately,
by notice in writing to the Company and upon any such declaration such principal
shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained, the
Registered Holders of a majority of the principal amount of the Debentures, by
written notice to the Company, may rescind and annul such declaration and its
consequences. No such rescission shall affect any subsequent default or impair
any right consequent thereon.
<PAGE>
3.3 Delay or Omission Not Waiver. No delay or omission of the Registered
Holder to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or any acquiescence therein. Every right and remedy given by this
Section or by law to the Registered Holder may be exercised from time to time,
and as often as may be deemed expedient.
3.4 No Recourse. No recourse shall be had for the payment of the principal
of or the interest on, this Debenture, or any part hereof, or for any claim
based hereon or otherwise in respect hereof or of the indebtedness represented
hereby against any incorporator, stockholder, officer or director, as such, past
present or future, of the Company, either directly or through the Company,
whether by virtue of any constitutional provision, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise.
4. Covenants.
4.1 Payment of Principal, Premium and Interest. The Company will duly and
punctually pay the principal of and interest on the Debentures in accordance
with the terms of the Debentures.
4.2 Maintenance of Office or Agency. The principal office of the Company on
the Date of Issuance hereof is located at 2100 Felver Court, Rahway, New Jersey
07065. The Company will give prompt written notice to the Registered Holder of
any change in the location of its principal offices.
The Company may also from time to time designate one or more other offices
where the Debenture(s) may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations. The Company will
give prompt written notice to the Registered Holder of any such designation or
rescission and of any change in the location of any such office.
<PAGE>
4.3 Company Existence. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (statutory and other) and franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and the loss
thereof is not disadvantageous in any material respect to the Registered Holder.
5. Prepayment.
5.1 The Company may prepay the Debenture in whole or in part at any time.
5.2 The Company shall prepay the Debenture in the event that either:
(i) the Company is merged into or consolidated with another corporation, or
(ii) the Company sells all or substantially all of its assets.
6. Miscellaneous.
6.1 Notice to the Company. For purposes of this Debenture, notice of the
events contemplated herein to be given by the Registered Holder shall be deemed
given if sent in writing by certified mail, return receipt requested, to the
Company at its principal office as follows, unless otherwise designated by the
Company:
Electro-Catheter Corporation
2100 Felver Court
Rahway, New Jersey 07065
6.2 Notice to Registered Holder. When this Debenture provides for notice to
the Registered Holder of any event, such notice shall be sufficiently given if
in writing and mailed, first-class postage prepaid, to the Holder, at such
Holders address as it appears in the Debenture Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Holder is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders.
6.3 Governing Law. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its seal.
ELECTRO-CATHETER CORPORATION
By:______________________________
Attest:
- ---------------------------
Arlene Bell, Secretary
<PAGE>
EXHIBIT B
NEITHER THIS WARRANT NOR THE
UNDERLYING SHARES OF COMMON STOCK HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, ("ACT") OR UNDER THE SECURITIES
LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND APPLICABLE STATE
SECURITIES LAWS. THE WARRANT AND THE UNDERLYING
SHARES OF COMMON STOCK ARE SUBJECT TO RESTRICTION ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM
VOID AFTER AUGUST 1, 2001
ELECTRO-CATHETER CORPORATION
COMMON STOCK PURCHASE WARRANT
August 31, 1995
THIS CERTIFIES THAT, for value received, The T Partnership or registered
assigns, is hereby granted the right to purchase, at any time from 9:00 A.M. New
York City time on August 31, 1995 until 5:00 P.M., New York City time, on August
1, 2001 (the "Expiration Date") 500,000 fully paid and non-assessable shares of
the common stock, $.10 par value per share ("Common Stock"), of Electro-Catheter
Corporation (the "Company"). This Warrant is exercisable at a price of 98.75
cents per share of Common Stock (the "Purchase Price").
The holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Assignment and Registration of Warrant.
Subject to the provisions hereof, this Warrant may be transferred on the
books of the Company, wholly or in part, in person or by attorney, upon
surrender of this Warrant with the form of Assignment attached hereto duly
completed and executed, with signature guaranteed. This Warrant shall be
cancelled upon such surrender and a new Warrant or Warrants shall be issued by
the Company, in the name of the person to whom such transfer is made as to the
portion of this Warrant transferred, and in the name of the holder of this
Warrant as to any portion not transferred. The holder hereof consents and agrees
that the Company may treat the person in whose name this Warrant is registered
on the books of the Company as the absolute owner hereof for all purposes and
that the Company shall not be affected by any notice to the contrary. The
foregoing notwithstanding, the Company shall have no obligation to transfer this
Warrant on its books, and shall not do so, unless it shall have received
evidence satisfactory to counsel for the Company that the transfer will not
violate the Securities Act of 1933, as amended, or any of the rules and
regulations promulgated thereunder, or the securities laws of any state.
<PAGE>
2. Exercise of Warrant.
The purchase rights represented by this Warrant are exercisable at the
option of the holder hereof, in whole or in part (but not as to fractional
shares of the Common Stock), at any time prior to the Expiration Date. In the
case of the purchase of less than all the shares of Common Stock purchasable
under this Warrant, the Company shall cancel this Warrant upon the surrender
hereof and shall execute and deliver a new Warrant of like tenor for the balance
of the shares of Common Stock purchasable hereunder. This Warrant may be
exercised by surrender of the Warrant with the annexed Exercise Form duly
completed and executed together with the full Purchase Price in cash or by check
for the number of shares of Common Stock as to which this Warrant is exercised,
at the Company's principal executive offices located at 2100 Felver Court,
Rahway, New Jersey 07065. Upon the exercise of this Warrant, the registered
holder hereof shall be entitled to receive a certificate or certificates for the
number of shares of Common Stock purchased upon such exercise and a new Warrant
or Warrants representing any unexercised portion of this Warrant. Each person in
whose name any certificates for Common Stock are issued shall, for all purposes,
be deemed to have become the holder of record of such Common Stock at the close
of business on the date of exercise of this Warrant, irrespective of the date of
delivery of such certificate, except that if the transfer books of the Company
are closed on such date, such person shall be deemed to have become the holder
of record of such Common Stock at the close of business on the next succeeding
date on which the transfer books are open. Nothing in this Warrant shall be
construed as conferring upon the holder hereof any rights as a shareholder of
the Company.
<PAGE>
3. Issuance of Stock Certificates.
The issuance of certificates for shares of Common Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 1
hereof) be issued in the name of, or in such names as may be directed by, the
holder hereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of such certificate in a name other than that of the holder and the
Company shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
4. Adjustments.
In the event that (i) the outstanding shares of Common Stock of the Company
are at any time increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation and (ii) such increase, decrease or change occurs solely as
a result of a reorganization, merger, consolidation, liquidation, recapitali-
zation, or stock split, or a combination of shares or stock dividends payable
with respect to such Common Stock (as contrasted with a sale of Common Stock to
an existing or prospective shareholder), appropriate adjustment shall be made so
that the position of the holder upon exercise of this Warrant will be the same
as it would have been had the holder owned immediately prior to the occurrence
of such events the Common Stock subject to this Warrant. Such adjustment shall
be made successively whenever any event listed above shall occur.
5. Consolidation, Merger, Etc.
The Company shall give notice (prior, simultaneous, or subsequent to the
event in question, in the Company's discretion) to the registered holder of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation), or in the case of a sale or conveyance to another
corporation of all or substantially all of the assets of the Company. This
Warrant shall terminate on and may not be exercised, after 90 days have elapsed
from the date of such notice.
<PAGE>
6. Exchange and Replacement of Warrant.
This Warrant is exchangeable without expense, upon the surrender hereof by
the registered holder at the principal executive offices of the Company, for a
new warrant of like tenor and date representing in the aggregate the right to
purchase the same number of shares as are purchasable hereunder in such
denominations as shall be designated by the holder hereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor, in lieu of this
Warrant.
7. Elimination of Fractional Interests.
The Company shall not be required to issue stock certificates representing
fractions of shares of Common Stock, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated.
8. Restrictions on Transferability; Representations.
The holder of this Warrant understands and acknowledges that neither this
Warrant nor the shares of Common Stock issuable upon the exercise hereof
("Warrant Shares"), have been registered under the Securities Act of 1933, as
amended, (the "Act") or under the state securities laws of any state and this
Warrant is being issued and the shares of Common Stock issuable upon the
exercise of this Warrant will be issued in reliance on exemptions from the
registration requirements of the Act and applicable state securities laws.
<PAGE>
9. Incidental Registration Rights.
9.1. Incidental Registration. Subject to the limitations set forth in
Section 9.3 hereof, if, at any time during the five year period ending on the
date five years from the date of this Warrant, the Company proposes to register
any shares of its Common Stock under the Act (except for any registration on
Form S-8, or any similar form then in effect, of shares of its Common Stock to
be offered to employees pursuant to any employee benefit plans), it shall give
notice (the "Registration Notice") to the holder of such intention and shall
permit the holder to include in any such registration statement any issued and
outstanding Warrant Shares (the "Registrable Securities"). If, within twenty
(20) days of the giving of the Registration Notice, the holder notifies (the
"Inclusion Notice") the Company that it wishes to include the Registrable
Securities in such registration (which Inclusion Notice shall state the number
of Registrable Securities to be included and the proposed method of distribution
of same) the Company shall use its best efforts to cause all such Registrable
Securities to be included under the proposed registration for disposition by the
holder in accordance with the methods of disposition designated by the holder in
the Inclusion Notice. Notwithstanding the foregoing, the Company may, to the
extent then permitted by the Act, at any time prior to the time the subject
registration statement has become effective, determine not to effect such
registration, in which event the Company shall have no further obligation to
register the Registrable Securities as proposed.
9.2. Registration Procedures. If the Company is required by the provisions
of Section 9.1 to use its best efforts to effect the registration of any
Registrable Securities under the Act, the Company shall:
(a) prepare and file with the Securities and Exchange Commission ("SEC") a
registration statement and use its best efforts to cause such registration
statement to become effective and to remain effective for at least one hundred
twenty (120) days from the date of its effectiveness;
<PAGE>
(b) furnish to holder such number of copies of the prospectus forming a
part of such registration statement (including each preliminary prospectus), in
conformity with the requirements of the Act, and such other documents as holder
may reasonably request in order to facilitate the disposition of the Registrable
Securities as set forth in such prospectus; and
(c) use its best efforts to register the Registrable Securities under the
securities or "Blue Sky" laws of such jurisdictions as the holder shall
reasonably request; provided, however, that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action which would subject it to the service of process
in suits other than those arising out of the offer or sale of the securities
covered by such registration statement in any jurisdictions where it is not now
so subject.
9.3. Registration and Offering Expenses. All expenses incurred by the
Company in compliance with Section 9.1 shall be borne by the Company. All
underwriting discounts and expenses and/or selling commissions incurred by the
holder and all fees and disbursements of counsel for the holder shall be borne
by the holder.
9.4. Limitation on Obligations to Register. Anything in this Section 9 to
the contrary notwithstanding:
(a) it shall be a condition precedent to the obligation of the Company
under Section 9.1 that the Company shall have received an undertaking
satisfactory to it from the holder and from any underwriter of the Registrable
Securities, to indemnify and hold the Company harmless, from and against, any
losses, claims, damages, or liabilities to which the Company may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or allegedly untrue statement of any material fact contained in
any registration statement (as of the effective date thereof) under which the
Registrable Securities were registered under the Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein any material fact required to be stated therein and necessary to make
the statements therein not misleading, if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the holder (in his express capacity as a "holder", and not in his
capacity as a director, officer or shareholder of the Company) or any
underwriter specifically for use in the preparation of such registration
statement, preliminary prospectus, final prospectus or amendment or supplement
thereto;
<PAGE>
(b) it shall be a condition precedent to the obligation of the Company
under Section 9.1 that (i) the Company shall have received an undertaking
satisfactory to it from the holder to pay all counsel fees and selling expenses
required to be paid by holder pursuant to Section 9.3, (ii) the holder shall
have furnished to the Company such information regarding the holder, the
Registrable Securities and the intended method of disposition of the Registrable
Securities as the Company shall reasonably request and as shall be required
under the Act, and (iii) the Company shall have received an undertaking
satisfactory to it from holder that holder will notify the Company, at any time
when a prospectus relating to the Registrable Securities is in effect, of the
happening of any event relating to the holder, the Registrable Securities or the
intent and method of disposition thereof which would cause the prospectus to
include an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing; and
(c) the Company shall not be obligated to effect any registration of
Warrant Shares that have not been purchased by the holder upon due exercise of
the Warrant prior to or concurrently with the holder's delivery of the Inclusion
Notice pursuant to Section 9.1 hereof.
10. Reservation and Listing of Shares.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Purchase Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and non-assessable, provided that the Purchase Price per share shall
equal or exceed the par value of the Common Stock. As long as this Warrant shall
be outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of this Warrant to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock is listed as of the date this Warrant is issued.
<PAGE>
11. Notices to Warrant Holders.
Nothing contained in this Warrant shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matters or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
this Warrant and prior to its exercise, any of the following events shall occur:
(a) The Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) The Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) A dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its assets shall be proposed; then, in any one or more of said events, the
Company shall give written notice to the holder of this Warrant of such event at
least fifteen (15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the shareholders entitled to
such dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing of the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any action
taken in connection with the declaration or payment of any such dividend, or the
issuance of any convertible or exchangeable securities, or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
<PAGE>
12. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail return receipt requested:
(a) If to the holder of this Warrant, to the address of such holder as
shown on the books of the Company; or
(b) If to the Company, to the address of its principal executive offices,
as on file with the Securities and Exchange Commission on the date notice is
given.
13. Successors.
All the covenants, agreements, representations and warranties contained in
this Warrant shall bind the parties hereto and their respective heirs,
executors, administrators, personal representatives, distributees, successors
and permitted assigns.
14. Law Governing.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New Jersey.
WITNESS the seal of the Company and the signature of its duly authorized
Acting President.
ATTEST: ELECTRO-CATHETER CORPORATION
_______________________ By:_____________________________
Arlene Bell, Secretary Name: Ervin Schoenblum
Title: Acting President
<PAGE>
EXERCISE FORM
(To be Executed by the Registered Holder
in order to Exercise the Warrant)
The undersigned, registered holder of the Warrant dated August 31, 1995,
issued by Electro-Catheter Corporation, hereby irrevocably elects to exercise
the purchase rights represented by such Warrant for, and to purchase thereunder,
________________ restricted shares of the Common Stock of Electro-Catheter
Corporation, $.10 par value per share, and herewith makes payment of
$_______________, representing the exercise price of 98.75 cents per share, and
requests that a certificate for the shares of Common stock so purchased be
issued in the name of the undersigned, and be delivered to the undersigned at
the address set forth below.
The undersigned further agrees that, unless a registration statement
including the shares shall be on file with the Securities and Exchange
Commission and be effective, the shares of Common Stock covered by this Warrant,
upon exercise hereof, shall be subject to and bear the following legend, and
does hereby make the representation set forth in such legend:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"). These shares have been
acquired for investment and not with a view to distribution or resale, and may
not be offered, sold, pledged, transferred or otherwise disposed of, except
pursuant to (i) an effective registration statement under the Act, or (ii) an
opinion of counsel, if such opinion shall be reasonably satisfactory to the
Corporation that registration is not required under the Act."
------------------------------
Signature
-------------------------------
Address
-------------------------------
Taxpayer Identification Number
Dated: ____________________, _______
<PAGE>
ASSIGNMENT
(To be executed by the registered holder in
order to transfer the Warrant)
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
_______________________ (Social Security No. ) the right to purchase shares of
Common Stock of Electro-Catheter Corporation (the "Company") evidenced by the
attached Warrant and does hereby irrevocably constitute and appoint attorney to
transfer the said Warrant on the books of the Company, with full power of
substitution.
------------------------
Signature
Dated:
------------------------
Name of Registered Owner
(Print)
In the presence of:
_____________________ ________________________
Address
NOTICE: The signature to the foregoing Assignment must correspond to the
name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank (other than a savings bank) or a trust company, or a firm
having membership on a registered national securities exchange.
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of August 31, 1995 by and between The T
Partnership, a New Jersey partnership ("Lender") and Electro-Catheter
Corporation, a New Jersey corporation ("Pledgor"),
W I T N E S S E T H:
WHEREAS, pursuant to a Lending Agreement (the "Loan Agreement") dated as of
August 31, 1995 between the Lender and the Pledgor, Lender will loan One Million
Five Hundred Thousand Dollars to Pledgor, and Pledgor will issue a 12% Debenture
("Debentures") to Lender; and
WHEREAS, Pledgor is prepared to enter into this Security Agreement to
secure the due and punctual payment and performance of all obligations of
Pledgor under the Loan Documents (as defined in the Loan Agreement)
(collectively, the "Obligations").
NOW, THEREFORE, the parties hereto do hereby agree as follows:
SECTION 1. Definitions. The following terms shall have the meanings as set
forth in this Section except as otherwise indicated (except that capitalized
terms used herein and not defined shall have the meanings ascribed to them in
the New Jersey Uniform Commercial Code):
(a) "Account(s)" means all of Pledgor's existing and future-created or
future-acquired accounts, receivables, rights of any kind to receive payment for
goods sold or leased or for services rendered, contract rights, documents,
bills, leases, rents, chattel paper, licenses, rights to refunds or
indemnification, notes, acceptances and other forms of obligations, tax refunds,
insurance proceeds and all proceeds of the above including the right of stoppage
in transit and all books, records, computer programs, tapes, discs, software and
guaranties with respect to any of the above,
<PAGE>
(b) "Equipment" means all of the Pledgor's existing, future-created and
future-acquired equipment, machinery, trade fixtures, issue, tools, molds,
appliances, office equipment, computer software, furniture, motor vehicles and
all proceeds and products of the above as well as all related warranties,
documents and insurance policies.
(c) "Equipment Leases(s)" means all leases of any Equipment or other
personal property presently or in the future entered into or acquired by the
Pledgor together with all renewal or purchase options.
(d) "Event of Default" means any event of default listed in Section 6.
(e) "General Intangible(s)" means all of the Pledgor's existing,
future-acquired and future-created trade secrets, proprietary information,
know-how,inventions, good-will, patents, applications for patents, renewals and
continuation of patents, reissues, trademarks, service marks, customer lists,
distribution records and distributor lists, sales materials and records,
purchasing materials and records, personnel records, sales order files,
copyrights, manufacturing processes, rights of payments from, or performance of,
obligations by any third party, software and computer programs and source code
data relating thereto (including all current and historical data bases) all
intangible property of any kind, all "general intangibles" of any kind as
defined in the New Jersey Uniform Commercial Code, and all rights, agreements,
records and documents relating to any of the property described in this
provision, including, but not limited to, (i) computer tapes, disks and (ii)
trademarks and trade names.
(f) "Instrument" means all of the Pledgor's existing, future-created and
future-acquired "instruments" as that term is defined in the New Jersey Uniform
Commercial Code.
<PAGE>
(g) "Inventory" means all of the Pledgor's existing, future-created and
future-acquired goods of every nature, kind and description, wherever located
including all raw materials, goods, work in process, finished goods, materials
and supplies of any kind used, or to be used in the business of the Pledgor
including packing and shipping materials, returned or reclaimed goods, and all
proceeds and of the above,
(h) "Collateral" means the collateral as so defined in Section 2.
SECTION 2. Pledge. As collateral security for the Obligations, the Pledgor
does hereby grant to Lender a security interest in, and does hereby assign to
Lender all right, title and interest of Pledgor in and to all of the following
described property, whether now owned or hereafter acquired:
(i) Accounts, Inventory, General Intangibles, Instruments, Equipment and
Equipment Leases;
(ii) proceeds and products of, and substitutions for, the foregoing;
(iii) insurance policies and proceeds relating to the foregoing; and
(iv) all other assets of Borrower, whether now owned or hereafter
acquired other than fixtures, real property and leases thereof, (collectively
the "Collateral").
All property comprising part of the Collateral shall be accompanied by
proper instruments of assignment duly executed by the Pledgor and by such other
instruments or documents as Lender, its counsel may reasonably request,
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
interests, powers, privileges and preferences pertaining or incidental thereto,
unto Lender, its successors and assigns, forever; subject, however, to the
terms, covenants and conditions hereinafter set forth,
SECTION 3. Obligations Secured. This Security Agreement is made, and the
security interest created hereby is granted to Lender, to secure the
Obligations.
SECTION 4. Representations and Warranties. The Pledgor hereby represents and
warrants that, except for the security interest granted hereunder to Lender,
the Pledgor is the legal and equitable owner of the Collateral, holds good and
marketable title to all Accounts, Inventory, Equipment, Equipment Leases,
Instruments, General Intangibles, and all other assets of Pledgor pledged
hereunder, and the same are free and clear of all liens, charges, encumbrances
and security interests of every kind and nature; that the Pledgor has good right
and legal authority to pledge the Collateral in the manner hereby done or
contemplated and will defend its title thereto against the claims of all persons
whomsoever; that any consents or approvals of any governmental body, regulatory
authority or securities exchange which were or are necessary for the validity of
such pledge have been obtained; that the pledge of the Collateral is effective
to vest in Lender the rights of Lender in the Collateral as set forth herein;
that Pledgor is a duly organized and validly existing corporation that is in
good standing under the laws of the State of New Jersey; that the execution,
delivery and performance of this Agreement (i) have been duly authorized and
approved by the Board of Directors of the Pledgor and no other corporate
proceedings on the part of Pledgor are necessary to authorize and approve this
Agreement and (ii) will not conflict with or result in a default under any other
agreement or instrument which is binding upon Pledgor; that this Agreement
constitutes the valid and binding obligation of Pledgor, enforceable against
Pledgor in accordance with its terms except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or the principles governing the
availability of equitable remedies.
SECTION 5. Remedies upon Default. If an Event of Default shall have
occurred and be continuing, Lender may take any one or more of the following
actions, no one of which shall be deemed Lender's exclusive remedy:
(a) Repossess: proceed to take possession of all or any part of the
Collateral and the Pledgor agrees immediately upon receipt of notice from Lender
to do everything requested by Lender to assemble, assign, transfer or deliver
all Collateral to Lender and to provide Lender immediate access to Pledgor's
principal place of business and to every other place where any Collateral or any
records of Pledgor may be stored or where Pledgor may conduct any business;
<PAGE>
(b) Sell Collateral: sell, assign, lease, transfer and deliver all, or
any part, of any Collateral at a private sale or public auction for cash, upon
credit or otherwise at such prices and upon such terms as Lender may deem
advisable and any requirement of reasonable notice to the Pledgor shall be met
if notice is mailed, postage prepaid, to such Pledgor at the address set forth
in Section 14 hereof at least five (5) days prior to the sale or other
disposition and Lender may be the purchaser at any public sale of any Collateral
free of any right of redemption, which right the Pledgor hereby waives, and
Pledgor further waives any claim that any sale made in compliance with the
notice provisions of this section 5(b) as commercially unreasonable;
(c) Collateral Proceeds: apply the proceeds of any sale, collection or
other disposition of any Collateral first to all costs and expenses of sale or
collection, including but not limited to any attorneys' fees and disbursements
at trial or on any appeal and, then, to payment of any obligation in whatever
order Lender may, in its discretion, elect;
(d) Direct Recourse: institute suit directly against the Pledgor to
collect any Obligations without first foreclosing on or liquidating any
Collateral;
(e) Deficiency: hold the Pledgor liable for any deficiency that may
remain after the sale of any Collateral;
(f) Appointment of Receiver: without regard to: (i) the adequacy of the
security for the obligations by virtue of this Security Agreement or (ii) the
solvency of the Pledgor, seek the appointment of a receiver or receivers to take
possession of any or all of the Collateral, with the power to preserve,
protect, and operate the Collateral preceding foreclosure or sale and apply the
proceeds, over and above the cost of the receivership, against the Obligations,
The receiver or receivers may serve without bond if permitted by law.
(g) Other Creditor Remedies: exercise any right or remedy available to a
secured party under the Uniform Commercial Code or under any other applicable
law of any jurisdiction.
For purposes hereof, a written agreement to purchase all or any part of
the Collateral shall be treated as a sale pursuant to such agreement, and the
Pledgor shall not be entitled to the return of any Collateral subject thereto,
notwithstanding the fact that after Lender shall have entered into such an
agreement all Events of Default may have been remedied or the Obligations may
have been paid or performed in full. Any sale pursuant to this Section 5 shall
conform to commercially reasonable standards as provided in the Uniform
Commercial Code as in effect in the State of New Jersey.
SECTION 6. Events of Default. For purposes of this Security Agreement,
an "Event of Default" shall exist hereunder upon the happening of any of the
following events:
(a) an Event of Default, as defined in the Loan Agreement, shall occur;
(b) all or any part of the Collateral shall be attached or levied upon
or seized in any legal proceedings or held by virtue of any lien or distress;
(c) the Pledgor shall fail to pay promptly all taxes and assessments
upon any of the Collateral; or
(d) the Pledgor shall fail to comply with any other provision of this
Security Agreement.
It is understood and agreed that the occurrence of an event set forth in
subsections (b), (c) and (d) shall constitute an Event of Default only if the
Pledgor fails to cure such default within ten (10) days after notice of such
default (the "Default Notice") which may be given at any time after the
occurrence of such default.
SECTION 7. Reimbursement. The Pledgor agrees (a) to indemnify and hold
harmless Lender (to the full extent permitted by law) from and against any and
all claims, demands, losses, judgments and liabilities (including liabilities
for penalties) of whatsoever nature growing out of or resulting from the
Collateral, and (b) to reimburse Lender for all costs and expenses, including,
but not limited to, reasonable legal fees and disbursements at trial and on any
appeal growing out of or resulting from any Collateral, this Security Agreement
or the administration and enforcement or exercise of any right or remedy granted
to Lender hereunder.
<PAGE>
If the Pledgor shall fail to do any act or thing which it has covenanted
to do hereunder or any representation or warranty of the Pledgor shall be
breached, in either case following any applicable notice required hereunder,
Lender may (but shall not be obligated to) do the same or cause it to be done or
remedy any such breach and there shall be added to the Obligations of the
Pledgor hereunder the cost or expense incurred by Lender in so doing, and any
and all amounts expended by Lender in taking any such action shall be repayable
to it upon its demand therefor to the Pledgor and shall bear interest at a rate
equal to the lesser of 12% per annum or the highest applicable legal rate from
the date advanced to the date of repayment.
All indemnities contained in this Section 7 shall survive the
termination of this Security Agreement.
SECTION 8. Application of the Proceeds of Sale and Cash. The proceeds of any
sale of the whole or any part of the Collateral, together with any other
moneys held by Lender under the provisions of this Security Agreement, shall be
applied by Lender as follows:
First: to the payment of all costs and expenses incurred by Lender in
connection herewith, including, but not limited to, all costs, fees and
disbursements of counsel for Lender in connection herewith, and to the repayment
of all advances made by Lender hereunder for the account of the Pledgor, and the
payment of all costs and expenses paid or incurred by Lender in connection with
the exercise of any right or remedy hereunder, including, but not limited to,
attorney's fees, costs and disbursements at trial and on any appeal;
Second: to the payment in full of all other Obligations.
<PAGE>
Any amounts remaining after such application shall be promptly remitted to the
Pledgor, its successors and assigns, or as otherwise provided by law,
Application of any proceeds in accordance with the above provisions shall be
deemed to have been made at such time as cash is received.
SECTION 9. Duty To Preserve the Collateral. Pledgor shall use reasonable care
in the custody and preservation of the Collateral in its possession
including maintaining the Collateral in good condition and repair and preserving
it against loss, damage, contamination, pollution, depreciation and spoilage in
value, other than by normal wear and tear, and defending against all claims and
demands of any person claiming title to, a lien against or security interest or
other interest adverse to Lender in any Collateral.
SECTION 10. Authority. Lender may execute any of its duties hereunder by or
through agents or employees and shall be entitled to retain counsel and to
act in reliance upon the advice of such counsel concerning all matters
pertaining to its duties hereunder.
SECTION 11. Further Assurances. The Pledgor agree to join with Lender in
executing, and to file or record, such notices, financing statements or other
documents as may be necessary to the perfection of the security interests of
Lender hereunder, and as Lender or its counsel may reasonably request, such
instruments to be in form and substance satisfactory to Lender and its counsel.
The Pledgor agrees to do such further acts and things and to execute and deliver
to Lender such additional conveyances, assignments, agreements and instruments
as Lender may at any time reasonably request in connection with the
administration and enforcement of this Security Agreement or relative to the
Collateral or any part thereof or in order to assure and confirm unto Lender the
rights, powers and remedies hereunder.
SECTION 12. No Waiver. No failure on the part of Lender to exercise, and no
delay on its part in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof or of the exercise of any other right, power or
remedy. All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law.
<PAGE>
SECTION 13. Governing Law; Amendments. This Security Agreement has been
executed and delivered in the State of New Jersey and shall in all respects be
construed in accordance with and governed by the laws of such State, without
giving effect to its conflict of laws rules. This Security Agreement may not be
amended or modified, nor may any of the Collateral be released or the security
interest granted hereby extended, except in a writing signed by the parties
hereto.
SECTION 14. Notices. All notices or other communications required or
permitted hereunder shall be given in writing and shall be (i) sent by
registered or certified mail, postage prepaid or (ii) delivered by hand or by
Federal Express or other overnight delivery or courier service from which a bona
fide delivery receipt can be obtained, as follows:
If to Electro-Catheter Corporation:
Electro-Catheter Corporation
2100 Felver Court
Rahway, NJ 07065
If to The T Partnership:
The T Partnership
c/o Wiss & Company
354 Eisenhower Parkway
Livingston, NJ 07039
or such other address as shall be furnished in writing by such party, and any
such notice or communication shall be effective and be deemed to have been given
as of the date so delivered (or sent by facsimile transmission) or three days
after having been mailed; provided, however, that any notice or communication
changing any of the addresses set forth above shall be effective and deemed
given only upon its receipt.
SECTION 15. Binding Agreement; Assignment. This Security Agreement, and the
terms, covenants and conditions hereof, shall be binding upon and inure to
the benefit of Lender and its successors and assigns, and to the Pledgor and its
successors and assigns; provided, however, that the Pledgor is not permitted to
assign this Security Agreement or any interest herein or in the Collateral, or
any part thereof, or otherwise to pledge, encumber or grant any option with
respect to the Collateral, or any part thereof, or any cash or property held by
Lender as collateral under this Security Agreement. No notice to or demand on
the Pledgor shall entitle the Pledgor to any other or further notice or demand
in the same, similar or other circumstances. The parties hereto agree that
Lender may, at any time, assign this Security Agreement, and the terms,
conditions and covenants thereof, to any other person, firm or corporation,
simultaneously therewith, it assigns the Debentures, without notice to or
consent of Pledgor, and Lender shall thereafter be relieved and discharged from
any liability hereunder.
SECTION 16. Headings. Section headings used herein are for convenience
only and shall not affect the construction or interpretation of this Security
Agreement.
SECTION 17. Counterparts. This Security Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute but one and the same instrument.
SECTION 18. Separability. If one or more of the clauses of this Security
Agreement is found to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Security
Agreement shall not be affected thereby to the extent permitted by applicable
law. Each party waives any provision of law which renders any provision of this
Security Agreement invalid, alleged or unenforceable in any respect.
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed as of the day and year first above written.
THE T PARTNERSHIP ELECTRO-CATHETER CORPORATION
By:_____________________________ By:____________________________
Exhibit No. 24
Independent Auditors' Consent
The Board of Directors
Electro-Catheter Corporation:
We consent to incorporation by reference in the Registration Statement
(No.33-56016) on Form S-8 of Electro-Catheter Corporation of our report dated
November 9, 1995 relating to the balance sheets of Electro-Catheter Corporation
as of August 31, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows and related financial statement schedules
for each of the years in the three-year period ended August 31, 1995, which
report appears in the August 31, 1995 annual report on Form 10-K of
Electro-Catheter Corporation.
KPMG Peat Marwick LLP
Short Hills, New Jersey
November 27, 1995
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<PERIOD-END> AUG-31-1995
<CASH> 304
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<ALLOWANCES> (77)
<INVENTORY> 2,093
<CURRENT-ASSETS> 3,647
<PP&E> 4,807
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0
0
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<SALES> 7,263
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