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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB A
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 0-14653
CARDIAC CONTROL SYSTEMS, INC.
(Exact Name of Registrant as specified in its charter)
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DELAWARE 74-2119162
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3 COMMERCE BOULEVARD, PALM COAST, FLORIDA 32164 (904) 445-5450
(Address of Principal Executive Offices) (Zip Code) (Telephone Number)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.10 par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES X NO
---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The issuer's revenues for its fiscal year ended March 31, 1998 were
$5,886,309.
The aggregate market value of voting stock of the Registrant held by
non-affiliates of the Registrant on May 29, 1998 was $405,233 (based on the
average of the closing bid and ask prices of the Registrant's common stock on
May 29, 1998 of $0.38 and $0.43 respectively).
As of May 29, 1998, 2,648,739 shares of the Registrant's common stock were
issued and outstanding.
Transmittal Small Disclosure format. YES ___ NO X
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DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
GENERAL. Cardiac Control Systems, Inc. (the "Company") was incorporated as
Supramedics, Inc. on June 20, 1980 under the laws of the State of Delaware and
on August 28, 1980 changed its name to Cardiac Control Systems, Inc. to more
accurately reflect the business of the Company. The Company is engaged in the
design, development, manufacture, marketing, and sale of implantable cardiac
pacing systems. These systems consist of single-chamber, dual-chamber and
single-lead, atrial-controlled ventricular cardiac pacemakers together with
connecting electrode leads and equipment for the external programming and
monitoring of the pacemakers. The Company has received clearance from the Food
and Drug Administration of the United States Department of Health and Human
Service ("FDA") to distribute commercially a line of single-chamber and
dual-chamber pacemaker systems and a single-lead atrial-controlled ventricular
cardiac pacing system. The equipment used for the external programming and
monitoring of the Company's pacemaker products is usually loaned without charge
to physicians and other purchasers of the Company's products. The Company's
products are "medical devices" as defined by the FDA and thus are subject to
Federal regulations enforced by the FDA, including restrictions on the
commercial introduction of products and clinical testing requirements.
The Company's Common Stock, $.10 par value per share ("Company Common
Stock"), which historically was listed on the National Association of Securities
Dealers Automation Quotation Systems ("Nasdaq") SmallCap Market(SM), was
delisted effective August 30, 1991 as a result of non-compliance with the Nasdaq
SmallCap Market's capital and surplus requirement then in effect of $375,000.
However, shares of the Company's Common Stock are currently traded
over-the-counter under the symbol "CDCS" and are quoted on the OTC Bulletin
Board(TM) . This service allows market makers to enter quotes and trade
securities that do not need the Nasdaq SmallCap Market qualification
requirements.
The Company has had a prior history of net losses and had experienced cash
flow deficiencies and had been unable to pay many of its obligations as they
became due. The Company is continuing its efforts to increase its sales volume
and attain a profitable level of operations. However, there is no assurance that
the Company's efforts will be successful. There are many events and factors in
connection with the development, manufacture and sale of the Company's products
over which the Company has little or no control, including, without limitation,
production delays, marketing difficulties, lack of market acceptance, and
superior competitive products based on future technological innovation. There
can be no assurance that future operations will be profitable or will satisfy
future cash-flow requirements. See "Item 6. Management's Discussion and Analysis
of Financial Position and Result of Operations."
PRODUCTS. The Company currently manufactures and commercially distributes a
line of single- and dual-chamber implantable pacemakers and a single-lead,
dual-chamber atrial-controlled ventricular ("VDD") pacing system, as well as
electrode leads and programming equipment developed by the Company. Pacemaker
systems are prescribed by physicians for patients who suffer arrhythmias or
impairments of the natural electrical conduction system of the heart that render
the heart incapable of pumping blood throughout the body at a rate and rhythm
suitable for the body's needs. The pacemaker system treats the condition by
electrically stimulating the heart to restore proper rhythmic contractions of
the heart muscle.
The Company's pacemakers and electrode leads encompass 8 pacemaker models
(under the trade names MAESTRO(R) II or MAESTRO(R) II SAVVI) and 7 electrode
lead models (under the trade names PolySafe, Unipass(R) or A-Track). The
Company's first single- and dual-chamber pacemaker products were sold under the
MAESTRO trade name. This generation of products, however, is no longer
manufactured and marketed by the Company. Instead, a second generation of more
streamlined single- and dual-chamber models are being sold under the MAESTRO(R)
II trade name. The Company received FDA market clearance to market its most
recent dual-chamber pacemaker, the MAESTRO(R) Series 500 Model 534 dual-chamber,
bipolar DDD pacing system in October 1997. The Company received FDA market
clearance for a new design of a temporary cardiac pacing lead, the INTERIM AV,
in December 1997. The INTERIM AV is designed to allow atrial sensing and
ventricular pacing through the same lead.
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The Company further developed its VDD pacing system and received FDA
clearance in 1993 for two new VDD models which the Company sells under the trade
name MAESTRO(R) II SAVVI. These pacing systems were unique in the industry until
Sulzer Intermedics, Inc. ("Intermedics"), a competitor of the Company at that
time, received FDA approval of its single-pass, atrial-controlled ventricular
pacing system. Intermedics commenced marketing its new product in March 1995.
One additional competitor (Medtronic, Inc.) has also recently entered the United
States market with a competitive single-lead product.
In addition, the Company markets certain electrode leads and pacing
accessories manufactured by other medical companies. Further, a significant
portion of the Company's business is the sale of implantable leads for
implantable pacemakers and defibrillators on an original equipment manufacturing
("OEM") basis to implantable cardiac device manufacturers and hybrid circuit
components to an Italian manufacturer and to an Indian manufacturer. See "Sales,
Marketing and Distribution Methods."
The Company's products are classified as "medical devices" within the
meaning of the Federal Food, Drug and Cosmetics Act, as amended (the "FDA Act")
and, as such, are subject to extensive domestic regulation by the FDA and
European regulation by the International Organization for Standardization
("ISO"). All of the pacemaker systems marketed in the United States by the
Company (including related electrode leads) are in commercial distribution under
the FDA's 510(k) Premarket Notification regulations or Premarket Approval
("PMA") regulations. European regulations now include the ISO 9000 series of
standards developed by the ISO as adopted by the member nations of the European
Economic Community ("EEC"). The Company is certified to ISO 9002 by the Notified
Body, TUV Product Services, of Munich, Germany and is developing design control
processes in preparation for a compliance audit to ISO 9001. See "- Government
Regulation."
The Company's MAESTRO(R) II anti-bradycardia cardiac pacemakers are
electronically based with an integrated circuit design, and include
multi-programmable single-chamber, dual-chamber and atrial-controlled
ventricular pacemakers. They are non-invasively programmable to multiple
operating modes and functions for prescriptive flexibility, provide a wide range
of sensitivity values and incorporate programmable high- and low-frequency
bandpass filters. This extensive programmability permits the physician the
flexibility required to provide truly prescriptive, individualized pacing
therapy for a wide range of patients.
The Company's pacemakers are generally sold together with electrode leads,
most of which are manufactured by the Company. The Company's PolySafe electrode
leads include various models of its specialized single-pass A-Track leads. The
A-Track leads, developed and patented by the Company, are triaxial pacing leads
in which the inner coil connects to a ventricular tip electrode for pacing and
sensing in the ventricle, and the two other coils connect to two diagonal atrial
bipolar ("DAB") electrodes positioned so as to provide sensing data from the
atrium. The DAB electrodes transmit sensed atrial signals to the pacemaker,
which then stimulates the ventricle at an appropriate rate, providing
atrial-synchronous ventricular pacing, mimicking the normal action of the heart.
The MAESTRO(R) II SAVVI system incorporating the A-Track lead represents an
important advance in technology, combining atrial-controlled ventricular pacing
with the convenience and reliability of a single-lead implant procedure. This
system is appropriate for the many patients with conduction disorders and a
physiologically responsive sino-atrial node.
The Company's electrode leads are insulated with Surethane, the Company's
proprietary urethane compound, and are manufactured using a patented coating
process, rights to which are held exclusively by the Company (see "Certain
Patents, Trademarks and Licenses"). The Surethane is applied in solution to the
pacing coil using a non-thermosetting coating process that results in
non-stratified bonding of each layer of the Surethane upon curing and a
"unitized" construction of coil and insulation. This process results in
extremely slender and durable leads. There has been some industry bias towards
using urethane, primarily for bipolar leads because of problems with insulation.
However, the Company has not manufactured bipolar leads of urethane material.
The Company only manufactures unipolar urethane leads. Its bipolar leads are
manufactured with silicone material. The Company is not aware of any historical
problems with its leads manufactured of urethane.
Both of the Company's portable programmer models enable bi-directional
communication between the clinician and the implanted pacemaker. Programming and
telemetry messages are transmitted to the pacemaker via a lightweight wand.
Prior to transmitting a new program to the pacemaker, the programmer
automatically provides
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validation of the selected mode/parameter value combination as a safety step.
One model incorporates an integral printer, and the other provides for
connection of a printer, for generating hard copy records. Both provide for
connection of a strip chart recorder, for generating hard copy records of
pacemaker performance. A programmer carrying the CE Mark label, as required in
Europe, has been developed and commercialized. In addition, the Company is
nearing completion on a new computer-based programming system.
SALES, MARKETING AND DISTRIBUTION METHODS. The primary markets for the
Company's products are hospitals, other medical institutions, and physicians
both in the United States and abroad. The Company currently markets its products
primarily through independent sales representatives in the United States and
independent distributors in the international markets. Also, the Company sells
selected components and products on an OEM basis to various U.S. and non-U.S.
companies. Independent representatives are paid by commission; independent
distributors generally purchase the Company's products at discounted prices. The
Company advertises in scientific publications and also uses trade shows and
convention demonstrations, direct mail advertising, telephone solicitations and
direct sales to selected customers as part of its marketing efforts.
Pricing of the Company's products is generally similar to that for
competing products. The Company focuses its marketing attention on the
technological advantages of its pacemakers rather than on price considerations.
The Company bases its appeal to physicians on the Company's belief in the
relative simplicity with which its reliable and therapeutically effective
pacemaker systems can be implanted, programmed and monitored. The Company
focuses its marketing attention on the issue of price sensitivity only when
necessary. For example, under Medicare legislation, the amount of reimbursement
that a hospital and a physician receive from Medicare for a pacemaker implant
does not vary with the cost of the implanted pacemaker, and the Company must
consider this in its pricing decisions. See "- Government Regulation."
The Company maintains inventories of pacing systems at many hospitals to
facilitate the immediate availability of these products when required. In
addition, the Company's independent sales representatives hold a supply of
pacemaker systems on consignment. A portion of the Company's sales in the United
States are filled by withdrawing products from consigned inventories, whereupon
the hospital is billed for the product.
Independent sales representatives, organizations and distributors selling
the Company's products are free to sell products not produced by the Company
that do not compete with the Company's products. As of March 31, 1998, 12
independent sales representatives (or organizations) are actively selling the
Company's products in the United States. The Company has executed long-term
contracts with most of its sales representatives in the United States.
Generally, the contractual agreements executed between the Company and its
independent sales representatives provide each representative the exclusive
right to sell the Company's products in a specified area of the United States
for a three- or five-year period, are renewable for a second three- or five-year
period, and provide the Company with certain termination rights.
The Company's operations, sales and ability to attain a profitable level of
operations are dependent upon expansion of its OEM business and maintaining the
contractual relationships with its principal sales representatives and upon
on-going expansion of their business volume. Termination of any of these
contractual agreements between the Company and its key independent sales
representatives could have a material adverse effect on the Company's sales
volume and operations. Furthermore, the Company's ability to achieve a
profitable level of operations would be adversely affected if the Company's
sales representatives were unable to expand the volume of their business.
On December 20, 1995, the Company signed a distribution agreement with
Grupo Taper, S.A. of Madrid, Spain under which, subject to certain pre-existing
distribution agreements, Grupo Taper became the sole agent for the purchase,
import and distribution and sales of the Company's product in Europe and certain
specified non-European countries. The agreement is for an initial period of ten
years and will automatically renew for a five-year period unless terminated by
either party upon six month's prior notice.
In August 1996, the Company opened a Japanese sales office and received
Japanese approvals and a license to import and sell the Company's single-lead
VDD product. A major Japanese distributor, The Herz Co., has begun distributing
the product throughout Japan. The Company expects that these efforts will enable
the Company to
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expand sales in the Japanese market, where the average unit price is
significantly higher than in the rest of the world.
During the year ended March 31, 1998, two of the Company's independent sales
representatives each accounted for in excess of 10% of the Company's sales,
accounting for $897,492 (23%) of the total. With the exception of Intermedics
and a manufacturer of implantable cardiac defibrillators, as disclosed below,
during the year ended March 31, 1998, no single domestic or international
customer accounted for in excess of 10% of the Company's sales. Accordingly, the
Company believes that the loss of any single customer in the United States,
excluding its OEM customers, would not have a material adverse effect on its
business. However, the Company's ability to maintain a profitable level of
operations is dependent upon its ability to increase its sales volume.
Therefore, the loss of any important customer in the United States could
unfavorably impact the Company's sales volume and its ability to achieve a
profitable level of operations.
On August 1, 1990, the Company executed both a license agreement and a
supply agreement with Intermedics. Pursuant to the license agreement, the
Company received initial license fees aggregating $1.5 million. The license
agreement also provided for the payment of royalties to the Company based upon
net sales of Intermedics products incorporating the licensed (single-pass lead)
technology. On April 2, 1993, the Company amended and restated both its license
agreement and supply agreement with Intermedics. Pursuant to the amended and
restated license agreement, the Company received prepayment of royalties in the
amount of $850,000. The prepayment was applied against royalties at a rate of
2/1 per pacing system sold, reducing the potential aggregate royalties to be
received over the life of the agreement from $7,031,250 to $6,181,250. Further,
pursuant to a subsequent amendment, a $100,000 prepayment of future royalties
was received in February 1994, which was applied against the next 1,000 pacing
systems sold at a rate of $100 per unit. The entire prepaid royalties of
$950,000 were earned by the Company as of March 31, 1997. Intermedic's
obligation to pay royalties under this license agreement terminated on January
22, 1998, however, the license agreement, which grants Intermedics the right to
manufacture and sell the technology, does not terminate until the expiration of
the Company's patent in July 2009. The supply agreement, which was to expire on
July 31, 1993, was extended until August 1, 1998 and provides for the Company to
supply its specialized single-pass leads to Intermedics at specified prices.
Sales to Intermedics accounted for 29% of sales for the year ended March 31,
1998.
On January 1, 1997, the Company executed a supply agreement and a joint
development agreement for defibrillation leads with a major implantable
defibrillator manufacturer. The supply agreement allows for the OEM sale of
defibrillation leads to this manufacturer, while the development agreement
contemplates the development and eventual supply of a second proprietary lead.
Sales and shipments of the first lead commenced in October 1997, and accounted
for 13% of the Company's sales for the year ended March 31, 1998. In addition, a
third lead is being developed for this manufacturer and a supply agreement for
this product was executed on December 23, 1997, with the first shipment of this
product expected to occur in the second quarter of fiscal 1999. The Company
expects total sales volume for this customer to grow in fiscal 1999. Pursuant to
the terms of the joint development agreement, during fiscal 1997, the Company
received $200,000 from the manufacturer, $60,000 of which was recorded as equity
financing for the purchase of 40,000 shares of the Company's Common Stock, and
$140,000 was recorded as other income for the purchase of the defibrillation
leads technology.
Historically, the Company encountered many difficulties in connection with
its efforts to develop a distribution network of independent sales
representatives in the United States large enough to attain enough sales to
generate profitability. The Company believes that these difficulties are
attributable to the Company's lack of a complete product line as well as the
competitive environment, and the Company's financial position. With the proposed
merger with Electro-Catheter Corporation ("Electro") (see below) and the
combined product line, the new products being developed and released to the
market and the financing associated with the merger, the Company expects to
expand its distribution. Further, the Company estimates its market share of
pacing products to be about 0.25% of an estimated worldwide pacing systems
market of $2.0 billion. The Company considers the market large enough to
accommodate the Company's products.
PRODUCT WARRANTIES. The Company's pacemakers and electrode leads are both
covered by a limited warranty. Specific terms and conditions of the warranties
vary according to the pacemaker model and electrode lead. Generally, however,
the warranty on a pacemaker extends from 5 to 6 years, and the warranty on an
electrode lead
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continues for the patient's lifetime. All warranties provide for replacement
with a comparable Company product and for partial reimbursement of medical
expenses not covered by third parties.
CERTAIN PATENTS, TRADEMARKS AND LICENSES. The Company's policy is to obtain
patents on its inventions whenever practical and to obtain licenses from others
with regard to technology that it deems necessary to its business. Technological
advance has been characteristically rapid in the industry in which the Company
competes, and the Company believes its business is not materially dependent upon
any individual patent or license. However, should certain of the Company's
licenses be terminated for any reason, the Company's operations and competitive
ability could be adversely affected.
On June 12, 1984, Mr. Robert R. Brownlee, a former director and former
officer of the Company, assigned all rights, title and interest in United States
Patent No. 4,585,004, titled "Heart Pacing and Intracardiac Electrogram
Monitoring System and Associated Method," to the Company. The patent, issued on
April 29, 1986, applies to the specialized A-V Data ventricular leads developed
by the Company.
On November 14, 1985, all rights, title and interest in United States Patent
No. 4,726,379, titled "Cardiac Pacer with Switching Circuit for Isolation," were
assigned to the Company by two of its employees. The patent, issued on February
23, 1988, applies to bipolar dual-chamber pacing methods.
On June 28, 1988, Mr. Robert R. Brownlee, assigned all rights, title and
interest in United States Patent No. 4,962,767, titled "Pacemaker Catheter," to
the Company. The patent, issued on October 16, 1990, applies to the A-Track
electrode leads used with the Company's SAVVI VDD pacing system.
On December 12, 1988, all rights, title and interest in United States Patent
No. 4,907,592, titled "Self-Sealing Connector for Electrical Leads for Use in
Wet Environments," were assigned to the Company by one of its employees. The
patent was issued on March 13, 1990.
On August 15, 1990, Mr. Robert R. Brownlee, assigned all rights, title and
interest in United States Patent No. 5,127,403, titled "Pacemaker Catheter
Utilizing Bipolar Electrodes Spaced in Accordance to the Length of a Heart
Depolarization Signal," to the Company. The patent, issued on July 7, 1992,
applies to the A-Track electrode leads used with the Company's SAVVI VDD pacing
system.
On July 11, 1995, Mr. Robert R. Brownlee assigned all rights, title and
interest in United States Patent No. 5,630,835, titled "Method and Apparatus for
the Suppression of Far Field Interference Signals for Implantable Device Data
Transmission Systems," to the Company. The patent, issued on May 20, 1997,
applies to the SAVVI VDD pacing system.
The Company obtained from Howard C. Hughes and Roy D. Bertolet, the latter
an employee of the Company, an exclusive license to an extrusion technique for
coating pacemaker leads and other wires with polyurethane, for which a patent
was granted on February 5, 1985. The term of the license expires on February 17,
2002. The license provides for payment of royalties for each contract year based
on a percentage of net sales of products produced using the licensed technology.
On March 29, 1993 the licensor executed a sublicense agreement with the Company,
pursuant to which the Company granted a limited sublicense allowing Intermedics
to use the extrusion technique to manufacture leads pursuant to the terms of the
amended and restated license agreement between the Company and Intermedics.
On March 5, 1997, an objection to the Company European Patent No. 0350282
relating to single-pass diagonal atrial bipolar pacemaker catheter technology
was heard in Munich, Germany. On March 24, 1997, the Company was advised that
the objection was rejected by the Patent Court. An appeal has been filed.
The Company uses various trademarks in association with marketing and sale
of its product lines. The MAESTRO(R) trademark, used with the Company's
pacemakers and programmers, has been registered with the U.S. Patent and
Trademark Office. The Company's trademarks PolySafe, A-Track, A-V Data, TriFix,
Trabeculok, SAVVI, DAB, PacePro, INTERIM and Surethane are unregistered
trademarks of the Company.
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RESEARCH AND DEVELOPMENT. The Company expended approximately $975,100 and
$1,087,000 on research and development activities during the fiscal years ended
March 31, 1998 and 1997, respectfully. Research and development activity
previously reported as culminating in FDA submission was rewarded with FDA
approval in October 1997 of the MAESTRO(R) Series 500 Model 534 dual-chamber,
bipolar DDD pacing system and in December 1997 of the INTERIM single-lead
temporary pacing system.
Continued development of the Company's single-lead technology included the
development of a preshaped single-pass lead for VDD and DDD pacing. These leads
are believed to expand capability and use, as well as offer further enhancement
of performance relative to the Company's current single-lead products. The
Company is currently performing animal and human studies and plans to initiate
chronic human clinical studies in the second quarter of fiscal 1999. This lead
is believed to offer further enhancement of performance with completion of
limited acute and chronic animal studies. In November 1996, a development
relationship was formally established with a manufacturer of implantable
defibrillators for the application of the Company's unique lead technology to
the special challenges of implantable defibrillation leads.
See "- Sales, Marketing and Distribution Methods."
The fiscal year ended March 31, 1998 included on-going activity in the area
of implementing design controls in compliance with Section 4.4, ISO 9001 Quality
Standard and similar requirements of current good manufacturing practices
("cGMP") regulations.
RAW MATERIALS AND PRODUCTION. Although the Company endeavors to have
alternative supply sources for parts and materials used in manufacturing its
products, single sources are used for certain critical materials, including
medical adhesives, integrated circuits, hybrid microelectronic circuitry,
lithium batteries, various other components, and a material used to produce
Surethane. The loss of any one of these single sources or significant delivery
delays could cause a costly delay in production. Although the Company believes
that various design or material alternatives could be used, qualification of
these could prove time-consuming and could require notification to and clearance
by the FDA.
Sources of Supply. Two of the Company's principal suppliers of materials
used primarily in electrode lead production, Dow Corning Enterprises, Inc.
("Dow") and E.I. DuPont de Nemours & Co. ("DuPont"), indicated that they will no
longer supply their materials to the medical device industry for use in
implantable devices. In July 1993, the FDA published in the Federal Register a
one-time-only requirement for medical device manufacturers to file a special
notification of material supplier changes resulting from the decision of Dow to
discontinue supplying its materials to medical device manufacturers. The Company
filed the "Special Silicone Notification" for its products effected by the Dow
decision in September 1993. In this notification, alternate suppliers and
materials were identified and supporting technical biological test data were
provided for the alternate materials. The FDA acknowledged receiving the
Company's notification and indicated that, unless otherwise notified by FDA, the
alternate materials identified in the notification may be used in the Company's
products in place of the comparable Dow materials. No further FDA approvals of
the alternate materials of such suppliers were required.
With respect to other material changes resulting from decisions by material
suppliers to discontinue supplying the medical device industry, e.g. DuPont, the
FDA has indicated that such changes shall be handled on a case-by-case basis
through the established product approval processes within the FDA. The
availability of materials suitable for use in implantable medical devices is an
industry-wide problem and is not unique to the Company or to the cardiovascular
device segment of the industry. The Polymer Technology Group produces a product
that meets manufacturing requirements and has been identified as a tentative
replacement for the DuPont supplied material. Biocompatibility studies have been
completed. Since the candidate replacement material is comprised of the same
chemical composition as the DuPont material, it is expected that it will be
comparable with respect to the performance characteristics and biocompatibility
of the current material in use. Similarly, FDA approval of this replacement
material is anticipated to be forthcoming based upon a satisfactory outcome of
the testing performed on the product. The Company believes, however, that it has
a sufficient supply of the DuPont material to meet the Company's anticipated
demand for the next several years.
Suppliers of custom Application Specific Integrated Circuits ("ASICs") have
advised the Company that the technology used to produce these ASICs will no
longer be supported. As such, the Company placed one last bulk order to ensure
the availability of sufficient ASICs to satisfy projected demands for current
products. The new
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pacing system under development will utilize appropriate new ASICs obviating the
need for perpetual supply of the currently used ASICs.
INSURANCE. The Company maintains what it believes to be an adequate amount
of comprehensive general liability insurance in an amount of $2,000,000 and what
it believes to be a reasonable amount of products liability coverage in an
amount of $1,000,000. No assurance can be given that the products liability
coverage will be sufficient to protect the Company's assets against claims by
users of its products or that the Company will be able to maintain such coverage
(or obtain additional coverage) in the future at reasonable premium rates or at
all, in which case its assets will be at risk in the event of successful claims
by users of its products. Furthermore, the Company's liability coverage may not
cover costs incurred by the Company under its product warranties (see "Product
Warranties") or costs incurred by the Company in the event of a product recall.
The Company has no pending, threatened or actual claims as of this date, nor
is the Company aware of any current circumstances that might give rise to such
claims. However, the Company could be exposed to possible claims for personal
injury or death resulting from the sale or subsequent malfunction of allegedly
defective products.
EMPLOYEES. As of May 29, 1998, the Company employed 46 persons full-time and
5 persons part time. Of the total employees, 23 were engaged in manufacturing
and quality control, 13 in general administration and executive activities, 12
in engineering and research and development, and 3 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.
GOVERNMENT REGULATION.
Federal Regulations. In the United States, the FDA, among other government
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agencies, is charged with regulating the introduction to the marketplace of new
medical devices, related manufacturing and laboratory practices, and labeling
and record keeping for such devices. The FDA has the authority to ban, detain or
seize "adulterated or misbranded" medical devices, and may also order repair,
replacement or refund and require notification of health professionals and
others with regard to medical devices that present unreasonable risks or
substantial harm to the public health. The FDA may also proceed through court
action to enjoin and restrain or initiate action for criminal prosecution of
certain violations of the FDA Act pertaining to medical devices.
Most implantable cardiac pacemakers fall within a category for which the FDA
has stringent clinical investigation and premarket clearance requirements. Such
regulation tends to lengthen the time for introducing new products in the United
States, and to increase the expense of developing and marketing such products.
Moreover, the FDA administers certain controls over approvals for exporting such
devices from the United States.
FDA regulations require a company to file a 510(k) Premarket Notification
for certain products demonstrating that the products are substantially
equivalent to products that were introduced into interstate commerce for
commercial distribution before May 28, 1976 (pre-enactment devices) or to
products which the FDA has already found to be substantially equivalent to
pre-enactment devices. The FDA has also issued regulations for the PMA of
medical devices that are not substantially equivalent to pre-enactment devices
(such as the Company's dual-chamber and single-lead atrial-controlled
ventricular devices). These must be cleared for commercial distribution through
a PMA submission or a PMA supplement. The regulations will eventually require a
PMA submission for all products (such as the Company's single-chamber devices)
previously cleared for commercial distribution through premarket notifications.
Prior to seeking PMA clearance for a medical device, a company is generally
required to complete a clinical evaluation in accordance with Investigational
Device Exemption ("IDE") regulations. The time and expense associated with the
clinical investigation and premarket clearance requirements of the FDA are
substantial.
Many of the new products developed by the Company in the future most likely
will be subject to the IDE and/or PMA regulations of the FDA. Accordingly, the
Company will continue to devote significant time to the FDA regulatory process
leading to FDA market clearance of new products developed by the Company.
8
<PAGE>
FDA regulations require the Company to register its manufacturing
establishment with the FDA, list all medical devices that are manufactured and
distributed by the Company, observe certain production and labeling standards
and submit to unscheduled inspections by the FDA. Other FDA regulations relate
to repair and replacement of devices, refund of purchase price and notification
of risks, record keeping and reporting, and restrictions on the sale,
distribution or use of certain devices.
In recent years the FDA has implemented product tracking and electrode lead
post-market surveillance regulations. These regulations require the Company to
track and maintain information regarding the location of product not in its
direct possession. The post-market surveillance regulations require the Company
to collect and analyze clinical data to complete product longevity analysis. The
expense to the Company to meet these regulations has been minimal to date. The
potential for a material expense due to these regulations remains a possibility.
The average pacemaker recipient in the United States is of advanced age.
Most pacemaker recipients thus are eligible for Medicare. Therefore, in addition
to FDA and similar foreign regulations, the Company may also be affected by
changes in the laws and regulations relating to Medicare.
The Company's products are manufactured by the Company under closely
controlled environmental conditions with processes developed by engineering
personnel and monitored by quality assurance personnel. These processes are
designed to be consistent with cGMP regulations audited by the FDA. FDA
conducted an audit of the Company operations in December 1996 citing only minor
deficiencies which have since been corrected.
State Regulation. In addition to Federal law, the Company is subject to the
----------------
Florida Drug and Cosmetic Act. In particular, the Company is required to
maintain a permit to operate a medical device manufacturing facility and must
register its medical devices with the appropriate Florida authority. All such
required permits have been received, and registrations made, by the Company.
European Regulation. The EEC nations have adopted universal standards as
-------------------
developed by the ISO in order to provide simplified trade among the member
nations and to assure free access to trade while maintaining quality standards
for products sold. All companies doing business in these nations must be
certified to these standards set forth by the EEC which is evidenced by being
granted the CE Mark. See Item 6. "Management's Discussion and Analysis of
Financial Position and Results of Operations - Operating Trends and
Uncertainties."
INVENTORY AND BACKLOG. There is a several-month lead time between the time
that the Company acquires parts until such time that a product is completed and
available for sale. The Company is required to carry significant amounts of
inventory in order to meet rapid delivery requirements of customers and assure
itself a continuous supply of key components and parts from its suppliers. In
addition, a portion of the Company's business is consignment in nature where the
Company provides customers with the right to return products that are not
implanted or sold. As a result of the nature in which the Company runs its
business, it does not carry a significant backlog, however inventory management
is an important business concern both with respect to the Company's liquidity
and due to the potential for rapidly changing business conditions and
technological advances within the industry.
COMPETITION IN THE INDUSTRY. The Company competes with many other domestic
and foreign companies, many of which have significantly greater financial and
other resources than the Company. The industry is currently dominated by
Medtronic, Inc., Intermedics, Cardiac Pacemakers, Inc. (a division of Guidant
Corporation), and Pacesetter Systems, Inc. (a division of St. Jude Medical,
Inc.). Although many of the larger companies have a group of loyal physicians
who use their products exclusively, most physicians use more than one pacemaker
supplier.
Technological innovation and sales ability are important with respect to
market entry and penetration. The Company believes that the primary competitive
factors determining the buying decision in the marketplace today include the
ability to reduce procedural cost, increase patient safety and improve product
effectiveness. Other factors include product reliability, product capability,
technical support provided by the manufacturer, price, and
9
<PAGE>
credibility of the manufacturer. Nevertheless, the Company's products are
subject to the risk of being rendered obsolete by the introduction of new
products or techniques by others.
Some of the conditions and diseases that the Company's pacemakers are
designed to treat may, in certain cases, also be treated by drug therapy. The
Company does not deem itself to be in substantial direct competition with
pharmaceutical companies because, at present, drug therapy is only infrequently
a viable alternative to use of a pacemaker. However, new drugs and methods of
therapy that might compete with the Company's pacemaker products may be
developed by pharmaceutical or other health care companies. Many such companies
are larger than the Company and possess more substantial research facilities and
other resources.
Companies that are already well established can be expected to protect their
existing market shares. This is coupled with increasing marketing costs under
heavier competition, and escalating regulatory burdens. In addition, there is an
overriding necessity to increase research and development expenditures in order
to remain competitive.
ITEM 2. PROPERTY OF THE COMPANY
The Company owns and occupies a 50,000 square foot building on 4.11 acres of
land in Palm Coast, Florida. The facility houses the Company's headquarters and
its research and development, manufacturing, administrative and marketing
divisions. The facility includes a 3,000 square-foot controlled environment area
for the manufacture of the Company's medical products, and 18,000 square feet of
unimproved space that is not in use. The production capacity of the Company's
existing facility is greater than current production levels and should be
sufficient to meet the Company's needs for at least the next several years. In
the opinion of management, the property is adequately covered by insurance.
Sirrom Capital Corporation ("Sirrom") holds a first mortgage and assignment
of rents and leases on the property as security for a $1.5 million promissory
note. However, Sirrom's mortgage is subject to subordination up to a maximum of
$500,000 under an Intercreditor and Subordination Agreement entered into with
Coast Business Credit, a division of Southern Pacific Thrift and Loan
Association ("Coast"). The Sirrom note bears interest at a rate of 13.5%
annually, matures on March 31, 2000 and is payable monthly, interest only, with
a balloon payment of principal and accrued and unpaid interest due on the
maturity date.
Coast also holds a mortgage on the Property as part of its security for a
$3.5 million credit facility (the "Coast Loan"). Coast's security interest in
the Property consists of a first priority lien up to $500,000 (plus Coast's
costs and expenses of collection and enforcement of such mortgage on the
Property) and a second priority lien on the remainder of the Company's
indebtedness to it. The Coast Loan is subject to a minimum interest rate of 9%
per annum and a maximum interest rate of prime rate plus 2.25%. The maturity
date for payment of any outstanding principal balance is June 30, 2000, subject
to automatic renewal for successive one-year terms, continuing until one party
gives advance written notice to the other that such party wishes to terminate
the Coast Loan. The Coast Loan is subject to an early termination fee of $70,000
if terminated from June 14, 1998 to June 12, 1999, and $35,000 if terminated on
or after June 14, 1999.
ITEM 3. LEGAL PROCEEDINGS
On January 4, 1994, Strategica Group, Inc., a Miami-based financial
brokering firm ("SGI"), filed suit against the Company in the Circuit Court of
the 11th Judicial Circuit in and for Dade County, Florida (the "Court"),
alleging that the Company had breached certain contractual duties and
obligations arising under an agreement (the "Agreement"), dated October 16,
1992. The suit seeks a judgment requiring the Company to deliver warrants to
purchase shares of the Company's Common Stock representing 15% of the total
outstanding shares of the Company, and damages in excess of $15,000. The Company
has denied liability and filed a counterclaim alleging that SGI fraudulently
induced the Company into the Agreement then breached the Agreement and certain
fiduciary duties. Management has vigorously defended the lawsuit and filed
counterclaims, and believes the ultimate outcome would not be expected to
materially affect the Company's financial position. Management has had
settlement discussions with SGI and in April 1998 reached an
agreement-in-principle regarding settlement with SGI. The final terms have not
yet been reduced to writing. The settlement, as proposed, contemplates the
10
<PAGE>
reciprocal dismissal of all claims asserted by each party and the grants by the
Company to SGI of a warrant exercisable within five (5) years for 125,000 shares
at an exercise price of $.20 per share.
In December, 1997, Japan Crescent, Inc. and Shinji Hara filed a civil action
against the Company in the Circuit Court of the 9th Judicial Circuit in and for
Orange County, Florida. The suit alleges that the Company is indebted to the
plaintiffs for approximately $200,000 for services rendered in connection with
the acquisition of import approvals for certain of the Company's products. The
Company believes the matter can ultimately be resolved short of trial. The
Company further believes the outcome of the litigation is not expected to
materially affect its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
11
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. The Company's Common Stock, which historically was listed
on the Nasdaq SmallCap Market, was delisted effective August 30, 1991 as a
result of non-compliance with the Nasdaq SmallCap Market's capital and surplus
requirement then in effect of $375,000. However, shares of the Company's Common
Stock are currently traded over-the-counter under the symbol "CDCS" and are
quoted on the OTC Bulletin Board. This service allows market makers to enter
quotes and trade securities that do not meet Nasdaq SmallCap Market
qualification requirements.
The high and low closing bid prices for the Company's Common Stock for each of
the quarters during the years ended March 31, 1998 and 1997 as reported in the
OTC Bulletin Board:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
High Low
-------------------------------------------------------------------
YEAR ENDED MARCH 31, 1998
<S> <C> <C>
Fourth Quarter................
9/16 13/32
Third Quarter.................
1 1/8 9/16
Second Quarter................
15/16 15/32
First Quarter.................
1 7/32 3/4
YEAR ENDED MARCH 31, 1997
Fourth Quarter................
1 7/16 1 3/16
Third Quarter.................
1 3/4 1 3/8
Second Quarter................
2 3/4 1 1/2
First Quarter.................
</TABLE> 3 1/4 2
These quotations represent prices between dealers in securities; they do not
include retail mark-up, mark-down or commission, and may not represent actual
transactions.
HOLDERS. As of May 29, 1998, there were approximately 586 holders of record of
the Company's Common Stock.
DIVIDENDS. The Company has not declared or paid any cash dividends on its
common stock and has no present plans to pay cash dividends in the foreseeable
future and intends to retain earnings for the future operation and expansion of
the business. Any determination to declare or pay dividends in the future will
be at the discretion of the Company's Board of Directors and will depend upon
the Company's results of operations, financial condition, any contractual
restrictions, considerations imposed by applicable law and other factors deemed
relevant by the Board of Directors. Currently there are no contractual
restrictions on the Company's ability to pay or declare dividends; however, the
Company must give advance notice of such event to Sirrom under the terms of
Sirrom's warrant. (See Note 6 - "Notes and Debt Obligations" of the Notes to
Financial Statements.)
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity benefited from the Coast Loan whereby Coast agreed to
lend the Company an amount not to exceed $3,500,000, subject to limitations
relating to the value of receivables and inventories and including a capital
expenditure sub-line up to $500,000 and a term loan in the sum of $300,000, of
which the latter two are repayable over a forty-eight month period. On June 6,
1997, as consideration for Sirrom subordinating its interests to Coast, the
Company issued to Sirrom a warrant to purchase 50,000 shares of the Company's
Common Stock exercisable commencing immediately and expiring June 6, 2002 at an
exercise price of $5.00 per share. In connection with the Coast Loan, on June
13, 1997 the Company issued to Coast a warrant to purchase 37,500 shares of the
Company's Common Stock exercisable commencing immediately and expiring June 30,
2002 at an exercise price of $4.00 per share. As of March 31, 1998, the Company
had outstanding indebtedness of approximately $1,013,298 under the loan.
As of March 31, 1998, the Company had no commitments for the acquisition of
capital assets. As of that date, it did have material commitments pursuant to
certain inventory procurement contracts of approximately $864,000 of which
$165,000 had been prepaid by the Company. The Company does not anticipate any
significant capital expenditures during the next twelve months.
Cash used by operations during fiscal year 1998 approximated $49,000. Capital
expenditures and repayment of long-term debt additionally utilized approximately
$472,000 and $330,000, respectively. Proceeds under the line of credit and
long-term borrowings approximated $1,239,000. Deferred financing and Merger
costs absorbed approximately $575,000. Overall, negative cash flow for fiscal
year 1998 was approximately $164,000.
Cash generated by operations during fiscal year 1997 approximated $57,000.
Capital expenditures and repayment of debt obligations during fiscal year 1997
approximated $545,000 and $875,000 respectively. Net proceeds from the issue of
common stock and stock warrants during fiscal year 1997 approximated $301,000.
Proceeds from notes and debt obligations approximated $163,000. Overall,
negative cash flow for fiscal year 1997 approximated $982,000.
As indicated by the independent public accountants in their report and as
shown in the financial statements, the Company has experienced significant
operating losses which have resulted in an accumulated deficit of $21,901,927 as
of March 31, 1998. In addition, as discussed below, royalty payments from
Intermedics ceased in January 1998. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Intermedics obligation to pay royalties under its license agreement with the
Company terminated on January 22, 1998, however, the license agreement which
grants Intermedics the right to manufacture and sell the technology does not
terminate until the expiration of the Company's patent in July 2009. During the
fiscal year ended March 31, 1998, the Company recorded $2,063,250 in royalty
income from Intermedics. The termination of those royalty obligations will have
a material affect on the Company's working capital.
The financing proposed to satisfy the condition to consummation of the Merger
is intended to enable the combined companies to meet their obligations for at
least the first 24 months post closing of the Merger (see "Probable Merger").
The business plan anticipates that the combined companies will, within 12 to 18
months after completion of the Merger, be able to achieve a positive operational
cash flow at least sufficient to support normal operation and research and
development activity.
Relative to its current operations and the loss of royalty income from
Intermedics, the Company has taken the following actions to increase cash
availability:
a. The Company reduced its staff and operating expenses; and
13
<PAGE>
b. The Company expanded its revenue base by adding additional OEM customers,
providing leads to a new implantable defibrillator customer and to a new
manufacturer of otologic implants; and obtained $300,000 in additional
cash through the issuance of 8% convertible debentures, and is attempting
to issue more 8% convertible debentures for an additional $250,000.
These steps should be adequate to address liquidity needs until closing of the
Merger. If, however, the Merger is not consummated, then additional cash will
have to be raised and significant additional staff and operating expense cuts
will have to be made to conserve cash. The Company would attempt to acquire
another entity or to be acquired itself by another entity. If another merger
did not occur, then without an additional infusion of cash, a significant
increase in revenue and a substantial reduction in operating expenses, the
Company could not survive.
EVENT SUBSEQUENT TO MARCH 31, 1998
In addition, from April 22 through May 4, 1998, the Company obtained $300,000
in interim financing from selected current investors through issuance of an 8%
convertible debenture, convertible at current market price of $0.40 per share.
The Company is also attempting to obtain an additional $250,000 on similar
terms. Management believes that this additional resource will assist the
Company in the achievement of its planned product and market development
programs through the fiscal year 1999.
On June 11, 1998, the Company and Coast amended the Coast Loan to provide for
a term loan in the amount of $250,000 (the "Bridge Loan"). In connection with
the Bridge Loan, the Company issued to Coast a warrant to purchase 25,000 shares
of Company Common Stock exercisable commencing immediately and expiring June 30,
2002 at an exercise price of $.40 per share and the exercise price per share of
the warrant issued to Coast in connection with the Coast Loan was reduced from
$4.00 per share to $.40 per share.
RESULTS OF OPERATIONS
Fiscal Year ended March 31, 1998 compared to Fiscal year ended March 31, 1997.
OVERVIEW. The Company's total revenues for fiscal year 1998 decreased 11% to
approximately $5.9 million from approximately $6.6 million for fiscal year 1997.
Sales decreased from approximately $4.2 million to approximately $3.8 million
and royalties decreased from approximately $2.4 million to approximately $2.1
million. Royalty income represented royalties from Intermedics pursuant to a
license agreement between the Company and Intermedics; royalty income under this
agreement ceased on January 22, 1998. Operating costs for fiscal year 1998
decreased 8% to approximately $6.6 million from approximately $7.2 million in
fiscal year 1997, which, with the decrease in total revenues, resulted in an
Operating Loss of $726,399 in fiscal year 1998 as compared to an Operating Loss
of $575,464 in fiscal year 1997. Interest expense in fiscal year 1998 increased
to $523,949 from $490,508 in fiscal year 1997 due to an increase in the amount
borrowed under the Coast Loan. Other Income decreased to $941,000 in fiscal year
1998 from $167,300 in fiscal year 1997. The pre-tax loss in fiscal year 1998
increased to $1,239,710 from $881,240 in fiscal year 1997.
SALES. Total Sales in the fiscal year ended March 31, 1998 decreased by
$377,988 or 9.0% to $3,823,059 from the level of $4,201,047 achieved in the
prior year. Pacemaker unit sales decreased by 1.6% and pacemaker dollar sales
decreased by 3.8%, as pacemaker average selling prices declined by 2.2% due to
competitive pressures. The average selling prices of pacing electrode leads
improved by 6%, but their unit sales declined by 40%, due to reduced demand from
an established OEM customer, resulting in a net revenue reduction of $808,421,
which was largely offset by initial sales to the value of $503,500 for the
Company's newly introduced defibrillation electrode leads to a new OEM customer.
Penetration of the Japanese market has, so far, been below expectations, but
management believes that the long term potential of the Japanese and Asian
markets and the more effective marketing and distribution process intended to
result from the Merger warrant continued perseverance in this area.
14
<PAGE>
Sales by geographic area for fiscal 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Geographic Area 1998 1997
--------------- ---- ----
<S> <C> <C>
United States $3,047,963 $3,486,511
International $ 775,096 $ 714,536
--------------------------------
$3,823,059 $4,201,047
================================
</TABLE>
Sales by product line, including product assemblies, for fiscal 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
Product Line 1998 1997
------------ ---- ----
<S> <C> <C>
Pacemakers $1,678,905 $1,744,528
Hybrid Circuits $ 258,250 $ 222,303
Electrode Leads $1,866,721 $2,171,641
Other $ 19,183 $ 62,575
------------------------------
$3,823,059 $4,201,047
==============================
</TABLE>
ROYALTY INCOME. Royalty income represented royalty fees from Intermedics
pursuant to a license agreement between the Company and Intermedics, whereby the
Company licensed the technology relating to its single-pass, atrial-controlled
ventricular pacing system. Royalty fees under this agreement terminated on
January 22, 1998.
COST OF PRODUCTS SOLD. Cost of products sold in fiscal year 1998 was
$2,339,973, compared to $2,378,743 in fiscal year 1997, representing a decrease
of 1.6% as compared with a sales decrease of 9%, which reduced the rate of gross
margin from 43% to 39%. This reduction was largely due to lower selling prices
for pacers and pacer assemblies in the European market due to competitive
pressures and increased rates of manufacturing overhead cost arising from
reduced production volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2,496,817 in fiscal year 1998, representing a
decrease of 17% from $3,013,724 in fiscal year 1997. Selling expenses were
$1,052,038 in fiscal year 1998 compared to $1,591,807 in fiscal year 1997,
representing a decrease of 34%, largely due to a decrease of $312,327 in volume
dependent sales commission and royalty expenses, employment cost reductions of
$141,944 and additional cost controls. General and administrative expenses were
$1,444,780 in fiscal year 1998 compared to $1,421,917 in fiscal year 1997
representing an increase of 1.6% despite increases totaling $74,000 in bank and
finance charges, insurance costs and overseas taxes.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES. Engineering, research and
development expenses were $1,775,918 in fiscal year 1998, representing no
significant change from $1,778,294 in fiscal year 1997 due to
15
<PAGE>
the continued development activities in the areas of single pass electrode
leads, bipolar dual-chamber operation, light weight pulse generator, rate
responsive pacing and the PacePro programmer.
OTHER INCOME AND EXPENSES. Interest income was $9,697 during fiscal year
1998, compared to $17,431 during fiscal year 1997. Total interest expense
during fiscal year 1998 increased to $523,949 from the level of $490,508
incurred during fiscal year 1997, due largely to additional interest arising in
fiscal year 1998 since June 13, 1997 on the loan from Coast.
OPERATING TRENDS AND UNCERTAINTIES
SALES. The ability of the Company to attain a profitable level of operations
is dependent upon expansion of sales volume, both domestically and
internationally, and continued development of new, advanced products. The
Company believes that with the continued release of new products, its world-wide
market expansion, and the addition of new OEM corporate customers, it will have
the potential to increase sales.
EEC nations have adopted universal standards as developed by the ISO in order
to provide simplified trade among the member nations and to assure free access
to trade while maintaining quality standards for products sold. All companies
doing business in these nations must be certified to these standards set forth
by the EEC which is evidenced by being granted the CE Mark. Standards for
active implantable medical products were implemented January 1, 1993 with a
transition period ending December 31, 1994. The Company Quality System received
certification to the ISO 9002 on November 19, 1996. The CE Mark certification
was issued by the Notified Body, TUV Product Services, of Munich, Germany,
during the second quarter of fiscal 1996 for the Company's products intended for
sale in Europe. The Company was audited in July 1997 by TUV Product Services as
part of the annual review of the certified Quality System. As a result of the
TUV Product Services audit, the Quality System Certificate was renewed. The
Company is developing design control processes in preparation for a compliance
audit to ISO 9001.
Until March 1995, the Company was the only manufacturer commercially marketing
single-lead, atrial-controlled ventricular pacemakers. However, Intermedics, a
competitor of the Company, received FDA clearance commercially to market a
single-lead, atrial-controlled ventricular pacemaker that it developed utilizing
the Company's technology pursuant to license and supply agreements with the
Company. Intermedics commenced marketing its new pacemakers in March 1995. In
addition, other competitors have also commenced marketing competitive single-
lead products.
Although the introduction of the new single-lead pacemakers poses competition
for the Company, management believes that the Company will benefit from such
competition since the new competition will increase the visibility of single-
lead, atrial-controlled ventricular pacemakers in the marketplace and thereby
increase market acceptance of the product. Further, management believes that
there is a sufficient market to accommodate both the Company's and other
competitive pacemakers.
Various factors impact on a firm's ability to increase market share including,
but not limited to, the financial strength of the firm, the ability of the firm
and its competitors, and the time involved in obtaining FDA clearance for new or
improved products. Therefore, although management believes that the Company is
well poised for viable growth, management cannot predict the degree of market
share the Company can obtain. Factors beyond the Company's control may impede
its progress and in such event, its business and operations would be adversely
impacted.
The Company's ability successfully to compete with Intermedics and other
pacemaker manufacturers will depend on the Company's ability to supply product
and recruit and increase a quality sales force and continue to develop and
release new advanced products. The Company historically has been restricted in
its marketing
16
<PAGE>
capabilities due to financial constraints impeding its ability to supply
products and recruit and train a sales force. However, the Company believes that
the resources and products available with the proposed merger, and the
associated funding to be obtained in connection with the proposed merger, will
position the combined companies to be able to develop effective sales and
marketing, and research and development programs.
As discussed above, the manufacture for and sale of leads to Intermedics
produce income for the Company. The Company sells electrode leads to
Intermedics for its new systems under an amended and restated Supply agreement
that expires on August 1, 1998.
It is anticipated that Intermedics will eventually develop its own
manufacturing capability for electrode leads necessary for its new pacemakers.
However, any such development will take time. Although the Company does not
know how long it will take Intermedics to develop its own manufacturing
capability, added to any such development period would be the time necessary to
obtain FDA clearance of its manufacturing process. Thus, although the Company
cannot guarantee that it will continue to supply Intermedics with products, the
Company anticipates providing Intermedics with existing or new leads for the
next few years without a supply agreement on the same or similar terms and
conditions that the Company sells to other similar customers. However, in the
event Intermedics receives FDA approval in a shorter time-frame than
anticipated, or other events occur which causes a decrease in Intermedics'
orders, the Company's business and operating results would be adversely
affected.
SOURCES OF SUPPLY. Two of the Company's principal suppliers of materials used
primarily in electrode lead production, Dow and DuPont, indicated that they will
no longer supply their materials to the medical device industry for use in
implantable devices.
The availability of materials suitable for use in implantable medical devices
is an industry-wide problem and is not unique to the Company or to the
cardiovascular device segment of the industry. The Polymer Technology Group
produces a product that meets manufacturing requirements and has been identified
as a tentative replacement for the DuPont supplied material. Since the
candidate replacement material is comprised of the same chemical composition as
the DuPont material, it is expected that it will be comparable with respect to
the performance characteristics and biocompatibility of the current material in
use. Similarly, FDA approval of this replacement material is anticipated to be
forthcoming based upon a satisfactory outcome of the testing performed on the
product. The Company believes, however, that it has a sufficient supply of the
DuPont material to meet the Company's anticipated demand for the next several
years. See Item 1. "Business - Sources of Supply."
Suppliers of custom ASICs have advised the Company that the technology used to
produce these ASICs will no longer be supported. As such, the Company placed
one last bulk order to ensure the availability of sufficient ASICs to satisfy
projected demands for current products. The new pacing system under development
will utilize appropriate new ASICs obviating the need for perpetual supply of
the currently used ASICs.
PROBABLE MERGER. On October 27, 1997, the Company entered into a letter of
intent with Electro, a New Jersey corporation, to effect a merger of a wholly-
owned subsidiary of the Company ("Sub"), into and with Electro (the "Merger") as
a result of which Electro will become a wholly-owned subsidiary of the Company.
The Company has filed a Form S-4 Registration Statement with the Securities and
Exchange Commission ("SEC"), which will need to be declared effective by the SEC
before the merger can become effective.
To effectuate the Merger, the Company, Electro and Sub executed an Agreement
and Plan of Reorganization dated January 20, 1998, as amended by a First
Amendment to the Agreement and Plan of Reorganization, dated May 5, 1998
(collectively, the "Merger Agreement"). Simultaneously with the Merger, the
Company will reorganize into a holding company structure whereby the Company
will become a direct wholly-owned subsidiary of Catheter Technology Group, Inc.,
a Delaware corporation and a holding company ("CTG"). The stockholders
17
<PAGE>
of the Company will become stockholders of CTG and will continue to hold their
shares of common stock without any change in number, designation, terms or
rights. The structure of the transaction contemplates that upon effectiveness of
the Merger, holders of Electro's common stock, $.10 par value per share
("Electro Common Stock"), will receive one share of common stock, $.10 par value
per share, of CTG for each share of Electro Common Stock held. No fractional
shares will be issued in the Merger.
Consummation of the Merger and transactions contemplated thereby are subject
to the satisfaction of certain conditions, including, among other things: (i)
The approval and adoption of the Merger Agreement and the Merger by the
stockholders of Electro; and (ii) the registration under the Securities Act of
1933, as amended, and all applicable state securities laws, of the shares of CTG
Common Stock to be issued pursuant to the Merger. The material conditions to
the obligations of the Company, Sub or Electro to consummate the Merger may not
be waived or modified by the party that is, or whose stockholders are, entitled
to the benefits thereof.
Electro is based in Rahway, New Jersey and is engaged in the business of the
design, development, manufacture, marketing and sale of catheters and related
devices utilized in connection with illnesses of the heart and circulatory
system. The Company believes the Merger may allow certain efficiencies to
improve operating performance and that the broader product line may provide for
a more effective marketing and distribution process. There can be no assurance,
however, that consummation of the Merger will occur, or that if it does, it will
yield positive operating results in the future.
YEAR 2000 ISSUE. Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the year 2000. Some
older computer systems stored dates with only a two-digit year with an assumed
prefix of "19". Consequently, this limits those systems to dates between 1900
and 1999. If not corrected, many computer systems and applications could fail
or create erroneous results by or at the year 2000 (the "Year 2000 issue").
The Company has undertaken a review of the potential impact of the Year 2000
issue. Such assessment has included a review of the impact of the issue
primarily in four areas: products, manufacturing systems, business systems and
miscellaneous/ other areas. Based on the results of its initial review, the
Company does not anticipate that the Year 2000 issue will impact operations or
operating results. The Company is in the process of testing its systems which
may be affected by the Year 2000 issue and estimates that all affected systems
can be tested, upgraded and/or replaced before they cause any operational
problems. This upgrading is estimated to take less than four man-months of
effort. In order to ensure Year 2000 compliance, the Company has created a task
force periodically to review areas of concern. This task force is to meet on a
quarterly basis through the middle of year 2000. Management believes that the
incremental costs associated with achieving Year 2000 compliance will not be
material to the Company's operating results.
The Company relies on its customers, suppliers, utility service providers,
financial institutions and other partners in order to continue normal business
operations. At this time, it is impossible to assess the impact of the Year
2000 issue on each of these organizations. There can be no guarantee that the
systems of other unrelated entities on which the Company relies will be
corrected on a timely basis and will not have a material adverse effect on the
Company. The Company's task force has identified the other organizations which
are critical to the Company's continued operations. The Company intends to
survey these organizations to determine the impact of the Year 2000 on their
operations and their plans for addressing any potential concerns. The Company
expects that this assessment will be completed in the fourth quarter of 1998 and
expects that any issues will be resolved by the end of the second calendar
quarter of 1999.
18
<PAGE>
INFLATION AND CHANGING PRICES
In the opinion of the Company's management, the rate of inflation during the
past two fiscal years has not had any material impact on the Company's
operations. Because of the implementation of cost containment and new Medicare
regulations, any increase in sales revenues is expected to result from an
increase in the volume of business rather than from an increase in selling
prices. The Company's pricing structure may not reflect inflation rates, due to
constraints of Medicare regulations, market conditions and competition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("FAS 130") and No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 130 establishes standards
for reporting and displaying comprehensive income, its components and
accumulated balances. FAS 131 establishes standards for the way that public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. Both FAS 130 and
FAS 131 are effective for periods beginning after December 15, 1997. Because of
the recent issuance of the standards, management has been unable to fully
evaluate the impact, if any, they may have on future financial statement
disclosures.
Item 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
page
<S> <C>
Report of Independent Certified Public Accountants F1
Financial statements
Balance sheet F2 - F3
Statements of operations F4
Statements of stockholders' equity F5
Statements of cash flows F6 - F7
Summary of significant accounting policies F8 - F11
Notes to financial statements F12 - F26
</TABLE>
ITEM 8. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
19
<PAGE>
CARDIAC CONTROL
SYSTEMS, INC.
================================================================================
FINANCIAL STATEMENTS
As of March 31, 1998
and for the Two Years Then Ended
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Cardiac Control Systems, Inc.
We have audited the accompanying balance sheet of Cardiac Control Systems, Inc.
as of March 31, 1998 and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended March 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. 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 Cardiac Control Systems, Inc.
as of March 31, 1998 and the results of its operations and its cash flows for
each of the two years in the period ended March 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note to the financial
statements, the Company has experienced significant operating losses and has an
accumulated deficit at March 31, 1998. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note . The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
Orlando, Florida
June 15, 1998
F-1
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
================================================================================
March 31, 1998
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Cash $ 21,412
Accounts receivable, net (Note 3) 673,673
Inventories (Note 4) 1,423,697
Prepaid expenses 207,563
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,326,345
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 5 and 7) 1,974,096
- --------------------------------------------------------------------------------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $238,248 (Note 8) 460,200
Deferred license fees, less accumulated
amortization of $43,333 156,667
Deferred merger costs (Note 13) 320,450
Other 79,220
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS 1,016,537
- --------------------------------------------------------------------------------
$5,316,978
================================================================================
</TABLE>
F-2
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
==================================================================================================
March 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,028,440
Due to related party (Note 6) 106,000
Accrued compensation 257,912
Accrued royalties (Note 11) 226,906
Other accrued expenses 48,372
Deposits payable 352,482
Current portion of long-term debt (Note 7) 1,021,682
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,041,794
LONG-TERM DEBT, less current portion (Note 7) 1,491,720
OTHER LIABILITIES 82,720
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,616,234
- --------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY (NOTES 7 AND 8):
Common stock, $.10 par value, 30,000,000 shares authorized,
2,648,739 shares issued 264,874
Additional paid-in capital 22,350,756
Accumulated deficit (21,901,927)
Cumulative translation adjustment (12,959)
- --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 700,744
- --------------------------------------------------------------------------------------------------
$ 5,316,978
==================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements
F-3
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Year ended March 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
REVENUE:
Sales (Note 10) $ 3,823,059 $ 4,201,047
Royalty income 2,063,250 2,394,250
- --------------------------------------------------------------------------------
Total revenue 5,886,309 6,595,297
- --------------------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of products sold 2,339,973 2,378,743
Selling, general and administrative expenses 2,496,818 3,013,724
Engineering, research and development expenses 1,775,917 1,778,294
- --------------------------------------------------------------------------------
Total costs and expenses 6,612,708 7,170,761
- --------------------------------------------------------------------------------
Loss from operations (726,399) (575,464)
- --------------------------------------------------------------------------------
OTHER INCOME (EXPENSES):
Interest income 9,697 17,432
Interest expense (523,949) (490,508)
Other income 941 167,300
- --------------------------------------------------------------------------------
Total other expenses (513,311) (305,776)
- --------------------------------------------------------------------------------
NET LOSS $(1,239,710) $ (881,240)
================================================================================
LOSS PER COMMON SHARE $ (.47) $ (.34)
================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,636,954 2,585,212
================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-4
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
-----------------------
Number Par Paid-in Treasury Accumulated Translation
of Shares Value Capital Stock Deficit Adjustment
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1996 2,532,942 $253,294 $21,857,388 $(10,938) $(19,780,977) $ -
Common shares issued, net of
costs of $8,968 91,428 9,143 296,889 - - -
Stock warrants issued - - 152,376 - - -
Acquisition of treasury stock - - - (5,000) - -
Retirement of treasury stock (4,999) (500) (15,438) 15,938 - -
Translation adjustment - - - - - (7,055)
Net loss - - - - (881,240) -
- -------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 2,619,371 261,937 22,291,215 - (20,662,217) (7,055)
Common shares issued 29,368 2,937 39,991 - - -
Stock warrants issued - - 19,550 - - -
Translation adjustment - - - - - (5,904)
Net loss - - - - (1,239,710) -
- -------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 2,648,739 $264,874 $22,350,756 $ - $(21,901,927) $ (12,959)
=========================================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-5
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
===========================================================================================================
Year ended March 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,239,710) $ (881,240)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 506,675 551,225
Gain on fixed asset disposals (12,935) (12,957)
Stock issued for payment of directors' fees 34,000 -
Stock issued for payment of consulting fees 8,928 -
Cash provided by (used for):
Accounts receivable 279,169 382,515
Inventories 95,941 514,807
Prepaid expenses 48,549 (192,039)
Other assets (10,811) (50,588)
Accounts payable 200,197 327,535
Due to related parties 106,000 -
Accrued expenses (36,648) (13,957)
Deposits payable (40,150) (126,962)
Other liabilities 12,046 (112,717)
Deferred royalties - (328,250)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (48,749) 57,372
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (471,992) (544,628)
Deferred merger costs (320,450) -
Proceeds from sale of equipment 29,458 22,633
- -----------------------------------------------------------------------------------------------------------
Net cash used for investing activities (762,984) (521,995)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and stock warrants,
net of issuance costs - 301,032
Deferred financing costs (254,878) (99,149)
Net borrowings on line of credit 775,798 -
Proceeds from long-term debt 463,149 163,253
Repayments of long-term debt (330,483) (875,174)
- -----------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used For) Financing Activities 653,586 (510,038)
- -----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES IN CASH (5,904) (7,055)
- -----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (164,051) (981,716)
CASH, beginning of year 185,463 1,167,179
- -----------------------------------------------------------------------------------------------------------
CASH, end of year $ 21,412 $ 185,463
===========================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-6
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
================================================================================
Year ended March 31, 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the year $ 317,356 $ 283,676
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred financing costs incurred by issuance of stock warrants $ - $ 81,000
Treasury stock acquired for reinstatement of accounts payable - 5,000
Reduction in accounts payable in exchange for common stock - 5,000
Accounts payable incurred for costs of license fees - 200,000
Debt discount incurred by issuance of stock warrants 19,550 71,376
Debt incurred for purchase of property and equipment - 15,345
===================================================================================================
</TABLE>
See accompanying summary of significant accounting policies and notes to
financial statements.
F-7
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
INVENTORIES Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method for
raw material and supply inventories. Cost of work-in-process
and finished goods inventories is determined based upon
standard cost, which approximates cost on a FIFO basis.
PROPERTY, PLANT Property, plant and equipment are stated at cost. Additions,
AND EQUIPMENT improvements and expenditures that significantly extend the
useful life of an asset are capitalized. Expenditures for
repairs and maintenance are charged to operations as
incurred. Depreciation and amortization are provided on the
straight-line method for financial reporting purposes and
accelerated methods for tax purposes over the estimated
useful lives of the assets as follows:
Building and building improvements 10 - 30 years
Land improvements 20 years
Machinery and equipment 5 - 6 years
Office equipment and furniture and fixtures 5 - 10 years
Vehicles 3 - 5 years
Ancillary equipment 2 years
DEFERRED Deferred financing costs related to a mortgage note payable
COSTS and other loan agreements are capitalized and amortized over
AND FEES the term of the loans (see Note 7). Deferred license fees
related to a license to distribute products in Japan are
capitalized and amortized over five years, the life of the
license. Deferred merger costs relate to the proposed merger
with Electro and will be a cost of the transaction when the
merger occurs or charged to operations if the merger does
not occur (see Note 13).
IMPAIRMENT OF The Company evaluates impairment of long-lived assets in
LONG-LIVED ASSETS accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," (SFAS 121).
SFAS 121 requires impairment losses to be recorded on long-
lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the
assets' carrying amount.
F-8
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
TRANSLATION OF The financial statements of the non-U.S. division are
FOREIGN CURRENCY translated into U.S. dollars as follows: all assets and
liabilities at the year-end exchange rate and revenue and
expenses at the average exchange rate. Adjustments resulting
from the translation of financial statements are reflected
as a separate component of stockholders' equity. Gains and
losses resulting from foreign currency transactions are
included in income currently and were not significant for
the years ended March 31, 1998 and 1997.
REVENUE Sales revenue and cost of sales are recognized as products
RECOGNITION are shipped and title passes, unless the buyer has a right
to return the products. Sales revenue and cost of sales
attributable to shipments that the buyer has the right to
return are recognized when the return privilege has expired,
usually upon resale (implant) of the products.
Pursuant to a license agreement with a third-party
distributor, the Company recognizes royalty income as leads
are sold by the distributor.
ENGINEERING, The Company capitalizes the cost of materials and equipment
RESEARCH AND acquired or constructed for research and development
DEVELOPMENT COSTS activities that have alternative future uses. All other
costs incurred for the purpose of product research, design,
and development are charged to operations as incurred.
Research and development costs included in engineering,
research and development expenses on the statements of
operations for the years ended March 31, 1998 and 1997
approximate $975,100 and $1,086,800, respectively.
INCOME TAXES The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"). FAS 109 is an
asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized
in the Company's financial statements or tax returns.
Measurement of deferred income tax is based on enacted tax
laws including tax rates, with the measurement of deferred
income tax assets being reduced by available tax benefits
not expected to be realized.
LOSS PER Loss per share is based upon the weighted average number of
COMMON SHARE common shares outstanding during each period. Potential
common shares have not been
F-9
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
included since their effect would be antidilutive. Potential
common shares include 397,475 stock options and 465,965
warrants.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share," (FAS 128), which is effective for
financial statements issued for periods ending after
December 15, 1997. FAS 128 simplifies the standards for
computing earnings per share and makes them comparable to
international earnings per share standards. This statement
replaces the presentation of primary EPS and fully diluted
EPS with a presentation of basic EPS and diluted EPS,
respectively. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding for the
period. Similar to fully diluted EPS, diluted EPS reflects
the potential dilution of securities that could share in the
earnings. Adoption of this statement did not have a material
effect on the Company's reported loss per share amounts.
FAIR VALUE OF Statement of Financial Accounting Standards No. 107,
FINANCIAL "Disclosures about Fair Value of Financial Instruments,"
INSTRUMENTS requires disclosure of fair value information about
financial instruments. Fair value estimates discussed herein
are based upon certain market assumptions and pertinent
information available to management as of March 31, 1998.
The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These
financial instruments include cash, accounts receivable,
accounts payable, accrued expenses and deposits payable.
Fair values were assumed to approximate carrying values for
these financial instruments since they are short term in
nature and their carrying amounts approximate fair values or
they are receivable or payable on demand. The fair value of
the Company's long-term debt is estimated based upon the
quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the
same remaining maturities.
USE OF The preparation of financial statements in conformity with
ESTIMATES generally accepted accounting principles requires management
to make estimates and assumptions
F-10
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECENT ACCOUNTING In June 1997, the Financial Accounting Standards Board
PRONOUNCEMENT issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130), and No. 131,
"Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for
reporting and displaying comprehensive income, its
components and accumulated balances. FAS 131 establishes
standards for the way that public companies report
information about operating segments in annual financial
statements and requires reporting of selected information
about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective
for periods beginning after December 15, 1997. The Company
has not determined the impact that the adoption of these new
accounting standards will have on its future financial
statements and disclosures.
RECLASSIFICATIONS Certain reclassifications have been made to the financial
statements previously reported for the year ended March 31,
1997 to conform with classifications used in the financial
statements for the year ended March 31, 1998.
F-11
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. NATURE OF Cardiac Control Systems, Inc. (the "Company") was
OPERATIONS incorporated in June 1980 as a Delaware Corporation. The
Company is engaged in the design, development, manufacture
and marketing of implantable cardiac pacemaker systems,
consisting of implantable pacemakers, connecting electrode
leads and devices used for programming and monitoring the
pacemaker systems. The Company commenced its principal
business operations during the year ended March 31, 1986
after the commercial release of its initial single-chamber
pacemaker system. The Company has received clearance from
the United States Food and Drug Administration (the "FDA")
to commercially distribute and market a line of the
Company's pacemaker systems.
In August 1996, the Company formed a division in Tokyo,
Japan to distribute and market the Company's products in
Japan. The Company has obtained the appropriate licensing
for the sale of several of its products in Japan.
2. GOING CONCERN As shown in the accompanying financial statements, the
AND Company has experienced significant losses which have
MANAGEMENT'S resulted in an accumulated deficit of $21,901,927. The
PLANS Company has also experienced severe cash flow shortages
which have resulted in a decrease in operating activity and
have caused the Company to significantly reduce its labor
force. In addition, royalties of $2,063,250 and $2,394,250
during fiscal 1998 and 1997, respectively, received under a
license agreement ceased in January 1998. These conditions
raise substantial doubt about the Company's ability to
continue as a going concern.
The Company has executed a letter of intent to merge with
Electro-Catheter Corporation (see Note 13). It is believed
that as a result of this merger, the combined entity will be
able to generate significant volume and cost savings,
allowing the realization of profitable operations and
positive cash flow within a 12- to 18-month period post
completion of the merger. It is also believed that this
merger will also provide the vehicle and opportunity for
additional acquisitions of like companies, further building
critical mass and enhancing growth potential.
As a condition of this merger, the Company is planning to
raise a minimum of $4 million in a combination of debt and
equity. This capital will be utilized to
F-12
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
fund the ongoing operations of the two companies, as
well as the research and development of new
technologies. Management believes that such financing
will occur and that sufficient funds will be provided
to overcome its financial difficulties. However, no
assurances can be given that the Company will be
successful in obtaining financing and completing the
merger, and if the Company is unable to obtain adequate
financing, there remains substantial doubt concerning
the Company's ability to continue as a going concern.
3. ACCOUNTS Accounts receivable at March 31, 1998 are summarized as
RECEIVABLE follows:
-------------------------------------------------------
<TABLE>
<S> <C>
Trade accounts receivable $677,281
Other accounts receivable 2,265
-------------------------------------------------------
679,546
Allowance for doubtful accounts (5,873)
-------------------------------------------------------
$673,673
=======================================================
</TABLE>
4 INVENTORIES Inventories at March 31, 1998 consist of the
following:
-------------------------------------------------------
<TABLE>
<S> <C>
Raw materials and supplies $ 859,836
Work-in-process 315,643
Finished goods 285,166
-------------------------------------------------------
1,460,645
Reserve for obsolescence (36,948)
-------------------------------------------------------
$1,423,697
=======================================================
</TABLE>
Finished goods inventories include approximately
$192,000 of products consigned to customers and
independent sales representatives.
5. PROPERTY, PLANT Components of property, plant and equipment at March
AND EQUIPMENT 31, 1998 are as follows:
------------------------------------------------------
<TABLE>
<S> <C>
Land $ 123,300
</TABLE>
F-13
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Building and building improvements 1,788,251
Land improvements 29,450
Machinery and equipment 1,147,277
Office equipment 559,593
furniture and fixtures 149,620
Ancillary equipment 1,250,743
Construction in progress (estimated costs
to complete $300,000) 577,620
------------------------------------------------------
5,625,854
Accumulated depreciation (3,651,758)
------------------------------------------------------
$ 1,974,096
======================================================
</TABLE>
Depreciation expense for the years ended March 31, 1998
and 1997 was $268,697 and $310,797, respectively.
6. RELATED PARTY As of March 31, 1998, $106,000 was due to an affiliate
TRANSACTIONS owned by a director of the Company for consulting
services provided to the Company during fiscal 1998.
During the year ended March 31, 1998, the Company repaid
in full $200,983 of advances from the Chairman of the
Board and President of the Company under certain
promissory notes.
7. LONG-TERM Long-term debt consists of the following at March 31,
DEBT 1998:
<TABLE>
---------------------------------------------------------------------------
<S> <C>
Sirrom mortgage note, net of discount (see note below) $ 1,480,450
CBC line of credit (see note below) 775,798
CBC term note (see note below) 237,500
Other 19,654
---------------------------------------------------------------------------
2,513,402
Less current portion (1,021,682)
---------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Total $ 1,491,720
===========================================================================
</TABLE>
Aggregate maturities of long-term debt over future years are
as follows:
<TABLE>
---------------------------------------------------------------------------
<S> <C>
1999 $ 1,021,682
2000 1,485,642
2001 3,539
2002 2,539
---------------------------------------------------------------------------
$ 2,513,402
===========================================================================
</TABLE>
Sirrom
------
On March 31, 1995, the Company entered into a Loan and
Security Agreement (the "Loan Agreement") with Sirrom
Capital Corporation ("Sirrom") and executed a $1,500,000
secured promissory note. Interest on the note is payable
monthly at 13.5% and principal is due on March 31, 2000. The
note is secured by a first mortgage lien on all the
Company's real and personal property, excluding inventory
and accounts receivable, but including general intangibles
such as its patents and royalties. The Loan Agreement
restricts the Company from incurring additional indebtedness
in excess of $200,000 annually without the lender's consent.
In addition, the Company must give the lender advance notice
of certain events, such as dividend payments, certain new
stock issues, reorganizations, and merger or sale of
substantially all assets.
In connection with the Loan Agreement, the Company
originally granted the lender warrants to purchase 100,000
shares of the Company's common stock at $.01 per share. An
additional 50,000 warrants to purchase shares of common
stock at $.01 per share will be granted to the lender upon
each anniversary date, beginning March 31, 1997 through
March 31, 1999, that any amount owed to Sirrom shall be
outstanding. On March 31, 1997 and 1998, the Company granted
Sirrom 50,000 additional warrants pursuant to this
agreement. The Company recorded $279,000 (100,000 shares) in
fiscal 1995, $71,376 (50,000 shares) in fiscal 1997 and
$19,550 (50,000 shares) in fiscal
F-15
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1998 as a debt discount with the offset to additional paid-
in capital, representing the difference between the
estimated fair market value of the underlying stock at the
date of grant and $.01 per share (see Note ). This has
resulted in an effective interest rate of approximately 24%
on the Sirrom debt. The Sirrom note includes an unamortized
debt discount of $19,550 at March 31, 1998.
CBC
---
On June 13, 1997, the Company entered into a Loan Agreement
("Agreement") with Coast Business Credit ("CBC") for a
maximum borrowing of $3.5 million, which includes a line of
credit up to $2.7 million, a $500,000 Subline for capital
expenditures ("CAPEX"), which was unused at March 31, 1998,
and a $300,000 Term Loan. The maximum borrowing base
available under the line of credit is based upon eligible
receivables and inventory as defined in the Agreement. The
maturity date for the Agreement is June 30, 2000. The CAPEX
and the term loan are based upon a 48-month amortization
period. The interest rate on the line of credit is equal to
the prime rate plus 2% (10.5% at March 31, 1998), and the
interest rate for the Term Loan and the CAPEX Subline is
equal to the prime rate plus 2.25% (10.75% at March 31,
1998). Borrowings under the Agreement are collateralized by
a first security interest in substantially all of the assets
of the Company. The agreement also contains a minimum
tangible net worth requirement, of which the Company was in
violation as of March 31, 1998. Accordingly, the amounts due
under the CBC agreement as of March 31, 1998 amounting to
$1,013,298 have been classified as current. In addition, CBC
was granted a warrant to purchase 37,500 shares of stock at
$4 per share, expiring June 30, 2002.
In conjunction with the Agreement, Company obtained an
Intercreditor and Subordination Agreement between CBC and
Sirrom. This agreement provided that Sirrom subordinate its
first security interest in the Company's real estate to CBC
limited however to $500,000 secured by the Sirrom mortgage.
As consideration for its waiver of its first security
interest in the assets of the Company, Sirrom was granted
warrants to purchase 50,000 shares of stock at $5 per share,
exercisable at any time and expiring five years from the
date of the Warrant Agreement.
F-16
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
On June 11, 1998, the CBC Loan Agreement was amended to
include an additional $250,000 bridge loan bearing interest
at prime plus 5% and due on August 31, 1998. The warrant
originally granted to CBC to purchase 37,500 shares of stock
was also amended. The exercise price was reduced from $4 per
share to $.40 per share. In addition, CBC was granted a
second warrant to purchase 25,000 shares of stock at $.40
per share. The warrant expires June 30, 2002.
8. STOCKHOLDERS' Issuance of Common Shares
-------------------------
EQUITY
In May 1996, Sirrom purchased 50,000 shares of common stock
for $5.00 per share. In June 1996, the Company issued 1,428
shares of common stock as payment for accounts payable of
$5,000 to a third party. The accounts payable balance was
then reinstated in March 1997, in conjunction with the
Company's purchase of 1,428 shares of treasury stock.
In January 1997, the Company entered into a supply agreement
with a major defibrillator manufacturer whereby the Company
will be the exclusive outside supplier of a defibrillation
lead. The agreement expires in December 1999. In connection
with this agreement, the manufacturer paid the Company
$200,000 and received 40,000 shares of common stock valued
at $60,000, representing the quoted market price of the
common shares. The difference between the purchase price and
the value assigned to the common stock of $140,000 was
recorded as a gain on sale of the technology underlying the
supply agreement included in other income.
During the year ended March 31, 1998, the Company issued
23,654 shares of common stock as payment of directors' fees,
which were valued at $34,000 and 5,714 shares of common
stock as payment for consulting services which were valued
at $8,928.
Stock Option Plan
-----------------
On September 9, 1987, the Company's Board of Directors
adopted the 1987 Non-Qualified Stock Option Plan (the "1987
Plan"). On February 7, 1992, the Company's Board of
Directors adopted the 1992 Non-Qualified Stock Option Plan
(the "1992 Plan"). In fiscal 1995, the Company combined the
1987 Plan and
F-17
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
the 1992 Plan. This Plan provides the Board of Directors
with the authority to grant officers, directors, and
employees of the Company non-qualified options to purchase
up to a maximum of 400,000 shares of the Company's common
stock. Options granted under the Plan expire five years
after the date the options are granted or upon termination
of employment.
The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related interpretations in
accounting for options issued to employees. Accordingly, no
compensation cost has been recognized for options granted to
employees at exercise prices which equal or exceed the
market price of the Company's common stock at the date of
grant. Options granted at exercise prices below market
prices are recognized as compensation cost measured as the
difference between market price and exercise price at the
date of grant.
Statement of Financial Accounting Standards No. 123 (FAS
123) "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net
income and earnings per share as if compensation cost for
the Company's employee stock options had been determined in
accordance with the fair value based method prescribed in
FAS 123. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-
pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively:
no dividend yield for both years, an expected life of five
years for both years, expected volatility of 60% and 44% and
risk-free interest rates of 6.6% and 6.4%.
Under the accounting provisions of FAS 123, the Company's
net loss and loss per share would have been increased to the
pro forma amounts indicated below:
F-18
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------
<S> <C> <C>
NET LOSS
As reported $ (1,239,710) $ (881,240)
Pro forma (1,264,723) (952,300)
LOSS PER SHARE
As reported $ (.47) $ (.34)
Pro forma (.48) (.37)
============================================================
</TABLE>
F-19
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
A summary of the status of options under this plan as of March 31, 1998 and 1997
and changes during the years ending on those dates are presented below:
<TABLE>
<CAPTION>
1998 1997
----------------------------------- -----------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year 309,969 $ 3.72 $ 305,186 $ 4.02
Granted 88,500 1.O4 84,429 3.50
Forfeited or expired (24,542) 5.25 (79,646) 4.55
------- -------- ----------- --------
Balance at end of year 373,927 $ 2.83 309,969 $ 3.72
======= ======== =========== ========
Options exercisable at year end 350,617 $ 2.89 244,658 $ 3.69
Options granted during the year
at exercise prices which exceed
market price of stock at date of
grant:
Weighted average exercise price 88,500 $ 1.04 74,429 $ 3.50
Weighted average fair value 88,500 $ .47 74,429 .73
Options granted during the year
at exercise prices which equal
market price of stock at date of
grant:
Weighted average exercise price - $ - 10,000 $ 3.50
Weighted average fair value - - 10,000 1.66
</TABLE>
The following table summarizes information about fixed stock options at March
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------ ----------------------------------
Number Weighted-Average Number
Range of Outstanding at Remaining Weighted-Average Exercisable at Weighted-Average
Exercise Prices March 31, 1998 Contractual Life Exercise Price March 31, 1998 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.00 87,000 4.1 years $ 1.00 87,000 $ 1.00
$ 3.50 to 3.63 286,927 2.1 years 3.52 263,617 3.52
------- -------
373,927 350,617
======= =======
</TABLE>
F-20
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
Non-Plan Stock Options
----------------------
The Company has granted options to independent sales
representatives, Board of Directors and others. The
total number of non-plan stock options outstanding at
March 31, 1998 and 1997 were 23,548 and 31,406,
respectively. The total number of exercisable non-plan
stock options at March 31, 1998 and 1997 were 21,548
and 24,073, respectively. The exercise price for these
options range from $.40 to $10.50 per share. These
options are exercisable over five-year periods and
expire five years from the date of grant. The value of
these options was not material, and accordingly, no
compensation cost has been recognized by the Company.
Common Stock Purchase Warrants
------------------------------
Common stock purchase warrants outstanding at March 31,
1998 are as follows:
<TABLE>
<CAPTION>
Exercise
Number of Price
Underlying Per Expiration
Shares Share Date
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Converted debenture holders 100,000 $ 5.00 3/31/99
Sirrom (see Note 7) 200,000 $ .01 3/31/00
Sirrom (see note below) 50,000 .01 10/18/00
Sirrom (see Note 7) 50,000 $ 5.00 6/6/02
Coast Business Credit (see Note 7) 37,500 $ 4.00 6/30/02
Employees 3,465 .18 8/21/02
Grupo Taper (see note below) 25,000 $ .80 8/5/07
==============================================================================
</TABLE>
All of the above warrants were exercisable at March 31,
1998, except for Grupo Taper, of which 25,000 are
unexercisable. The warrants issued to Grupo Taper
become exercisable according to the following schedule:
(i) 50,000 shares shall be exercisable one year after
the Company achieves ISO and CE approval if the
Distribution Agreement is still in force and if Grupo
has achieved at least 60% of its forecasted sales
commitment; (ii) 25,000 shares shall be exercisable
after December 20, 1997 if the Distribution Agreement
is
F-21
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
in force and Grupo has achieved 60% of its forecasted
sales commitment for the year ended December 20, 1997;
and (iii) 25,000 shares shall be exercisable after
December 20, 1998 if the Distribution Agreement is in
force and if Grupo has achieved its forecasted sales
commitment over the two-year period ending December 20,
1998. Certain of the above warrants contain "piggy-
back" registration rights and anti-dilution provisions.
The Company granted Sirrom 25,000 warrants in October
1995 and 25,000 in May 1996 at an exercise price of
$.01 per share. These warrants were issued under an
agreement whereby Sirrom gave up a first security
interest as a result of the issuance of a note payable.
The Company recorded $81,000 during the year ended
March 31, 1997 as deferred financing costs and
additional paid-in capital, representing the difference
between the estimated fair market value of the
underlying stock at the date of grant and $.01 per
share.
Common Stock Reserved
---------------------
The aggregate number of shares of the Company's common
stock reserved for future issuance at March 31, 1998 is
summarized as follows:
-------------------------------------------------------
<TABLE>
<S> <C>
Common stock options:
1987/1992 Stock Option Plan 396,407
Non-plan 31,318
Common stock purchase warrants:
Sirrom Capital Corporation 300,000
Grupo Taper 25,000
Converted debenture holders 100,000
Coast Business Credit 37,500
Employees 3,465
Directors' compensation 69,765
-------------------------------------------------------
963,455
=======================================================
</TABLE>
9. INCOME TAXES Significant components of the Company's deferred income tax
assets and liabilities at March 31, 1998 are as follows:
F-22
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
--------------------------------------------------------------
<S> <C>
Deferred tax assets:
Accrued liabilities $ 99,000
Net operating loss carryforwards 6,785,000
Inventory 148,000
Amortization 42,000
Other 3,000
--------------------------------------------------------------
Gross deferred tax assets 7,077,000
Deferred tax liability - depreciation (409,000)
Valuation allowance (6,668,000)
--------------------------------------------------------------
Net deferred taxes $ -
==============================================================
</TABLE>
The net change in the valuation allowance for deferred tax
assets was a decrease of $178,000 in fiscal 1998. As of March
31, 1998, the Company has approximately $18,900,000 of tax net
operating loss carryforwards (NOLs) available that expire from
1998 through 2011. The tax benefit of these losses of
approximately $6,426,000 has been offset by a valuation
allowance sufficient to reduce the deferred tax asset to an
amount management believes is more likely than not to be
realized.
The provision for income taxes differs from the amounts
computed by applying the Federal statutory rates to loss
before taxes due to the following:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------
<S> <C> <C>
Provisions for Federal income taxes
at the statutory rate (34.0%) (34.0%)
Loss producing no current tax benefit 34.0% 34.0%
--------------------------------------------------------------
Taxes on income - -
==============================================================
</TABLE>
F-23
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. SEGMENT DATA The Company operates in a single industry segment, that
AND of providing implantable medical products to the health
SIGNIFICANT care industry. During the years ended March 31, 1998
CUSTOMERS and 1997, the Company exported its products to
European, Japanese and Asian distributors and exported
components and assemblies to certain European
manufacturers. Sales by geographic area for the years
ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Geographic Area 1998 1997
-------------------------------------------------------
<S> <C> <C>
United States $3,047,963 $3,486,511
Europe 605,440 626,508
Japan/Asia 169,656 88,028
-------------------------------------------------------
$3,823,059 $4,201,047
=======================================================
</TABLE>
The Company's products are primarily distributed
through independent sales representatives in the United
States. During the year ended March 31, 1998, two of
the Company's independent sales representatives each
accounted for in excess of 10% of the Company's sales
and in the aggregate accounted for $897,492 (23%) of
the Company's sales. During the year ended March 31,
1997, two of the Company's independent sales
representatives each accounted for in excess of 10% of
the Company's sales and in the aggregate accounted for
$892,279 (21%) of the Company's sales.
Further, pursuant to an electrode lead Supply Agreement
with Intermedics Inc., the Company sold $1,095,076 and
$1,954,408 of product to Intermedics Inc. for the years
ended March 31, 1998 and 1997, respectively, which
accounted for 29% and 47% of the Company's sales.
11. COMMITMENTS Patent Licensing Agreements
---------------------------
AND
CONTINGENCIES Effective July 1, 1986, the Company renegotiated its
exclusive license to a patented electrode-wire coating
system that was originally acquired by the Company on
July 1, 1981. The modified license agreement requires
the payment of royalties equal to a percentage of sales
of products manufactured
F-24
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
using the patented technology. The license became non-
exclusive on July 1, 1994. The term of the license
agreement expires upon the expiration date of the patent,
February 4, 2002, unless terminated earlier by the
Company. Royalty expense under the terms of the agreement
for the years ended March 31, 1998 and 1997 was $39,564
and $62,655 respectively. Further, on March 29, 1993, the
licensor executed a sublicense agreement with the Company,
enabling an unrelated company to manufacture the licensed
product.
Purchase Obligations
--------------------
During the year ended March 31, 1989, the Company entered
into an agreement for the procurement of hybrid
microelectronic circuits. The development of circuits for
the Company's atrial-controlled ventricular and single-
chamber pacing products was completed in fiscal 1992.
Development of the circuits for the Company's dual-chamber
devices was completed in fiscal 1993. As of March 31,
1998, the Company's future maximum purchase obligation
approximated $629,000.
During the year ended March 31, 1990, the Company entered
into an agreement for the procurement of integrated
circuits. The development of these circuits was completed
in fiscal 1992. As of March 31, 1998, the Company's future
maximum purchase obligation approximated $235,000, of
which approximately $165,000 has been prepaid by the
Company.
Legal Proceedings
-----------------
The Company is party to various legal proceedings arising
in the normal conduct of business. Management believes
that the final outcome of these proceedings will not have
a material adverse effect upon the Company's financial
position or results of operations.
12. SUBSEQUENT During April 1998, the Company issued $300,000 of 8%
EVENT convertible debentures. Interest is payable in cash or
stock, or a combination thereof, on each April 30 and
October 31 commencing October 31, 1998 and ending April
24, 2003, at which time all outstanding principal and
interest is due. The debentures are convertible from April
24, 1998 through the day immediately
F-25
<PAGE>
CARDIAC CONTROL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
prior to the maturity date at a rate of one share of common
stock for each $.40 of outstanding principal. The conversion
price is adjustable upon the occurrence of certain events.
13. PROPOSED In October 1997, the Company executed a letter of intent to
MERGER merge with Electro-Catheter Corporation ("Electro"), wherein
CCS Subsidiary, Inc. ("Sub") a newly-formed New Jersey
corporation and wholly-owned subsidiary of the Company will
merge into Electro pursuant to an Agreement and Plan of
Reorganization among the Company, Electro and Sub. If the
merger is consummated, of which there can be no assurance,
the separate corporate existence of Sub will cease and
Electro will become a wholly-owned subsidiary of the
Company. Prior to consummation of the merger, the Company
will reorganize into a holding company structure, whereby
the Company will become a direct, wholly-owned subsidiary of
Catheter Technology Group, a Delaware corporation and a
holding company ("CTG"). CTG will succeed to all rights and
obligations of Cardiac, and the stockholders of the Company
will become stockholders of CTG and will continue to hold
their shares of capital stock without any change in number,
designation, terms or rights. Pursuant to the merger, each
outstanding share of Electro common stock will be converted
into the right to receive one share of common stock, $.10
par value, of CTG. The proposed merger will result in the
reverse acquisition by Electro stockholders of CTG due to
the fact that the number of shares of CTG common stock to be
issued to Electro's current stockholders will represent
approximately 71% of the outstanding CTG common stock.
F-26
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth the names and ages of the directors and executive
officers of the Company as of March 31, 1998, in addition to information
respecting their positions and offices with the Company, their periods of
service in such capacities, and their business experience for at least the past
five years. There are no family relationships among the directors and executive
officers of the Company.
William H. Burns Jr., age 48, has been a member of the Board of Directors
since September 1995. Mr. Burns is a health care entrepreneur and is a director
and president of five health care businesses (Biosight, Inc., BioVector, Inc.,
Minrad, Inc., Medical Infusion, Inc., and Fertility Acoustics, Inc., and is a
fund manager of Platform Technologies Holdings, LLC, a venture capital fund).
From July 1988 through March 1994, he was Founder, President and CEO of Matrx
Medical, Inc., a medical product design and distribution company. His efforts
in building Matrx Medical, Inc. earned him an award as Entrepreneur of the Year
in New York State in 1993. From 1975 through 1988, Mr. Burns held various
positions with the BOC group, including Vice President and General Manager of
Ohmeda, DVE Care Products.
Bart C. Gutekunst, age 47, has been a member of the Board of Directors since
July 1994 and became Chairman of the Board in October 1994. Mr. Gutekunst
focuses on growing businesses with a view toward enhancing value through
strategic, managerial and financial advisory involvement, with a particular
emphasis on the medical sector. In July 1995 he became Chairman and CEO of
NovaVision, Inc., an eye care technology company. In May 1997, NovaVision, Inc.
was merged with American Consolidated Laboratories, Inc., a specialty vision
products company, and Mr. Gutekunst was Chairman of the Board from May 1997
until January 1998. Also, since August 1997, Mr. Gutekunst has been a director
of Platform Technologies, LLC, a pool of venture capital investments. From
September 1992 to September 1994, he was Vice Chairman and Chief Financial
Officer of R-2 Medical Systems, Inc., a cardiac care device company, with
responsibility for strategic and corporate development as well as overseeing the
financial functions of the company. From February 1994 to March 1996, Mr.
Gutekunst served as Chairman of the Board of Directors of United Education and
Software, Inc., a multi-state operator of nursing and vocational schools
operating under Chapter 11 of the United States Bankruptcy Code where he oversaw
the voluntary liquidation of the company's assets. From 1988 to 1990, he was a
senior member of an investment firm, Entrecanales, Inc., funded by a major
European family, making equity investments and leveraged buyouts. From 1981 to
1987, he was Executive Vice President and a member of the Board of Directors, as
well as the Management and Investment Committees of Laidlaw, Adams & Peck Inc.,
where he supervised the investment banking department and completed over 50
public and private transactions. From 1976 to 1981, he was a member of Chemical
Bank's Merchant Banking Group. Mr. Gutekunst has been a member of the Board of
Directors or advisor to the Board for many companies.
Larry Haimovitch, age 51, has been a member of the Board of Directors since
November 1994. He is President of Haimovitch Medical Technology Consultants, a
San Francisco, California based healthcare consulting firm which specializes in
the medical device and technology industry with a particular emphasis on
cardiology-related areas and whose clients have included a major hospital chain,
numerous medical device companies, venture capital firms, investment groups, and
investment bankers. Prior to forming his firm in 1991, Mr. Haimovitch spent
over 20 years as a healthcare industry analyst for a number of leading research
firms and financial institutions such as Furman Selz, Sutro & Co., and Wells
Fargo Investment Advisors. He serves as a director to Electro- Pharmacology,
Inc., ORBTEC, Inc. and Milestone Scientific, Inc.
Augusto Ocana, age 54, was appointed to the Board of Directors in April 1996.
He has over 20 years experience in building, turning around and managing
international health care businesses. Until December 31,
20
<PAGE>
1997, he was Executive Vice President of Grupo Taper International., S.A., a
Spanish based holding group of companies engaging in distribution of state-of-
the-art medical products. Prior to Grupo Taper, Dr. Ocana had been President and
Chairman of Rempak International and Managing Director of Abbott Laboratories.
Dr. Ocana has also been trained as a physician and has a degree in international
law.
Alan J. Rabin, age 47, joined the Company in October 1994 as President, Chief
Executive Officer and a member of the Board of Directors. Mr. Rabin has 26
years experience in the management and growth of medical companies, with
emphasis on internal business development through marketing, sales, new product
development and building strategic relationships. Prior to joining the Company,
Mr. Rabin held an array of management positions, including:
. From 1992 to September 1994, President and Chief Executive Officer of
R-2 Medical Systems, Inc., a manufacturer of cardiac care devices,
including disposables used in cardiac pacing. In partnership with Bart
Gutekunst, this underperforming company was successfully turned around
and sold to an industry participant.
. Vice President of Marketing and Sales for Stereo Optical Company, a
manufacturer of disposable and capital ophthalmic diagnostic devices
from 1987 to 1992.
. Director of Marketing and Sales of Tycos Life Sciences, Inc., a
manufacturer of cardiovascular diagnostic and monitoring devices from
1985 to 1986 and was instrumental in the turnaround and ultimate sale
of the company.
. From 1980 to 1985, various marketing, new business development and
product management positions with Davol, Inc., a division of C.R. Bard
in the surgical and cardiovascular equipment area.
Mr. Rabin currently serves as a director of BioVector, Inc., a medical
distribution company. He received a Bachelor of Science degree in biology and a
Master in Business Administration degree from the University of Illinois and
Northwestern University, respectively.
Robert T. Rylee, age 67, has been a member of the Board of Directors since
November 1988. He practiced law from 1958 to 1969 and was a partner in the firm
of Wood, Boykin, Rylee, and Walter from 1965 to 1969. In 1969, Mr. Rylee became
the President and CEO of Wright Manufacturing Company, a manufacturer of
orthopedic implants and instruments, a position he held until 1981 when he
became a Dow Corning Incorporated U.S. Area Vice President and the General
Manager of Health Care Business. On May 31, 1993, he retired as Vice President
and Chairman of Health Care Business, a position he had held with Dow Corning
Incorporated since 1986. He is currently a director of Clarus Medical Systems,
which position he has held since September 1993.
Tracey E. Young, age 43, has been a member of the Board of Directors since
September 1995. She is the Founder and President of Elliot Young & Associates,
Inc., a proprietary health care consulting concern, formed in 1987 to assist
companies and investors in identifying, evaluating, capturing and managing
strategic growth and financing opportunities in high technology health care
markets. Ms. Young also held key consulting positions with The Wilkerson Group,
both as the founding Associate Director of its Cardiovascular Market
Intelligence Service and as an independent consultant to the firm. She also
spent seven years in the pacemaker industry in senior marketing and strategic
planning positions with Telectronics Pacing Systems and Intermedics.
21
<PAGE>
William Wharton, age 50, was appointed Vice President of Manufacturing and
Facilities in March 1996. Mr. Wharton had previously served the Company as Vice
President of Operations since February 1994 and as Vice President of Quality
Assurance since 1985. Mr. Wharton joined the Company in 1982 as Director of
Quality Assurance. Before joining the Company, he was employed as a Quality
Assurance Supervisor for at least five years by Medtronic, Inc., a major
competitor in the cardiac pacing industry.
W. Alan Walton, age 64, joined the Company Control Systems, Inc. in March,
1996 as Executive Vice President and Chief Operating Officer. Mr. Walton is a
fellow of the Institute of Chartered Accountants in England and from March, 1995
to February, 1996 was engaged as a financial and operations consultant with
Biosight, Inc. of Orchard Park, New York, a firm specializing in helping health
care businesses enhance their performance. Prior to his experience with
Biosight, he spent 19 years in senior financial and systems management positions
with Dunlop Holdings PLC in the United Kingdom and the United States, including
a position as General Manager, Group Information System with responsibility for
Dunlop's global computing and communications.
Jonathan S. Lee, age 46, a biomedical engineer, joined the management team at
the Company, Inc. in May, 1996 and serves as Vice President - Research and
Development. Prior to joining the Company, Mr. Lee spent 18 years in Research
and Development, Regulatory Affairs and Marketing with Telectronics Pacing
Systems, a leading pacemaker manufacturer. He established and managed
Telectronics' worldwide service facilities and established Telectronic's US
research and development presence in Denver, Colorado. Mr. Lee was also
involved in International Marketing Management with Telectronics. Mr. Lee
received a Bachelor of Engineering degree in Biomedical Engineering from the
University NSW in Sidney, Australia. He also completed two years post graduate
work in computer studies at the University NSW. He has been a member of the
North American Society of Pacing and Electrophysiology since 1984.
Kirk Kamsler, age 47, joined the Company in April 1996 as Director of
Marketing and Sales. He has over 20 years of sales, sales management and
marketing management experience with a variety of medical device companies,
including Davis & Geck, Inc., Matrix Medical, Inc. and Marquette Electronics,
Inc. Mr. Kamsler received a Bachelor of Arts degree from St. Lawrence
University in Canton, New York.
The Board of Directors is elected at each annual meeting of the stockholders.
Each Director holds office until his successor is duly elected and qualified or
until his earlier resignation or removal, with or without cause, at any duly
noticed special meeting of the stockholders of the Company by the affirmative
vote of the holders of a majority of the shares of the Company Common Stock
present in person or represented by proxy and entitled to vote at an election of
directors.
Under the bylaws of the Company, officers are elected annually by the Board of
Directors at the meeting of the Board of Directors following the annual meeting
of the stockholders. Each officer holds office until his or her successor has
been chosen and qualified, or until his or her death, resignation or removal,
with or without cause, by the Board of Directors.
None of the Directors or Executive Officers of the Company is a director of
any company, other than the Company, with a class of equity securities
registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as
amended, or subject to the requirements of Section 15(d) of such Act or any
company registered as an investment company under the Investment Company Act of
1940, as amended, except for Larry Haimovitch who is a director of Electro-
Pharmacology, Inc. and Alan J. Rabin and William H. Burns who are directors of
American Consolidated Laboratories, Inc.
22
<PAGE>
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each Director and Executive Officer, and each person owning beneficially
more than ten (10%) percent of a registered class of the Company's equity
securities, is required to file reports of ownership and changes in ownership
with the SEC, and furnish the Company with copies of all such reports. A late
report was filed for Phillip R. Beutel, director, with respect to a reinstated
stock option grant.
ITEM 10. DIRECTORS' AND EXECUTIVE OFFICERS' COMPENSATION
EXECUTIVE REMUNERATION. The following table sets forth information about
the compensation paid or accrued by the Company during the fiscal years ended
March 31, 1998, 1997, and 1996 to the Company's Chief Executive Officers and any
other Executive Officer whose aggregate compensation exceeded $100,000 in fiscal
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
Fiscal Year Other Securities
Name and Principal Ended Annual Underlying All Other
Position March 31 Salary Bonus Compensation Options Compensation
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alan J. Rabin 1998 $150,624 - 12,559(1) $ 559(2)
(President, CEO, 1997 $146,000 - 12,000(3) $ 521(4)
Director) 1996 $110,000 $10,000(5) 20,000(6) $ 26,349(7)
- ---------------------------------------------------------------------------------------------------------------------------------
Bart C. Gutekunst 1998 $48,624 - 10,906(8) $ 15,934(9)
(Chairman of the Board) 1997 $48,000 - 10,000(3) $ 11,313(10)
1996 $48,000 - 15,000(6) $ 8,700(11)
- ---------------------------------------------------------------------------------------------------------------------------------
Kirk D. Kamsler 1998 $93,928 $10,200(12) 8,000(13) -
(Vice President Sales) 1997 $81,104 - 10,000(14) $ 45,000(15)
1996 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Jonathan S. Lee 1998 $100,514 $10,920(16) 8,000(13) -
(Vice President 1997 $80,596 - 10,000(17) $ 33,460(15)
Engineering) 1996 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This includes options to purchase 12,000 shares of common stock in the
Company at $1.00 exercisable immediately and a warrant to purchase 559
shares of common stock in the Company at $.0.18.
(2) This represents interest on a Security Agreement and Promissory Note between
Alan J. Rabin and the Company dated April 15, 1997.
(3) On August 22, 1996, the Board of Directors awarded these options to purchase
shares of common stock in the Company at $3.50 per share, exercisable on
March 31, 1997.
(4) This represents interest received prior to conversion of the Debentures to
stock.
(5) In addition to his salary, Mr. Rabin is entitled to a performance bonus.
This represents the performance bonus paid in respect of Mr. Rabin's
services during the year ended March 31, 1996.
23
<PAGE>
(6) On May 5, 1995, the Board of Directors awarded these options to purchase
shares of common stock of the Company at $3.63 per share. The options are
now exercisable.
(7) This represents reimbursement of relocation expenses, $21,549, paid to Mr.
Rabin pursuant to his employment agreement and consulting fees in
connection with debenture financing, $4,800.
(8) These include options to purchase 8,000 shares of common stock in the
Company at $1.00 exercisable immediately and a warrant to purchase 2,906
shares of common stick in the Company at $0.18.
(9) This represents interest of $2,906 on two security agreements and
promissory notes between Bart C. Gutekunst and the Company dated March 24,
1997 and April 21, 1997, and consulting fees related to the Coast financing
in the amount of $13,028.
(10) This includes $7,500 in connection with his facilitating the Grupo Taper
Distributor and Sirrom mortgage agreements. It also includes $3,292 of
interest paid on a $100,000 secured promissory note, and $521 of interest
paid on debentures held prior to the conversion of the debentures to stock.
(11) This represents consulting fees in connection with the Debenture financing.
(12) In addition to his salary, Mr. Kamsler received a performance bonus. This
represents the performance bonus paid in respect of Mr. Kamsler's services
during the year ended March 31, 1997.
(13) This represents options to purchase 8,000 shares of common stock in the
Company at $1.00 exercisable immediately.
(14) Upon execution of his employment agreement with the Company, Mr. Kamsler
was granted options to purchase 10,000 shares of common stock of the
Company at $3.50 per share, exercisable one third on April 21, 1997, one
third on April 21, 1998 and one third on April 21, 1999.
(15) This represents reimbursement of relocation expenses paid pursuant to an
employment agreement.
(16) In addition to his salary, Mr. Lee received a performance bonus. This
represents the performance bonus paid in respect of Mr. Lee's services
during the year ended March 31, 1997.
(17) Upon execution of his employment agreement with the Company, Mr. Lee was
granted options to purchase 10,000 shares of common stock of the Company at
$3.50 per share, exercisable one third on May 5, 1997, one third on May 5,
1998 and one third on May 5, 1999.
24
<PAGE>
The following table sets forth information concerning options granted
during the fiscal year ended March 31, 1998 to those persons named in the
preceding Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted
Options to Employees in Exercise Price Expiration
Name Granted Fiscal Year ($/share) Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bart C. Gutekunst 8,000(1) 9% $1.00 5/8/2002
Alan J. Rabin 12,000(1) 14% $1.00 5/8/2002
Kirk D. Kamsler 8,000(1) 9% $1.00 5/8/2002
Jonathan S. Lee 8,000(1) 9% $1.00 5/8/2002
</TABLE>
(1) These options are subject to immediate exercise.
The following table sets forth information concerning the value of
unexercised stock options at March 31, 1997 for those persons named in the
Summary Compensation Table.
AGGREGATED OPTIONS IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-
Shares Underlying Unexercised The-Money Options at
Acquired on Value Options at Fiscal Year End Fiscal Year End
Name Exercise Realized Exercisable/Unexercisable(1) Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bart C. Gutekunst - - 54,429/0 $0/$0
Alan J. Rabin - - 72,571/0 $0/$0
Jonathan S. Lee - - 11,333/6,667 $0/$0
Kirk D. Kamsler - - 11,333/6,667 $0/$0
</TABLE>
(1) These options have been adjusted to give effect to the Company's one
for seven reverse stock split effected December 13, 1994.
COMPENSATION OF DIRECTORS
For their service on the Board, each outside director is entitled to
receive annually the sum of $3,000 and such number of shares of the Company's
Common Stock that have a total value of $6,000 based on the average of the bid
and ask prices of the Company's Common Stock on the OTC Bulletin Board Service
as quoted on March 31, 1998. The Company accrued in respect of each of William
Burns, Larry Haimovitch, Augusto Ocana, Robert Rylee and Tracey Young the sum of
$3,000 and 13,953 shares of the Company's Common Stock for their services
through fiscal year 1998.
EMPLOYMENT AGREEMENTS
Mr. Alan J. Rabin is employed as the President and Chief Executive Officer
of the Company pursuant to a three-year employment agreement dated as of October
13, 1994 amended by the Board of Directors at its meeting of May 15, 1996. As
compensation thereunder, Mr. Rabin receives an annual salary of $150,000;
reimbursement for business travel and other business expenses; and a bonus of up
to 50% of his annual salary based on the
25
<PAGE>
performance of the Company. The employment agreement also provided reimbursement
for Mr. Rabin's relocation and temporary living expenses, not to exceed $38,000
plus the cost associated with the moving of personal possessions and his family.
His employment agreement provides a severance package under certain defined
circumstances equal to the balance of the salary due under the employment
agreement (payable in accordance with the Company's payroll practices) and a
lump sum payment equal to nine months of his annual base salary then in effect,
plus maintenance by the Company (to the extent permitted under plan documents)
for nine months from the date of termination all benefit plans in which he was
entitled to participate while an employee, or the equivalent. The nine-month
lump sum severance payment is also payable to Mr. Rabin in the event his
employment agreement is not renewed by the Company at the end of its term.
Pursuant to his employment agreement, the Company awarded to Mr. Rabin a stock
option for 28,571 shares of the Company's Common Stock at an exercise price of
$3.50 per share, all of which are now exercisable immediately. Mr. Rabin's stock
option agreement contains a change of control provision whereby in the event of
a change in control of the Company, all outstanding options become immediately
exercisable.
Mr. Bart C. Gutekunst is employed as the Chairman of the Board of the
Company pursuant to a three-year employment agreement dated as of October 13,
1994. As compensation thereunder, Mr. Gutekunst receives an annual salary of
$48,000; reimbursement for business travel and other business expenses; and a
bonus related to the Company's financial, capital raising and corporate
development and acquisition activities in the form of the following
transactional fees: 1% for debt and equity source, and 1% of the gross
consideration for asset acquisitions or sales, which fees are payable to Mr.
Gutekunst upon closing by the Company or its successor-in-interest of the
applicable transaction. Pursuant to the employment agreement, Mr. Gutekunst
received an option for 21,429 shares of the common stock of the Company at an
exercise price of $3.50 per share, all of which are now exercisable. His
employment agreement contains the same severance provisions as Mr. Rabin's
employment agreement and his stock option contains the same change of control
provision as Mr. Rabin's stock option agreement.
STOCK OPTION PLANS
On September 9, 1987, the Board of Directors of the Company adopted the
1987 Non-Qualified Stock Option Plan (the "1987 Plan"). The 1987 Plan provided
the Board of Directors with the authority to grant to employees, officers and
directors, and employees of the Company non-qualified options to purchase up to
a maximum of 142,857 shares of the Company's Common Stock.
On February 7, 1992, the Company's Board of Directors adopted the 1992
Non-Qualified Stock Option Plan (the "1992 Plan"). The 1992 Plan provided the
Board of Directors with the authority to grant officers, directors, and
employees of the Company non-qualified options to purchase up to a maximum of
42,857 shares of the Company's Common Stock. On March 17, 1994, the Board of
Directors amended and restated the 1992 Plan and provided therein authorization
to issue options for up to a maximum of 157,143 shares of the Company's Common
Stock.
On January 19, 1995, the Board of Directors of the Company authorized the
combination of the 1987 Plan and the 1992 Plan into one plan now known as the
Combined 1987-1992 Non-Qualified Stock Option Plan ("Combined Option Plan"). The
Combined Option Plan provides that all issued and outstanding stock option
agreements under the previous plans shall be governed by the Combined Option
Plan. Under the Combined Option Plan, the Company is authorized to issue options
to employees, officers and directors to purchase up to a maximum of 400,000
shares of the Company's Common Stock. As of March 31, 1998, there were
outstanding options for 373,927 shares under the Combined Plan, of which 309,857
shares were subject to options held by officers and directors at exercise prices
ranging from $1.00 to $3.75 per share.
26
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS. As of May 29, 1998, eighteen (18) stockholders
were known by the Company beneficially to own five percent (5%) or more of the
outstanding voting securities of the Company. The following table sets forth the
indicated information as of May 29, 1998 with respect to each person known by
the Company own beneficially to more than five percent (5%) (calculated in
accordance with the guidelines promulgated by the Securities and Exchange
Commission) of the 2,648,739 issued and outstanding shares of the Company Common
Stock on that date.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership (1) of Class (2)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Phillip R. Beutel(3) 277,351 10.38%
3 Chase Lane
Colorado Springs, CO 80906
Penfield Partners, L.P.(4) 159,856 6.00%
c/o William D. Witter, Inc.
150 E. 53rd Street
New York, New York 10022
Bradley Resources Company(5) 452,280 15.49%
107 John Street
Southport, CT 06490
ROI Partners(6) 143,399 5.39%
353 Sacramento Street
San Francisco, CA 94111
Austin W. Marxe(7) 541,194 20.28%
153 East 53rd Street, Room 5101
New York, New York 10022
Irwin Gruverman(8) 187,500 6.61%
16 Tanglewood Road
Needham, MA 02194
Paul F. Glenn(9) 250,000 8.62%
P.O. Box 50310
Santa Barbara, CA 93150-0310
Sirrom Capital(10) 350,000 11.87%
St. Cloud Corner
500 Church Street, Suite 200
Nashville, TN 37219
</TABLE>
(1) Except as otherwise indicated, each person is the record owner of the
shares indicated and possesses the sole voting and investment power with
respect to such shares of common stock.
(2) Computations of percentage ownership of each individual treat warrants and
options to purchase common stock exercisable within the next sixty days as
though the shares subject thereto were issued and outstanding.
(3) Includes options to purchase 14,286 shares and warrants to purchase 8,665
shares.
27
<PAGE>
(4) Includes warrants to purchase 17,332 shares. Penfield Partners, L.P. is a
Delaware limited partnership. Pine Creek Advisors, L.P., a Delaware
limited partnership, having its address c/o William D. Witter, Inc., 153
East 53rd Street, New York, New York 10022 is the general partner of
Penfield Partners, L.P. The general partners of Pine Creek Advisors, L.P.
are Mr. Schuss and William D. Witter, Inc., 153 East 53rd Street, New
York, New York 10022. Mr. William D. Witter is the President of William D.
Witter, Inc. and controls all shares controlled by William D. Witter, Inc.
Through their control of Pine Creek Advisors, L.P., each of Mr. Schuss and
Mr. Witter, acting individually, may vote and/or dispose of the shares
held by Penfield Partners, L.P.
(5) Bradley Resources Company ("Bradley") is a partnership. Mr. Holbrook, Mr.
McGoogan, and Mr. Traister are the general partners of Bradley. Each
general partner, acting individually, may vote and/or dispose of all the
shares held by Bradley. Bradley's shares include 181,898 shares held by
Bradley directly, warrants to purchase 16,811 shares held by Bradley,
options to purchase 3,571 shares held by Mr. Holbrook but beneficially
owned by Bradley, and 250,000 convertible debentures held by Bradley.
(6) Mr. Soboleski and Mr. Boyer are the general partners in the partnerships
holding the Company Common Stock as follows: 143,399 shares, including
warrants to purchase 12,132 shares are held by ROI Partners, 12,000 shares
are held by ROI Offshore Fund, 6,000 shares are held by NAV LLC, 7,000
shares are held by Pleiades Investment Partners, and 7,000 shares are held
by ROI & Lane, L.P. The address of each of the foregoing partnerships is
353 Sacramento Street, San Francisco, CA 94111. Each general partner,
acting individually, may vote and/or dispose of all of the shares held by
any of the foregoing partnerships.
(7) Mr. Marxe owns 28,111 shares directly. Special Situations Fund III, L.P.
("Special"), 153 East 53rd Street, Room 5101, New York, New York, 10022
owns 327,770 shares, including warrants to purchase 27,731 shares. Special
Situations Cayman Fund ("Cayman"), 153 East 53rd Street, Room 5101, New
York, New York 10022 owns 182,713 shares including warrants to purchase
10,399 shares. Mr. Marxe is President and Chief Executive Officer of AWM
Investment Company, Inc. ("AWM"), 153 East 53rd Street, Room 5101, New
York, New York 10022. MGP Advisors Limited Partnership ("MGP"), 153 East
53rd Street, Room 5101, New York, New York 10022 is the general partner of
Special and AWM, in turn, is the general partner of MGP. Mr. Marxe,
through AWM and MGP, has control over all shares held by Special. AWM is
also the general partner of Cayman. Through AWM, Mr. Marxe has control
over all shares held by Cayman. Control of shares held by Special and
Cayman is shared with Mr. Greenhouse, the Executive Vice President of AWM.
Mr. Greenhouse's address is 153 East 53rd Street, Room 5101, New York, New
York 10022. Each of Mr. Marxe and Mr. Greenhouse may, individually, vote
and/or dispose of all shares held by Special and/or Cayman. Mr. Greenhouse
owns 10,242 shares directly, including warrants to purchase 866 shares.
Mr. Greenhouse is the Executive Vice President of AWM. Through MGP and
AWM, Mr. Greenhouse has control over all shares held by Special. Through
AWM, Mr. Greenhouse has control over all shares held by Cayman. Control is
shared with Mr. Marxe.
(8) Includes convertible debentures convertible into 187,500 shares, of which
62,500 shares are held by Mr. Gruverman directly and 125,000 shares are
held by G&G Diagnostics, L.P. II, a limited partnership ("G&G"). Mr.
Gruverman is the general partner of G&G and has control of all shares held
by G&G.
(9) Includes convertible debentures convertible into 250,000 shares.
(10) Includes warrants to purchase 300,000 shares.
MANAGEMENT. The following table sets forth the number of shares of common
stock beneficially owned by each Director of the Company as of May 29, 1998 and
of each Executive Officer whose aggregate compensation exceeded $100,000 in
fiscal year 1998, and the percentage of the outstanding shares such ownership
represented at the close of business on May 29, 1998 (according to information
received by the Company), together with information as to stock ownership of all
Directors and Executive Officers of the Company as a group as of May 29, 1998.
28
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Name of Individual or Amount and Nature of Percent
Number of Persons in Group Beneficial Ownership(1)(3) of Class(2)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
William H. Burns.................................. 24,274 0.91%
Bart C. Gutekunst................................. 67,577 2.50%
Larry G. Haimovitch............................... 33,841 1.27%
Augusto Ocana..................................... 11,174 0.42%
Alan J. Rabin..................................... 85,572 3.14%
Robert T. Rylee................................... 43,699 1.63%
Tracey E. Young................................... 23,491 0.88%
Jonathan S. Lee................................... 19,667 0.74%
Kirk D. Kamsler................................... 15,667 0.59%
All Directors and Executive Officers
as a group (12 persons)......................... 382,054 12.94%
</TABLE>
(1) Except as otherwise indicated, each person is the record owner of the
shares indicated and possesses the sole voting and investment power.
(2) Computations of percentage ownership of each individual and of the group
treat warrants and options to purchase common stock exercisable within the
next 60 days as though the shares subject thereto were issued and
outstanding.
(3) Includes warrants and options exercisable within the next 60 days to
purchase shares of common stock granted pursuant to the Company's Combined
Option Plan (see "Item 10. Directors' and Executive Officers' Compensation-
Stock Option Plans") as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Name of Individual or Number
Number of Persons in Group of Shares
-------------------------------------------------------------------------------------------------
<S> <C>
William H. Burns........................................................... 13,000
Bart C. Gutekunst.......................................................... 58,201
Larry G. Haimovitch........................................................ 15,000
Augusto Ocana.............................................................. 7,000
Alan J. Rabin.............................................................. 73,996
Robert T. Rylee............................................................ 36,429
Tracey E. Young............................................................ 18,000
Jonathan S. Lee............................................................ 14,667
Kirk D. Kamsler............................................................ 14,667
All Directors and Executive Officers as a group (12 persons)............... 302,913
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND TRANSACTIONS
See "Employment Agreements" for a description of certain compensation
arrangements.
During the last calendar quarter of 1994, the Company raised $2,885,000
through a private placement of 5% Convertible Debentures (the "Debentures").
Interest payments have been made on March 31 and October 31 of
29
<PAGE>
each year, commencing March 31, 1995. The Debentures were to mature October 31,
1999. Effective March 31, 1996, the holders of the Debentures converted their
Debentures into the Company's Common Stock at a conversion rate of $2.80 per
share. Alan Rabin and Bart Gutekunst, President/Chief Executive Officer and
Chairman of the Board, respectively, of the Company, each received 8,928 shares
of the Company's Common Stock as a result of the conversion of the Debentures
owned by them. Those beneficial owners holding 5% or more of the Company issued
and outstanding Common Stock and the Common Stock they received upon conversion
of their Debentures is as follows: Phillip R. Beutel, 89,285 shares; Special
Situation Fund III, L.P., 285,714 shares; Penfield Partners, 178,571 shares;
Bradley Resources Company, 173,214 shares; and ROI Partners, 125,000 shares.
Pursuant to the terms of the Debentures, the Company filed with the SEC a
registration statement on Form S-1 registering the Company's Common Stock
underlying the Debentures, which registration statement was declared effective
by the SEC on April 27, 1995.
In respect of their conversion of the Debentures, the Company issued
warrants to the Debenture holders for an aggregate of 100,000 warrants (to be
divided among the Debenture holders pro rata in accordance with their percentage
interests in the Debentures). The warrants have a term of three years and are
exercisable commencing March 31, 1996 at $5.00 per share.
Upon the closing of the minimum offering of the Debentures, Alan J. Rabin
and Bart C. Gutekunst entered into employment agreements with the Company on
October 13, 1994. Previously, Mr. Gutekunst and Mr. Rabin had been consulting
with and assisting the Company in preparing its business plan and in obtaining
additional financing. On July 31, 1994, Mr. Gutekunst was appointed to the Board
of Directors to fill a vacancy. On October 13, 1994, Mr. Gutekunst was appointed
Chairman of the Board and Mr. Rabin was appointed the Company's President and
Chief Executive Officer pursuant to their respective employment agreements. For
consulting services rendered to the Company in connection with the development
of the Company's new business plan and the Company's financing, Mr. Rabin and
Mr. Gutekunst were paid consulting fees in the aggregate amount of $130,750. Mr.
Gutekunst and Mr. Rabin also participated in the Debenture financing discussed
above, and each acquired Debentures in the amount of $25,000.
In November 1995, the Company entered into an agreement with Biosight Inc.,
of which William H. Burns, Jr., a director of the Company, is President and
principal stockholder. Under the agreement, Biosight Inc. provided consulting
services regarding the Company's manufacturing processes and inventory planning.
The agreement provided for payment of $30,000 in fees during the year ended
March 31, 1996 plus reimbursement of approved out-of-pocket expenses, and future
performance-related payments to be paid in stock and cash, provided certain
goals are met. Upon earning $30,000 in performance-related payments (in combined
cash and stock), the agreement provides for subsequent performance-based
payments to be made in the Company Common Stock. On September 12, 1997, the
Company issued 5,714 shares of the Company's Common Stock at $3.50 per share to
William H. Burns, Jr., for performance-based payments of $20,000.
During fiscal 1996, Tracey E. Young, a director of the Company, provided
consulting services to the Company regarding development of international
markets for the Company's products. In March 1996, the Board of Directors
approved payment of $5,000 in consulting fees to Ms. Young together with a grant
of a stock option for 5,000 shares, exercisable at $3.75 per share. In respect
of consulting services, the Board approved royalty payments to Ms. Young of $100
per unit (each unit comprised of a pacemaker and lead) sold in Japan for the
three year period following approval of the product by regulatory authorities in
that country. As of May 29, 1998, Ms. Young has accrued approximately $1,500 in
royalty fees, however, the Company has not made any royalty payments to her. Ms.
Young has also provided the Company with consulting services on clinical studies
and other matters which included assisting the Company in implementing its
clinical studies for its single-lead DDD system, as well as performing due
diligence on the Company's merger with Electro. As of December 26, 1997, Ms.
Young has invoiced the Company approximately $100,000 for consulting services
performed by her through such date.
30
<PAGE>
The Company intends to pay Ms. Young for her consulting services with funds
obtained through its equity financing in connection with the Merger.
During fiscal 1996, the Company entered into a distribution agreement for
the European market with Grupo Taper, S.A., Madrid, Spain ("Grupo Taper"). As
part of the Distribution Agreement, Grupo Taper was permitted to designate a
member of the Board of Directors of The Company. Through December 31, 1997, that
member of the Board of Directors of the Company designated by Grupo Taper was
Dr. Augusto Ocana, an executive officer of Grupo Taper. On January 1, 1998, Dr.
Augusto Ocana left Grupo Taper's employ, and is therefore no longer Grupo
Taper's designate on the Board of Directors of the Company. Dr. Augusto Ocano
will, however, remain on the Board of Directors as an independent director. As
of that time, Grupo Taper will then designate another individual as a non-voting
member of the Board of Directors.
On October 28, 1996, the Company executed a Security Agreement and
Promissory Note with Bart C. Gutekunst, director and Chairman of the Board.
Under the agreement and note, Mr. Gutekunst advanced the Company $108,247 at an
annual interest rate of ten per cent (10%). This advance, plus accrued interest,
was repaid to Mr. Gutekunst on February 14, 1997.
On March 24, 1997, the Company executed a Security Agreement and Promissory
Note with Bart C. Gutekunst, director and Chairman of the Board. Under the
agreement and note, Mr. Gutekunst advanced the Company $100,000 at an annual
interest rate of ten per cent (10%) plus the right to purchase one (1) share of
restricted the Company Common Stock of the Company at an exercise price of
eighteen cents ($0.18) per share for each one dollar ($1.00) of interest earned
under the note. The note, plus accrued interest, was repaid to Mr. Gutekunst on
June 16, 1997.
On April 21, 1997, the Company executed a Security Agreement and Promissory
Note with Bart C. Gutekunst, director and Chairman of the Board. Under the
agreement and note, Mr. Gutekunst advanced the Company $61,553.65 at an annual
interest rate of ten percent (10%) plus the right to purchase one (1) share of
restricted common stock of the Company at an exercise price of eighteen cents
($0.18) per share for each one dollar ($1.00) of interest earned under the note.
The note, plus accrued interest, was repaid to Mr. Gutekunst on June 16, 1997.
On April 15, 1997, the Company executed a Security Agreement and Promissory
Note with Alan J. Rabin, a director and President. Under the agreement and note,
Mr. Rabin advanced the Company $32,429.18 at an annual interest rate of ten
percent (10%) plus the right to purchase one (1) share of restricted common
stock of the Company at an exercise price of eighteen cents ($0.18) per share
for each one dollar ($1.00) of interest earned under the note. The note, plus
accrued interest, was repaid to Mr. Rabin on June 16, 1997.
From April 22, 1998 through May 4, 1998, the Company obtained $300,000 in
interim financing from selected current investors through the issuance of an 8%
convertible debenture, convertible into shares of Company Common Stock at $0.40
per share. The debenture holders include two holders of Company Common Stock,
Mr. George Holbrook and Mr. A. Bruce Brackenridge. In return for their
investment, the exercise price of the option controlled by Mr. Holbrook to
purchase 3,571 shares of Company Common Stock at $3.50 per share and the
exercise price of the warrant controlled by Mr. Holbrook to purchase 16,811
shares of Company Common Stock at $5.00 per share were each reduced to $0.40 a
share and the exercise price of the warrant held by Mr. Brackenridge to purchase
866 shares of Company Common Stock at $5.00 per share was reduced to $0.40. The
Company is currently attempting to obtain an additional $250,000 in financing on
similar terms. There can be no assurance that the Company's attempts to obtain
additional financing will be successful.
The foregoing transactions between the Company and its affiliates were
negotiated on behalf of the Company by its management. The Company believes that
such transactions are in compliance with the Company's policy
31
<PAGE>
that transactions with affiliates be on terms at least as favorable as could
have been reasonably obtained from an unaffiliated third party.
32
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following Exhibits are filed as part of this Form 10-KSB:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.0 Agreement and Plan of Filed herewith
Reorganization, dated as of
January 20, 1998 among the
Company, CCS Subsidiary, Inc.
and Electro-Catheter
Corporation
3.0 Certificate of Incorporation of Filed herewith
the Company, as amended
3.2 Restated Bylaws of the Filed herewith
Company, as amended
4.0 Form of Common Stock Exhibit 4.0 to Form S-1 Registration Statement filed on
Certificate March 2, 1995, Registration No. 33-89938
4.1 Form of Sales Representative Exhibit 4.13 to Form 10-Q for the Quarter Ended
Stock Option Agreement September 30, 1988, File No. 0-14653
4.2 Cardiac Control Systems, Inc. Exhibit 4.15 to Form 8-K Current Report dated October
5% Convertible Debenture due 11, 1994, File No. 0-14653
October 31, 1999
4.3 Combined 1987-1992 Non- Exhibit 4.8 to Amendment No. 1 to Form S-1 Registration
Qualified Stock Option Plan Statement filed on April 17, 1995, Registration No. 33-89938
4.4 Stock Purchase Warrant dated Exhibit 4.1 to Form 8-K Current Report, dated March 31,
March 31, 1995 in favor of 1995, File No. 0-14653
Sirrom Capital Corporation
4.5 Stock Purchase Warrant, dated Exhibit 4.2 to Form 8-K Current Report, dated March
March 31, 1995 in favor of Dow 31, 1995, File No. 0-14653
Corning Enterprises, Inc.
4.6 Stock Purchase Warrant, dated Exhibit 4.6 to Form 10-KSB for the year ended March 31,
October 15, 1995 in favor of 1996, File No. 0-14653.
Sirrom Capital Corporation
4.7 Stock Purchase Warrant, dated Exhibit 4.7 to Form 10-KSB for the year ended March 31,
March 29, 1996 in favor of 1996, File No. 0-14653.
Grupo Taper, S.A.
4.8 Stock Purchase Warrant, dated Exhibit 4.2 to Form 8-K Current Report, dated June 13,
June 6, 1997 in favor of Sirrom 1997, File No. 0-14653.
Capital Corporation
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.9 Stock Purchase Warrant, dated Exhibit 4.1 to Form 8-K Current Report, dated June 13,
June 13, 1997 in favor of Coast 1997, File No. 0-14653.
Business Credit
10.0 License Agreement between Exhibit 10.1 to Form 10-Q for the Quarter Ended
Hughes/Bertolet and the September 30, 1986, File No. 0-14653
Company
10.1 Settlement Agreement and Exhibit 10.2 to Form 10-K for the Year Ended March 31,
Release between Applied 1990, File No. 0-14653
Cardiac Electro-physiology and
the Company
10.2 Amended and Restated License Exhibit 10.19 to Form 8-K Current Report dated April 2,
Agreement between Sulzer 1993, File No. 0.14653
Intermedics Inc. and the
Company, dated April 2, 1993
10.3 Amended and Restated Supply Exhibit 10.20 to From 8-K Current Report dated April 2,
Contract between Sulzer 1992, File No. 0-14653
Intermedics Inc. and the
Company, dated April 2, 1993
10.4 Employment Agreement between Exhibit 10.24 to Form 8-K Current Report dated October
Bart C. Gutekunst and the 11, 1994, File No. 0-14653
Company, dated October 13, 1994
10.5 Employment Agreement between Exhibit 10.25 to Form 8-K Current Report dated
Alan J. Rabin and the October 11, 1994, File No. 0-14653
Company, dated October 13, 1994
10.6 Employment Agreement between Exhibit 10.12 to Form 10-Q for the Quarter Ended
Robert S. Miller and the December 31, 1994, File No. 0-14653
Company, dated December 12, 1994
10.7 Agreement between LEM Exhibit 10.13 to Form 10-Q for the Quarter Ended
Biomedica, s.r.l. and the December 31, 1994, File 0-14653
Company, dated October 1, 1994
10.8 Agreement between the Company Exhibit 10.12 to Form S-1 Registration Statement
and Alan J. Rabin and Bart C. filed on March 2, 1995, Registration No. 33-89938
Gutekunst dated July 1, 1994
10.9 Form of Indemnification Exhibit 10.13 to Form S-1 Registration Statement
Agreement between the Company filed on March 2, 1995, Registration No. 33-89938
and each Director, executed
December 1994
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.10 Employment Agreement between Exhibit 10.14 to Form S-1 Registration Statement
Robert R. Brownlee and the filed on March 2, 1995, Registration No. 33-89938
Company dated as of October
1, 1994
10.11 Loan and Security Agreement Exhibit 10.1 to Form 8-K Current Report, dated March
between the Company and 31, 1995, File No. 0-14653
Sirrom Capital Corporation,
dated March 31, 1995
10.12 $1,500,000 Secured Promissory Exhibit 10.2 to Form 8-K Current Report, dated March
Note in favor of Sirrom 31, 1995, File No. 0-14653
Capital Corporation, dated
March 31, 1995
10.13 Mortgage, Assignment of Rents Exhibit 10.3 to Form 8-K Current Report, dated March
and Leases, and Security 31, 1995, File No. 0-14653
Agreement in favor of Sirrom
Capital Corporation, dated
March 31, 1995
10.14 Second Mortgage and Security Exhibit 10.4 to Form 8-K Current Report, dated March
Agreement in favor of Dow 31, 1995, File No. 0-14653
Corning Enterprises, Inc.,
dated March 31, 1995
10.15 Subordination Agreement Exhibit 10.5 to Form 8-K Current Report, dated March
between the Company Sirrom 31, 1995, File No. 0-14653
Capital Corporation, and the
Debentureholders, dated March
31, 1995
10.16 Promissory Note and Security Exhibit 10.16 to Form 10-QSB for the Quarter ended
Agreement between Sulzer September 30, 1995, File No. 0-14653
Intermedics Inc. and the
Company dated October 20, 1995
10.17 Amendment 2 to Supply Exhibit 10.17 to Form 10-QSB for the Quarter ended
Contract between Sulzer September 30, 1995, File No. 0-14653
Intermedics Inc. and the
Company, October 20, 1995
dated
10.18 Amendment 2 to License Exhibit 10.18 to Form 10-QSB for the Quarter ended
Agreement between Sulzer September 30, 1995, File No. 0-14653
Intermedics Inc. and the
Company, dated October 20,
1995
10.19 Distribution Agreement Exhibit 10.19 to Form 10-QSB for the Quarter ended
between Grupo Taper S.A. and December 31, 1995, File No. 0-14653
the Company, dated December
20, 1995
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.20 Distribution Agreement Exhibit 10.20 to Form 10-QSB for the Quarter ended
between LEM Biomedica s.r.l. September 30, 1996, File No. 0-14653
and the Company, dated
October 1, 1996.
10.21 Security Agreement and Exhibit 10.21 to Form 10-QSB for the Quarter ended
Secured Promissory Note December 31, 1996, File No. 0-14653
between Bart C. Gutekunst and
the Company, dated October
28, 1996.
10.22 Security Agreement and Exhibit 10.22 to Form 10-QSB for the Quarter ended
Secured Promissory Note December 31, 1997, File No. 0-14653
between Bart C. Gutekunst and
the Company, dated March 24,
1997.
10.23 Security Agreement and Exhibit 10.23 to Form 10-QSB for the Quarter ended
Secured Promissory Note June 30, 1997, File No. 0-14653
between Alan J. Rabin and the
Company, dated April 15, 1997.
10.24 Security Agreement and Exhibit 10.24 to Form 10-QSB for the Quarter ended
Secured Promissory Note June 30, 1997, File No. 0-14653
Between Bart C. Gutekunst and
the Company, dated April 21,
1997.
10.25 Loan and Security Agreement Exhibit 10.1 to Form 8-K Current Report, dated June
Coast Business Credit and the 13, 1997, File No. 0-14653
Company, dated June 13, 1997.
10.26 $300,000 Secured Promissory Exhibit 10.2 to Form 8-K Current Report, dated June
Note of the Company to Coast 13, 1997, File No. 0-14653
Business Credit, dated June
13, 1997.
10.27 $500,000 CAPEX Promissory Exhibit 10.3 to Form 8-K Current Report, dated June
Note of the Company to Coast 13, 1997, File No. 0-14653
Business Credit, dated June
13, 1997.
10.28 Intercreditor and Exhibit 10.4 to Form 8-K Current Report, dated June
Subordination Agreement 13, 1997, File No. 0-14653
between Coast Business Credit
and Sirrom Capital Corporation
10.29 Mortgage and security Exhibit 10.5 to Form 8-K Current Report, dated June
Agreement between the Company 13, 1997, File No. 0-14653
and Coast Business Credit
10.30 Security Agreement (Intellectual Exhibit 10.6 to Form 8-K Current Report, dated June
Property) between the Company 13, 1997, File No. 0-14653
and Coast Business Credit
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.31 Grant of Security Interest Exhibit 10.7 to Form 8-K Current Report, dated June
Patents in favor of Coast 13, 1997, File No. 0-14653
Business Credit
10.32 Amendment to Employment Filed herewith
Agreement between Alan J.
Rabin and the Company,
effective as of May 1, 1996
21.0 Subsidiaries of the Registrant Filed herewith
27.0 Financial Data Schedule Filed herewith
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Copies of the above-described exhibits will be furnished to the
stockholders upon written request, addressed to President and Chief Executive
Officer, Cardiac Control Systems, Inc., 3 Commerce Boulevard, Palm Coast,
Florida 32164.
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company during the
last quarter of the year ended March 31, 1998.
The execution of an Agreement and Plan of Reorganization by and
between the Company, Electro, and Sub was reported on Form 8-K on
February 2, 1998. A First Amendment to the Agreement and Plan of
Reorganization was executed on May 5th, 1998, and such event was
reported on Form 8-K on May 21, 1998.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
By /s/ Alan J Rabin
--------------------
Alan J. Rabin
President and CEO, and a Director
Dated: October 6, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated and on the date indicated. This reporting may
be executed in multiple counterparts, each of which shall be deemed an original
and all of which together shall constitute one and the same instrument.
/s/ Bart C. Gutekunst Chairman of the Board
--------------------------------------------
Bart C. Gutekunst
Dated: October 6, 1998
/s/ Alan J. Rabin President and CEO,and a Director
--------------------------------------------
Alan J. Rabin
Dated: October 6, 1998
/s/ Tracey E. Young Director
---------------------------------------------
Tracey E. Young
Dated: October 6, 1998
/s/ William H. Burns Director
---------------------------------------------
William H. Burns
Dated: October 6, 1998
/s/ Larry G. Haimovitch Director
--------------------------------------------
Larry G. Haimovitch
Dated: October 6, 1998
/s/ Robert T. Rylee Director
--------------------------------------------
Robert T. Rylee
Dated: October 6, 1998
/s/ Augusto Ocana Director
--------------------------------------------
Augusto Ocana
Dated: October 6, 1998
/s/ W. Alan Walton Executive Vice President, Chief
------------------------------------------- Operating Officer
W. Alan Walton (Principal Accounting Officer)
Dated: October 6, 1998
38
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.0 Agreement and Plan of Filed herewith
Reorganization, dated as of
January 20, 1998 among the
Company, CCS Subsidiary, Inc.
and Electro-Catheter
Corporation
3.0 Certificate of Incorporation Filed herewith
of the Company, as amended
3.2 Restated Bylaws of the Filed herewith
Company, as amended
4.0 Form of Common Stock Exhibit 4.0 to Form S-1 Registration Statement filed
Certificate on March 2, 1995, Registration No. 33-89938
4.1 Form of Sales Representative Exhibit 4.13 to Form 10-Q for the Quarter Ended
Stock Option Agreement September 30, 1988, File No. 0-14653
4.2 Cardiac Control Systems, Inc. Exhibit 4.15 to Form 8-K Current Report dated
5% Convertible Debenture due October 11, 1994, File No. 0-14653
October 31, 1999
4.3 Combined 1987-1992 Exhibit 4.8 to Amendment No. 1 to Form S-1
Non-Qualified Stock Option Registration Statement filed on April 17, 1995,
Plan Registration No. 33-89938
4.4 Stock Purchase Warrant dated Exhibit 4.1 to Form 8-K Current Report, dated March
March 31, 1995 in favor of 31, 1995, File No. 0-14653
Sirrom Capital Corporation
4.5 Stock Purchase Warrant, dated Exhibit 4.2 to Form 8-K Current Report, dated March
March 31, 1995 in favor of 31, 1995, File No. 0-14653
Dow Corning Enterprises, Inc.
4.6 Stock Purchase Warrant, dated Exhibit 4.6 to Form 10-KSB for the year ended March
October 15, 1995 in favor of 31, 1996, File No. 0-14653.
Sirrom Capital Corporation
4.7 Stock Purchase Warrant, dated Exhibit 4.7 to Form 10-KSB for the year ended March
March 29, 1996 in favor of 31, 1996, File No. 0-14653.
Grupo Taper, S.A.
4.8 Stock Purchase Warrant, dated Exhibit 4.2 to Form 8-K Current Report, dated June
June 6, 1997 in favor of 13, 1997, File No. 0-14653.
Sirrom Capital Corporation
4.9 Stock Purchase Warrant, dated Exhibit 4.1 to Form 8-K Current Report, dated June
June 13, 1997 in favor of 13, 1997, File No. 0-14653.
Coast Business Credit
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.0 License Agreement between Exhibit 10.1 to Form 10-Q for the Quarter Ended
Hughes/Bertolet and the September 30, 1986, File No. 0-14653
Company
10.1 Settlement Agreement and Exhibit 10.2 to Form 10-K for the Year Ended March
Release between Applied 31, 1990, File No. 0-14653
Cardiac Electro-physiology
and the Company
10.2 Amended and Restated License Exhibit 10.19 to Form 8-K Current Report dated April
Agreement between Sulzer 2, 1993, File No. 0.14653
Intermedics Inc. and the
Company, dated April 2, 1993
10.3 Amended and Restated Supply Exhibit 10.20 to From 8-K Current Report dated April
Contract between Sulzer 2, 1992, File No. 0-14653
Intermedics Inc. and the
Company, dated April 2, 1993
10.4 Employment Agreement between Exhibit 10.24 to Form 8-K Current Report dated
Bart C. Gutekunst and the October 11, 1994, File No. 0-14653
Company, dated October 13,
1994
10.5 Employment Agreement between Exhibit 10.25 to Form 8-K Current Report dated
Alan J. Rabin and the October 11, 1994, File No. 0-14653
Company, dated October 13,
1994
10.6 Employment Agreement between Exhibit 10.12 to Form 10-Q for the Quarter Ended
Robert S. Miller and the December 31, 1994, File No. 0-14653
Company, dated December 12,
1994
10.7 Agreement between LEM Exhibit 10.13 to Form 10-Q for the Quarter Ended
Biomedica, s.r.l. and the December 31, 1994, File 0-14653
Company, dated October 1, 1994
10.8 Agreement between the Company Exhibit 10.12 to Form S-1 Registration Statement
and Alan J. Rabin and Bart C. filed on March 2, 1995, Registration No. 33-89938
Gutekunst dated July 1, 1994
10.9 Form of Indemnification Exhibit 10.13 to Form S-1 Registration Statement
Agreement between the Company filed on March 2, 1995, Registration No. 33-89938
and each Director, executed
December 1994
10.10 Employment Agreement between Exhibit 10.14 to Form S-1 Registration Statement
Robert R. Brownlee and the filed on March 2, 1995, Registration No. 33-89938
Company dated as of October
1, 1994
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.11 Loan and Security Agreement Exhibit 10.1 to Form 8-K Current Report, dated March
between the Company and 31, 1995, File No. 0-14653
Sirrom Capital Corporation,
dated March 31, 1995
10.12 $1,500,000 Secured Promissory Exhibit 10.2 to Form 8-K Current Report, dated March
Note in favor of Sirrom 31, 1995, File No. 0-14653
Capital Corporation, dated
March 31, 1995
10.13 Mortgage, Assignment of Rents Exhibit 10.3 to Form 8-K Current Report, dated March
and Leases, and Security 31, 1995, File No. 0-14653
Agreement in favor of Sirrom
Capital Corporation, dated
March 31, 1995
10.14 Second Mortgage and Security Exhibit 10.4 to Form 8-K Current Report, dated March
Agreement in favor of Dow 31, 1995, File No. 0-14653
Corning Enterprises, Inc.,
dated March 31, 1995
10.15 Subordination Agreement Exhibit 10.5 to Form 8-K Current Report, dated March
between the Company Sirrom 31, 1995, File No. 0-14653
Capital Corporation, and the
Debentureholders, dated March
31, 1995
10.16 Promissory Note and Security Exhibit 10.16 to Form 10-QSB for the Quarter ended
Agreement between Sulzer September 30, 1995, File No. 0-14653
Intermedics Inc. and the
Company dated October 20, 1995
10.17 Amendment 2 to Supply Exhibit 10.17 to Form 10-QSB for the Quarter ended
Contract between Sulzer September 30, 1995, File No. 0-14653
Intermedics Inc. and the
Company, October 20, 1995
dated
10.18 Amendment 2 to License Exhibit 10.18 to Form 10-QSB for the Quarter ended
Agreement between Sulzer September 30, 1995, File No. 0-14653
Intermedics Inc. and the
Company, dated October 20,
1995
10.19 Distribution Agreement Exhibit 10.19 to Form 10-QSB for the Quarter ended
between Grupo Taper S.A. and December 31, 1995, File No. 0-14653
the Company, dated December
20, 1995
10.20 Distribution Agreement Exhibit 10.20 to Form 10-QSB for the Quarter ended
between LEM Biomedica s.r.l. September 30, 1996, File No. 0-14653
and the Company, dated
October 1, 1996.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.21 Security Agreement and Exhibit 10.21 to Form 10-QSB for the Quarter ended
Secured Promissory Note December 31, 1996, File No. 0-14653
between Bart C. Gutekunst and
the Company, dated October
28, 1996.
10.22 Security Agreement and Exhibit 10.22 to Form 10-QSB for the Quarter ended
Secured Promissory Note December 31, 1997, File No. 0-14653
between Bart C. Gutekunst and
the Company, dated March 24,
1997.
10.23 Security Agreement and Exhibit 10.23 to Form 10-QSB for the Quarter ended
Secured Promissory Note June 30, 1997, File No. 0-14653
between Alan J. Rabin and the
Company, dated April 15, 1997.
10.24 Security Agreement and Exhibit 10.24 to Form 10-QSB for the Quarter ended
Secured Promissory Note June 30, 1997, File No. 0-14653
Between Bart C. Gutekunst and
the Company, dated April 21,
1997.
10.25 Loan and Security Agreement Exhibit 10.1 to Form 8-K Current Report, dated June
Coast Business Credit and the 13, 1997, File No. 0-14653
Company, dated June 13, 1997.
10.26 $300,000 Secured Promissory Exhibit 10.2 to Form 8-K Current Report, dated June
Note of the Company to Coast 13, 1997, File No. 0-14653
Business Credit, dated June
13, 1997.
10.27 $500,000 CAPEX Promissory Exhibit 10.3 to Form 8-K Current Report, dated June
Note of the Company to Coast 13, 1997, File No. 0-14653
Business Credit, dated June
13, 1997.
10.28 Intercreditor and Exhibit 10.4 to Form 8-K Current Report, dated June
Subordination Agreement 13, 1997, File No. 0-14653
between Coast Business Credit
and Sirrom Capital Corporation
10.29 Mortgage and security Exhibit 10.5 to Form 8-K Current Report, dated June
Agreement between the Company 13, 1997, File No. 0-14653
and Coast Business Credit
10.30 Security Agreement Exhibit 10.6 to Form 8-K Current Report, dated June
(Intellectual Property) 13, 1997, File No. 0-14653
between the Company and Coast
Business Credit
10.31 Grant of Security Interest Exhibit 10.7 to Form 8-K Current Report, dated June
Patents in favor of Coast 13, 1997, File No. 0-14653
Business Credit
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit Sequential Page Number or
Number Description Incorporation by Reference to
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.32 Amendment to Employment Filed herewith
Agreement between Alan J.
Rabin and the Company,
effective as of May 1, 1996
21.0 Subsidiaries of the Registrant Filed herewith
27.0 Financial Data Schedule Filed herewith
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
JANUARY 20, 1998,
AMONG
CARDIAC CONTROL SYSTEMS, INC.,
CCS SUBSIDIARY, INC.
AND
ELECTRO-CATHETER CORPORATION
<PAGE>
GLOSSARY
The following terms used in this agreement are defined in the following
sections:
SECTION OR
TERM OTHER LOCATION
- --------------------------------------------------------------------------------
Acquisition Transaction...................................................6.4(a)
Acquisition Sub........................................................Preamble
Actions....................................................................3.14
Affiliate Agreements........................................................5.2
Agreement.......................................................First paragraph
Plan of Merger..................................................First paragraph
Benefit Arrangements.....................................................3.17(d)
Break-up Fee.............................................................10.1(b)
Business Day................................................................1.7
CCSFE.......................................................................4.2
Certificate.................................................................3.1
Closing.....................................................................1.7
Closing Date................................................................1.7
Code........................................................................1.6
Common Shares Trust...................................................2.2(d)(ii)
Company................................................................Preamble
Company Affiliate Agreement.................................................5.2
Company Common Stock............................................First paragraph
Company Disclosure Schedule...................................................3
Company Financial Statements................................................3.6
Company Options...........................................................2.3(a)
Company Returns.............................................................3.9
Company Sec Documents.......................................................3.5
Company Sub.................................................................3.1
Company Warrants............................................................3.3
Constituent Corporations....................................................1.1
Effective Time..............................................................1.2
Employee.................................................................3.17(a)
Employee Plans...........................................................3.17(a)
Encumbrances...............................................................3.10
ERISA....................................................................3.17(a)
ERISA Affiliate..........................................................3.17(a)
Excess Shares..........................................................2.2(d)(i)
Exchange Act................................................................3.4
Exchange Agent............................................................2.2(a)
Exchange Fund.............................................................2.2(a)
Executory Period..........................................................6.1(a)
FAS No. 5...................................................................3.7
FDA........................................................................3.15
GAAP........................................................................3.6
Governmental Authority.....................................................3.14
GTH.........................................................................8.6
Intellectual Property Rights...............................................3.11
Liability...................................................................3.7
Material Adverse Effect.....................................................3.1
ii
<PAGE>
Merger......................................................................1.1
Merger Shares.............................................................2.1(c)
Multiemployer Plan.......................................................3.17(c)
New Jersey Statute..............................................First Paragraph
Old Certificates..........................................................2.2(a)
Other Filings...............................................................6.5
Parent.................................................................Preamble
Parent Common Stock.............................................First Paragraph
Parent Disclosure Schedule....................................................4
Parent Financial Statements.................................................4.6
Parent Options..............................................................4.3
Parent SEC Documents........................................................4.5
Parent Warrants.............................................................4.3
Party.....................................................................6.1(a)
Pension Plans............................................................3.17(a)
Related Agreements..........................................................5.1
Rule 145....................................................................5.2
Rule 145 Affiliate..........................................................5.2
S-4.........................................................................6.5
SEC.........................................................................3.4
SSS&G.......................................................................8.5
Stockholder Action..........................................................6.9
Stockholder Statement.......................................................6.9
Stockholders..............................................................2.2(a)
Stockholders' Materials.....................................................6.9
Stockholders' Meeting.......................................................6.9
Subsidiary................................................................2.1(b)
Superior Proposal.........................................................6.4(a)
Surviving Corporation.......................................................1.1
Tax.........................................................................3.9
Taxes.......................................................................3.9
Unvested Company Option...................................................2.3(b)
Vested Company Option.....................................................2.3(c)
Voting Agreement............................................................5.1
iii
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
- --------------------------------------------------------------------------------
ARTICLE I. - GENERAL
1.1. THE MERGER........................................................... 1
1.2. THE EFFECTIVE TIME OF THE MERGER..................................... 1
1.3. EFFECT OF MERGER..................................................... 1
1.4. CERTIFICATE AND BY-LAWS OF SURVIVING CORPORATION..................... 1
1.5. TAKING OF NECESSARY ACTION........................................... 2
1.6. TAX-FREE REORGANIZATION.............................................. 2
1.7. CLOSING.............................................................. 2
ARTICLE II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES..................................... 2
2.1. EFFECT ON CAPITAL STOCK.............................................. 2
2.2. EXCHANGE OF CERTIFICATES............................................. 3
2.3. COMPANY WARRANTS..................................................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 6
3.1. ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER................. 6
3.2. EQUITY INVESTMENTS................................................... 7
3.3. CAPITAL STOCK; SECURITIES............................................ 7
3.4. AUTHORITY; NO CONSENTS............................................... 7
3.5. SEC DOCUMENTS........................................................ 8
3.6. FINANCIAL STATEMENTS................................................. 8
3.7. ABSENCE OF UNDISCLOSED LIABILITIES................................... 9
3.8. ABSENCE OF CHANGES................................................... 9
3.9. TAX MATTERS.......................................................... 10
3.10. TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.......... 11
3.11. INTELLECTUAL PROPERTY............................................... 11
3.12. AGREEMENTS, ETC..................................................... 11
3.13. NO DEFAULTS, ETC.................................................... 12
3.14. LITIGATION, ETC..................................................... 12
3.15. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS............................. 13
3.16. LABOR RELATIONS; EMPLOYEES.......................................... 13
3.17. EMPLOYEE BENEFIT PLANS AND CONTRACTS................................ 13
3.18. CERTAIN AGREEMENTS.................................................. 14
3.19. INSURANCE........................................................... 15
3.20. BROKERS............................................................. 15
3.21. RELATED TRANSACTIONS................................................ 15
3.22. BOARD APPROVAL...................................................... 15
3.23. VOTE REQUIRED....................................................... 15
3.24. INFORMATION SUPPLIED................................................ 15
3.25. COMPANY NOT AN INTERESTED STOCKHOLDER............................... 16
3.26. DISCLOSURE.......................................................... 16
3.27. KNOWLEDGE DEFINITION................................................ 16
3.28. COMPANY REFERENCE INCLUDES COMPANY SUBS............................. 16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB.. 16
4.1. ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER................. 16
4.2. EQUITY INVESTMENTS................................................... 17
iv
<PAGE>
4.3. CAPITAL STOCK; SECURITIES............................................ 17
4.4. AUTHORITY; NO CONSENTS............................................... 17
4.5. SEC DOCUMENTS........................................................ 18
4.6. FINANCIAL STATEMENTS................................................. 18
4.7. ABSENCE OF UNDISCLOSED LIABILITIES................................... 19
4.8. ABSENCE OF CHANGES................................................... 19
4.9. TAX MATTERS.......................................................... 20
4.10. TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.......... 20
4.11. INTELLECTUAL PROPERTY............................................... 21
4.12. AGREEMENTS, ETC..................................................... 21
4.13. NO DEFAULTS, ETC.................................................... 22
4.14. LITIGATION, ETC..................................................... 22
4.15. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS............................. 22
4.16. LABOR RELATIONS; EMPLOYEES.......................................... 22
4.17. EMPLOYEE BENEFIT PLANS AND CONTRACTS................................ 23
4.18. CERTAIN AGREEMENTS.................................................. 24
4.19. INSURANCE........................................................... 24
4.20. BROKERS............................................................. 24
4.21. RELATED TRANSACTIONS................................................ 24
4.22. BOARD APPROVAL...................................................... 24
4.23. INFORMATION SUPPLIED................................................ 25
4.24. ACQUISITION SUB..................................................... 25
4.25. DISCLOSURE.......................................................... 25
4.26. KNOWLEDGE DEFINITION................................................ 25
4.27. PARENT REFERENCE INCLUDES CCSFE..................................... 25
ARTICLE V. RELATED AGREEMENTS.............................................. 25
5.1. VOTING AGREEMENT..................................................... 25
5.2. AFFILIATE AGREEMENTS................................................. 25
ARTICLE VI. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME;
ADDITIONAL AGREEMENTS...................................................... 26
6.1. ACCESS TO RECORDS AND PROPERTIES OF EACH PARTY; CONFIDENTIALITY...... 26
6.2. OPERATION OF BUSINESS OF THE COMPANY................................. 26
6.3. OPERATION OF BUSINESS OF THE PARENT.................................. 27
6.4. NEGOTIATION WITH OTHERS.............................................. 27
6.5. PREPARATION OF S-4; OTHER FILINGS.................................... 28
6.6. ADVICE OF CHANGES.................................................... 28
6.7. LETTER OF THE COMPANY'S ACCOUNTANTS.................................. 28
6.8. LETTER OF PARENT'S ACCOUNTANTS....................................... 28
6.9. STOCKHOLDERS' APPROVAL............................................... 29
6.10. LEGAL CONDITIONS TO MERGER.......................................... 29
6.11. CONSENTS............................................................ 29
6.12. EFFORTS TO CONSUMMATE............................................... 29
6.13. NOTICE OF PROSPECTIVE BREACH........................................ 30
6.14. PUBLIC ANNOUNCEMENTS................................................ 30
6.15. AFFILIATES.......................................................... 30
6.16. PREFERRED STOCK; SECURED PROMISSORY NOTE............................ 30
ARTICLE VII. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATIONS.............. 30
7.1. STOCKHOLDER APPROVAL; AGREEMENT OF MERGER............................ 30
7.2. APPROVALS............................................................ 31
7.3. LEGAL ACTION......................................................... 31
7.4. S-4.................................................................. 31
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7.5. LEGISLATION.......................................................... 31
7.6. BID PRICE RATIO...................................................... 31
7.7. FINANCING............................................................ 31
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION SUB...... 31
8.1. REPRESENTATIONS AND WARRANTIES....................................... 31
8.2. PERFORMANCE OF OBLIGATIONS OF THE COMPANY............................ 31
8.3. AUTHORIZATION OF MERGER.............................................. 32
8.4. CERTIFICATE.......................................................... 32
8.5. OPINION OF THE COMPANY'S COUNSEL..................................... 32
8.6. ACCEPTANCE BY COUNSEL TO PARENT AND ACQUISITION SUB.................. 32
8.7. CONSENTS AND APPROVALS............................................... 32
8.8. GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC............................. 32
8.9. RELATED AGREEMENTS................................................... 32
ARTICLE IX. CONDITIONS TO OBLIGATIONS OF THE COMPANY....................... 32
9.1. REPRESENTATIONS AND WARRANTIES....................................... 32
9.2. PERFORMANCE OF OBLIGATIONS OF PARENT AND ACQUISITION SUB............. 33
9.3. AUTHORIZATION OF MERGER.............................................. 33
9.4. CERTIFICATE.......................................................... 33
9.5. OPINION OF COUNSEL TO PARENT AND ACQUISITION SUB..................... 33
9.6. TAX OPINION.......................................................... 33
9.7. ACCEPTANCE BY COUNSEL TO THE COMPANY................................. 33
9.8. CONSENTS AND APPROVALS............................................... 33
9.9. GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC............................. 33
9.10. APPOINTMENT OF DIRECTORS............................................ 33
9.11. FAIRNESS OPINION.................................................... 34
9.12. DIRECTOR INDEMNITY.................................................. 34
9.13. COMPANY INDEBTEDNESS................................................ 34
ARTICLE X. PAYMENT OF CERTAIN FEES AND EXPENSES............................ 34
10.1. PAYMENT OF CERTAIN FEES AND EXPENSES................................ 34
ARTICLE XI TERMINATION, AMENDMENT, MODIFICATION AND WAIVER................. 34
11.1. TERMINATION......................................................... 34
11.2. EFFECT OF TERMINATION............................................... 36
ARTICLE XII. MISCELLANEOUS................................................. 36
12.1 ENTIRE AGREEMENT..................................................... 36
12.2. DESCRIPTIVE HEADINGS................................................ 36
12.3. NOTICES............................................................. 36
12.4. COUNTERPARTS........................................................ 37
12.5. GOVERNING LAW....................................................... 37
12.6. BENEFITS OF AGREEMENT............................................... 37
12.7. PRONOUNS............................................................ 37
12.8. AMENDMENT, MODIFICATION AND WAIVER.................................. 37
12.9. SEVERABILITY........................................................ 37
vi
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AGREEMENT AND PLAN OF REORGANIZATION dated as of January 20, 1998, among
CARDIAC CONTROL SYSTEMS, INC., a Delaware corporation ("Parent"), CCS
SUBSIDIARY, INC., a New Jersey corporation and wholly-owned subsidiary of Parent
("Acquisition Sub"), and ELECTRO-CATHETER CORPORATION, a New Jersey corporation
(the "Company").
The Boards of Directors of Parent, Acquisition Sub and the Company have
each duly approved and adopted this Agreement and Plan of Reorganization (this
"Agreement"), the plan of merger (the "Plan of Merger") and the proposed merger
of Acquisition Sub with and into the Company in accordance with this Agreement,
the Plan of Merger and the New Jersey Business Corporation Act (the "New Jersey
Statute"), whereby, among other things, the issued and outstanding shares of
common stock, $.10 par value, of the Company (the "Company Common Stock"), will
be exchanged and converted into shares of common stock, $.10 par value, of
Parent (the "Parent Common Stock") in the manner set forth in Article II hereof
and in the Plan of Merger, upon the terms and subject to the conditions set
forth in this Agreement and the Plan of Merger.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement and the Plan of Merger and the representations, warranties,
covenants, agreements, conditions and promises contained herein and therein, the
parties hereby agree as follows:
ARTICLE I.
----------
GENERAL
1.1. THE MERGER. In accordance with the provisions of this Agreement, the
----------
Plan of Merger and the New Jersey Statute, Acquisition Sub shall be merged with
and into the Company (the "Merger"), which at and after the Effective Time shall
be, and is sometimes herein referred to as, the "Surviving Corporation".
Acquisition Sub and the Company are sometimes referred to as the "Constituent
Corporations".
1.2. THE EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
--------------------------------
Agreement, the Plan of Merger in substantially the form of Exhibit 1.2 attached
-----------
hereto shall be executed, delivered and filed with the Secretary of State of the
State of New Jersey by each of the Constituent Corporations on the Closing Date
in the manner provided under Section 14A:10-4.1 of the New Jersey Statute. The
Merger shall become effective (the "Effective Time") upon the filing of the
Certificate of Merger (to which the Plan of Merger is an exhibit) with the
Secretary of State of the State of New Jersey.
1.3. EFFECT OF MERGER. At the Effective Time the separate existence of
----------------
Acquisition Sub shall cease and Acquisition Sub shall be merged with and into
the Surviving Corporation, and the Surviving Corporation shall possess all of
the rights, privileges, powers and franchises as well of a public as of a
private nature, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations and shall have such other effects as
provided by the New Jersey Statute.
1.4. CERTIFICATE AND BY-LAWS OF SURVIVING CORPORATION. From and after
the Effective Time: (a) the Certificate of the Company shall be amended so that
the Fourth Article thereof shall read in its entirety as set forth in
Exhibit 1.4 attached hereto, and the Certificate of the Company, as so amended,
- -----------
shall be the Certificate of the Surviving Corporation, unless and until altered,
amended or repealed as provided in the New Jersey Statute; (b) the current
amended and restated by-laws of the Company shall be the by-laws of the
Surviving Corporation, unless and until altered, amended or repealed as provided
in the New Jersey Statute, the Certificate or such by-laws; (c) the directors of
Acquisition Sub shall be Alan J. Rabin, W. Alan Walton and Ervin Schoenblum each
of whom shall be the directors of the Surviving Corporation, unless and until
removed, or until their respective terms of office shall have expired,
1
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in accordance with the New Jersey Statute, the Certificate or the by-laws of the
Surviving Corporation, as applicable; and (d) the officers of the Company shall
be the officers of the Surviving Corporation, unless and until removed, or until
their terms of office shall have expired, in accordance with the New Jersey
Statute, the Certificate or the by-laws of the Surviving Corporation, as
applicable.
1.5. TAKING OF NECESSARY ACTION. Prior to the Effective Time, the parties
--------------------------
hereto shall do or cause to be done all such acts and things as may be necessary
or appropriate in order to effectuate the Merger as expeditiously as reasonably
practicable, in accordance with this Agreement, the Plan of Merger, and the New
Jersey Statute. In case at any time after the Effective Time, any further action
is necessary or desirable to carry out the purpose of this Agreement and to vest
in the Surviving Corporation full title to all assets, privileges, etc. of
either Constituent Corporations, the officers and directors of such corporations
shall take all such lawful and necessary action.
1.6. TAX-FREE REORGANIZATION. For Federal income tax purposes, the parties
-----------------------
intend that the Merger be treated as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), by reason of Section 368(a)(2)(E) of the Code.
1.7. CLOSING. Unless this Agreement shall have been terminated and the
-------
transactions contemplated by this Agreement abandoned pursuant to the provisions
of Article XI, and subject to this Agreement, the closing of the Merger (the
"Closing") will take place at 10:00 a.m. (Florida time) on a date (the "Closing
Date") to be mutually agreed upon by the parties, which date shall be not later
than the third (3rd) Business Day after all the conditions set forth in Articles
VII, VIII and IX shall have been satisfied (or waived to the extent the same may
be waived), unless another date is agreed to in writing by the parties. The
Closing shall take place at the offices of Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A., 111 North Orange Avenue, 20th Floor, Orlando, Florida
32801, unless another place is agreed to in writing by the parties. As used
herein, the term "Business Day" shall mean any day other than a Saturday, Sunday
or day on which banks are permitted to close in New Jersey or Florida.
ARTICLE II.
-----------
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. EFFECT ON CAPITAL STOCK. At the Effective Time, subject and pursuant
-----------------------
to the terms and conditions of this Agreement and the Plan of Merger, by virtue
of the Merger and without any action on the part of the Constituent Corporations
or the holders of the capital stock of the Constituent Corporations:
(a) CAPITAL STOCK OF ACQUISITION SUB. Each issued and outstanding
share of common stock, par value $.01 per share, of Acquisition Sub shall
immediately prior to the Effective Time be deemed cancelled and converted into
and shall represent the right to receive one share of common stock, par value
$.10 per share, of the Surviving Corporation.
(b) CANCELLATION OF CERTAIN SHARES OF COMPANY COMMON STOCK. Each
share of Company Common Stock that is immediately prior to the Effective Time:
(i) owned by the Company as treasury stock; (ii) owned by any Subsidiary of the
Company; or (iii) owned by Parent or any subsidiary of Parent, shall be
cancelled and no Parent Common Stock or other consideration shall be delivered
in exchange therefor. As used in this Agreement, a "Subsidiary" of any
corporation means another corporation an amount of whose voting securities
2
<PAGE>
sufficient to elect at least a majority of its Board of Directors is owned
directly or indirectly by such corporation.
(c) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Subject to Section 2.2,
each share of Company Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares cancelled pursuant to Section 2.1(b))
shall be deemed cancelled and converted into and shall represent the right to
receive two-thirds (2/3) of a share of Parent Common Stock in accordance with
Section 2.2. For convenience of reference, the shares of Parent Common Stock to
be issued upon the exchange and conversion of Company Common Stock in accordance
with this Section 2.1(c) are sometimes hereinafter collectively referred to as
the "Merger Shares".
(d) ADJUSTMENTS FOR CAPITAL CHANGES. If, prior to the Effective Time,
Parent or the Company recapitalizes through a subdivision of its outstanding
shares into a greater number of shares, or a combination of its outstanding
shares into a lesser number of shares, or reorganizes, reclassifies or otherwise
changes its outstanding shares into the same or a different number of shares or
other classes, or declares a dividend on its outstanding shares payable in
shares of its capital stock or securities convertible into shares of its capital
stock, then the applicable exchange ratio for Company Common Stock will be
adjusted appropriately so as to maintain the relative proportionate interests of
the holders of shares of Company Common Stock and the holders of shares of
Parent Common Stock.
2.2. EXCHANGE OF CERTIFICATES.
------------------------
(a) PROCEDURE FOR EXCHANGE. Prior to the Closing Date, Parent shall
select an exchange agent (the "Exchange Agent") reasonably satisfactory to
Company to act in such capacity in connection with the Merger. As of the
Effective Time, Parent shall deposit with the Exchange Agent, for the benefit of
the holders of shares of Company Common Stock (the "Stockholders"), for exchange
in accordance with this Article II and the Plan of Merger, certificates
representing the shares of Parent Common Stock contemplated to be issued as
Merger Shares (which shares of Parent Common Stock, together with any dividends
or distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"). As soon as practicable after the Effective Time but in no
event later than twenty (20) Business Days after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately before the Effective Time represented issued and
outstanding shares of Company Common Stock (collectively, the "Old
Certificates"): (i) a letter of transmittal advising such holders of the terms
of the exchange effected by the Merger (and specifying how delivery shall be
effected, and risk of loss and title to the Old Certificates shall pass, only
upon delivery of the Old Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Parent may reasonably specify); and (ii)
instructions for use in effecting the surrender of Old Certificates in exchange
for certificates representing Merger Shares. Upon surrender of an Old
Certificate for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal and such other documents as may be reasonably
required by the Exchange Agent, the holder of such Old Certificate shall be
entitled to receive in exchange therefor a certificate representing that number
of whole shares of Parent Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II and the Plan of Merger and
the Old Certificate so surrendered shall forthwith be cancelled. In the event
of a transfer of ownership of shares of Company Common Stock which are not
registered on the transfer records of the Company, it shall be a condition of
the exchange thereof that the Old Certificate representing such Company Common
Stock is presented to the Exchange Agent properly endorsed and otherwise in
proper form for transfer and accompanied by all documents required to evidence
and effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section 2.2(a)
and the Plan of Merger, each Old Certificate shall be deemed, on and after the
Effective Time, to represent only the right to receive upon such
3
<PAGE>
surrender the certificate representing shares of Parent Common Stock and cash in
lieu of fractional shares (as hereinafter provided) of Parent Common Stock as
contemplated by this Article II and the Plan of Merger.
(b) DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Old Certificate with respect to the
shares of Parent Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.2(d) or
the Plan of Merger until the holder of record of such Old Certificate shall
surrender such Old Certificate. Subject to the effect of applicable laws,
following surrender of any such Old Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest: (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to Section 2.2(d)
and the Plan of Merger and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock; and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common Stock.
(c) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares
of Parent Common Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms of this Article II and the
Plan of Merger (including any cash paid pursuant to Section 2.2(b) or 2.2(d))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock and there shall be no further
registration or transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time, any Old
Certificate is presented to the Surviving Corporation for any reason, such Old
Certificate shall be cancelled and exchanged as provided in this Article II and
the Plan of Merger.
(d) NO ISSUANCE OF FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Old Certificates, and such fractional share interests
shall not entitle the owner thereof to vote or to any rights of a stockholder of
Parent such as rights to dividends, stock splits or interest in lieu of issuing
certificates for fractional shares.
(i) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (x) the number of full shares of
Parent Common Stock delivered to the Exchange Agent by Parent pursuant to
Section 2.2(a) over (y) the maximum number of full shares of Parent Common Stock
distributable to holders of Company Common Stock pursuant to Section 2.2(a)
(such excess being herein called the "Excess Shares"). As soon after the
Effective Time as practicable, the Exchange Agent, as agent for the holders of
Company Common Stock, shall aggregate and sell the Excess Shares at then
prevailing prices in the over-the-counter market, all in the manner provided in
subsection (ii) of this Section 2.2(d).
(ii) The sale of the Excess Shares by the Exchange Agent shall be
executed in the over-the-counter market through one or more member firms of the
National Association of Securities Dealers, Inc. and shall be executed in round
lots to the extent practicable. Until the net proceeds of such sale or sales
have been distributed to the holders of Company Common Stock as contemplated in
subsection (iii) of this Section 2.2(d), the Exchange Agent shall hold such
proceeds in trust for the holders of Company Common Stock (the "Common Shares
Trust"). Parent shall pay all commissions, transfer taxes and other out-of-
pocket
4
<PAGE>
transaction costs, including the expenses and compensation of the Exchange
Agent, incurred in connection with such sale of the Excess Shares. The Exchange
Agent shall determine the portion of the Common Shares Trust to which each
holder of Company Common Stock shall be entitled, if any, by multiplying the
amount of the aggregate net proceeds comprising the Common Shares Trust by a
fraction, the numerator of which is the amount of the fractional share interest
to which such holder of Company Common Stock is entitled and the denominator of
which is the aggregate amount of fractional share interests to which all holders
of Company Common Stock are entitled.
(iii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to the holders of Company Common Stock in lieu of any
fractional share interests, the Exchange Agent shall make available such amounts
without interest to such holders of Company Common Stock.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Old
Certificates shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Old Certificate to be lost,
stolen or destroyed, the Exchange Agent shall issue an exchange for such loss,
stolen or destroyed Old Certificate the consideration payable and exchange
therefor pursuant to this Article II. The Exchange Agent or the Surviving
Corporation may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Old Certificate to
give the Exchange Agent a bond in such reasonable sum as it may direct as
indemnity against any claim that may be made against the Surviving Corporation
with respect to the Old Certificate alleged to have been lost, stolen or
destroyed.
(f) TERMINATION OF EXCHANGE FUND AND COMMON SHARES TRUST. Any portion
of the Exchange Fund and Common Shares Trust which remains undistributed to the
stockholders of the Company for six (6) months after the Effective Time shall be
delivered to Parent, upon demand, and any former Stockholders of the Company who
have not theretofore complied with this Article II and the Plan of Merger shall
thereafter look only to Parent for payment of their claim for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to Parent Common Stock (and Parent shall
remain obligated to so pay and/or distribute).
(g) NO LIABILITY. Neither the Exchange Agent, Parent, Acquisition Sub
nor the Company shall be liable to any holder of shares of Company Common Stock
or Parent Common Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) of Parent Common Stock to be issued in
exchange for Company Common Stock pursuant to this Section 2.2, if, on or after
the expiration of twelve (12) months following the Effective Date, such shares
are delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
2.3. COMPANY WARRANTS AND OPTIONS. At the Effective Time, each of the
----------------------------
Company's then outstanding Company Warrants and Company Options (whether or not
exercisable at the Effective Time), by virtue of the Merger and without any
further action on the part of any holder thereof, shall be assumed by Parent and
automatically converted, on the same terms, into a warrant or option to purchase
a number of shares of Parent Common Stock (to be registered shares to the extent
the option or warrant holder is, by the terms of the Company option plan or
warrant in effect, entitled upon exercise of the option or warrant, to receive
registered stock) determined by multiplying the number of shares of Company
Common Stock covered by such Company Warrants and Company Options immediately
prior to the Effective Time by two-thirds (2/3) (rounded up to the nearest whole
number of shares), at an exercise price per share of Parent Common Stock equal
to the exercise price in effect under such Company Warrants or Company Options
immediately prior to the Effective Time divided by two-thirds (2/3) (rounded up
to the nearest cent). The converted warrants and options shall be exercisable on
the same terms
5
<PAGE>
and conditions as the existing Company Warrants and Company Options without
however giving effect to any mandatory or permissive exercise arising by virtue
of the Merger of the Company with the Subsidiary provided for herein.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Company Options" shall mean and include any Unvested Company
Option and any Vested Company Option.
(b) "Unvested Company Option" shall mean each of the options to
purchase Company Common Stock that is outstanding at the Effective Time, which
is not exercisable immediately prior to the Effective Time pursuant to its terms
in effect as of the date hereof.
(c) "Vested Company Option" shall mean each of the options to purchase
Company Common Stock that is outstanding at the Effective Time, which is
exercisable immediately prior to the Effective Time pursuant to its terms in
effect as of the date hereof.
ARTICLE III.
------------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition Sub that,
except as disclosed in the Company SEC Documents or the disclosure schedule
dated the date hereof, certified by the President or Acting President of the
Company and delivered by the Company to Parent and Acquisition Sub
simultaneously herewith (which disclosure schedule shall contain specific
references to the representations and warranties to which the disclosures
contained therein relate) (the "Company Disclosure Schedule"):
3.1. ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each of the
----------------------------------------------------
Company and the wholly-owned subsidiary of the Company set forth in the Company
Disclosure Schedule (the "Company Sub"): (a) is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey;
(b) has all requisite corporate power and authority to own, lease and operate
its properties and assets and to carry on its business as now being conducted
and as currently proposed to be conducted; and (c) is duly qualified and in good
standing to do business in all jurisdictions in which the failure to be so
qualified and in good standing could reasonably be expected to have a material
adverse effect on the business, properties, Liabilities, assets, operations,
results of operations, condition (financial or otherwise), prospects or affairs
(a "Material Adverse Effect") of the Company. The Company has all requisite
corporate power and authority to enter into this Agreement and the Plan of
Merger and each of the Related Agreements to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The Company has delivered to Parent true and
complete copies of the Charter and by-laws of the Company and the Company Sub,
respectively, in each case as amended to the date hereof. As used in this
Agreement, "Certificate" shall mean, with respect to any corporation, those
instruments that at the time constitute its corporate charter as filed or
recorded under the general corporation law of the jurisdiction of its
incorporation, including the articles or certificate of incorporation or
organization, and any amendments thereto, as the same may have been restated,
and any amendments thereto (including any articles or certificates of merger or
consolidation or certificates of designation or similar instruments which effect
any such amendment) which became effective after the most recent such
restatement.
6
<PAGE>
3.2. EQUITY INVESTMENTS. The Company does not currently own any capital
------------------
stock or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture or other entity other than the
Company Sub. Other than the Company Sub, the Company does not currently have any
Subsidiaries. The Company owns 100% of the issued and outstanding capital stock
of the Company Sub, free and clear of all Encumbrances. Except for the Company
Options and the Company Warrants, there are no options, warrants, rights, calls,
commitments or agreements of any character to which the Company or the Company
Sub is a party or by which the Company or the Company Sub is bound calling for
the issuance of shares of capital stock of the Company or the Company Sub or any
securities convertible into or exercisable or exchangeable for, or representing
the right to purchase or otherwise receive, any such capital stock, or other
arrangement to acquire, at any time or under any circumstance, capital stock of
the Company or any such other securities of the Company or the Company Sub.
3.3. CAPITAL STOCK; SECURITIES. The authorized capital stock of the
-------------------------
Company consists of 20,000,000 shares of Company Common Stock, of which
6,383,611 shares are outstanding as of November 18, 1997 and 1,000,000 shares of
preferred stock with no par value, of which no shares are outstanding. As of
November 30, 1997, the Company has outstanding warrants for 583,344 shares of
Company Common Stock (with no shares of Company Common Stock reserved for such
purpose) (collectively, the "Company Warrants") and (y) 675,000 shares of
Company Common Stock reserved for issuance upon the exercise of 351,200
outstanding Company Options, of which 274,700 are Vested Company Options and
76,500 are Unvested Company Options. Other than the 583,344 outstanding Company
Warrants and the 351,200 outstanding Company Options, the Company does not have
outstanding any options to purchase, or any pre-emptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible into,
or any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. All outstanding
shares of Company Common Stock are validly issued and outstanding, fully paid
and non-assessable and not subject to preemptive rights. There are no voting
trusts, voting agreements (except in favor of the Merger), proxies (except as a
part of voting agreements in favor of the Merger), first refusal rights, first
offer rights, co-sale rights, transfer restrictions (other than restrictions
imposed by federal or state securities laws) or other agreements, instruments or
understandings (whether written or oral, formal or informal) with respect to the
voting, transfer or disposition of Company Common Stock to which the Company is
a party or by which it is bound, or, to the best knowledge of the Company, among
or between any persons other than the Company.
3.4. AUTHORITY; NO CONSENTS. The execution, delivery and performance by
----------------------
the Company of this Agreement, the Plan of Merger and the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action on the part of the Company; and this Agreement and the Related Agreements
to which it is a party have been, and the Plan of Merger when executed and
delivered by the Company will be, duly and validly executed and delivered by the
Company, and this Agreement and the Related Agreements to which it is a party
are, and the Plan of Merger when executed and delivered by the parties thereto
will be, the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the enforcement of creditors' rights
generally and general equitable principles. Neither the execution, delivery and
performance of this Agreement, the Plan of Merger or Related Agreements to which
it is a party nor the consummation by the Company of the transactions
contemplated hereby or thereby nor compliance by the Company with any provision
hereof or thereof will: (a) conflict with; (b) result in any violations of; (c)
cause a default under (with or without due notice, lapse of time or both); (d)
give rise to any right of termination, amendment, cancellation or acceleration
of any obligation contained in or the loss of any material benefit under; or (e)
result in the creation of any Encumbrance on or against any assets, right or
property of the Company under any term,
7
<PAGE>
condition or provision of: (x) any instrument or agreement to which the Company
is a party, or, to the best knowledge of the Company, by which the Company or
any of its properties, assets or rights may be bound (except as shall have been
waived or with respect to which consent shall have been obtained prior to the
Closing); (y) any law, statute, rule, regulation, order, writ, injunction,
decree, permit, concession, license or franchise of any Governmental Authority
applicable to the Company or any of its properties, assets or rights; or (z) the
Company's Certificate or by-laws, as amended through the date hereof. Except as
contemplated by this Agreement or the Plan of Merger, no permit, authorization,
consent or approval of or by, or any notification of or filing with, any
Governmental Authority is required in connection with the execution, delivery
and performance by the Company of this Agreement, the Plan of Merger or the
Related Agreements to which the Company is a party or the consummation of the
transactions contemplated hereby or thereby, except for: (i) the filing with the
Securities and Exchange Commission (the "SEC") of (A) the S-4 and (B) such
reports and information under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations promulgated by the
SEC thereunder, as may be required in connection with this Agreement, the Plan
of Merger and the transactions contemplated hereby and thereby; (ii) such
filings as may be required by the Over the Counter Bulletin Board Service with
respect to Parent Common Stock to be issued in connection with the Merger and
the Company Warrants to be assumed by Parent in the Merger; (iii) the filing of
such documents with, and the obtaining of such orders from, various state
securities and blue-sky authorities as are required in connection with the
transactions contemplated hereby; (iv) the distribution of the Stockholders'
Materials with respect to the adoption by the Stockholders of this Agreement and
the Plan of Merger; (v) the filing of the Plan of Merger with the Secretary of
State of the State of New Jersey and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business;
and (vi) such other consents, waivers, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on the Company or materially impair the ability of the Company and the
Stockholders to consummate the transactions contemplated by this Agreement or
the Plan of Merger, including, without limitation, the Merger.
3.5. SEC DOCUMENTS. The Company has furnished Parent with a correct and
-------------
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by the Company with the SEC on or after August 31, 1996
(the "Company SEC Documents"), which are all the documents (other than
preliminary material) that the Company was required to file (or otherwise did
file) with the SEC on or after August 31, 1996. As of their respective dates,
none of the Company SEC Documents (including all exhibits and schedules thereto
and documents incorporated by reference therein) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the Company SEC
Documents complied when filed in all material respects with the then applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated by the SEC thereunder.
3.6. FINANCIAL STATEMENTS. The financial statements of the Company
--------------------
included in the Company SEC Documents (the "Company Financial Statements"): (a)
complied as to form in all material respects with the then applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principals ("GAAP"), consistently applied (except as may have been indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q promulgated by the SEC); (b) were in accordance with the books and
records of the Company; and (c) fairly present (subject, in the case of the
unaudited statements, to normal, nonrecurring audit adjustments) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.
8
<PAGE>
3.7. ABSENCE OF UNDISCLOSED LIABILITIES. At August 31, 1997: (a) the
----------------------------------
Company had no liability or obligation of any nature (whether known or unknown,
matured or unmatured, fixed or contingent ("Liability")), which was not provided
for or disclosed on the Company SEC Documents for the fiscal year ended August
31, 1997; and (b) all liability reserves established by the Company and set
forth on the Company Financial Statements were adequate, in the good faith
judgment of the Company, for all such Liabilities at the date thereof. There
were no material loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975 ("FAS No. 5")) which were not adequately provided
for on the Company Financial Statements as required by FAS No. 5.
3.8. ABSENCE OF CHANGES. Since August 31, 1997, the Company has been
------------------
operated in the ordinary course, consistent with past practice, and there has
not been:
(a) to the best knowledge of the Company, any damage, destruction or
loss, whether or not covered by insurance, having or which could reasonably be
expected to have a Material Adverse Effect;
(b) to the best knowledge of the Company, any Liability created,
assumed, guaranteed or incurred, or any material transaction, contract or
commitment entered into, by the Company, other than the license, sale or
transfer of the Company's products to customers in the ordinary course of
business;
(c) any declaration, setting aside or payment of any dividend or other
distribution of any assets of any kind whatsoever with respect to any shares of
the capital stock of the Company, or any direct or indirect redemption, purchase
or other acquisition of any such shares of the capital stock of the Company;
(d) any payment, discharge or satisfaction of any material Encumbrance
or Liability or any cancellation by the Company of any material debts or claims
or any amendment, termination or waiver of any right of material value to the
Company;
(e) any stock split, reverse stock split, combination,
reclassification or recapitalization of any Company Common Stock, or any
issuance of any other security in respect of or in exchange for, any shares of
Company Common Stock;
(f) any issuance by the Company of any shares of its capital stock or
any debt security or securities, rights, options or warrants convertible into or
exercisable or exchangeable for any shares of its capital stock or debt security
(other than shares of Company Common Stock issued upon exercise of Company
Options in accordance with the present terms thereof);
(g) any termination of, or, to the best knowledge of the Company,
indication of an intention to terminate or not renew, any material contract,
license, commitment or other agreement between the Company and any other person,
or the assignment by the Company of any interest in any contract to which the
Company is a party;
(h) any material write-down or write-up of the value of any asset of
the Company, or any material write-off of any accounts receivable or notes
receivable of the Company or any portion thereof;
(i) any increase in or modification or acceleration of compensation or
benefits payable or to become payable to any officer, employee, consultant or
agent of the
9
<PAGE>
Company other than in the ordinary course, or the entering into of any
employment contract with any officer or employee;
(j) the making of any loan, advance or capital contribution to or
investment in any person or the engagement in any transaction with any employee,
officer, director or stockholder of the Company, other than advances to
employees in the ordinary course of business for travel and similar business
expenses;
(k) any change in the accounting methods or practices followed by the
Company, or any change in depreciation or amortization policies or rates
theretofore adopted by the Company;
(l) any termination of employment of any officer or key employee of
the Company or, to the best knowledge of the Company, any expression of
intention by any officer or key employee of the Company to terminate such office
or employment with the Company;
(m) any amendments or changes in the Company's Certificate or by-laws;
(n) to the best knowledge of the Company, the commencement of any
litigation or other action by or against the Company; or
(o) any agreement, understanding, authorization or proposal, whether
in writing or otherwise, for the Company to take any of the actions specified in
items (a) through (n) above.
3.9. TAX MATTERS. The Company and each other corporation included in any
-----------
consolidated or combined tax return in which the Company has been included: (a)
have filed and will file, in a timely and proper manner, consistent with
applicable laws, all Federal, state and local Tax returns and Tax reports
required to be filed by them through the Closing Date (the "Company Returns")
with the appropriate governmental agencies in all jurisdictions in which Company
Returns are required to be filed and have paid or will pay all amounts shown
thereon to be due; and (b) have paid and shall timely pay all Taxes required to
have been paid on or before the Closing Date. All Taxes attributable to all
taxable periods ending on or before the Closing Date, to the extent not required
to have been previously paid have been adequately provided for on the Company
Financial Statements and the Company will not accrue a Tax liability from the
date of the Company Financial Statements up to and including the Closing Date,
other than a Tax liability accrued in the ordinary course of business. The
Company has not been notified by the Internal Revenue Service or any state,
local or foreign taxing authority that any issues have been raised (and are
currently pending) in connection with any Company Return, and no waivers of
statutes of limitations have been given or requested with respect to the
Company. Except as contested in good faith and disclosed in the Company
Disclosure Schedule, any deficiencies asserted or assessments (including
interest and penalties) made as a result of any examination by the Internal
Revenue Service or by any other taxing authorities of any Company Return have
been fully paid or are adequately provided for on the Company Financial
Statements and no proposed additional Taxes have been asserted. The Company has
not made an election to be treated as a "consenting corporation" under Section
341(f) of the Code nor is it a "personal holding company" within the meaning of
Section 542 of the Code. The Company has not agreed to, nor is required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise. The Company will not incur a Tax liability
resulting from the Company ceasing to be a member of a consolidated or combined
group that had previously filed consolidated, combined or unitary Tax returns.
As used in this Agreement, "Tax" means any of the Taxes and "Taxes" means, with
respect to any entity: (x) all income taxes (including any tax on or based upon
net income, gross income, income as specially defined, earnings, profits or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem,
10
<PAGE>
transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits taxes,
alternative or add-on minimum taxes, customs duties and other taxes, fees,
assessments or charges of any kind whatsoever, together with all interest and
penalties, additions to tax and other additional amounts imposed by any taxing
authority (domestic or foreign) on such entity; and (y) any liability for the
payment of any amount of the type described in the immediately preceding clause
(x) as a result of: (i) being a "transferee" (within the meaning of Section 6901
of the Code or any other applicable law) of another entity; (ii) being a member
of an affiliated or combined group; or (iii) any contractual obligations or
otherwise.
3.10. TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS. The
----------------------------------------------------------
Company has good and marketable title to all assets, properties and interests in
properties, real, personal or mixed, reflected on the Company SEC Documents or
acquired after August 31, 1997, except for: (a) those Encumbrances set forth in
the Company Disclosure Schedule; (b) liens for current taxes not yet due and
payable; (c) statutory mechanics and materialmen's liens; and (d) utility
easements. As used in this Agreement, the term "Encumbrances" shall mean and
include security interests, mortgages, liens, pledges, guarantees, charges,
easements, reservations, restrictions, clouds, equities, rights of way, options,
rights of first refusal and all other encumbrances, whether or not relating to
the extension of credit or the borrowing of money.
3.11. INTELLECTUAL PROPERTY. The Company Disclosure Schedule sets forth
---------------------
a list of all patents, copyrights, trademarks, tradenames and service marks and
any licensed intellectual property rights (other than commercial or "shrink-
wrap" licenses covering software generally available to the public on a retail
basis) (collectively, "Intellectual Property Rights") of the Company. To the
best knowledge of the Company, the ownership or use of such Intellectual
Property Rights by the Company does not infringe on the intellectual property
rights of others and the Company has not received notice alleging any such
infringement, and, to the best knowledge of the Company, no third party is
infringing on the Intellectual Property Rights of the Company. The Company is
not obligated to pay any third party any royalty or fee for the use of the
Intellectual Property Rights used in its business.
3.12. AGREEMENTS, ETC. The Company Disclosure Schedule sets forth a true
---------------
and complete list of all written or oral contracts, agreements and other
instruments to which the Company is a party and not made in the ordinary course
of business, or made in the ordinary course of business and referred to in
clauses (a) through (i) of this Section 3.12:
(a) any joint venture, partnership or other agreement or arrangement
for the sharing of profits;
(b) any collective bargaining contract or other contract with or
commitment to any labor union;
(c) the future purchase, sale or license of products, material,
supplies, equipment or services requiring payments to or from the Company in an
amount in excess of $25,000 per annum, which agreement, arrangement or
understanding is not terminable on thirty (30) days' notice without cost or
other liability at or at any time after the Effective Time, or in which the
Company has granted or received manufacturing rights, most favored nations
pricing provisions or exclusive marketing or other rights relating to any
product, group of products, services, technology, assets or territory;
(d) the employment of any officer, employee, consultant or agent or
any other type of contract, commitment or understanding with any officer,
employee, consultant or agent which (except as otherwise generally provided by
applicable law) is not immediately terminable without cost or other liability at
or at any time after the Effective Time;
11
<PAGE>
(e) an indenture, mortgage, promissory note, loan agreement, guarantee
or other agreement or commitment for the borrowing of money, for a line of
credit or, if involving payments in excess of $25,000 per annum, for a leasing
transaction of a type required to be capitalized in accordance with Statement of
Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board;
(f) a contract or commitment for capital expenditures individually in
excess of $25,000;
(g) any agreement or contract with a "disqualified individual" (as
defined in Section 280G(c) of the Code), which could result in a disallowance of
the deduction for any "excess parachute payment" (as defined in Section
280G(b)(i) of the Code) under Section 280G of the Code;
(h) an agreement or arrangement for the sale of any assets, properties
or rights having a value in excess of $25,000; or
(i) an agreement which restricts the Company from engaging in any
aspect of its business or competing in any line of business in any geographic
area.
The Company has furnished to Parent true and complete copies of all such
agreements listed in the Company Disclosure Schedule and each such agreement:
(i) is the legal, valid and binding obligation of the Company and, to the best
knowledge of the Company, the legal, valid and binding obligation of each other
party thereto, in each case enforceable in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and general equitable principles; (ii) to the best
knowledge of the Company is in full force and effect; and (iii) to the best
knowledge of the Company, the other party or parties thereto is or are not in
material default thereunder.
3.13. NO DEFAULTS, ETC. The Company has in all material respects
----------------
performed all the obligations required to be performed by it to date and is not
in material default or, to the best knowledge of the Company, alleged to be in
material default under: (a) its Certificate or by-laws; or (b) any material
agreement, lease, contract, commitment, instrument or obligation to which the
Company is a party or by which any of its properties, assets or rights are or
may be bound or affected, and, to the best knowledge of the Company, there
exists no event, condition or occurrence which, with or without due notice or
lapse of time, or both, would constitute such a default by it of any of the
foregoing. To the best knowledge of the Company, no current customer has
notified, or expressed an intention to notify, the Company that such customer
will materially reduce the dollar amount of business it will do with the Company
or cease doing business with the Company under circumstances where such
notification or intention has been reported to an officer of the Company.
3.14. LITIGATION, ETC. There are no: (a) actions, suits, claims,
---------------
investigations or legal or administrative or arbitration proceedings
(collectively, "Actions") pending, or to the best knowledge of the Company,
threatened against the Company, whether at law or in equity, or before or by any
Federal, state, municipal, foreign or other governmental court, department,
commission, board, bureau, agency or instrumentality ("Governmental Authority");
(b) judgments, decrees, injunctions or orders of any Governmental Authority or
arbitrator against the Company; or (c) to the best knowledge of the Company,
material disputes with customers or vendors, in each case, except for any such
matter which would not have a material adverse effect on the Company.
12
<PAGE>
3.15. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. To the best knowledge of
---------------------------------------
the Company, the Company has complied within the last five (5) years and is
presently in compliance in all material respects with all material Federal,
state, local or foreign laws, ordinances, regulations and orders applicable to
it or its business, including, without limitation, the Food and Drug
Administration of the United States Department of Health and Human Services
("FDA"), all Federal and state securities or "blue sky" laws and all laws and
regulations relating to occupational safety and health and the environment. To
the best knowledge of the Company, the Company has all material Federal, state,
local and foreign governmental authorizations, security clearances, consents,
approvals, licenses and permits necessary in the conduct of its business as
presently conducted and as currently proposed to be conducted, such
authorizations, consents, approvals, licenses and permits are in full force and
effect, no material violations are or have been recorded in respect of any
thereof and no proceeding is pending or, to the best knowledge of the Company,
threatened to revoke or limit any thereof. To the best knowledge of the Company,
all of the Company's full-time and temporary personnel who provide services in a
manner or of the type that require specific certifications or clearances have
provided such services at all times while having such certifications or
clearances in full force and effect. Neither the Company nor, to the best
knowledge of the Company, any of its full-time or part-time personnel has been
cited or alleged by the FDA or other regulatory authority within the last five
(5) years as failing to comply with regulatory requirements or guidelines in the
performance of services.
3.16. LABOR RELATIONS; EMPLOYEES. The Company Disclosure Schedule sets
--------------------------
forth the number of full-time and part-time employees of the Company and the
primary locations at which such employees provide their services as of November
30, 1997. To the best knowledge of the Company: (a) the Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to date or amounts required to be reimbursed to such employees; (b)
Acquisition Sub nor the Surviving Corporation will by reason of anything done
prior to the Closing be liable to any of such employees for severance pay or any
other payments; (c) the Company is in compliance in all material respects with
all material Federal, state, local and foreign laws and regulations respecting
labor, employment and employment practices, terms and conditions of employment
and wages and hours; and (d) there is no unfair labor practice, sexual
harassment or other employment-related complaint pending or, to the best
knowledge of the Company, threatened against the Company or any employee of the
Company. To the best knowledge of the Company, no employee of the Company is in
material violation of any term of any employment contract, confidentiality
agreement or any other contract or agreement relating to the relationship of
such employee with the Company or any other party because of the nature of the
business conducted or proposed to be conducted by the Company or the execution
and delivery of such agreement or contract by such employee.
3.17. EMPLOYEE BENEFIT PLANS AND CONTRACTS.
------------------------------------
(a) The Company Disclosure Schedule identifies each "employee benefit
plan," as defined in Section 1002(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and all other material written or formal
plans or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Company and any Employee of the
Company, but excluding workers' compensation, unemployment compensation, other
government-mandated programs and the Company's salary and wage arrangements)
currently or previously maintained, contributed to or entered into by the
Company or any ERISA Affiliate thereof for the benefit of any Employee or former
Employee under which the Company or any ERISA Affiliate thereof has any present
or future obligation or liability (the "Employee Plans"). The Company has
provided to Parent true and complete copies of all Employee Plans (and, if
applicable, related trust agreements) and all amendments thereto and written
interpretations thereof. For purposes of the preceding sentence, "ERISA
Affiliate" shall mean any entity which is a member of (A) a "controlled group of
corporations," as defined in
13
<PAGE>
Section 414(b) of the Code, (B) a group of entities under "common control," as
defined in Section 414(c) of the Code or (C) an "affiliated service group," as
defined in Section 414(m) of the Code or treasury regulations promulgated under
Section 414(o) of the Code, any of which includes the Company. Any Employee
Plans which individually or collectively would constitute an "employee pension
benefit plan," as defined in Section 3(2) of ERISA, but which are not
Multiemployer Plans (collectively, the "Pension Plans"), are identified as such
in the Company Disclosure Schedule. For purposes of this Section 3.17 and
Section 4.17, "Employee" means any common law employee, consultant or director
as to Section 3.17 of the Company, and as to Section 4.17, Parent.
(b) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to the date hereof, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. The Company has
provided Parent with copies of the most recent Internal Revenue Service
determination letters with respect to any such Employee Plans. Each Employee
Plan has been maintained substantially in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code, which are applicable to such
Employee Plans.
(c) No Employee Plan constitutes or since the enactment of ERISA has
constituted a "multiemployer plan," as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"). The Company has not within the past five (5) years
incurred any material liability under Title IV of ERISA arising in connection
with the termination of any Pension Plan or the complete or partial withdrawal
from any Multiemployer Plan. If a "complete withdrawal" by the Company were to
occur as of the Closing with respect to all Multiemployer Plans, the Company
would not incur any withdrawal liability under Title IV of ERISA.
(d) The Company Disclosure Schedule lists each employment, severance
or other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which: (i) is not an Employee Plan; (ii) is
entered into, maintained or contributed to, as the case may be, by the Company;
(iii) covers any Employee or former Employee; and (iv) under which the Company
has any present or future obligation or liability (excluding workers'
compensation, unemployment compensation or other government-mandated programs
and the Company's salary and wage arrangements). Such contracts, plans and
arrangements as are described above are hereinafter referred to collectively as
the "Benefit Arrangements". Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all material laws, statutes, rules, regulations, orders and judgments
which are applicable to such Benefit Arrangements.
(e) The Company has provided, or will have provided, to individuals
entitled thereto who are current or former Employees of the Company all required
notices within the applicable time period and coverage pursuant to Section 4980B
of the Code with respect to any "qualifying event" (as defined in Section
4980B(f)(3) of the Code) occurring prior to and including the Closing Date, and
no tax payable on account of Section 4980B of the Code has been incurred with
respect to any current or former Employees of the Company.
3.18. CERTAIN AGREEMENTS. Neither the execution and delivery of this
------------------
Agreement nor the consummation of the transactions contemplated hereby will: (a)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of the Company from the Company, under any Employee Plan, Benefit
Arrangement or otherwise; (b) materially increase any benefits
14
<PAGE>
otherwise payable under any Employee Plan or the Benefit Arrangement; or (c)
result in the acceleration of the time of payment or vesting of any such
benefits.
3.19. INSURANCE. The Company maintains policies of liability, theft,
---------
fidelity, fire, product liability, workmen's compensation, indemnification of
directors and officers and other similar forms of insurance. The Company
Disclosure Schedule sets forth a history of all claims within the last five (5)
years in excess of $50,000 made by the Company thereunder and the status
thereof. All such policies of insurance are in full force and effect and all
premiums with respect thereto are currently paid and, to the best knowledge of
the Company, no basis exists for termination of any thereof on the part of the
insurer. The amounts of coverage under such policies conform to the requirements
set forth in the Company's customer contracts. The Company has not, during the
last three fiscal years, been denied or had revoked or rescinded any policy of
insurance.
3.20. BROKERS. The Company has not, nor have any of its officers,
-------
directors, stockholders or employees, employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement, the Plan of Merger or any
of the Related Agreements.
3.21. RELATED TRANSACTIONS. Except for compensation to regular employees
--------------------
of the Company, no current or former director, officer or stockholder that is an
affiliate of the Company or any associate (as defined in the rules promulgated
under the Exchange Act) thereof, is now, or has been during the last five (5)
fiscal years: (a) a party to any transaction with the Company (including, but
not limited to, any contract, agreement or other arrangement providing for the
furnishing of services by, or rental of real or personal property from, or
borrowing money from, or otherwise requiring payments to, any such director,
officer or affiliated stockholder of the Company or associate thereof); or (b)
the direct or indirect owner of an interest in any corporation, firm,
association or business organization which is a present or potential competitor,
supplier or customer of the Company (other than non-affiliated holdings in
publicly-held companies), nor does any such person receive income from any
source other than the Company which relates to the business of, or should
properly accrue to, the Company.
3.22. BOARD APPROVAL. The Board of Directors of the Company has
--------------
unanimously: (a) approved this Agreement, the Plan of Merger and each of the
Related Agreements to which the Company is a party and the transactions
contemplated hereby and thereby; (b) determined that the Merger is in the best
interests of the Stockholders of the Company and, subject to receipt of a
fairness opinion, is on terms that are fair to such Stockholders; and (c)
recommended that the Stockholders of the Company approve the Merger in
accordance with the Plan of Merger and the New Jersey Statute. No other
approvals are required other than that of the Board of Directors and
Stockholders of the Company.
3.23. VOTE REQUIRED. The affirmative vote of two-thirds (2/3) of the
-------------
outstanding shares voting of the Company Common Stock approving the Merger, this
Agreement, the Plan of Merger, and the transactions contemplated hereby and
thereby are the only votes of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement, the Plan of Merger
and each of the Related Agreements to which the Company is a party and the
transactions contemplated hereby and thereby.
3.24. INFORMATION SUPPLIED. None of the information supplied or to be
--------------------
supplied by the Company or any Stockholder for inclusion in: (a) the S-4 will,
at the time that the S-4 is filed with the SEC and at the time that the S-4
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading; and (b) the
Stockholders' Materials will, at the dates mailed to the Stockholders and at the
effective date of the Stockholder
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Action, contain any 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, in light of the circumstances under which they are made, not
misleading. The Stockholders' Materials will comply as to form in all material
respects with the provisions of all applicable laws, rules and regulations of
all Governmental Authorities.
3.25. COMPANY NOT AN INTERESTED STOCKHOLDER. As of the date of this
-------------------------------------
Agreement, neither the Company nor, to the best of the Company's knowledge, any
of its Affiliates is an "Interested Stockholder" of Parent as such term is
defined in Section 203 of the Delaware General Corporation Law.
3.26. DISCLOSURE. No part of Article III of this Agreement (including
----------
the Company Disclosure Schedule) nor any document, written information,
statement, financial statement, certificate or exhibit furnished or to be
furnished to Parent or Acquisition Sub by or on behalf of the Company or any
Stockholder pursuant hereto or in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements or facts contained herein and therein not misleading in light of the
circumstances under which they were made.
3.27. KNOWLEDGE DEFINITION. As used in this Agreement, "to the best
--------------------
knowledge of the Company" and like phrases shall mean and include: (a) actual
knowledge; and (b) that knowledge which a prudent businessperson (including the
officers, directors and other key employees of the Company) would have obtained
in the management of his or her business affairs after making due inquiry and
exercising reasonable diligence with respect thereto. In connection therewith,
the knowledge (both actual and constructive) of any officer, director or other
key employee of the Company shall be imputed to be the knowledge of the Company.
3.28. COMPANY REFERENCE INCLUDES COMPANY SUBS. Each reference to the
---------------------------------------
Company in this Article III shall be deemed to be a reference to the Company and
the Company Sub, unless the context requires otherwise. Accordingly, the Company
Disclosure Schedule shall include disclosures with respect to the Company Sub,
as well as the Company, in response to the representations and warranties set
forth in this Article III, as applicable.
ARTICLE IV.
-----------
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub, jointly and severally, represent and warrant to
the Company that, except as disclosed in the Parent SEC Documents or the
disclosure schedule dated the date hereof, certified by the President of Parent
and delivered by Parent to the Company simultaneously herewith (which disclosure
schedule shall contain specific references to the representations and warranties
to which the disclosures contained therein relate) (the "Parent Disclosure
Schedule"):
4.1. ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each of Parent
----------------------------------------------------
and Acquisition Sub: (a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and New Jersey,
respectively; (b) has all requisite corporate power and authority to own, lease
and operate its properties and assets and to carry on its business as now being
conducted and as currently proposed to be conducted, to enter into this
Agreement, the Plan of Merger (in the case of Acquisition Sub) and each of the
Related Agreements to which either is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby; and (c) is duly qualified and in good standing in all jurisdictions
in which the failure to be so qualified and in good standing could reasonably be
expected to have a Material Adverse Effect on the Parent or Acquisition Sub.
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Parent has delivered to the Company true and complete copies of the Certificate
and by-laws of each of Parent and Acquisition Sub.
4.2. EQUITY INVESTMENTS. Other than Cardiac Control Systems Far East,
------------------
Ltd. ("CCSFE") and Acquisition Sub, the Company does not currently have any
Subsidiaries, nor does it currently own any capital stock or other proprietary
interest, directly or indirectly, in any corporation, association, trust,
partnership, joint venture or other entity. Parent owns 100% of the issued and
outstanding capital stock of CCSFE, free and clear of all Encumbrances. Except
for the Parent Options and the Parent Warrants, there are no options, warrants,
rights, calls, commitments or agreements of any character to which Parent or
Acquisition Sub is a party or by which Parent or Acquisition Sub is bound
calling for the issuance of shares of capital stock of Parent or Acquisition Sub
or any securities convertible into or exercisable or exchangeable for, or
representing the right to purchase or otherwise receive, any such capital stock,
or other arrangement to acquire, at any time or under any circumstance, capital
stock of Parent or any such other securities of Parent or Acquisition Sub.
4.3. CAPITAL STOCK; SECURITIES. The authorized capital stock of Parent
-------------------------
consists of 30,000,000 shares of Parent Common Stock, of which 2,648,739 shares
are outstanding as of November 30, 1997. As of November 30, 1997, Parent has
reserved (x) 690,965 shares of Parent Common Stock for issuance upon exercise of
outstanding warrants (collectively, the "Parent Warrants") and (y) 413,165
shares of Parent Common Stock for issuance upon the exercise of outstanding
options (the "Parent Options"), of which 373,356 are vested Parent Options and
39,809 are unvested Parent Options. Other than the 690,965 outstanding Parent
Warrants and the 413,165 outstanding Parent Options, Parent does not have
outstanding any options to purchase, or any pre-emptive rights or other rights
to subscribe for or to purchase, any securities or obligations convertible into,
or any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. There are no
voting trusts, voting agreements, proxies, first refusal rights, first offer
rights, co-sale rights, transfer restrictions (other than restrictions imposed
by federal or state securities laws) or other agreements, instruments or
understandings (whether written or oral, formal or informal) with respect to the
voting, transfer or disposition of Parent Common Stock to which Parent is a
party or by which it is bound, or, to the best knowledge of Parent, among or
between any persons other than Parent. All outstanding shares of Parent Common
Stock are validly issued, fully paid and non-assessable and not subject to
preemptive rights. Parent has duly authorized and reserved for issuance the
Merger Shares, and, when issued in accordance with the terms of Article II and
the Plan of Merger, the Merger Shares will be validly issued, fully paid and
nonassessable and free of preemptive rights. Parent owns all the outstanding
shares of capital stock of Acquisition Sub, and all of such shares are validly
issued, fully paid and nonassessable and not subject to preemptive rights.
4.4. AUTHORITY; NO CONSENTS. The execution, delivery and performance
----------------------
by Parent of this Agreement and each of the Related Agreements to which it is a
party, the execution, delivery and performance of this Agreement and the Plan of
Merger by Acquisition Sub and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Parent and Acquisition Sub. This Agreement and each of the
Related Agreements to which Parent is a party are valid and binding obligations
of Parent, enforceable against Parent in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the enforcement of
creditors' rights generally and general equitable principles; and this Agreement
is, and the Plan of Merger when executed and delivered by Acquisition Sub, as
contemplated hereby, will be, the valid and binding obligations of Acquisition
Sub, enforceable against Acquisition Sub in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally and
17
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general equitable principles. Neither the execution, delivery and performance by
Parent of this Agreement and the Related Agreements to which it is a party, the
execution, delivery and performance of this Agreement and the Plan of Merger by
Acquisition Sub, nor the consummation of the transactions contemplated hereby or
thereby, will: (a) conflict with; (b) result in any violations of; (c) cause a
default under (with or without due notice, lapse of time or both); (d) give rise
to any right of termination, amendment, cancellation or acceleration of any
obligation contained in or the loss of any material benefit under; or (e) result
in the creation of any Encumbrance on or against any assets, rights or property
of Parent or Acquisition Sub, as the case may be, under any term, condition or
provision of: (x) any instrument or agreement to which Parent or Acquisition Sub
is a party, or, to the best knowledge of Parent, by which Parent or Acquisition
Sub or any of their respective properties, assets or rights may be bound (except
as shall have been waived or with respect to which consent shall have been
obtained prior to the Closing); (y) any law, statute, rule, regulation, order,
writ, injunction, decree, permit, concession, license or franchise of any
Governmental Authority applicable to Parent or Acquisition Sub or any of their
respective properties, assets or rights; or (z) Parent's or Acquisition Sub's
Certificate or by-laws, as amended through the date hereof. Except as
contemplated by this Agreement or the Plan of Merger, no permit, authorization,
consent or approval of or by, or any notification of or filing with, any
Governmental Authority is required in connection with the execution, delivery
and performance by Parent or Acquisition Sub of this Agreement, the Plan of
Merger or the Related Agreements to which they are party or the consummation of
the transactions contemplated hereby or thereby, except for: (i) the filing with
the SEC of (A) the S-4 and (B) such reports and information under the Exchange
Act, and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement and the Plan of Merger and the
transactions contemplated hereby and thereby; (ii) such filings as may be
required by the Over the Counter Bulletin Board Service with respect to Parent
Common Stock to be issued in connection with the Merger and the Company Warrants
to be assumed by Parent in the Merger; (iii) the filing of such documents with,
and the obtaining of such orders from, various state securities and blue-sky
authorities as are required in connection with the transactions contemplated
hereby; (iv) the filing of the Plan of Merger with the Secretary of State of the
State of New Jersey; and (v) such other consents, waivers, authorizations,
filings, approvals and registrations which if not obtained or made would not
have a Material Adverse Effect on Parent or materially impair the ability of
Parent or Acquisition Sub to consummate the transactions contemplated by this
Agreement and the Plan of Merger, including, without limitation, the Merger.
4.5. SEC DOCUMENTS. Parent has furnished the Company with a correct and
-------------
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Parent with the SEC on or after March 31, 1996 (the
"Parent SEC Documents"), which are all the documents (other than preliminary
material) that Parent was required to file (or otherwise did file) with the SEC
on or after March 31, 1996. As of their respective dates, none of the Parent SEC
Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and the Parent SEC Documents
complied when filed in all material respects with the then applicable
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations promulgated by the SEC thereunder.
4.6. FINANCIAL STATEMENTS. The financial statements of Parent included
--------------------
in the Parent SEC Documents (the "Parent Financial Statements"): (a) complied as
to form in all material respects with the then applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with GAAP, consistently applied (except as
may have been indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-QSB promulgated by the SEC); (b) were in
accordance with the books and records of Parent; and (c) fairly present
(subject, in the case of the unaudited
18
<PAGE>
statements, to normal, nonrecurring audit adjustments) the consolidated
financial position of Parent and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended.
4.7. ABSENCE OF UNDISCLOSED LIABILITIES. At September 30, 1997:
----------------------------------
(a) Parent had no Liability which was not provided for or disclosed
on the Parent SEC Documents for the quarter period ended for September 30, 1997;
and (b) liability reserves established by Parent and set forth thereon were
adequate, in the good faith judgment of Parent, for all such Liabilities at the
date thereof. There were no material loss contingencies (as such term is used in
FAS No. 5) which were not adequately provided on the Parent Financial Statements
as required by FAS No. 5.
4.8. ABSENCE OF CHANGES. Since September 30, 1997, Parent has been
------------------
operated in the ordinary course, consistent with past practice, and there has
not been:
(a) to the best knowledge of Parent, any damage, destruction or loss,
whether or not covered by insurance, having or which could reasonably be
expected to have a Material Adverse Effect;
(b) to the best knowledge of Parent, any Liability created, assumed,
guaranteed or incurred, or any material transaction, contract or commitment
entered into, by Parent, other than the license, sale or transfer of Parent's
products to customers in the ordinary course of business;
(c) any declaration, setting aside or payment of any dividend or other
distribution of any assets of any kind whatsoever with respect to any shares of
the capital stock of Parent, or any direct or indirect redemption, purchase or
other acquisition of any such shares of the capital stock of Parent;
(d) any payment, discharge or satisfaction of any material Encumbrance
or Liability or any cancellation by Parent of any material debts or claims or
any amendment, termination or waiver of any right of material value to Parent;
(e) any stock split, reverse stock split, combination,
reclassification or recapitalization of any Parent Common Stock, or any issuance
of any other security in respect of or in exchange for, any shares of Parent
Common Stock;
(f) any issuance by Parent of any shares of its capital stock or any
debt security or securities, rights, options or warrants convertible into or
exercisable or exchangeable for any shares of its capital stock or debt
security;
(g) any termination of, or, to the best knowledge of Parent,
indication of an intention to terminate or not renew, any material contract,
license, commitment or other agreement between Parent and any other person, or
the assignment by Parent of any interest in any contract to which Parent is a
party;
(h) any material write-down or write-up of the value of any asset of
Parent, or any material write-off of any accounts receivable or notes receivable
of Parent or any portion thereof;
(i) any increase in or modification or acceleration of compensation or
benefits payable or to become payable to any officer, employee, consultant or
agent of Parent other than in the ordinary course, or the entering into of any
employment contract with any officer or employee;
19
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(j) the making of any loan, advance or capital contribution to or
investment in any person or the engagement in any transaction with any employee,
officer, director or stockholder of Parent, other than advances to employees in
the ordinary course of business for travel and similar business expenses;
(k) any change in the accounting methods or practices followed by
Parent, or any change in depreciation or amortization policies or rates
theretofore adopted by Parent;
(l) any termination of employment of any officer or key employee of
Parent or, to the best knowledge of Parent, any expression of intention by any
officer or key employee of Parent to terminate such office or employment with
Parent;
(m) any amendments or changes in Parent's Certificate or by-laws;
(n) to the best knowledge of Parent, the commencement of any
litigation or other action by or against Parent; or
(o) any agreement, understanding, authorization or proposal, whether
in writing or otherwise, for Parent to take any of the actions specified in
items (a) through (i) above.
4.9. TAX MATTERS. Parent and each other corporation included in any
-----------
consolidated or combined tax return in which Parent has been included: (a) have
filed and will file, in a timely and proper manner, consistent with applicable
laws, all Federal, state and local Tax returns and Tax reports required to be
filed by them through the Closing Date (the "Parent Returns") with the
appropriate governmental agencies in all jurisdictions in which Parent Returns
are required to be filed and have paid or will pay all amounts shown thereon to
be due; and (b) have paid and shall timely pay all Taxes required to have been
paid on or before the Closing Date. All Taxes attributable to all taxable
periods ending on or before the Closing Date, to the extent not required to have
been previously paid have been adequately provided for on the Parent Financial
Statements and Parent will not accrue a Tax liability from the date of the
Parent Financial Statements up to and including the Closing Date, other than a
Tax liability accrued in the ordinary course of business. Parent has not been
notified by the Internal Revenue Service or any state, local or foreign taxing
authority that any issues have been raised (and are currently pending) in
connection with any Parent Return, and no waivers of statutes of limitations
have been given or requested with respect to Parent. Except as contested in good
faith and disclosed in the Parent Disclosure Schedule, any deficiencies asserted
or assessments (including interest and penalties) made as a result of any
examination by the Internal Revenue Service or by any other taxing authorities
of any Parent Return have been fully paid or are adequately provided for on the
Parent Financial Statements and no proposed additional Taxes have been asserted.
Parent has not made an election to be treated as a "consenting corporation"
under Section 341(f) of the Code nor is it a "personal holding company" within
the meaning of Section 542 of the Code. Parent has not agreed to, nor is
required to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise. Parent will not incur a Tax liability
resulting from Parent ceasing to be a member of a consolidated or combined group
that had previously filed consolidated, combined or unitary Tax returns.
4.10. TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS. Parent
----------------------------------------------------------
has good and marketable title to all assets, properties and interests in
properties, real, personal or mixed, reflected on the Parent SEC Documents or
acquired after September 30, 1997, except for: (a) those Encumbrances set forth
in the Parent Disclosure Schedule; (b) liens for current taxes not yet due and
payable; (c) statutory mechanics and materialmen's liens; and (d) utility
easements.
20
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4.11. INTELLECTUAL PROPERTY. The Parent Disclosure Schedule sets forth
---------------------
a list of all Intellectual Property Rights of Parent. To the best knowledge of
Parent, the ownership or use of such Intellectual Property Rights by Parent does
not infringe on the intellectual property rights of others and Parent has not
received notice alleging any such infringement, and, to the best knowledge of
Parent, no third party is infringing on the Intellectual Property Rights of
Parent. Parent is not obligated to pay any third party any royalty or fee for
the use of the Intellectual Property Rights used in its business.
4.12. AGREEMENTS, ETC. The Parent Disclosure Schedule sets forth a true
---------------
and complete list of all written or oral contracts, agreements and other
instruments to which Parent is a party and not made in the ordinary course of
business, or made in the ordinary course of business and referred to in clauses
(a) through (i) of this Section 4.12:
(a) any joint venture, partnership or other agreement or arrangement
for the sharing of profits;
(b) any collective bargaining contract or other contract with or
commitment to any labor union;
(c) the future purchase, sale or license of products, material,
supplies, equipment or services requiring payments to or from Parent in an
amount in excess of $25,000 per annum, which agreement, arrangement or
understanding is not terminable on thirty (30) days' notice without cost or
other liability at or at any time after the Effective Time, or in which Parent
has granted or received manufacturing rights, most favored nations pricing
provisions or exclusive marketing or other rights relating to any product, group
of products, services, technology, assets or territory;
(d) the employment of any officer, employee, consultant or agent or
any other type of contract, commitment or understanding with any officer,
employee, consultant or agent which (except as otherwise generally provided by
applicable law) is not immediately terminable without cost or other liability at
or at any time after the Effective Time;
(e) an indenture, mortgage, promissory note, loan agreement, guarantee
or other agreement or commitment for the borrowing of money, for a line of
credit or, if involving payments in excess of $25,000 per annum, for a leasing
transaction of a type required to be capitalized in accordance with Statement of
Financial Accounting Standards No. 13 of the Financial Accounting Standards
Board;
(f) a contract or commitment for capital expenditures individually in
excess of $25,000;
(g) any agreement or contract with a "disqualified individual" (as
defined in Section 280G(c) of the Code), which could result in a disallowance of
the deduction for any "excess parachute payment" (as defined in Section
280G(b)(i) of the Code) under Section 280G of the Code;
(h) an agreement or arrangement for the sale of any assets, properties
or rights having a value in excess of $25,000; or
(i) an agreement which restricts Parent from engaging in any aspect of
its business or competing in any line of business in any geographic area.
Parent has furnished to the Company true and complete copies of all such
agreements listed in the Parent Disclosure Schedule and each such agreement: (i)
is the legal, valid and binding
21
<PAGE>
obligation of Parent and, to the best knowledge of Parent, the legal, valid and
binding obligation of each other party thereto, in each case enforceable in
accordance with its terms except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles; (ii) to the best knowledge of Parent is in full force and
effect; and (iii) to the best knowledge of Parent, the other party or parties
thereto is or are not in material default thereunder.
4.13. NO DEFAULTS, ETC. Parent has in all material respects performed all
----------------
the obligations required to be performed by it to date and is not in material
default or, to the best knowledge of Parent, alleged to be in material default
under: (a) its Certificate or by-laws; or (b) any material agreement, lease,
contract, commitment, instrument or obligation to which Parent is a party or by
which any of its properties, assets or rights are or may be bound or affected,
and, to the best knowledge of Parent, there exists no event, condition or
occurrence which, with or without due notice or lapse of time, or both, would
constitute such a default by it of any of the foregoing. To the best knowledge
of Parent, no current customer has notified, or expressed an intention to notify
Parent that such customer will materially reduce the dollar amount of business
it will do with Parent or cease doing business with Parent.
4.14. LITIGATION, ETC. There are no: (a) Actions pending, or to the best
---------------
knowledge of Parent, threatened against Parent, whether at law or in equity, or
before or by any Governmental Authority; (b) judgments, decrees, injunctions or
orders of any Governmental Authority or arbitrator against the Parent; or (c) to
the best knowledge of the Parent, material disputes with customers or vendors,
in each case, except for any such matter which would not have a material adverse
effect of Parent.
4.15. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. To the best knowledge of
---------------------------------------
Parent, Parent has complied within the last five (5) years and is presently in
compliance in all material respects with all material Federal, state, local or
foreign laws, ordinances, regulations and orders applicable to it or its
business, including, without limitation, the FDA, all Federal and state
securities or "blue sky" laws and all laws and regulations relating to
occupational safety and health and the environment. To the best knowledge of
Parent, Parent has all material Federal, state, local and foreign governmental
authorizations, security clearances, consents, approvals, licenses and permits
necessary in the conduct of its business as presently conducted and as currently
proposed to be conducted, such authorizations, consents, approvals, licenses and
permits are in full force and effect, no material violations are or have been
recorded in respect of any thereof and no proceeding is pending or, to the best
knowledge of Parent, threatened to revoke or limit any thereof. To the best
knowledge of Parent, all of Parent's full-time and temporary personnel who
provide services in a manner or of the type that require specific certifications
or clearances have provided such services at all times while having such
certifications or clearances in full force and effect. Neither Parent nor, to
the best knowledge of Parent, any of its full-time or part-time personnel has
been cited or alleged by the FDA or other regulatory authority within the last
five (5) years as failing to comply with regulatory requirements or guidelines
in the performance of services.
4.16. LABOR RELATIONS; EMPLOYEES. The Parent Disclosure Schedule sets
--------------------------
forth the number of full-time and part-time employees of Parent and the primary
locations at which such employees provide their services as of November 30,
1997. To the best knowledge of Parent: (a) Parent is not delinquent in payments
to any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by them to date or amounts
required to be reimbursed to such employees; (b) Acquisition Sub nor the
Surviving Corporation will by reason of anything done prior to the Closing be
liable to any of such employees for severance pay or any other payments; (c)
Parent is in compliance in all material respects with all material Federal,
state, local and foreign laws and regulations respecting labor, employment and
employment practices, terms and conditions of employment and wages and
22
<PAGE>
hours; and (d) there is no unfair labor practice, sexual harassment or other
employment-related complaint pending or, to the best knowledge of Parent,
threatened against Parent or any employee of Parent. To the best knowledge of
Parent, no employee of Parent is in material violation of any term of any
employment contract, confidentiality agreement or any other contract or
agreement relating to the relationship of such employee with Parent or any other
party because of the nature of the business conducted or proposed to be
conducted by Parent or the execution and delivery of such agreement or contract
by such employee.
4.17. EMPLOYEE BENEFIT PLANS AND CONTRACTS
------------------------------------
(a) The Parent Disclosure Schedule identifies each "employee benefit
plan," as defined in Section 1002(3) of ERISA, and all other material written or
formal plans or agreements involving direct or indirect compensation (including
any employment agreements entered into between Parent and any Employee of
Parent, but excluding workers' compensation, unemployment compensation, other
government-mandated programs and Parent's salary and wage arrangements)
currently or previously maintained, contributed to or entered into by Parent or
any ERISA Affiliate thereof for the benefit of any Employee or former Employee
under which Parent or any ERISA Affiliate thereof has any present or future
obligation or liability (the "Employee Plans"). Parent has provided to the
Company true and complete copies of all Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof. For purposes of the preceding sentence, "ERISA Affiliate" shall mean
any entity which is a member of (A) a "controlled group of corporations," as
defined in Section 414(b) of the Code, (B) a group of entities under "common
control," as defined in Section 414(c) of the Code or (C) an "affiliated service
group," as defined in Section 414(m) of the Code or treasury regulations
promulgated under Section 414(o) of the Code, any of which includes Parent. Any
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan," as defined in Section 3(2) of ERISA, but which are not
Multiemployer Plans (collectively, the "Pension Plans"), are identified as such
in the Parent Disclosure Schedule.
(b) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
from its adoption to the date hereof, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code. Parent has provided the
Company with copies of the most recent Internal Revenue Service determination
letters with respect to any such Employee Plans. Each Employee Plan has been
maintained substantially in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including,
without limitation, ERISA and the Code, which are applicable to such Employee
Plans.
(c) No Employee Plan constitutes or since the enactment of ERISA has
constituted a "multiemployer plan," as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"). Parent has not within the past five (5) years incurred
any material liability under Title IV of ERISA arising in connection with the
termination of any Pension Plan or the complete or partial withdrawal from any
Multiemployer Plan. If a "complete withdrawal" by Parent were to occur as of
the Closing with respect to all Multiemployer Plans, Parent would not incur any
withdrawal liability under Title IV of ERISA.
(d) The Parent Disclosure Schedule lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which: (i) is not an Employee Plan; (ii) is
entered into, maintained or contributed to, as the case may be, by Parent; (iii)
covers any Employee or former Employee; and (iv) under which Parent has any
present or future obligation or liability (excluding workers'
23
<PAGE>
compensation, unemployment compensation or other government-mandated programs
and Parent's salary and wage arrangements). Such contracts, plans and
arrangements as are described above are hereinafter referred to collectively as
the "Benefit Arrangements". Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all material laws, statutes, rules, regulations, orders and judgments
which are applicable to such Benefit Arrangements.
(e) Parent has provided, or will have provided, to individuals
entitled thereto who are current or former Employees of Parent all required
notices within the applicable time period and coverage pursuant to Section 4980B
of the Code with respect to any "qualifying event" (as defined in Section
4980B(f)(3) of the Code) occurring prior to and including the Closing Date, and
no tax payable on account of Section 4980B of the Code has been incurred with
respect to any current or former Employees of Parent.
4.18. CERTAIN AGREEMENTS. Neither the execution and delivery of this
------------------
Agreement nor the consummation of the transactions contemplated hereby will: (a)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Parent from Parent, under any Employee Plan, Benefit Arrangement
or otherwise; (b) materially increase any benefits otherwise payable under any
Employee Plan or the Benefit Arrangement; or (c) result in the acceleration of
the time of payment or vesting of any such benefits.
4.19. INSURANCE. Parent maintains policies of liability, theft, fidelity,
---------
fire, product liability, workmen's compensation, indemnification of directors
and officers and other similar forms of insurance. The Parent Disclosure
Schedule sets forth a history of all claims within the last five (5) years in
excess of $50,000 made by Parent thereunder and the status thereof. All such
policies of insurance are in full force and effect and all premiums with respect
thereto are currently paid and, to the best knowledge of Parent, no basis exists
for termination of any thereof on the part of the insurer. The amounts of
coverage under such policies conform to the requirements set forth in the
Parent's customer contracts. Parent has not, during the last three fiscal years,
been denied or had revoked or rescinded any policy of insurance.
4.20. BROKERS. Neither Parent, Acquisition Sub, nor any of their
-------
respective officers, directors or employees have employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated by this Agreement, the Plan of
Merger or any of the Related Agreements.
4.21. RELATED TRANSACTIONS. Except for compensation to regular employees
--------------------
of Parent, no current or former director, officer or stockholder that is an
affiliate of Parent or any associate (as defined in the rules promulgated under
the Exchange Act) thereof, is now, or has been during the last five (5) fiscal
years: (a) a party to any transaction with Parent (including, but not limited
to, any contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or borrowing money
from, or otherwise requiring payments to, any such director, officer or
affiliated stockholder of Parent or associate thereof); or (b) the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a present or potential competitor, supplier or customer of
Parent (other than non-affiliated holdings in publicly-held companies), nor does
any such person receive income from any source other than Parent which relates
to the business of, or should properly accrue to Parent.
4.22. BOARD APPROVAL. The Board of Directors of Parent and Acquisition
--------------
Sub have: (a) approved this Agreement, the Plan of Merger and each of the
Related Agreements to which either is a party and the transactions contemplated
hereby and thereby; (b) determined that the Merger is in the best interests of
the stockholders of Parent and Acquisition Sub and is on
24
<PAGE>
terms that are fair to such stockholders; and (c) recommended that the
stockholders of Acquisition Sub approve the Merger in accordance with the Plan
of Merger and the New Jersey statute. No other approvals are required other than
that of the Board of Directors of Parent and the Board of Directors and
stockholder of Acquisition Sub.
4.23. INFORMATION SUPPLIED. None of the information supplied or to be
--------------------
supplied by Parent or Acquisition Sub for inclusion or incorporation by
reference in the S-4 will, at the time the S-4 is filed with the SEC and at the
time the S-4 becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
4.24. ACQUISITION SUB. Acquisition Sub is a newly formed wholly-owned
---------------
subsidiary of Parent, currently is not and has not engaged in business and
currently has no assets or liabilities of a material nature.
4.25. DISCLOSURE. No part of Article IV of this Agreement nor any
----------
document, written information, statement, financial statement, certificate or
exhibit furnished or to be furnished to the Company by or on behalf of Parent or
Acquisition Sub pursuant hereto or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements or facts contained herein and therein not misleading in light of
the circumstances under which they were made.
4.26. KNOWLEDGE DEFINITION. As used in this Agreement, "to the best
--------------------
knowledge of Parent" and like phrases shall mean and include: (a) actual
knowledge; and (b) that knowledge which a prudent businessperson (including the
officers, directors and other key employees of Parent) would have obtained in
the management of his or her business affairs after making due inquiry and
exercising reasonable diligence with respect thereto. In connection therewith,
the knowledge (both actual and constructive) of any officer, director or other
key employee of Parent shall be imputed to be the knowledge of Parent.
4.27. PARENT REFERENCE INCLUDES CCSFE. Each reference to Parent in this
-------------------------------
Article IV shall be deemed to be a reference to Parent and CCSFE, unless the
context requires otherwise. Accordingly, the Parent Disclosure Schedule shall
include disclosures with respect to CCSFE, as well as Parent, in response to the
representations and warranties set forth in this Article IV, as applicable.
ARTICLE V.
----------
RELATED AGREEMENTS
5.1. VOTING AGREEMENT. The T Partnership, LLP, a New Jersey limited
----------------
liability partnership ("The T Partnership") shall enter into a Voting Agreement
and Irrevocable Proxy with Parent and the Company in the form of Exhibit 5.1
-----------
attached hereto (the "Voting Agreement"), providing, among other things, that
such Stockholder shall vote in favor of or consent in writing to the Merger and
shall not transfer its shares of Company Common Stock prior to the Effective
Date (as defined therein).
5.2. AFFILIATE AGREEMENTS. The Company shall use its best efforts to
--------------------
cause each of the persons (within the meaning of Rule 145) who or which are, in
Parent's reasonable judgment on the date hereof, "affiliates" of the Company
within the meaning of Rule 145 of the rules and regulations promulgated by the
SEC under the Securities Act ("Rule 145") and identified as such on Schedule 5.2
------------
attached hereto (each such person, together with the persons identified pursuant
to Section 6.16 hereof after the date hereof, a "Rule 145 Affiliate"), to, on or
prior to the
25
<PAGE>
date of filing of the S-4 with the SEC, enter into a Company Affiliate Agreement
with Parent, effective as of the Effective Time (collectively, the "Company
Affiliate Agreements; together with the Voting Agreement, the "Related
Agreements"), in the form of Exhibit 5.2 attached hereto; providing, among other
-----------
things, that such persons shall receive certain registration rights, and not
transfer their shares of Company Common Stock following the Effective Time,
except as provided therein. The Company shall provide Parent such information
and documents as Parent shall reasonably request for purposes of creating
Schedule 5.2. Parent and Acquisition Sub shall be entitled to place legends on
- ------------
the certificates evidencing any Parent Common Stock to be received by each Rule
145 Affiliate pursuant to the terms of this Agreement and the Plan of Merger,
and to issue appropriate stop transfer instructions to the transfer agent for
Parent Common Stock, consistent with the terms of the Company Affiliate
Agreements, whether or not the Company Affiliate Agreements are actually
delivered to Parent.
ARTICLE VI.
-----------
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL AGREEMENTS
6.1. ACCESS TO RECORDS AND PROPERTIES OF EACH PARTY; CONFIDENTIALITY.
---------------------------------------------------------------
(a) From and after the date hereof until the Effective Time or the
earlier termination of this Agreement pursuant to Section 11.1 hereof (the
"Executory Period"), each Party shall afford: (i) to the officers, independent
certified public accountants, counsel and other representatives of the other
Party, free and full access at all reasonable times to all properties, books and
records (including tax returns filed and those in preparation) of such Party, in
order that the other Party and such other persons may have full opportunity to
make such investigations as they shall reasonably desire to make of the business
and affairs of such Party; and (ii) to the independent certified public
accountants of the other Party, free and full access at all reasonable times to
the work papers of the independent certified public accountants for such Party.
Additionally, each Party will permit the other Party to make such reasonable
inspections of such Party and its respective operations during normal business
hours as the other Party may reasonably require and each Party will cause its
officers to furnish to the other Party and such other persons, such additional
financial and operating data and other information as to the business and
properties of such Party as the other Party or such other persons shall from
time to time reasonably request. No investigation pursuant to this Section 6.1,
or made prior to the date hereof, shall affect or otherwise diminish or obviate
in any respect any of the representations and warranties of any Party made in
this Agreement. As used in this Agreement, except as modified in Section 6.4,
the term "Party" shall mean and refer to the Company, on the one hand, and
Parent and Acquisition Sub, on the other hand.
(b) Reference is made to the Confidentiality Agreement dated September
11, 1997, between the Company and Parent, which is hereby confirmed by the
parties hereto and is and shall remain in full force and effect in accordance
with its terms, and each of Parent and Company shall observe and perform its
respective obligations thereunder. Acquisition Sub hereby affirms as if
original signatory to the Confidentiality Agreement referenced above.
6.2. OPERATION OF BUSINESS OF THE COMPANY. During the Executory Period,
------------------------------------
the Company will operate its business as now operated and only in the normal and
ordinary course and, consistent with such operation, will use its best efforts
to preserve intact its present business organization, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with licensors, franchisees, licensees, suppliers, contractors,
distributors, customers and other persons having business dealings with it.
Without limiting the generality of the foregoing, during the Executory Period,
the Company shall not, without the prior written consent of Parent, except as
legally required and as required under Section 7.7 or 7.8:
26
<PAGE>
(a) take any action that would result in any of the representations and
warranties of the Company herein becoming untrue or in any of the conditions to
the Merger not being satisfied; or (b) take or cause to occur any of the actions
or transactions described in Section 3.8 hereof.
6.3. OPERATION OF BUSINESS OF THE PARENT. During the Executory Period,
-----------------------------------
Parent will operate its business as now operated and only in the normal and
ordinary course and, consistent with such operation, will use its best efforts
to preserve intact its present business organization, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with licensors, franchisees, licensees, suppliers, contractors,
distributors, customers and other persons having business dealings with it.
Without limiting the generality of the foregoing, during the Executory Period,
Parent shall not, without the prior written consent of the Company, except as
legally required and as required under Section 7.7 or 7.8: (a) take any action
that would result in any of the representations and warranties of Parent herein
becoming untrue or in any of the conditions to the Merger not being satisfied;
or (b) take or cause to occur any of the actions or transactions described in
Section 4.8 hereof.
6.4. NEGOTIATION WITH OTHERS.
-----------------------
(a) During the Executory Period, neither Party (which solely for
purposes of this Section 6.4 shall include The T Partnership or any of its
partners) shall, and neither Party shall permit any agent or other
representative of such Party to, directly or indirectly: (i) solicit, initiate
or engage in discussions or engage in negotiations with any person (whether such
negotiations are initiated by the Party or otherwise) or take any other action
to facilitate the efforts of any person, relating to the possible acquisition of
a Party (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its capital stock or assets (any such
acquisition being referred to as an "Acquisition Transaction"); (ii) provide
information to any person, other than a Party, relating to a possible
Acquisition Transaction; (iii) enter into an agreement with any person, other
than a Party, relating to a possible Acquisition Transaction; (iv) consummate an
Acquisition Transaction with any person other than a Party or enter into an
agreement with any person, other than a Party, providing for a possible
Acquisition Transaction; or (v) make or authorize any statement, recommendation
or solicitation in support of any possible Acquisition Transaction, unless all
Parties are a party to such Acquisition Transaction; provided, however, that
-------- -------
nothing contained herein shall prohibit the Board of Directors of the Company or
Parent, respectively, from furnishing information to, or entering into
discussions or negotiations with (i) any unaffiliated third party that makes or
is proposing to make an unsolicited written, bona fide offer with respect to an
Acquisition Transaction, if the Board of Directors of the Company or Parent,
respectively, based upon the written advice of outside legal counsel,
respectively, determines in good faith that such action is necessary for the
Board of Directors of the Company or Parent, respectively, to comply with its
fiduciary duties under applicable law (such unsolicited written, bona fide offer
being referred to herein as a "Superior Proposal") and prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, the Company or Parent provides, respectively, written notice to the
other Party, and (ii) such parties who have made proposals, formal or informal,
which may become a Superior Proposal as to which either Company or Parent has
advised the other, in writing, prior to the date of this Agreement. If either
the Company or Parent receives any unsolicited offer or proposal to enter
negotiations relating to an Acquisition Transaction, such Party shall notify the
other Party thereof, including information as to the identity of the party
making such offer or proposal and the specific terms of such offer or proposal,
as the case may be.
(b) During the Executory Period, notwithstanding anything contained
herein to the contrary, neither Party shall enter into or consummate an
Acquisition Transaction with a party other than the other Party unless it shall
have terminated this Agreement pursuant to Section 11.1(h).
27
<PAGE>
6.5. PREPARATION OF S-4; OTHER FILINGS. As promptly as practicable after
---------------------------------
the date of this Agreement, Parent and the Company shall properly prepare and
file with the SEC a Registration Statement on Form S-4 with respect to the
Merger Shares, the shares of Parent Common Stock to be issued in exchange for
Vested Company Options and the shares of Parent Common Stock reserved for
issuance upon exercise of the assumed Unvested Company Options and Company
Warrants (as to which the option or warrant holder is, by the terms of the
Company option plan or warrant in effect, entitled upon exercise of the option
or warrant, to receive registered stock) (the "S-4"), in which the Stockholder
Statement will be included as a prospectus. Each of Parent and the Company shall
use its best efforts to respond to any comments of the SEC, to have the S-4
declared effective under the Securities Act as promptly as practicable after
such filing and to cause the Stockholder Statement to be mailed to the
Stockholders at the earliest practicable time, but in any event within five (5)
Business Days after the S-4 has been declared effective by the SEC. As promptly
as practicable after the date of this Agreement, Parent and the Company shall
properly prepare and file any other filings required under the Exchange Act, the
Securities Act or any other Federal or state laws and Parent shall properly
prepare and file any filings required under state securities or "blue sky" laws,
in each case, relating to the Merger and the transactions contemplated by this
Agreement and the Plan of Merger (collectively, the "Other Filings"). The
Company shall promptly furnish Parent with all information concerning the
Company and the Stockholders as may be reasonably required in connection with
any action contemplated by this Section 6.5. Each Party will notify the other
Party promptly of the receipt of any comments from the SEC or its staff and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the S-4 or any Other Filing or for additional
information and will supply the other Party with copies of all correspondence
between such Party or any of its representatives, on the one hand, and the SEC,
or its staff or any other government officials, on the other hand, with respect
to the S-4, the Merger or any Other Filing. Each Party shall promptly provide
the other Party (or its counsel) copies of all filings made by such Party with
any Governmental Authority in connection with this Agreement, the Plan of Merger
and the transactions contemplated hereby and thereby. The S-4 and the Other
Filings shall comply in all material respects with all applicable requirements
of law. Whenever any event occurs which should be set forth in an amendment or
supplement to the S-4 or any Other Filing, Parent or the Company, as the case
may be, shall promptly inform the other Party of such occurrence and cooperate
in filing with the SEC or its staff or any other government officials, and/or
mailing to Stockholders of the Company, such amendment or supplement.
6.6. ADVICE OF CHANGES. The Company and Parent shall confer on a regular
-----------------
and frequent basis with the other, report on operational matters and promptly
advise the other orally and in writing of any change, event or circumstance
having, or which, insofar as can reasonably be foreseen, could have, a Material
Adverse Effect on itself or which could impair (negatively or positively) its
financial projections or forecasts.
6.7. LETTER OF THE COMPANY'S ACCOUNTANTS. The Company shall use its best
-----------------------------------
efforts to cause to be delivered to Parent a letter of KPMG Peat Marwick, LLP,
the Company's independent accountant, dated a date within two (2) Business Days
before the date on which the S-4 shall become effective and addressed to Parent,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the S-4 (and, if requested, a
bring-down comfort letter at the closing of the Merger).
6.8. LETTER OF PARENT'S ACCOUNTANTS. Parent shall use its best efforts to
------------------------------
cause to be delivered to the Company a letter of BDO Seidman, LLP, Parent's
independent public accountants, dated a date within two (2) Business Days before
the date on which the S-4 shall become effective and addressed to the Company,
in form and substance reasonably satisfactory to the Company and customary in
scope and substance for letters delivered by independent
28
<PAGE>
public accountants in connection with registration statements similar to the S-4
(and, if requested, a bring-down comfort letter at the closing of the Merger).
6.9. STOCKHOLDERS' APPROVAL. The Company shall: (a) call a special
----------------------
meeting of the Stockholders (the "Stockholders' Meeting") within 20 days (or
such other period as may be required by applicable law) after the S-4 shall have
been declared effective by the SEC for the purpose of obtaining the approval of
the Merger, this Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby (the "Stockholder Action"); and (b) recommend
(provided there has been no Superior Proposal) that the Stockholders vote in
favor of the Merger and approve this Agreement and the Plan of Merger and take
or cause to be taken all such other action as may be required by the New Jersey
Statute and any other applicable law in connection with the Merger, this
Agreement and the Plan of Merger, in each case as promptly as possible. The
Company shall prepare and distribute any written notice and other materials
relating to the Stockholder Action, including, without limitation, a proxy
statement (the "Stockholder Statement"), in accordance with the Certificate and
by-laws of the Company, the New Jersey Statute and any other Federal and state
laws relating to the Merger, such Stockholders' Meeting or any other transaction
relating to or contemplated by this Agreement (collectively, the "Stockholders'
Materials"); provided, however, that Parent and its counsel shall have the
-------- -------
opportunity to review all Stockholders' Materials prior to delivery to the
Stockholders, and all Stockholders' Materials shall be in form and substance
reasonably satisfactory to Parent and its counsel; provided, further, however,
-------- ------- -------
that if any event occurs which should be set forth in an amendment or supplement
to any Stockholders' Materials, the Company shall promptly inform Parent thereof
(or, if such event relates solely to Parent, Parent shall promptly inform the
Company thereof), and the Company shall promptly prepare an amendment or
supplement in form and substance satisfactory to Parent in accordance with the
Certificate and by-laws of the Company, the New Jersey Statute and any other
Federal or state laws.
6.10. LEGAL CONDITIONS TO MERGER. Each Party shall take all reasonable
--------------------------
actions necessary to comply promptly with all legal requirements which may be
imposed on such Party with respect to the Merger and will take all reasonable
action necessary to cooperate with and furnish information to the other Party in
connection with any such requirements imposed upon such other Party in
connection with the Merger. Each Party shall take all reasonable actions
necessary: (a) to obtain (and will take all reasonable actions necessary to
promptly cooperate with the other Party in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Authority, or other third party, required to be obtained or made by such Party
(or by the other Party) in connection with the Merger or the taking of any
action contemplated by this Agreement or the Plan of Merger; (b) to defend,
lift, rescind or mitigate the effect of any lawsuit, order, injunction or other
action adversely affecting the ability of such Party to consummate the
transactions contemplated hereby; and (c) to fulfill all conditions precedent
applicable to such Party pursuant to this Agreement.
6.11. CONSENTS. Each Party shall use its best efforts, and the other
--------
Party shall cooperate with such efforts, to obtain any consents and approvals
of, or effect the notification of or filing with, each person or authority,
whether private or governmental, whose consent or approval is required in order
to permit the consummation of the Merger and the transactions contemplated
hereby and to enable the Surviving Corporation to conduct and operate the
business of the Company substantially as presently conducted and as proposed to
be conducted.
6.12. EFFORTS TO CONSUMMATE. Subject to the terms and conditions herein
---------------------
provided, each of the Parties hereto shall, in good faith, use reasonable effort
to do or cause to be done all such acts and things as may be necessary, proper
or advisable, consistent with all applicable laws and regulations, to consummate
and make effective the transactions contemplated hereby and by the Plan of
Merger and to satisfy or cause to be satisfied all
29
<PAGE>
conditions precedent that are applicable to each such Party that are set forth
in this Agreement as soon as reasonably practicable.
6.13. NOTICE OF PROSPECTIVE BREACH. Each Party hereto shall immediately
----------------------------
notify the other Party in writing upon the occurrence of any act, event,
circumstance or thing that is reasonably likely to cause or result in a
representation or warranty hereunder to be untrue at the Closing, the failure of
a closing condition to be achieved at the Closing, or any other breach or
violation hereof or default hereunder.
6.14. PUBLIC ANNOUNCEMENTS. Each Party hereto agrees that, subject to
--------------------
public disclosure and other legal and regulatory obligations, none of them shall
issue any report, statement or release pertaining to this Agreement or any
transaction contemplated hereby, without the prior written consent of the other
Parties. Each Party further agrees that no Party shall unreasonably withhold
their written consent to the issuance of a public disclosure referred to in this
Section 6.14.
6.15. AFFILIATES. Within ten (10) Business Days prior to the effective
----------
date of the Stockholder Action, Parent and the Company shall amend Schedule 5.2
------------
hereto to add the names and addresses of any other person (within the meaning of
Rule 145) that Parent reasonably identifies as being a person who may be deemed
to be a Rule 145 Affiliate of the Company within the meaning of Rule 145;
provided, however, that no such person identified by Parent shall be added to
- -------- -------
the list of Rule 145 Affiliates of the Company if Parent shall receive from the
Company, on or before the Effective Time, an opinion of counsel reasonably
satisfactory to Parent to the effect that such person is not a Rule 145
Affiliate. The Company shall use its best efforts to deliver or cause to be
delivered to Parent, prior to the Effective Time, from each of such additional
Rule 145 Affiliates a Company Affiliate Agreement.
6.16. PREFERRED STOCK; SECURED PROMISSORY NOTE. Parent and The T
----------------------------------------
Partnership agree that: (a) the designation of the Series A Preferred Stock of
the Surviving Corporation, which shall be convertible into shares of Parent
Common Stock, shall be as set forth in Exhibit 1.4 attached hereto, and such
----------
number of shares of Preferred Stock having a liquidation value equal to
$1,000,000 of the Company's indebtedness outstanding and due to The T
Partnership at the time of the Closing shall be issued in redemption of
$1,000,000 of such indebtedness; (b) Parent shall execute a conditional note for
the benefit of The T Partnership in the form set forth in Exhibit 6.16(b)
---------------
attached hereto; and (c) Parent shall execute a secured promissory note for the
remaining amount of the Company's indebtedness to The T Partnership
substantially in the form set forth in Exhibit 6.16(c) attached hereto.
---------------
ARTICLE VII.
------------
CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATIONS
The obligations of each Party to perform this Agreement and the Plan of
Merger and to consummate the transactions contemplated hereby and thereby will
be subject to the satisfaction of the following conditions unless waived (to the
extent such conditions can be waived) by each other Party:
7.1. STOCKHOLDER APPROVAL; AGREEMENT OF MERGER. This Agreement, the Plan
-----------------------------------------
of Merger and the Merger shall have been approved and adopted by at least two-
thirds (2/3) of the outstanding shares voting of Company Common Stock, and the
Plan of Merger shall have been executed and delivered by Acquisition Sub and the
Company and filed with and accepted by the Secretary of State of the State of
New Jersey.
30
<PAGE>
7.2. APPROVALS. All authorizations, consents, orders or approvals of, or
---------
declarations or filings with or expiration of waiting periods imposed by any
Governmental Authority necessary for the consummation of the transactions
contemplated hereby shall have been obtained or made or shall have occurred.
7.3. LEGAL ACTION. No temporary restraining order, preliminary injunction
------------
or permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any Federal or state court or other Governmental
Authority and remain in effect.
7.4. S-4. The S-4 shall have become effective under the Securities Act
---
and shall not be the subject of any stop order or proceeding seeking a stop
order.
7.5. LEGISLATION. No Federal, state, local or foreign statute, rule or
-----------
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or the Plan of
Merger or any of the conditions to the consummation of such transactions.
7.6. BID PRICE RATIO. The ratio of the closing bid price of a share of
---------------
Parent Common Stock to a share of Company Common Stock shall not be greater than
2.25 nor less than .75 based on the average of closing bid prices for any ten
(10) day period ending on and including the second NASDAQ trading day
immediately preceding the Closing Date and rounding the result of such average
to the nearest 1/100ths; provided, however, this condition shall be deemed
-----------------
satisfied if, notwithstanding the ratio, the Board of Directors of both Parent
and Company: (i) elect to proceed with the Plan of Merger; and (ii) agree upon a
revised exchange ratio under Section 2.1(c) which reasonably reflects the change
in values having caused the applicable increase or decrease in the ratio.
7.7. FINANCING. A minimum of $7,000,000 in financing on terms acceptable
---------
to both Parent and the Company shall have been obtained; provided, however, that
-------- -------
if Parent's current senior lenders, Sirrom Capital Corporation and Coast
Business Credit, both agree to remain creditors of Parent after the Effective
Time, then a minimum of $4,000,000 must be obtained in addition to a minimum of
$2,500,000 of existing financing.
ARTICLE VIII.
-------------
CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION SUB.
The obligations of Parent to perform this Agreement and to consummate the
transactions contemplated hereby and of Acquisition Sub to perform this
Agreement and the Plan of Merger and to consummate the transactions contemplated
hereby and thereby will be subject to the satisfaction of the following
conditions unless waived (to the extent such conditions can be waived) by Parent
and Acquisition Sub:
8.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
------------------------------
of the Company set forth in Article III hereof shall in each case be true and
correct in all material respects (except for any representation or warranty that
by its terms is qualified by materiality, in which case it shall be true and
correct in all respects) as of the date of this Agreement, and as of the
effective date of the Stockholder Action and as of the Closing Date as though
made at and as of such dates, respectively.
8.2. PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
-----------------------------------------
performed in all material respects the obligations required to be performed by
it under this Agreement and the Plan of Merger prior to or as of the Closing
Date.
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8.3. AUTHORIZATION OF MERGER. All action necessary to authorize the
-----------------------
execution, delivery and performance of this Agreement, the Plan of Merger and
the Related Agreements by the Company and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by the
board of directors and the Stockholders of the Company, and the Parent shall
have received copies of all such resolutions certified by the Secretary of the
Company. The Company and the Stockholders of the Company shall have full power
and right to effect the Merger on the terms provided herein.
8.4. CERTIFICATE. Parent and Acquisition Sub shall have received a
-----------
certificate dated the Closing Date, signed by the President or Acting President
of the Company as to the satisfaction of the conditions contained in Sections
8.1 through 8.3, except to the extent waived by Parent and Acquisition Sub.
8.5. OPINION OF THE COMPANY'S COUNSEL. Parent and Acquisition Sub shall
--------------------------------
have received an opinion dated the Closing Date of Saiber Schlesinger Satz &
Goldstein ("SSS&G"), counsel to the Company, reasonably satisfactory in form and
substance to Parent and Acquisition Sub.
8.6. ACCEPTANCE BY COUNSEL TO PARENT AND ACQUISITION SUB. The form and
---------------------------------------------------
substance of all legal matters contemplated hereby and of all papers delivered
hereunder shall be reasonably acceptable to Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A. ("GTH"), counsel for Parent and Acquisition Sub.
8.7. CONSENTS AND APPROVALS. Parent and Acquisition Sub shall have
----------------------
received duly executed copies of all consents and approvals contemplated by this
Agreement or the Company Disclosure Schedule, in form and substance satisfactory
to Parent and Acquisition Sub.
8.8. GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC. All consents,
----------------------------------------
authorizations, orders or approvals of, and filings or registrations with, any
Governmental Authority which are required for or in connection with the
execution and delivery by the Company of this Agreement, the Plan of Merger and
the Related Agreements and the consummation by the Company of the transactions
contemplated hereby and thereby shall have been obtained or made.
8.9. RELATED AGREEMENTS. Each of the Related Agreements shall be in full
------------------
force and effect as of the Effective Time in accordance with the respective
terms thereof, and each person or entity who or which is required or
contemplated by the parties hereto to be a party to any Related Agreement who or
which did not theretofore enter into such Related Agreement shall execute and
deliver such Related Agreement.
ARTICLE IX.
-----------
CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to perform this Agreement and the Plan of
Merger, and to consummate the transactions contemplated hereby and thereby will
be subject to the satisfaction of the following conditions unless waived (to the
extent such conditions can be waived) by the Company:
9.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
------------------------------
of Parent and Acquisition Sub set forth in Article IV hereof shall be true and
correct in all material respects (except for any representation or warranty that
by its terms is qualified by materiality, in
32
<PAGE>
which case it shall be true and correct in all respects) as of the date of this
Agreement, and as of the Closing Date as though made at and as of such dates,
respectively.
9.2. PERFORMANCE OF OBLIGATIONS OF PARENT AND ACQUISITION SUB. Parent
--------------------------------------------------------
and Acquisition Sub shall have performed in all material respects their
respective obligations required to be performed by them under this Agreement and
the Plan of Merger prior to or as of the Closing Date.
9.3. AUTHORIZATION OF MERGER. All action necessary to authorize the
-----------------------
execution, delivery and performance of this Agreement and the Related Agreements
by Parent, the execution, delivery and performance of this Agreement and the
Plan of Merger by Acquisition Sub, and the consummation of the transactions
contemplated hereby and by the Plan of Merger shall have been duly and validly
taken by the board of directors of Parent and Acquisition Sub and by Parent as
the sole stockholder of Acquisition Sub, and the Company shall have received
copies of all such resolutions certified by the respective Secretary of Parent
and Acquisition Sub.
9.4. CERTIFICATE. Parent and Acquisition Sub shall have received a
-----------
certificate dated the Closing Date, signed by the President of each of Parent
and Acquisition Sub as to the satisfaction of the conditions contained in
Sections 9.1 through 9.3, except to the extent waived by the Company.
9.5. OPINION OF COUNSEL TO PARENT AND ACQUISITION SUB. The Company shall
------------------------------------------------
have received an opinion dated the Closing Date of GTH in form and substance
reasonably satisfactory to the Company.
9.6. TAX OPINION. The Company shall have received an opinion in form and
-----------
substance satisfactory to the Company or SSSG, counsel for the Company, to the
effect that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that Parent,
Acquisition Sub and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code. In connection with such
opinion, counsel shall be entitled to rely upon certain representations of
Parent, Acquisition Sub and the Company and certain stockholders of the Company.
9.7. ACCEPTANCE BY COUNSEL TO THE COMPANY. The form and substance of all
------------------------------------
legal matters contemplated herein and of all papers delivered hereunder shall be
reasonably acceptable to SSSG.
9.8. CONSENTS AND APPROVALS. The Company shall have received duly
----------------------
executed copies of all consents and approvals contemplated by this Agreement or
the Parent Disclosure Schedule, in form and substance satisfactory to the
Company.
9.9. GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC. All consents,
----------------------------------------
authorizations, orders or approvals of, and filings or registrations with, any
Governmental Authority which are required for or in connection with the
execution and delivery by Parent and Acquisition Sub of this Agreement and the
Related Agreements and by Acquisition Sub of the Plan of Merger and the
consummation by Parent and Acquisition Sub of the transactions contemplated
hereby and thereby shall have been obtained or made.
9.10. APPOINTMENT OF DIRECTORS. The Board of Directors of Parent shall
------------------------
have taken such action as shall be necessary to expand the size of Parent's
Board of Directors and to appoint two (2) individuals designated by the Company
and reasonably acceptable to Parent as directors of Parent to serve on Parent's
Board of Directors until the next annual meeting of
33
<PAGE>
the stockholders of Parent. Parent shall continue to nominate such individuals
at the next three (3) successive annual meetings of the stockholders immediately
following the next annual meeting of the stockholders in the same manner and on
equal standing as other director nominees comprising management's slate.
9.11. FAIRNESS OPINION. The Company shall have received an opinion of
----------------
Compass Capital Partners, Ltd. or other financial advisor acceptable to it and
Parent with respect to the fairness, from a financial point of view, to the
stockholders of the Company of the Merger, and such opinion shall remain in full
force and effect as of the Closing Date.
9.12. DIRECTOR INDEMNITY. The Company shall have received a written
------------------
statement signed by the President of Parent that Parent will honor all
obligations of the Company under Article VIII of the Company's Amended and
Restated Bylaws pertaining to indemnification of a corporate agent as that term
is defined in such Article; provided, however, such commitment to honor
-------- -------
Company's indemnification obligations shall only be applicable to events or
actions on the part of such corporate agent occurring or taken prior to the
Closing Date.
9.13. COMPANY INDEBTEDNESS. Provisions shall have been made for payment
--------------------
at Closing of indebtedness of the Company which is due at Closing to The T
Partnership in the amount of $100,000, which amount may be increased upon
agreement of both Parent and the Company, and SSSG in an additional amount not
to exceed $160,000.
ARTICLE X.
----------
10.1. PAYMENT OF CERTAIN FEES AND EXPENSES.
------------------------------------
(a) Except as set forth below, Parent and the Company shall pay its
own expenses that are incidental to negotiations, preparation of agreements and
the Closing whether or not this Agreement and the transactions contemplated
hereby are actually consummated.
(b) If this Agreement is terminated by either Parent or the Company
pursuant to Section 11.1(h), the terminating party shall pay the non-terminating
party within sixty (60) days following such termination a fee of $225,000 plus
all out-of-pocket expenses (including, without limitation, all attorneys',
investment banking and commitment fees and expenses) incurred by the non-
terminating party in connection with the transactions contemplated by this
Agreement (the "Break-up Fee"). The Break-up Fee shall also be payable by the
Company if there exists a Superior Proposal and, at any meeting of the
stockholders of the Company, however called, or in any action by written consent
of the stockholders of the Company, The T Partnership does not vote in favor of
the approval and adoption of this Agreement, the Plan of Merger, the Merger and
the other transactions contemplated thereby (in which case the Break-up Fee will
be paid by the Company to Parent within sixty (60) days following such meeting
or action).
(c) If this Agreement is terminated by either Parent or the Company,
other than pursuant to Section 11.1(h) or 11.1(b)(ii), Parent and the Company
will split evenly the aggregate of all attorneys', investment banking and
commitment fees and expenses incurred by both parties in relation to the
transaction prior to the date of such termination.
ARTICLE XI
----------
TERMINATION; AMENDMENT, MODIFICATION AND WAIVER
11.1. TERMINATION. This Agreement may be terminated, and the Merger
-----------
abandoned, notwithstanding the approval by Parent, Acquisition Sub and the
Company of this Agreement, at any time prior to the Effective Time, by:
34
<PAGE>
(a) the mutual consent of Parent, Acquisition Sub and the Company;
(b) Parent, Acquisition Sub or the Company, if: (i) the conditions set
forth in Article VII hereof shall not have been met by April 17, 1998, except if
such conditions have not been met solely as a result of the action or inaction
of the party seeking to terminate; or (ii) the other party or parties have
materially breached any material covenant or agreement set forth herein and such
breach is not cured (if curable) within 15 days following written notice
thereof;
(c) Parent and Acquisition Sub if the conditions set forth in Article
VIII hereof shall not have been met, and the Company if the conditions set forth
in Article IX hereof shall not have been met, in either case by April 17, 1998,
except if such conditions have not been met solely as a result of the action or
inaction of the party seeking to terminate;
(d) Parent and Acquisition Sub on the one hand, or the Company on the
other hand, if such party or parties shall have determined in its or their sole
discretion, exercised in good faith, that the Merger contemplated by this
Agreement and the Plan of Merger has become impracticable by reason of the
institution of any litigation, proceeding or investigation to restrain or
prohibit the consummation of the Merger, or which questions the validity or
legality of the transactions contemplated by this Agreement and the Plan of
Merger;
(e) Parent and Acquisition Sub on the one hand, or the Company on the
other hand, if such party or parties shall have determined in their or its sole
discretion, exercised in good faith, that the respective observations made
during their due diligence process disclosed information regarding the other
party unsatisfactory to the party performing the due diligence, and such
information is: (i) material; (ii) adverse; and (iii) not disclosed in this
Agreement or the other party's Disclosure Schedule.
(f) Parent and Acquisition Sub if any statute, rule, regulation or
other legislation shall have been enacted which, in the sole judgment of Parent
and Acquisition Sub, exercised reasonably and in good faith, materially
adversely impairs the conduct or operation of the Company as presently conducted
and as contemplated to be conducted;
(g) the Company if any statute, rule, regulation or other legislation
shall have been enacted which, in the sole judgment of the Company, exercised
reasonably and in good faith, materially adversely impairs the conduct or
operation of Parent's business as presently conducted;
(h) Parent and Acquisition Sub on the one hand, or the Company on the
other hand, if such parties or party shall have received a Superior Proposal,
and Parent's or the Company's Board of Directors, based upon the written advice
of outside legal counsel, determines in good faith that accepting such Superior
Proposal is necessary for the Board of Directors of Parent or the Company to
comply with its fiduciary duties to its stockholders under applicable law;
(i) Parent and Acquisition Sub on the one hand, or the Company on the
other hand, if the Board of Directors of the other party or parties shall have:
(i) withdrawn, modified or amended in any adverse respect its approval or
recommendation of this Agreement, the Merger or the transactions contemplated
hereby; or (ii) recommended to its stockholders an Acquisition Transaction with
any party other than Parent or the Company, respectively.
Any termination pursuant to this Section 11.1 (other than a termination pursuant
to Section 11.1(a) hereof) shall be effected by written notice from the party or
parties so terminating to the other parties hereto.
35
<PAGE>
11.2. EFFECT OF TERMINATION. In the event of the termination of this
---------------------
Agreement as provided in Section 11.1, this Agreement shall be of no further
force or effect and no party hereto, nor its stockholders, directors, officers
or affiliates, shall have any liability in connection herewith; provided,
--------
however, that, Section 6.1(b), Article X, this Section 11.2 and Article XII
- -------
shall survive the termination of this Agreement. Notwithstanding the foregoing,
this Section 11.2 shall not relieve any party from liability in connection with
an intentional or willful material breach of this Agreement prior to its
termination; provided, however, that the payment set forth in Section 10.1(d)
-------- -------
shall be the sole and exclusive remedy of either Parent or the Company in
connection with the consummation of an Acquisition Transaction with a party
other than the other Party or the termination of this Agreement by the Company
or Parent pursuant to Section 6.4(b) in connection therewith.
ARTICLE XII.
------------
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement and the Plan of Merger (including
----------------
the Company Disclosure Schedule, the Parent Disclosure Schedule and the Exhibits
attached hereto) and the other writings referred to herein contain the entire
agreement among the parties hereto with respect to the transactions contemplated
hereby and supersede all prior agreements or understandings, written or oral,
among the parties with respect thereto (including, but not limited to, the
Letter of Intent dated October 23, 1997, as amended, between Parent and the
Company).
12.2. DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only
--------------------
and shall not control or affect the meaning or construction of any provision of
this Agreement.
12.3. NOTICES. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by nationally-recognized overnight courier or by registered or certified
mail, postage prepaid, return receipt requested or by telecopier, with
confirmation as provided above addressed as follows:
if to Parent or Acquisition Sub, to:
Cardiac Control Systems, Inc.
3 Commerce Boulevard
Palm Coast, Florida 32164
Attention: Alan J. Rabin
Telephone: 800-227-7223
Telecopier: 904-445-7226; and
with a copy to:
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
111 North Orange Avenue
20th Floor
Orlando, Florida 32801
Attention: Randolph H. Fields, Esq.
Telephone: (407) 420-1000
Telecopier: (407) 420-5909
if to the Company, to:
Electro-Catheter Corporation
2100 Felver Court
36
<PAGE>
Rahway, New Jersey 07065
Attention: Ervin Schoenblum
Telephone: (732) 382-5600
Telecopier: (732) 382-7107; and
with a copy to:
Saiber Schlesinger Satz & Goldstein
One Gateway Center, 13th Floor
Newark, New Jersey 07102-5311
Attention: John L. Conover, Esq.
Telephone: (973) 622-3333
Telecopier: (973) 622-3349
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be received: (a) in the case of personal
delivery or telecopy, on the date of such delivery; (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent; and (c) in the case of mailing, on the third business day following
the date on which the piece of mail containing such communication was posted.
12.4. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts by original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall constitute one
and the same agreement.
12.5. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the New Jersey Statute and with the laws of the State of New
Jersey applicable to contracts made and to be performed wholly therein.
12.6. BENEFITS OF AGREEMENT. All the terms and provisions of this
---------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, and shall not confer any
rights or benefits on any other persons or entities. This Agreement shall not be
assignable by any party hereto without the consent of the other parties hereto;
provided, however, that anything contained herein to the contrary
- -------- -------
notwithstanding, Acquisition Sub may assign and delegate any or all of its
rights and obligations hereunder to any other direct or indirect wholly-owned
subsidiary of Parent.
12.7. PRONOUNS. As used herein, all pronouns shall include the masculine,
--------
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
12.8. AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not be
----------------------------------
altered or otherwise amended except pursuant to an instrument in writing signed
by Parent and the Company; provided, however, that any party to this Agreement
-------- -------
any other party under this Agreement. The waiver by any party hereto of a breach
may waive any obligation owed to it by any other party under this Agreement. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
12.9. SEVERABILITY. If any provision of this Agreement is held illegal,
------------
invalid or unenforceable, such illegality, invalidity, or unenforceability will
not affect any other provision hereof. This Agreement will, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
37
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
and Plan of Reorganization to be executed on its behalf as of the day and year
first above written.
CARDIAC CONTROL SYSTEMS, INC.
By: /s/ Alan J. Rabin
--------------------------------
Alan J. Rabin
President
CCS SUBSIDIARY, INC.
By: /s/ Alan J. Rabin
--------------------------------
Alan J. Rabin
President
ELECTRO-CATHETER CORPORATION
By: /s/ Ervin Schoenblum
--------------------------------
Ervin Schoenblum
Acting President
The T Partnership hereby executes this Agreement for the limited and sole
purpose of agreeing to abide by its obligations under Sections 5.1, 6.4 and 6.16
hereof.
THE T PARTNERSHIP, LLP
By: /s/ A. H. Nechemie
-----------------------------------
Name: A. H. Nechemie
---------------------------------
Its Partner
------------------------------------
38
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SUPRAMEDICS, INC.
1. The name of the corporation is Supramedics, Inc.
2. The address of its registered office in the State of Delaware is
No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
3. The nature of the business or purpose to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is Five Hundred Thousand (500,000) and the par value of
each of such shares is One Dollar ($1.00) amounting in the aggregate to Five
Hundred Thousand Dollars ($500,000).
5. The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Douglas K. Eyberg 1100 Esperson Building
Houston, Texas 77002
6. The name and mailing address of the person who is to serve as
sole director of the Corporation until the first annual meeting of stockholders
or until his successor(s) is elected and qualifies is:
Name Mailing Address
---- ---------------
Phillip R. Beutel P. O. Box 8
Lake Jackson, Texas 77566
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the corporation.
8. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
9. Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
<PAGE>
10. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and
accordingly has hereunto set his hand this 18th day of June, 1980.
/s/ Douglas K. Eyberg
---------------------------
Douglas K. Eyberg
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
I, MARTHA F. FARISH, a notary public, do hereby certify that on this
18th day of JUNE, 1980, personally appeared before me, Douglas K. Eyberg, who
being by me first duly sworn, declared that he is the person who signed the
foregoing document as incorporator, and that the statements contained therein
are true.
/s/ Martha F. Farish
------------------------------
Notary Public in and for
Harris County, Texas
MARTHA F. FARISH
Notary Public in Harris County, Texas
My Commission Expires 8/30 1981
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
* * * * *
Supramedics, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted
resolutions proposing and declaring advisable the following amendments to the
Certificate of Incorporation of said corporation:
Change of Name
--------------
RESOLVED, that article 1 of the certificate of incorporation of the
Company is hereby amended to read in its entirety as follows:
"1. The name of the corporation is Cardiac Control Systems, Inc."
FURTHER RESOLVED, that the president and secretary are hereby
authorized and directed to prepare and file with the Secretary of State of
Delaware and other appropriate governmental officials an amendment of the
Company's certificate of incorporation and such other documents or
instruments as they shall deem necessary or desirable in order to effect
the intention of the foregoing resolution.
Change of Capitalization
------------------------
RESOLVED, that article 4 of the certificate of incorporation is hereby
amended to read in its entirety as follows:
"4. The total number of shares of stock which the corporation
shall have authority to issue is five million shares (5,000,000) and
the par value of each of such shares is ten cents ($0.10) amounting in
the aggregate to five hundred thousand dollars ($500,000)."
FURTHER RESOLVED, that the president and secretary are hereby
authorized and directed to prepare and file with the Secretary of State of
Delaware and other appropriate governmental officials an amendment of the
Company's certificate of incorporation and such other documents or
instruments as they shall deem necessary or desirable in order to
effectuate the intention of the foregoing resolution.
RESOLVED FURTHER, that each share of common stock, par value $1.00
per share, outstanding immediately prior to the effectiveness of the
amendment contemplated by the foregoing resolution will by reason thereof
automatically be converted, without any further action by the corporation
or the holder thereof, into ten shares of common stock, par value $.10 per
share.
<PAGE>
RESOLVED FURTHER, that these resolutions are to be broadly construed
so as to authorize and effect the amendment and other matters contemplated
by them, and that if any change of language herein is requested by any
official of the State of Delaware as a condition to filing the instruments
effecting the amendment contemplated hereby, such changed language is for
all purposes hereby adopted and ratified.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendments in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the foregoing amendments were duly adopted in accordance
with the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Supramedics, Inc. has caused this Certificate of
Amendment to be signed by Phillip R. Beutel, its President, and attested by
Barbara Dishongh, its Secretary, this 28 day of August, 1980.
SUPRAMEDICS, INC.
[Seal]
By /s/ Phillip R. Beutel
--------------------------------------
Phillip R. Beutel, President
ATTEST
By /s/ Barbara Dishongh,
----------------------------
Barbara Dishongh, Secretary
THE STATE OF TEXAS )
)
THE COUNTY OF HARRIS )
Be it remembered that on this 28th day of August, 1980, personally appeared
before me, a Notary Public in and for the County and State aforesaid, Phillip R.
Beutel, President of Supramedics, Inc., a corporation of the State of Delaware,
and he duly executed said certificate before me and acknowledged on oath the
said certificate to be his act and deed and the act and deed of said corporation
and the facts stated therein are true; and that the seal affixed to said
certificate and attested by Secretary of said corporation is the common or
corporate seal of said corporation.
In witness whereof, I have hereunto set my hand and seal of office the day
and year aforesaid.
/s/ Walter M. Fugman
------------------------------
Notary Public in and for
Harris County, TEXAS
Walter M. Fugman
Notary Public, Brazoria County, Texas
My Commission Expires 11/20/81
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
* * * * *
Cardiac Control Systems, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the unanimous
written consent of its members, filed with the minutes of the Board, adopted
resolutions proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
Change of Capitalization.
------------------------
RESOLVED, that article 4 of the certificate of incorporation is hereby
amended to read in its entirety as follows:
"4. The aggregate number of shares of all classes of stock which the
corporation will have authority to issue is 6,000,000 shares, of which
5,000,000 will be shares of common stock, par value $.10 per share ("Common
Stock"), and 1,000,000 will be shares of preferred stock, par value $1.00
per share ("Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions, of Common Stock and Preferred
Stock are as follows:
Common Stock.
------------
4.1 Dividend rights. Subject to provisions of law and the preference
---------------
of Preferred Stock and of any other stock ranking prior to Common Stock as
to dividends, the holders of Common Stock will be entitled to receive
dividends when, as and if declared by the board of directors.
4.2 Voting rights. Except as provided by law and pursuant to this
-------------
Article Four, the holders of Common Stock will have one vote for each share
on each matter submitted to a vote of the stockholders of the corporation.
Except as otherwise provided by law, by the certificate of incorporation or
by resolution or resolutions of the board of directors providing for the
issue of any series of Preferred Stock, the holders of Common Stock will
have sole voting power.
4.3 Liquidation rights. In the event of any liquidation, dissolution
------------------
or winding up of the corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts and other liabilities of the
corporation and the preferential amounts to which the holders of any stock
ranking prior to Common Stock in the distribution of assets are entitled
upon liquidation, the holders of Common Stock and the holders of any other
stock ranking on a parity with Common Stock in the distribution of assets
upon liquidation will be entitled to share in the remaining assets of the
corporation according to their respective interests.
<PAGE>
Preferred Stock
---------------
4.4 Authority of the Board of Directors to issue in series. Preferred
------------------------------------------------------
stock may be issued from time to time in one or more series. All shares of
any one series of Preferred Stock will be identical except as to the dates
of issue and the dates from which dividends on shares of the series issued
on different dates will cumulate, if cumulative. Authority is hereby
expressly granted to the board of directors to authorize the issue of one
or more series of Preferred Stock, and to fix by resolution or resolutions
providing for the issue of each such series the voting powers,
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
such series, to the full extent now or hereafter permitted by law,
including, but not limited to, the following:
(a) The number of shares of such series, which may subsequently be
increased, except as otherwise provided by the resolution or resolutions of
the board of directors providing for the issue of such series, or
decreased, to a number not less than the number of shares then outstanding,
by resolution or resolutions of the board of directors, and the distinctive
designation thereof;
(b) The dividend rights of such series, the preferences, if any, over
any other class or series of stock, or of any other class or series of
stock over such series, as to dividends, the extent, if any, to which
shares of such series will be entitled to participate in dividends with
shares of any other series or class of stock, whether dividends on shares
of such series will be fully, partially or conditionally cumulative, or a
combination thereof, and any limitations, restrictions or conditions on the
payment of such dividends;
(c) The rights of such series, and the preferences, if any, over any
other class or series of stock, or of any other class or series of stock
over such series, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation and the extent, if any, to
which shares of any such series will be entitled to participate in such
event with any other series or class of stock;
(d) The time or times during which, the price or prices at which, and
the terms and conditions on which, the shares of such series may be
redeemed;
(e) The terms of any purchase, retirement or sinking fund which may
be provided for the shares of such series.
(f) The terms and conditions, if any, upon which the shares of such
series will be convertible into or exchangeable for shares of any other
series, class or classes, or any other securities, to the full extent now
or hereafter permitted by law;
(g) The voting powers, if any, of such series in addition to the
voting powers provided by law.
4.5 Limitation on dividends. No holders of any series of Preferred
-----------------------
Stock will be entitled to receive any dividends thereon other than those
specifically provided for by the certificate of incorporation or the
resolution or resolutions of the board of directors providing for the issue
of such series of Preferred Stock, nor will any accumulated dividends on
Preferred Stock bear any interest.
4.6 Limitation on liquidation distributions. In the event of any
---------------------------------------
liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, the holders of Preferred Stock of each series
will be entitled to receive only such amount or amounts as will have
been fixed by the certificate of incorporation or by the resolution or
resolutions of the board of directors providing for the issue of such
series.
<PAGE>
A consolidation or merger of the corporation with or into one or more other
corporations or a sale, lease or exchange of all or substantially all of
the assets of the corporation will not be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up, within the meaning of
this Article Four."
RESOLVED FURTHER, that the president and secretary are hereby authorized
and directed to prepare and file with the Secretary of State of Delaware and
other appropriate governmental officials an amendment of the Company's
certificate of incorporation and such other documents or instruments as they
shall deem necessary or desirable in order to effectuate the intention of
the foregoing resolution.
RESOLVED FURTHER, that these resolutions are to be broadly construed so as
to authorize and effect the amendment and other matters contemplated by them,
and that if any change of language herein is requested by any official of the
State of Delaware as a condition to filing the instruments effecting the
amendment contemplated hereby, such changed language is for all purposes hereby
adopted and ratified.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the foregoing amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, Cardiac Control Systems, Inc. has caused this
Certificate of Amendment to be signed by Phillip R. Beutel, its President, and
attested by Simon Fuger, its Secretary, this 7 day of November, 1980.
CARDIAC CONTROL SYSTEMS, INC.
[SEAL]
By /s/ Phillip R. Beutel
-----------------------------------
Phillip R. Beutel, President
ATTEST
By /s/ Simon Fuger
-----------------------------
Simon Fuger, Secretary
THE STATE OF TEXAS )
)
THE COUNTY OF BRAZORIA )
Be it remembered that on this 7 day of November, 1980, personally appeared
before me, a Notary Public in and for the County and State aforesaid, Phillip R.
Beutel, President of Cardiac Control Systems, Inc., a corporation of the State
of Delaware, and he duly executed said certificate before me and acknowledged on
oath the said certificate to be his act and deed and the act and deed of said
corporation and the facts stated therein are true; and that the seal affixed to
said certificate and attested by Secretary of said corporation is the common or
corporate seal of said corporation.
<PAGE>
In witness whereof, I have hereunto set my hand and seal of office the day
and year aforesaid.
/s/ Barbara Dishongh
------------------------------------
Notary Public in and for
BARBARA DISHONGH
Notary Public, Brazeria County, Texas
Commission Expires 11-20-81
---------
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Cardiac Control Systems, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the board of directors of said corporation, adopted
resolutions proposing and declaring advisable the following amendment to
the Certificate of Incorporation of said corporation:
RESOLUTION
----------
RESOLVED, that in order to eliminate the authorized 1,000,000
shares of preferred stock, par value $1.00 per share, of the
Corporation, Article 4 of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
"4. The total number of shares of stock which the
corporation will have authority to issue is Five
Million (5,000,000) shares of common stock, par value
$.10 per share ("Common Stock").
The designations and the powers, preferences
and rights, and the qualifications, limitations, or
restrictions of the Common Stock are as follows:
4.1 Dividend rights. Subject to provisions of law
---------------
and the preference of any stock ranking prior to the
Common Stock as to dividends, the holders of Common
Stock will be entitled to receive dividends when, as and
if declared by the board of directors.
4.2 Voting rights. Except as provided by law and
-------------
pursuant to this Article Four, the holders of Common
Stock will have one vote for each share on each matter
submitted to a vote of the stockholders of the
corporation. Except as otherwise provided by law or by
the certificate of incorporation, the holders of Common
Stock will have sole voting power.
4.3 Liquidation rights. In the event of any
------------------
Liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, after
payment or provision for payment of the debts or
liabilities of the corporation and the preferential
amounts to which the holders of any stock ranking prior
to Common Stock in the distribution of assets are
entitled upon Liquidation, the holders of Common Stock
and the holders of any other stock ranking on a parity
with Common Stock in the distribution of assets upon
liquidation will be entitled to share in the remaining
assets of the corporation according to their respective
interests."
<PAGE>
SECOND: That the foregoing amendment was duly adopted in accordance
with Section 242 of the General Corporation Law of the State of Delaware at
a Special Shareholders' Meeting held in accordance with Section 222 of the
General Corporation Law of the State of Delaware on January 18, 1983.
IN WITNESS WHEREOF, Cardiac Control Systems, Inc. has caused this
Certificate of Amendment to be signed by Charles J. Del Marco, D.O., its
President, and attested by Simon J. Fuger, its Secretary, this 19th day of
January, 1983.
CARDIAC CONTROL SYSTEMS, INC.
(CORPORATE SEAL)
ATTEST: By /s/ Charles J. Del Marco, D.O.
-------------------------------
Charles J. Del Marco, D.O.,
President
By /s/ Simon Fuger
------------------------------
Simon J. Fuger, Secretary
STATE OF FLORIDA )
)
COUNTY OF VOLUSIA )
BEFORE ME, the undersigned authority, personally appeared CHARLES J. DEL
MARCO, D.O., and SIMON J. FUGER, the President and Secretary of Cardiac Control
Systems, Inc., a corporation of the State of Delaware, respectively, and they
duly executed said certificate before me and acknowledged on oath the said
certificate to be their own act and deed and the act and deed of said
corporation and the facts stated therein are true; and that the seal affixed to
said certificate and attested by the secretary of the corporation is the
corporate seal of said corporation.
IN WITNESS WHEREOF, I hereunder set my hand and official seal of office the
day and year aforesaid.
(NOTARIAL SEAL) /s/ Diane E. Burke
----------------------------------------
Notary Public
My Commission Expires:
NOTARY PUBLIC STATE OF FLORIDA
MY COMMISSION EXPIRES MAR 10 1986
BONDED THRU GENERAL INS. UNDERWRITERS
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Cardiac Control Systems, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the board of directors of said corporation adopted
resolutions proposing and declaring advisable the following amendment to
the Certificate of Incorporation of said corporation:
RESOLUTION
----------
RESOLVED, that in order to increase the authorized number of
shares of common stock, par value $0.10 per share, of the
Corporation from the presently authorized five million shares to
ten million shares, the first paragraph of Section 4. of Article 4
of the Certificate of Incorporation is hereby amended to read in
its entirety as follows:
"4. The total number of shares of stock which the
corporation will have the authority to issue is ten
million (10,000,000) shares of common stock, par value
$0.10 per share ("Common Stock").
SECOND: That the foregoing amendment was duly adopted in accordance
with Section 242 of the General Corporation Law of the State of Delaware at
the Annual Shareholders' Meeting held in accordance with Section 222 of the
General Corporation Law of the State of Delaware on July 9, 1983.
IN WITNESS WHEREOF, Cardiac Control Systems, Inc., has caused this
Certificate of Amendment to be signed by Charles J. Del Marco, D.O., its
President, and attested by Simon J. Fuger, its Secretary, this 5th day of
August, 1983.
CARDIAC CONTROL SYSTEMS, INC.
(CORPORATE SEAL) By: /s/ Charles J. Del Marco
--------------------------------
ATTEST: Charles J. Del Marco, D.O.,
President
By: /s/ Simon J. Fuger
------------------------------
Simon J. Fuger, Secretary
<PAGE>
STATE OF FLORIDA
CITY OF FLAGLER
BEFORE ME, the undersigned authority, personally appeared CHARLES J. DEL
MARCO, D.O., and SIMON J. FUGER, the President and Secretary of Cardiac Control
Systems, Inc., a corporation of the State of Delaware, respectively, and they
duly executed said certificate before me and acknowledged on oath the said
certificate to be their own act and deed and the act and deed of said
corporation and the facts attested therein are true; and that the seal affixed
to said certificate and attested by the secretary of the corporation is the
corporate seal of said corporation.
IN WITNESS WHEREOF, I hereunder set my hand and official seal of office the
day and year aforesaid.
/s/ Diane E. Burke
------------------------------------
(NOTARIAL SEAL) Notary Public
My Commission Expires:
NOTARY PUBLIC STATE OF FLORIDA
MY COMMISSION EXPIRES MAR 10 1986
BONDED THRU GENERAL INS. UNDERWRITERS
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF CARDIAC CONTROL SYSTEMS, INC.
Cardiac Control Systems, Inc., a corporation organized and existing under
and by Virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That the Board of Directors of said corporation, at a meeting duly
convened and held, adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of the corporation be
amended by adding the article thereof numbered "11" so that, as amended,
said article shall be and read as follows:
"11. No Director shall be personally liable to the
corporation or any shareholder for monetary damages for
breach of fiduciary duty as a director, except for any
matter in respect of which such director shall be liable
under Section 174 of Title 8 of the Delaware Code (relating
to the Delaware General Corporation Law) or any amendment
thereto or successor provision thereto or shall be liable by
reason that, in addition to any and all other requirements
for such liability, he (i) shall have breached his duty of
loyalty to the corporation or its shareholders, (ii) shall
not have acted in good faith or, in failing to act, shall
not have acted in good faith, (iii) shall have acted in a
manner involving intentional misconduct or a knowing
violation of law or, (iv) shall have derived an improper
personal benefit. Neither the amendment nor repeal of this
Article Eleven nor the adoption of any provision of the
certificate of incorporation inconsistent with this Article
Eleven, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article Eleven
would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision."
<PAGE>
SECOND: That thereafter, on August 26, 1987, the annual meeting of the
stockholders was duly called and held, upon notice in accordance with the
provisions of Section 222 of the General Corporation Law of the State of
Delaware at which meeting the necessary number of shares as required by the
statute were voted in favor of the amendment.
THIRD: That the aforesaid Amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation will not be reduced under or
by said amendment.
FIFTH: That said amendment shall become effective as of 12:01 a.m.,
January 1, 1988.
IN WITNESS WHEREOF, said corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by C. J. Del Marco, its
president and Simon J. Fuger, its secretary, this 17th day of December, 1987.
(Corporate Seal)
By: /s/ C. J. Del Marco
-----------------------------
C. J. DEL MARCO, PRESIDENT
Attest:
/s/ Simon Fuger
- --------------------------------
SIMON J. FUGER, SECRETARY
STATE OF FLORIDA
COUNTY OF VOLUSIA
BEFORE ME, the undersigned authority, personally appeared C. J. Del Marco
and Simon J. Fuger, the President and Secretary of Cardiac Control Systems,
Inc., a Delaware corporation, respectively, and they duly executed said
Certificate before me and acknowledged on oath the said Certificate to be their
own act and deed and the act and deed of said corporation and the facts stated
therein are true; and that the seal affixed to said Certificate and attested by
the Secretary of the corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I hereunder set my hand and official seal of office the
day and year aforesaid.
(NOTARIAL SEAL) /s/ Cheryl J Sears
-----------------------------------------
NOTARY PUBLIC
My Commissioner Expires:
Notary Public State of Florida
My commission expires Apr. 5, 1991
Bonded by ??? Surety Company
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/20/1990
900525143 - 894478
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Cardiac Control Systems, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware. DOES
HEREBY CERTIFY:
FIRST: That the board of directors of said corporation adopted resolutions
proposing and declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLUTION
----------
RESOLVED, that in order to increase the authorized number
of shares of common stock, par value $0.10 per share, of
the Corporation from the presently authorized ten million
shares to fifteen million shares, the first paragraph of
Section 4, of Article 4 of the Certificate of Incorporation
is hereby amended to read in its entirety as follows:
1. The total number of shares of stock which the
corporation will have the authority to issue is fifteen million
(15,000,000) shares of common stock, par value $0.10 per share
("Common Stock").
SECOND: That the foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware at the
Annual Shareholders' Meeting held in accordance with Section 222 of the General
Corporation Law of the State of Delaware on September 27, 1989.
IN WITNESS WHEREOF, Cardiac Control Systems, Inc., has caused this
certificate of Amendment to be signed and attested by Simon J. Fuger, its
President and Secretary, this 30th day of November, 1989.
CARDIAC CONTROL SYSTEMS, INC.
(CORPORATE SEAL) BY: /s/ Simon J. Fuger
-----------------------------
Simon J. Fuger, President
ATTEST:
BY: /s/ Simon J. Fuger
---------------------------
Simon J. Fuger
Secretary
<PAGE>
STATE OF FLORIDA
COUNTY OF FLAGLER
BEFORE ME, the undersigned authority, personally appeared Simon J. Fuger,
the President and Secretary of Cardiac Control Systems, Inc., a corporation of
the State of Delaware, and he duly executed said certificate before me and
acknowledged on oath the said certificate to be his own act and deed and the act
and deed of said corporation and the facts stated therein are true; and that the
seal affixed to said certificate and attested by the secretary of the
corporation is the corporate seal of said corporation.
IN WITNESS WHEREOF, I hereunder set my hand and official seal of office the
day and year aforesaid.
(NOTARIAL SEAL) /s/ Carolyn J. Wilson
-----------------------------------
Notary Public
My Commission Expires: Notary Public
State of Florida at Large
Expires Dec. 14, 1991
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CARDIAC CONTROL SYSTEMS, INC.
CARDIAC CONTROL SYSTEMS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation adopted
resolutions proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation:
RESOLVED, that in order to increase the authorized number of shares of
common stock, par value $0.10 per share of the Corporation from the
presently authorized fifteen million shares to thirty million shares,
the first paragraph of Section 4 of Article 4 of the Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"4. The total number of shares of stock which the corporation
shall have authority to issue is Thirty Million (30,000,000) shares of
common stock, par value of $0.10 per share ("Common Stock")."
SECOND: That the foregoing amendment was duly adopted in accordance with
Section 242 of General Corporation Law of the State of Delaware at the Annual
Shareholders' Meeting held in accordance with Section 222 of the General
Corporation Law of the State of Delaware on September 30, 1992.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by the undersigned authorized officers this 5th day of October, 1994.
CARDIAC CONTROL SYSTEMS, INC.
By: /s/ Robert R. Brownlee
------------------------------------
Robert R. Brownlee
Vice President
Attest:
/s/ Robert R. Brownlee
- -------------------------------
Secretary
1
<PAGE>
RESTATED BYLAWS OF
CARDIAC CONTROL SYSTEMS, INC.
(the "Corporation")
ARTICLE I
Offices
-------
Section 1.1. Offices. The registered office of the Corporation shall
----------- -------
be at No. 100 West Tenth Street, Wilmington, Delaware. The Corporation may have
such other offices within or without the State of Delaware as the board of
directors may from time to time establish.
ARTICLE II
Capital Stock
-------------
Section 2.1. Certificate Representing Shares. Shares of the classes of
------------ -------------------------------
capital stock of the Corporation shall be represented by certificates in such
form or forms as the board of directors may approve; provided that, such form or
forms shall comply with all applicable requirements of law or of the certificate
of incorporation. Such certificates shall be signed by the president or a vice
president, and by the secretary or an assistant secretary, of the Corporation
and may be sealed with the seal of the Corporation or imprinted or otherwise
marked with a facsimile of such seal. In the case of any certificate
countersigned by any transfer agent or registrar, provided such countersigner is
not the Corporation itself or an employee thereof, the signature of any or all
of the foregoing officers of the Corporation may be represented by a printed
facsimile thereof. If any officer whose signature, or a facsimile thereof, shall
have been set upon any certificate shall cease, prior to the issuance of such
certificate, to occupy the position in right of which his signature, or
facsimile thereof, was so set upon such certificate, the Corporation may
nevertheless adopt and issue such certificate with the same effect as if such
officer occupied such position as of such date of issuance; and, issuance and
delivery of such certificate by the Corporation shall constitute adoption
thereof by the Corporation. The certificates shall be consecutively numbered,
and as they are issued, a record of such issuance shall be entered in the books
of the Corporation.
<PAGE>
Section 2.2. Stock Certificate Book and Shareholders of Record. The
----------- -------------------------------------------------
secretary of the Corporation shall maintain, among other records, a stock
certificate book, the stubs in which shall set forth the names and addresses of
the holders of all issued shares of the Corporation, the number of shares held
by each, the number of certificates representing such shares, the date of issue
of such certificates, and whether or not such shares originate from original
issue or from transfer. The names and addresses of shareholders as they appear
on the stock certificate book shall be the official list of shareholders of
record of the Corporation for all purposes. The Corporation shall be entitled to
treat the holder of record of any shares as the owner thereof for all purposes,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such shares or any rights deriving from such shares on the part of any other
person, including, but without limitation, a purchaser, assignee, or transferee,
unless and until such other person becomes the holder of record of such shares,
whether or not the Corporation shall have either actual or constructive notice
of the interest of such other person.
Section 2.3. Shareholder's Change of Name or Address. Each
----------- ---------------------------------------
shareholder shall promptly notify the secretary of the Corporation, at its
principal business office, by written notice sent by certified mail, return
receipt requested, of any change in name or address of the shareholder from that
as it appears upon the official list of shareholders of record of the
Corporation. The secretary of the Corporation shall then enter such changes into
all affected Corporation records, including, but not limited to, the official
list of shareholders of record.
Section 2.4. Transfer of Stock. The shares represented by any
----------- -----------------
certificate of the Corporation are transferable only on the books of the
Corporation by the holder of record thereof or by his duly authorized attorney
or legal representative upon surrender of the certificate for such shares,
properly endorsed or assigned. The board of directors may make such rules and
regulations concerning the issue, transfer, registration and replacement of
certificates as they deem desirable or necessary.
Section 2.5. Transfer Agent and Registrar. The board of directors
----------- ----------------------------
may appoint one or more transfer agents or registrars of the shares, or both,
and may require all share certificates to bear the signature of a transfer agent
or registrar, or both.
-2-
<PAGE>
Section 2.6. Lost, Stolen or Destroyed Certificates. The Corporation
----------- --------------------------------------
may issue a new certificate for shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed; but, the
board of directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to furnish an affidavit as to such
loss, theft, or destruction and to give a bond in such form and substance, and
with such surety or sureties, with fixed or open penalty, as the board may
direct, in order to indemnify the Corporation and its transfer agents and
registrars, if any, against any claim that may be made on account of the alleged
loss, theft or destruction of such certificate.
Section 2.7. Fractional Shares. Only whole shares of the stock of the
----------- -----------------
Corporation shall be issued. In case of any transaction by reason of which a
fractional share might otherwise be issued, the directors, or the officers in
the exercise of powers delegated by the directors, shall take such measures
consistent with the law, the certificate of incorporation and these bylaws,
including (for example, and not by way of limitation) the payment in cash of an
amount equal to the fair value of any fractional share, as they may deem proper
to avoid the issuance of any fractional share.
ARTICLE III
The Shareholders
----------------
Section 3.1 Annual Meeting. Commencing in the calendar year 1981, the
----------- --------------
annual meeting of the shareholders, for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at the principal office of the Corporation, at 11:00 a.m. local
time, on April 10 of each year unless such day is a legal holiday, in which
case such meeting shall be held at such hour on the first day thereafter which
is not a legal holiday; or, at such other place and time as may be designated by
the board of directors. Failure to hold any annual meeting or meetings shall not
work a forfeiture or dissolution of the Corporation.
Section 3.2. Special Meetings. Except as otherwise provided by law or
----------- ----------------
by the certificate of incorporation, special meetings of the shareholders may be
called by the chairman of the board of directors, the president, any one of the
directors, or the holders of not less than one-tenth of all the shares having
voting power at such meeting, and shall be held at the principal office of the
Corporation or at such other place, and at such time, as may be stated in the
notice calling such meeting.
-3-
<PAGE>
Business transacted at any special meeting of shareholders shall be limited to
the purpose stated in the notice of such meeting given in accordance with the
terms of section 3.3.
Section 3.3. Notice of Meetings - Waiver. Written notice of each
----------- ---------------------------
meeting of shareholders, stating the place, day and hour of any meeting and, in
case of a special shareholders' meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than fifteen nor more than sixty
days before the date of such meeting, either personally or by mail, by or at the
direction of the president, the secretary, or the persons calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. Such further or earlier
notice shall be given as may be required by law. The signing by a shareholder of
a written waiver of notice of any shareholders' meeting, whether before or after
the time stated in such waiver, shall be equivalent to the receiving by him of
all notice required to be given with respect to such meeting. Attendance by a
person at a shareholders' meeting shall constitute a waiver of notice of such
meeting except when a person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. No notice of any
adjournment of any meeting shall be required.
Section 3.4. Closing of Transfer Books and Fixing Re-Date. In
----------- --------------------------------------------
order that the Corporation may determine the shareholders entitled to notice of
or to vote at any meeting of shareholders or adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the board of directors
may fix, in advance, a record date, which shall not be more than sixty nor less
than fifteen days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed, the record date shall be
as follows: the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held; the record date for determining shareholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
board of
-4-
<PAGE>
directors is necessary, shall be the day on which the first written consent is
expressed; and, the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts resolution relating thereto.
Section 3.5. Voting List. The Officer or agent having charge of the
----------- -----------
stock transfer books for shares of the Corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each,
which list, for a period of ten days prior to such meeting, shall be kept on
file at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall be subject to lawful
inspection by any shareholder at any time during the usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting.
Section 3.6. Quorum and Officers. Except as otherwise provided by
----------- -------------------
law, by the certificate of incorporation or by these bylaws, the holders of a
majority of the shares entitled to vote and represented in person or by proxy
shall constitute a quorum at a meeting of shareholders, but the shareholders
present at any meeting, although representing less than a quorum, may from time
to time adjourn the meeting to some other day and hour, without notice other
than announcement at the meeting. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law. The chairman of
the board shall preside at, and the secretary shall keep the records of, each
meeting of the shareholders, and in the absence of either such officer, his
duties shall be performed by any other officer authorized by these bylaws or any
person appointed by resolution duly adopted at the meeting.
Section 3.7. Voting at Meetings. Each outstanding share shall be
----------- ------------------
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders except to the extent that the certificate of incorporation or the
laws of the State of Delaware provide otherwise.
-5-
<PAGE>
Section 3.8. Proxies. A shareholder may vote either in person or by
----------- -------
proxy executed in writing by the shareholder; but, no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
Section 3.9. Balloting. All elections of directors shall be by written
----------- ---------
ballot. Upon the demand of any shareholder, the vote upon any other question
before the meeting shall be by ballot. At each meeting, inspectors of election
may be appointed by the presiding officer of the meeting; and, at any meeting
for the election of directors, inspectors shall be so appointed on the demand of
any shareholder present or represented by proxy and entitled to vote in such
election of directors. No director or candidate for the office of director shall
be appointed as such inspector. The number of votes cast by shares in the
election of directors shall be recorded in the minutes.
Section 3.10. Voting Rights, Prohibition of Cumulative Voting for
------------ ---------------------------------------------------
Directors. Each outstanding share of common stock shall be entitled to one (1)
- ---------
vote upon each matter submitted to a vote at a meeting of shareholders. No
shareholder shall have the right to cumulate his votes for the election of
directors but each share shall be entitled to one vote in the election of each
director. In the case of any contested election for any directorship, the
candidate for such position receiving a plurality of the votes cast in such
election shall be elected to such position.
Section 3.11. Record of Shareholders. The Corporation shall keep at
------------ ----------------------
its principal business office, or the office of its transfer agents or
registrars, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 3.12. Action Without Meeting. Any action required by statute
------------ ----------------------
to be taken at a meeting of the shareholders of the Corporation, or any action
which may be taken at a meeting of the shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
-6-
<PAGE>
ARTICLE IV
The Board of Directors
----------------------
"Section 4.1. Number, Qualifications and Term. The business and
----------- -------------------------------
affairs of the Corporation shall be managed or be under the direction of the
board of directors; and, subject to any restrictions imposed by law, by the
certificate of incorporation, or by these bylaws, the board of directors may
exercise all the powers of the Corporation. The board of directors shall consist
of such number of directors as determined by the board of directors, but in no
event shall be less than three (3) members, unless such minimum number is
decreased by amendment of these bylaws, provided that no such decrease shall
effect a shortening of the term of any incumbent director. Directors need not be
residents of Delaware or shareholders of the Corporation absent provision to the
contrary in the certificate of incorporation or laws of the State of Delaware.
Except as otherwise provided in section 4.3 of these bylaws, each position on
the board of directors shall be filled by election at the annual meeting of
shareholders. Any such election shall be conducted in accordance with section
3.10 of these bylaws. Each person elected a director shall hold office until his
successor is duly elected and qualified or until his earlier resignation or
removal in accordance with section 4.2 of these bylaws."
"Section 4.2. Removal. Any director or the entire board of directors
----------- -------
may be removed from office, with or without cause, at any special meeting of
shareholders by the affirmative vote of a majority of the shares then entitled
to vote at an election of directors, if notice of the intention to act upon
such matter shall have been given in the notice calling such meeting. If the
notice calling such meeting shall have so provided, the vacancy caused by such
removal may be filled at such meeting by the affirmative vote of a majority in
number of the shares then entitled to vote at an election of directors."
Section 4.3. Vacancies. Vacancies and newly created directorships
----------- ---------
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director. When one or more directors shall resign from the
board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies. A director elected
to fill a vacancy shall be elected for the unexpired term of his predecessor in
office.
-7-
<PAGE>
Section 4.4. Regular Meetings. Regular meetings of the board of
----------- ----------------
directors shall be held immediately following each annual meeting of
shareholders, at the place of such meeting, and at such other times and places
as the board of directors shall determine. No notice of any kind of such regular
meetings needs to be given to either old or new members of the board of
directors.
Section 4.5. Special Meetings. Special meetings of the board of
----------- ----------------
directors shall be held at any time by call of the chairman of the board, the
president, the secretary or any one of the directors. The secretary shall give
notice of each special meeting to each director at his usual business or
residence address by mail at least three days before the meeting or by telegraph
or telephone at least one day before such meeting. Except as otherwise provided
by law, by the certificate of incorporation, or by these bylaws, such notice
need not specify the business to be transacted at, or the purpose of, such
meeting. No notice shall be necessary for any adjournment of any meeting. The
signing of a written waiver of notice of any special meeting by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be equivalent to the receiving of such notice. Attendance of a
director at a meeting shall also constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express and announced purpose
of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Section 4.6. Quorum. A majority of the number of directors fixed by
----------- ------
these bylaws shall constitute a quorum for the transaction of business and the
act of not less than a majority of such quorum of the directors shall be
required in order to constitute the act of the board of directors, unless the
act of a greater number shall be required by law, by the certificate of
incorporation or by these bylaws.
Section 4.7. Procedure at Meetings. The board of directors, at each
----------- ---------------------
regular meeting held immediately following the annual meeting of shareholders,
shall appoint one of their number as chairman of the board of directors. The
chairman of the board shall preside at meetings of the board. In his absence at
any meeting, any officer authorized by these bylaws or any member of the board
selected by the members present shall preside. The secretary of the Corporation
shall act as secretary at all meetings of the board. In his absence, the
presiding officer of the meeting may designate any person to act as secretary.
At meetings of the board of directors, the business shall be transacted in such
order as the board may from time to time determine.
-8-
<PAGE>
Section 4.8. Presumption of Assent. Any director of the Corporation
----------- ---------------------
who is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the secretary of the Corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 4.9. Action Without a Meeting. Any action required by statute
----------- ------------------------
or permitted to be taken at a meeting of the directors of the Corporation, or of
any committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all directors or all
committee members as the case may be, and if the consent in writing shall be
filed with the minutes of the proceedings of the board or committee.
Section 4.10. Compensation. Directors as such shall not receive any
------------ ------------
stated salary for their service, but by resolution of the board of directors, a
fixed sum and reimbursement for reasonable expenses of attendance, if any, may
be allowed for attendance at each regular or special meeting of the board of
directors or at any meeting of the executive committee of directors, if any, to
which such director may be elected in accordance with the following section
4.11; but, nothing herein shall preclude any director from serving the
Corporation in any other capacity or receiving compensation therefor.
Section 4.11. Executive Committee. The board of directors, by
------------ -------------------
resolution adopted by a majority of the number of directors fixed by these
bylaws, may designate an executive committee, which committee shall consist of
two or more of the directors of the Corporation. Such executive committee may
exercise such authority of the board of directors in the business and affairs of
the Corporation as the board of directors may by resolution duly delegate to it
except as prohibited by law. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed upon it or him
by law. Any member of the executive committee may be removed by the board of
directors by the affirmative vote of a majority of the number of directors fixed
by the bylaws whenever in the judgment of the board the best interests of the
Corporation will be served thereby.
-9-
<PAGE>
The executive committee shall keep regular minutes of its proceedings
and report the same to the board of directors when required. The minutes of the
proceedings of the executive committee shall be placed in the minute book of the
Corporation.
Section 4.12. Advisory Committees. The board of directors may for
------------ -------------------
its convenience, and at its discretion, appoint one or more advisory committees
of two or more directors each; but, no such advisory committees shall have any
power or authority except to advise the board of directors, any such committee
shall exist solely at the pleasure of the board of directors, no minutes of
the proceedings of any such committee shall be kept, and no member of any such
committee shall receive any compensation for such membership except by way of
reimbursement for reasonable expenses actually incurred by him by reason of such
membership.
ARTICLE V
Officers
--------
Section 5.1. Number. The officers of the Corporation shall consist
----------- ------
of a president, one or more vice presidents, a secretary and a treasurer; and,
in addition, such other officers and assistant officers and agents as may be
deemed necessary or desirable. Officers shall be elected or appointed by the
board of directors. Any two or more offices may be held by the same person
except that the president and the secretary shall not be the same person. In its
discretion, the board of directors may leave unfilled any office except those of
president, treasurer and secretary.
Section 5.2. Election; Term; Qualification. Officers shall be chosen
----------- -----------------------------
by the board of directors annually at the meeting of the board of directors
following the annual shareholders' meeting. Each officer shall hold office until
his successor has been chosen and qualified, or until his death, resignation, or
removal.
Section 5.3. Removal. Any officer or agent elected or appointed by
----------- -------
the board of directors may be removed by the board of directors whenever in its
judgment the best interests of the Corporation will be served thereby; but,
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create any contract rights.
-10-
<PAGE>
Section 5.4. Vacancies. Any vacancy in any office for any cause may
----------- ---------
be filled by the board of directors at any meeting.
Section 5.5. Duties. The officers of the Corporation shall have such
----------- ------
powers and duties, except as modified by the board of directors, as generally
pertain to their offices, respectively, as well as such powers and duties as
from time to time shall be conferred by the board of directors and by these
bylaws.
Section 5.6. The President. The president shall have general
----------- -------------
direction of the affairs of the Corporation and general supervision over its
several officers, subject however, to the control of the board of directors. He
shall at each annual meeting, and from time to time, report to the shareholders
and to the board of directors all matters within his knowledge which, in his
opinion, the interest of the Corporation may require to be brought to the notice
of such persons. He may sign, with the secretary or an assistant secretary, any
or all certificates of stock of the Corporation. He shall preside at all
meetings of the shareholders, shall sign and execute in the name of the
Corporation (i) all contracts or other instruments authorized by the board of
directors, and (ii) all contracts or instruments in the usual and regular course
of business, pursuant to Section 6.2 hereof, except in cases when the signing
and execution thereof shall be expressly delegated or permitted by the board or
by these bylaws to some other officer or agent of the Corporation; and, in
general, shall perform all duties incident to the office of president and such
other duties as from time to time may be assigned to him by the board of
directors or as are prescribed by these bylaws.
Section 5.7. The Vice Presidents. At the request of the president,
----------- -------------------
or in his absence or disability, the vice presidents, in the order of their
election, shall perform the duties of the president, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the president.
Any action taken by a vice president in the performance of the duties of the
president shall be conclusive evidence of the absence or inability to act of the
president at the time such action was taken. The vice presidents shall perform
such other duties as may, from time to time, be assigned to them by the board of
directors or the president. A vice president may sign, with the secretary or an
assistant secretary, certificates of stock of the Corporation.
-11-
<PAGE>
Section 5.8. Secretary. The secretary shall keep the minutes of all
----------- ---------
meetings of the shareholders, of the board of directors, and of the executive
committee, if any, of the board of directors, in one or more books provided for
such purpose and shall see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law. He shall be custodian of
the corporate records and of the seal (if any) of the Corporation and see, if
the Corporation has a seal, that the seal of the Corporation is affixed to all
documents the execution of which on behalf of the Corporation under its seal is
duly authorized; shall have general charge of the stock certificate books,
transfer books and stock ledgers, and such other books and papers of the
Corporation as the board of directors may direct, all of which shall, at all
reasonable times, be open to the examination of any director, upon application
at the office of the Corporation during business hours; and in general shall
perform all duties and exercise all powers incident to the office of the
secretary and such other duties and powers as the board of directors or the
president from time to time may assign to or confer on him.
Section 5.9. Treasurer. The treasurer shall keep complete and
----------- ---------
accurate records of account, showing at all times the financial condition of the
Corporation. He shall be the legal custodian of all money, notes, securities and
other valuables which may from time to time come into the possession of the
Corporation. He shall furnish at meetings of the board of directors, or whenever
requested, a statement of the financial condition of the Corporation, and shall
perform such other duties as these bylaws may require or the board of directors
may prescribe.
Section 5.10. Assistant Officers. Any assistant secretary or
------------ ------------------
assistant treasurer appointed by the board of directors shall have power to
perform, and shall perform, all duties incumbent upon the secretary or
treasurer of the Corporation, respectively, subject to the general direction of
such respective officers, and shall perform such other duties as these bylaws
may require or the board of directors may prescribe.
Section 5.11. Salaries. The salaries or other compensation of the
------------ --------
officers shall be fixed from time to time by the board of directors. No officer
shall be prevented from receiving such salary or other compensation by reason of
the fact that he is also a director of the Corporation.
Section 5.12. Bonds of Officers. The board of directors may secure
------------ -----------------
the fidelity of any officer of the Corporation by bond or otherwise, on such
terms and with such surety or sure-
-12-
<PAGE>
ties, conditions, penalties or securities as shall be deemed proper by the board
of directors.
Section 5.13. Delegation. The board of directors may delegate
------------ ----------
temporarily the powers and duties of any officer of the Corporation, in case of
his absence or for any other reason, to any other officer, and may authorize
the delegation by any officer of the Corporation of any of his powers and duties
to any agent or employee, subject to the general supervision of such officer.
ARTICLE VI
Miscellaneous
-------------
Section 6.1. Dividends. Dividends on the outstanding shares of the
----------- ---------
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid by the Corporation in cash, in
property, or in the Corporation's own shares, but only out of the surplus of the
Corporation, except as otherwise allowed by law.
Subject to limitations upon the authority of the board of directors
imposed by law or by the certificate of incorporation, the declaration of and
provision for payment of dividends shall be at the discretion of the board of
directors.
Section 6.2. Contracts. The president shall have the power and
----------- ---------
authority to execute, on behalf of the Corporation, contracts or instruments in
the usual and regular course of business, and in addition the board of directors
may authorize any officer or officers, agent or agents, of the Corporation to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation, and such authority may be general or confined to
specific instances. Unless so authorized by the board of directors or by these
bylaws, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement, or to pledge its credit or to
render it pecuniarily liable for any purpose or in any amount.
Section 6.3. Checks, Drafts, etc. All checks, drafts, or other orders
----------- -------------------
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officers or employees of the
Corporation as shall from time to time be authorized pursuant to these bylaws or
by resolution of the board of directors.
-13-
<PAGE>
Section 6.4. Depositories. All funds of the Corporation shall be
----------- ------------
deposited from time to time to the credit of the Corporation in such banks or
other depositories as the board of directors may from time to time designate,
and upon such terms and conditions as shall be fixed by the board of directors.
The board of directors may from time to time authorize the opening and
maintaining within any such depository as it may designate, of general and
special accounts, and may make such special rules and regulations with respect
thereto as it may deem expedient.
Section 6.5. Endorsement of Stock Certificates. Subject to the
----------- ---------------------------------
specific directions of the board of directors, any share or shares of stock
issued by any corporation and owned by the Corporation, including reacquired
shares of the Corporation's own stock, may, for sale or transfer, be endorsed in
the name of the Corporation by the president or any vice president; and such
endorsement may be attested or witnessed by the secretary or any assistant
secretary either with or without the affixing thereto of the corporate seal.
Section 6.6. Corporate Seal. The corporate seal, if any, shall be
----------- --------------
in such form as the board of directors shall approve, and such seal, or a
facsimile thereof, may be impressed on, affixed to, or in any manner reproduced
upon, instruments of any nature required to be executed by officers of the
Corporation.
Section 6.7. Fiscal Year. The fiscal year of the Corporation shall
----------- -----------
begin and end on such dates as the board of directors at any time shall
determine.
Section 6.8. Books and Records. The Corporation shall keep correct and
----------- -----------------
complete books and records of account and shall keep minutes of the
proceedings of its shareholders and board of directors, and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held by
each.
Section 6.9. Resignations. Any director or officer may resign at any
----------- ------------
time. Such resignations shall be made in writing and shall take effect at the
time specified therein, or if no time is specified at the time of its receipt by
the president or secretary. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
-14-
<PAGE>
Section 6.10. Indemnification of Officers, Directors, Employees and
------------ -----------------------------------------------------
Agents. The Corporation shall indemnify any person who was or is a party or is
- ------
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Any indemnification under this section shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification is proper because the director, officer, employee or agent has
met the applicable standard of conduct set forth above. Such determination shall
be made as follows; by the board of directors by a majority vote of a quorum
consisting of directors who are not parties to such action, suit or proceeding;
or if such quorum is not obtainable,
-15-
<PAGE>
or even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or by the shareholders.
Any right of indemnification granted by this section 6.10 shall be in
addition to and not in lieu of any other such right which an officer, director,
employee or agent of the Corporation may at any time be entitled under the law
of the State of Delaware.
Section 6.11. Meetings by Telephone. Subject to the provisions
------------ ---------------------
required or permitted by these bylaws or the laws of the State of Delaware for
notice of meetings, members of the board of directors, or members of any
committee designated by the board of directors, may participate in and hold any
meeting required or permitted under these bylaws by telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at such a meeting, except where a person
participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
ARTICLE VII
Amendments
----------
Section 7.1. Amendments. These bylaws may be altered, amended, or
----------- ----------
repealed, or new bylaws may be adopted, by a majority of the board of directors
at any duly held meeting of directors or by the holders of a majority of the
shares represented at any duly held meeting of shareholders; provided that
notice of such proposed action shall have been contained in the notice of any
such meeting.
Certificate by Secretary
------------------------
The undersigned, being the secretary of Cardiac Control Systems, Inc.,
hereby certifies that the foregoing restated bylaws were duly adopted by the
action of the board of directors of said corporation effective on January 26,
1983.
In Witness Whereof, I have signed this certification on this the 26
day of January, 1983.
/s/ Simon J. Fuger
------------------------------
Simon J. Fuger, Secretary
-16-
<PAGE>
[LETTERHEAD OF CARDIAC CONTROL SYSTEMS, INC.]
AMENDMENT TO
RESTATED BYLAWS OF
CARDIAC CONTROL SYSTEMS, INC.
(the "Corporation")
The Corporation's Bylaws are amended to include the following provision
under Article V (Officers) thereof, effective October 8, 1994:
Section 5.14 Chairman of the Board. The Chairman of the Board shall be an
----------------------------------
officer of the Corporation, shall preside at the Corporation's meetings,
and shall have such other duties and responsibilities as an officer of the
Corporation as the Board of Directors shall delegate.
The foregoing amendment was adopted by the Board of Directors at a duly
held meeting on October 8, 1994.
/s/ Robert R. Brownlee
-----------------------------
Robert R. Brownlee
Secretary
-17-
<PAGE>
EXHIBIT 10.32
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT is entered into by and between
Cardiac Control Systems, Inc. ("CCS" or "Company") and Alan Rabin ("Employee")
and is effective as of May 1, 1996.
R E C I T A L S :
- - - - - - - -
WHEREAS, at the May 15, 1996 meeting of the Company Board of Directors it
was unanimously approved to adjust the Employee's compensation, effective May 1,
1996, to an annual salary of $150,000 with a bonus potential equal to 50% of the
annual salary. The bonus will be based 70% on the achievement of financial
objectives, and 30% on subjective criteria and goals established and mutually
agreed upon between the Employee and the Company Board of Directors; and
WHEREAS, the parties agreed to amend the Employment Agreement to effectuate
the foregoing in accordance with the terms set forth herein below.
NOW, THEREFORE, for the reasons set forth hereinabove, and in consideration
of the mutual promises contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. The dollar amount set forth in Subsection 3(a) shall be changed from
$110,000 to $150,000.
2. Subsection 3(b) shall be deleted in its entirety and replaced with the
following:
b. Additional Incentive Compensation. In addition to the base salary
---------------------------------
provided hereunder, Employee shall be entitled to an additional incentive
compensation of up to 50% of his annual salary (the "Bonus") based on the
performance of the Company. 70% of the Bonus awarded will be based upon
achievement of financial objectives, and 30% of the Bonus awarded will be based
upon subjective criteria and goals established and mutually agreed upon between
the Employee and the Board of Directors of the Company.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
Employment Agreement to be executed on its behalf as of the day and year first
above written.
CARDIAC CONTROL SYSTEMS, INC. EMPLOYEE
By: /s/ Bart Gutekunst /s/ Alan J. Rabin
--------------------------------- --------------------------------------
Title: Chairman
------------------------------
<PAGE>
EXHIBIT 21.0
SUBSIDIARIES OF THE REGISTRANT
CARDIAC CONTROL SYSTEMS FAR EAST, LTD.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 674
<ALLOWANCES> 6
<INVENTORY> 1,424
<CURRENT-ASSETS> 2,326
<PP&E> 5,626
<DEPRECIATION> 3,652
<TOTAL-ASSETS> 5,317
<CURRENT-LIABILITIES> 3,042
<BONDS> 0
0
0
<COMMON> 265
<OTHER-SE> 22,351
<TOTAL-LIABILITY-AND-EQUITY> 5,317
<SALES> 3,823
<TOTAL-REVENUES> 5,886
<CGS> 2,340
<TOTAL-COSTS> 6,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> (1,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,240)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
