<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required)
DECEMBER 31, 1997 1-9731
(FOR THE FISCAL YEAR ENDED) (COMMISSION FILE NUMBER)
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required)
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-0925679
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OF ORGANIZATION)
5910 COURTYARD DRIVE #300 78731
AUSTIN, TEXAS (ZIP CODE)
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(512) 343-6912
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
On March 20, 1998, there were 3,563,101 shares of the registrant's common
stock outstanding, par value $.01, which is the only class of common or voting
stock of the registrant. As of March 20, 1998, the aggregate market value of
the voting stock of the registrant held by non-affiliates was $5,905,226 based
upon the closing price of the shares of common stock on the American Stock
Exchange.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibits of a Registration Statement on Form S-18 as filed with the
Commission in April 1988, Registration Statement No. 33-20945-FW, a
Registration Statement on Form S-1 as filed with the Commission in August
1990, Registration Statement No. 33-36607, a Registration Statement on Form
S-8 as filed with the Commission in October 1992, Registration Statement No.
33-53810, and a Registration Statement on Form S-3 filed with the Commission
in October 1993, Registration Statement No. 33-69970, are incorporated by
reference into Part IV, Item 14.
<PAGE>
PART I
ITEM 1. BUSINESS
BACKGROUND
Arrhythmia Research Technology, Inc. ("ART") was incorporated under the laws
of the State of Louisiana in 1981 and reincorporated under the laws of the
State of Delaware in 1987. ART is engaged in marketing and manufacturing
computerized medical instruments which acquire data and analyze electrical
impulses of the heart to detect and aid in the treatment of potentially
lethal arrhythmias. ART's product line includes signal-averaging
electrocardiographic (SAECG) equipment and cardiac catheterization equipment.
ART's patented signal-averaging product line is comprised of the 1200
EPX-TM-, the LP-Pac Q-TM-, the PREDICTOR IIc-TM-, and the
PREDICTOR-Registered Trademark- I. ART also manufactures and sells the
proprietary K3 cardiac catheterization product line. Additionally, ART was
the exclusive distributor for the CardioMapp-TM- and CardioLab-TM-, Prucka
Engineering, Inc.'s electrophysiology products through December 31, 1996.
From January 1, 1997 through December 31, 2002, ART will receive a royalty on
certain products sold by Prucka. (See "Electrophysiology Products).
ART continues to aggressively seek to acquire additional products and to look
for acquisition candidates to replace the electrophysiology product sales. In
this process, the Company has developed relationships and possible
collaborations with other companies which could result in opportunities to
offset the reduction in sales of the electrophysiology products. ART will
continue to receive royalties on sales of the CardioLab product of 4% of net
receipts on the first $10,000,000 and 1% on any excess in 1998. ART will
receive a royalty of 3% on the first $10,000,000 and 25% of the royalties it
would otherwise be entitled to receive for revenues attributed to Prucka
products in excess of $10,000,000 from January 1, 1999 through 2002.
ART's wholly-owned subsidiary, Micron Products Inc. ("Micron"), is a
manufacturer and distributor of silver/silver chloride-plated sensor elements
("sensors") used in the manufacture of disposable electrodes constituting a
part of ECG diagnostic and monitoring instruments. Micron also acts as a
distributor of metal snap fasteners ("snaps"), another component used in the
manufacture of disposable electrodes. In 1997, Micron acquired the rights to
an electrode assembly machine which it now manufactures and leases to its
sensor and snap customers. Micron was incorporated in the State of
Massachusetts in 1972 and is located in Fitchburg, Massachusetts.
The following table sets forth for the periods specified, the net sales
derived from the products of ART and its subsidiary Micron (collectively the
"Company"):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 % 1996 % 1995 %
------------ --- ------------ ---- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Sensors & Snaps ........... $ 9,495,653 80 $ 9,240,474 37 $ 8,448,343 37
CardioLab & CardioMapp .... 1,332,099 11 14,611,720 59 13,671,703 60
SAECG equipment ........... 673,414 6 935,655 4 808,043 3
K-3 CathLab ............... 386,021 3 - - - -
------------ --- ------------ ---- ------------- ----
Total ................. $ 11,887,187 100 $ 24,787,849 100 $ 22,928,089 100
------------ --- ------------ ---- ------------- ----
------------ --- ------------ ---- ------------- ----
</TABLE>
The Company believes that the continued growth in the fields of cardiology and
electrophysiology will result in significant opportunities for the Company to
supply equipment and related disposables to hospitals, clinics and physicians.
The Company is actively seeking to acquire additional product lines to supply
this market.
RECENT DEVELOPMENTS
ACQUISITION OF THE K3 PRODUCT LINE
On April 14, 1997, ART acquired from Astro-Med, Inc. substantially all of the
assets related to the following products: (i) the basic cardiac catheterization
monitoring system (the "K3-I"), (ii) the stand-alone hemodynamic analysis
package (the "K3-II"), (iii) the network ready hemodynamic analysis package
(the K3-III"), and (iv) the control work station (the K3-WI") (collectively,
the "K3 Products"). The purchase price for the assets was $350,000, payable
$50,000 at closing and a promissory note in the amount of $300,000. The note
is due and payable not later than the third anniversary of the closing
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date. Interest only payments are payable on the last day of each quarter
during the first year after the closing and, thereafter, principal and
interest payments, in an amount necessary to fully amortize the
then-outstanding balance of the note in equal quarterly payments are payable
on the last day of each quarter.
Simultaneously with the execution of the asset purchase agreement, ART
entered into a manufacturing agreement with Astro-Med. The term of the
agreement began on April 14, 1997 and continues for three years; provided,
however, that ART may, on sixty days' prior written notice to Astro-Med,
terminate the manufacturing agreement after the date of the first
anniversary. During the term of the manufacturing agreement, Astro-Med will
manufacture the K3 Products at prices which are specified in the agreement.
The K3 cath lab is an advanced hemodynamics system for use in a standard
hospital cath lab. The K3 is designed to produce complete hemodynamic
analysis and comprehensive reports, including chronological logs, preliminary
findings, full inventory control reports, letter generation and medical
records, in a simplified drop-down menu format. The FDA issued a 510(k) in
November 1994 which allows the K3 Products to be sold in the United States.
ACQUISITION OF A HIGH SPEED ELECTRODE ASSEMBLY MACHINE
Pursuant to an asset purchase agreement, dated March 5, 1997, Micron
acquired from Newmark, Inc. substantially of its assets used in the business
of manufacturing, marketing, assembling, marketing, leasing and selling
medical stud and eyelet application machines. The purchase price for the
acquired assets was $400,000, payable as follows: (i) cash paid on account
in the amount of $58,368; (ii) cash in the amount of $141,632 paid on March
31, 1997; and (iii) a non-interest bearing promissory note in the principal
sum of $200,000, payable in twenty equal monthly installments of $10,000 each.
At the same time it entered into the asset purchase agreement, Micron
executed a manufacturing agreement with Newmark pursuant to which Newmark
will continue to manufacture and service the machines on behalf of Micron for
a period of one year for a specified price. The manufacturing agreement is
automatically renewable for successive one-year terms.
Acquisition of the electrode assembly machines provides Micron with a
complimentary product which it can lease to existing sensor and snap
customers.
SOFTWARE CONVERSION AGREEMENT
In April 1997, the Company entered into an agreement with Softheart, Inc,
the developer of the original software for the Cath Lab to convert the Cath
Lab software to a Windows NT platform. ART has agreed to pay Softheart, Inc.
$145,000, payable $30,725 upon execution of the agreement and $6,725 per
month for the next 16 succeeding months. Simultaneously with the execution
of the software conversion agreement, ART and Softheart entered into an
agreement for the license of the software upon the completion of the
conversion. License fees are based on net revenues with certain minimum
payments. Development costs will be offset against license fees until such
times as the Company has recovered the $145,000.
DESCRIPTION OF BUSINESS
SIGNAL-AVERAGING ELECTROCARDIOGRAPHIC (SAECG) PRODUCTS
Sudden cardiac death afflicts over 400,000 individuals in the United States
alone each year. As described in an Expert Consensus on Signal-Averaged
Electrocardiography published in the Journal of the American College of
Cardiology (Vol. 27, No. 1, 1996), these occurrences are due to sustained
ventricular tachycardia (abnormally rapid heartbeat) or ventricular
fibrillation (very fast, completely irregular heartbeat) which severely
affect the capability of the heart's pumping chambers or ventricles.
Ventricular arrhythmias are distinguished from arrhythmias affecting the
atrium (the non-pumping chambers of the heart), which generally are not
life-threatening. The majority of ventricular arrhythmias occur in patients
who have survived a prior heart attack or have significant coronary artery
disease. However, individuals with primary electrical disturbances of the
heart comprise an additional subset of patients. Thus, various techniques
have evolved to detect and treat individuals at risk of the development of
sustained ventricular arrhythmias which may cause marked interference with
the proper functioning of blood circulation, resulting, in some cases, in
sudden cardiac death.
By analyzing the electrical signals from the hearts of animal and human
survivors of heart attacks, researchers have found that, in contrast to the
relatively discrete, narrow high amplitude signals recorded from normal
subjects, low amplitude, high frequency signals persisted well after the
heartbeats were recorded in approximately 20% to 25% of heart attack survivors.
These latter signals became known as "late potentials." Since directly
recorded late potentials had been documented in subjects with malignant
ventricular arrhythmias, the hypothesis arose that late potentials would be
recorded in subjects with,
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or at risk of, sustained ventricular arrhythmias. After successful surgical
treatment of ventricular arrhythmias, these late potential signals
disappeared, which indicated an association between these abnormal signals
and the underlying condition.
Signal-averaged surface (non-invasive) electrocardiography has become well
established as a means of evaluating and diagnosing those individuals at risk
for potentially lethal ventricular arrhythmias as documented by an Expert
Consensus on SAECG (noted above). The steps involved in obtaining a SAECG
include: recording, digitization, averaging, amplification, and filtering.
Conventional surface electrocardiography generally cannot detect late
potentials. A major limitation stems from the inability to isolate the low
amplitude signals. Amplification of the standard electrocardiogram to detect
late potentials results in contamination by coincident electrical noise. The
SAECG processes enable late potentials to be amplified and enhanced, while
eliminating undesired electrical noise. At the annual American Heart
Association (AHA) Scientific Sessions in November 1995, abstracts of studies
were presented which described potential new areas of effective use of ART's
SAECG technology. Of primary interest were (1) SAECG as a predictor of
sudden cardiac death after coronary arterial bypass surgery; (2) SAECG as a
tool for determining the effectiveness of ACE inhibitor drug therapy; and (3)
as a non-invasive method of detecting rejection after heart transplant
surgery. At the 1996 AHA Sessions, a significant study showed that SAECG
could be an effective diagnostic tool for patients with coronary heart
disease (CHD) even before they have had a heart attack. Patients with CHD
approximate 15.0 million. An SAECG study involving 458 patients who had an
acute myocardial infarction was published in the American Heart Journal in
1997. In the absence of late potentials, the probability of having no
arrhythmic event was 99% in the first year, and 96% in five years. On the
other hand, the presence of late potentials found in the SAECG represents the
strongest single predictor of future arrhythmic risk in patients after a
first acute myocardial infarction, with a 4.6-fold increase in the risk of
sudden death or sustained ventricular tachycardia.
1200 EPX
The 1200 EPX is a specialized high resolution ECG system used to detect late
potentials which cannot be detected by conventional surface ECG instruments.
The 1200 EPX is used in conjunction with an MS-DOS based personal computer
utilizing the patented Simson bi-directional Butterworth filtering technique.
The 1200 EPX acquires, digitizes, averages and filters the cardiac signals
providing late potential analysis with its time domain and frequency-domain
analysis software. ART has the rights to the use of the Simson bi-directional
Butterworth filtering technique for the detection of late potentials in the
terminal portion of the QRS cycle. This method, characterized as the
"Standard", was pioneered by Michael Simson, MD, and has been built into each
1200 EPX . Hard copy reports are generated using laserjet printers. See
"EPSoft-TM- Software Library" for post-processing applications available for the
1200 EPX.
LP-PAC Q AND PREDICTOR IIC
The LP-Pac Q is a low-cost signal-averaging kit for MS-DOS based personal
computers which consists of a "smart" SAECG pre-amplifier/patient cable, lead
wires, a data acquisition system (DAS) card to receive ECG signals in real-
time, time domain late-potential analysis software and an isolation safety
transformer. The LP-Pac Q uses the patented Simson bi-directional Butterworth
filtering technique, the recognized standard for the detection of late
potentials, and provides results which are substantially equivalent to the 1200
EPX. All software modules for the 1200 EPX are also available for the LP-Pac
Q, with the exception of Heart Rate Variability analysis. See "EPSoft-TM-
Software Library". In January 1996, ART received CE mark certification for the
LP-Pac Q. The certification of the CE mark is required to export products to
the European community.
The PREDICTOR IIc is a cart-based patient-isolated system comprised of the
same components as the LP-Pac Q kit, but running PREDICTOR software on a
notebook computer with a docking station. A Hewlett-Packard laserjet printer
is supplied as part of the cart-based system.
PREDICTOR I
The PREDICTOR I is a personal computer-based signal-averaging device that
records and analyzes cardiac late potentials. The PREDICTOR I consists of a
computer, digitizing hardware, programmable amplifiers, QRS detection
hardware/firmware, preamplifiers, and a printer. Software is provided to
facilitate the use of these components. The PREDICTOR I is designed to give
the physician a flexible tool for the research setting as well as for clinical
use.
EPSOFT-TM- SOFTWARE LIBRARY
The primary thrust in software development efforts since mid-1997, has been
the migration of DOS-based products into the Windows 95 environment.
ART's research and development staff has recently developed breakthrough
digital signal processing techniques to enhance the overall analytical power of
the SAECG test. Two such new developments are the IntraSpect-TM- and Early
Potential
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Analysis software packages. IntraSpect-TM-, which is now protected by a
newly allowed United States patent, permits visualization and quantification
of electrical fragmentation within the entire QRS complex (entire ventricular
depolarization cycle), using individual-lead Acceleration Spectrum Analysis
(ASA). Hence, micropotential detection is no longer limited to the 'late
potential' region. Furthermore, patients with conduction delay problems
(i.e. "bundle branch block") can have SAECG analysis performed on them. This
covers 25% of a patient population which previously could not be analyzed
with SAECG.
The Early Potential Analysis software has been designed specifically for P
wave-triggered SAECG acquisition and analysis and is used as a research tool
in assessing patients at risk for atrial fibrillation and flutter. ART
continues to offer other optional post-processing signal averaging software
packages for the 1200 EPX and LP-Pac Q, including Cal-ABS-TM- Plus software for
individual lead time domain analysis and FFT-Plus-TM- spectral temporal mapping
software; and Heart Rate Variability (HRV) software for the 1200 EPX. These
optional signal-averaging software packages are not approved by the FDA and
are for research purposes, not clinical diagnosis.
ART also offers the PREDICTOR Heart Rate Variability ECG software ("PREDICTOR
HRVECG"), which is marketed under a 510(k) granted by the FDA in 1989.
PREDICTOR HRVECG provides time and frequency domain mathematical tools for the
non-invasive assessment of R wave to R wave in sequential QRS complexes.
PREDICTOR HRVECG can be used alone or in conjunction with a PREDICTOR I,
PREDICTOR IIc, and LP-Pac Q signal-averaging systems.
Software upgrades are provided at no charge to customers with systems under
warranty. Sales of post-processing software products were not material to the
Company's business in 1997.
K3 CATH-LAB
On April 14, 1997, ART acquired from Astro-Med, Inc. substantially all of the
assets related to the following products (i) the basic cardiac catheterization
monitoring system (the "K3-I"), (ii) the stand-alone hemodynamic analysis
package (the "K3-II"), (iii) the network ready hemodynamic analysis package
(the K3-III"), and (iv) the control work station (the K3-WI") (collectively,
the "K3 Products"). The purchase price for the assets was $350,000, payable
$50,000 at closing and a promissory note in the amount of $300,000. The note
is due and payable not later than the third anniversary of the closing date.
Interest only payments are payable on the last day of each quarter during the
first year after the closing and, thereafter, principal and interest payments,
in an amount necessary to fully amortize the then-outstanding balance of the
note in equal quarterly payments are payable on the last day of each quarter.
Simultaneously with the execution of the Asset Purchase Agreement, ART entered
into a Manufacturing Agreement with Astro-Med. The term of the agreement began
on April 14, 1997 and continues for three years; provided, however, that ART
may, on sixty days' prior written notice to Astro-Med, terminate the
Manufacturing Agreement after the date of the first anniversary. During the
term of the Manufacturing Agreement, Astro-Med will manufacture the K3 Products
at prices which are specified in the Agreement.
The K3 cath lab is an advanced hemodynamics system for use in a standard
hospital cath lab. The K3 is designed to produce complete hemodynamic analysis
and comprehensive reports, including chronological logs, preliminary findings,
full inventory control reports, letter generation and medical records, in a
simplified drop-down menu format. This system software is presently in DOS,
but will be implemented in Windows NT in the near future, along with hardware
upgrades to improve system performance and market share. In April 1997, the
Company entered into an agreement with Softheart, Inc, the developer of the
original software, to convert the software to a Windows NT platform. ART has
agreed to pay Softheart, Inc. $145,000, payable $30,725 upon execution of the
agreement and $6,725 per month for the next 16 succeeding months.
Simultaneously with the execution of the software conversion agreement, ART and
Softheart entered into an agreement for the license of the software upon the
completion of the conversion. License fees are based on net revenues with
certain minimum payments. The FDA issued a 510(k) in November 1994 which
allows the K3 Products to be sold in the United States.
ELECTROPHYSIOLOGY PRODUCTS
CARDIOLAB
The CardioLab was introduced and received a 510(k) from the FDA in early 1991.
The CardioLab is a computerized recording and analysis system used by
electrophysiologists in the diagnosis and treatment of arrhythmias. The
CardioLab is used in conjunction with a stimulator and catheters inserted
through a blood vessel, allowing an electrophysiologist to electronically
induce, monitor, record, analyze and treat arrhythmias under controlled
conditions. The CardioLab records cardiac electrical activity which is
amplified, digitized and transmitted to a computer for real time analysis and
display on a high resolution color graphics monitor or laser printer. Because
the CardioLab can be used to accurately detect the presence
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and location of diseased or damaged heart tissue, in some cases, a procedure
can be performed less invasively via catheter, as compared to open heart
exploratory surgery, to treat the condition.
The CardioLab components include an amplifier, computer, monitor and printer.
These hardware components are manufactured by various suppliers and are, to a
large extent, interchangeable. The CardioLab is manufactured by Prucka
Engineering, Inc. of Houston and was distributed exclusively by ART until
December 31, 1996 pursuant to an agreement dated April 1, 1994. During 1997
and 1998, ART will receive a 4% commission on net sales of CardioLab systems
and accessories sold anywhere in the world, up to a ceiling of $10,000,000.
ART receives 25% of the commissions it would otherwise be entitled to receive
for revenues attributable to CardioLab systems that exceed $10,000,000. From
January 1, 1999 through December 31, 2002, ART will receive a commission of 3%
of the net sales of CardioLab systems sold anywhere in the world, up to a
ceiling of $10,000,000 in total net sales. ART will receive 25% of the
commissions it would otherwise be entitled to receive for revenues attributable
to the Prucka products that exceed $10,000,000.
CARDIOMAPP
The CardioMapp was introduced and received a 510(k) from the FDA inNovember
1989. The CardioMapp is a coputerized cadiac mapping system used during open
heart surgery to assist surgeons in locating and treating electrical
malfunctions of the heart. The system uses several types of electrode arrays
placed on the heart to monitor and record cardiac electrical activity. The
electrical activity is amplified, digitezed and transmitted to a computer for
real-time analysis and display in the operating room during surgery on a high
resolution color graphics display or color printer. The graphics display, or
map, is presented to the surgeon within one to two minutes after the data is
recorded.
The CardioMapp components include fiber optic cable and electrodes, an
amplifier, junction box, copmuter monitor and printer. The CardioMapp is
manufactured by Prucka and was distributed exclusively by ART until December
31,1996 pursuant to an agreement dated April 1, 1994. During 1997, the final
year ART will receive commissions for CardioMapp products, ART received 4%
commissions on net sales of CardioMapp systems and accessories sold anywhere in
the world, uup to a ceiling of $10,000,000 in total net sales. ART received
25% of the commissions it would otherwise be entitled to receive for revenues
attributable to CardioMapp systems that exceed $10,000,000.
SENSORS AND SNAPS
SILVER/SILVER CHLORIDE-PLATED SENSOR ELEMENTS
Micron is a manufacturer and distributor of silver/silver chloride-plated
sensor elements for use in the manufacture of disposable electrodes for ECG
diagnostic, monitoring and related instrumentation.1
The disposable electrode has proven to be more accurate and reliable than the
reusable electrodes available in the market. Additionally, disposable
electrodes are faster and easier to use as compared to reusable electrodes,
which require cleaning after each use. As a result, the disposable electrode
has replaced the reusable electrode in many applications. A disposable
electrode generally consists of an adhesive for attachment to the patient's
body, a gel to insure maximum signal acquisition, a conductor or snap for
attachment to the transfer wires and the sensor element. The type of sensor
element manufactured by Micron consists of a molded plastic substrate plated
with a silver/silver chloride surface which is a highly sensitive conductor of
electrical signals. Silver/silver chloride-plated disposable electrodes are
utilized in coronary care units and for other monitoring purposes. In most of
these ECG procedures, up to ten electrodes are used and after each test, all
such electrodes are discarded.
In addition to the traditional ECG tests, disposable electrodes incorporating
Micron's sensor elements are used in connection with the stress and "Holter"
tests. The Holter test utilizes a portable ECG heart monitoring device that is
worn by a patient for up to 24 hours during the patient's normal activity and
is designed to record data from the patient's heart. The stress test monitors
the human heart during rest followed by exercise and again at rest. Both the
Holter and stress tests employ disposable silver/silver chloride disposable
electrodes.
METAL SNAP FASTENERS
In February, 1991, Micron entered into a non-exclusive world-wide distribution
agreement with a manufacturer of metal snap fasteners used to attach the
disposable electrode to the lead wires of the ECG machine. As a component of
the finished silver/silver chloride disposable electrode, the snaps are sold to
some of the same customers that use Micron's sensor elements. Micron purchases
finished snap fasteners from its supplier, performs quality control procedures
and repackages the snaps for shipment to customers. Snap shipments are often
included along with Micron's sensor shipment to a customer. While Micron is
attempting to increase the market penetration of this product, there can be no
guarantee that the snap fastener product line will produce increased revenues
or profits in future periods.
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HIGH SPEED ELECTRODE ASSEMBLY MACHINE
Pursuant to an asset purchase agreement, dated March 5, 1997, Micron acquired
from Newmark, Inc. substantially of its assets used in the business of
manufacturing, marketing, assembling, marketing, leasing and selling medical
stud and eyelet application machines. The purchase price for the acquired
assets was $400,000, payable as follows: (i) cash paid on account in the
amount of $58,368; (ii) cash in the amount of $141,632 paid on March 31, 1997;
and (iii) a non-interest bearing promissory note in the principal sum of
$200,000, payable in twenty equal monthly installments of $10,000 each.
At the same time it entered into the asset purchase agreement, Micron executed
a manufacturing agreement with Newmark pursuant to which Newmark will continue
to manufacture and service the machines on behalf of Micron for a period of one
year for a specified price. The manufacturing agreement is automatically
renewable for successive one-year terms.
Acquisition of the electrode assembly machines provides Micron with a
complimentary product which it can lease to existing sensor and snap customers
The following table shows sales of sensors, snaps and snap machines by Micron
for the years ended December 31:
<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
------------ --- ------------ --- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Sensors ............... $ 7,938,325 84 $ 7,838,438 85 $ 7,296,163 86
Snaps ................. 1,511,558 16 1,402,036 15 1,152,180 14
Snap Machines ......... 45,770 - - - - -
------------ --- ------------ --- ------------ ---
Total .............. $ 9,495,653 100 $ 9,240,474 100 $ 8,448,343 100
------------ --- ------------ --- ------------ ---
------------ --- ------------ --- ------------ ---
</TABLE>
ENVIRONMENTAL REGULATION
Like many industrial processes, the Micron manufacturing process utilizes
hazardous and non-hazardous chemicals, the treatment and disposal of which are
subject to federal and state regulation. Since its inception, Micron has
expended significant funds to train its personnel, install waste treatment and
recovery equipment and to retain an independent environmental consulting firm
to constantly review, monitor and upgrade its air and waste water treatment
activities. As a result, Micron believes that the operation of its
manufacturing facility is in compliance with currently applicable safety,
health and environmental laws and regulations.
GROUNDWATER
During September, 1992, as a requirement for obtaining a mortgage to
repurchase its Fitchburg, Massachusetts manufacturing facility, Micron
performed an environmental site assessment, including an analysis of
groundwater samples for the presence of certain petroleum-based products,
metals and solvents. The site assessment indicated levels of petroleum
products and metals in excess of the minimum allowable standards. Micron filed
a release report and a Preliminary Assessment and Interim Site Classification
form with the Massachusetts Department of Environmental Protection ("DEP").
The DEP classified the site as a disposal site within the meaning of the
Massachusetts Oil and Hazardous Material Release Prevention and Response Act
and identified Micron as a potentially responsible party with liability.
On January 21, 1993, Micron filed its Phase I Limited Site Investigation and
Waiver Application ("Application"). The Application contained a historical
overview of past uses of the site and its surrounding area. The facility is
located in the center of a heavily developed industrial area and use of the
site and surrounding properties predates the early 1900's. Micron has occupied
the site from 1982 to the present. The Application identified several
potential off-site sources for the discharge and demonstrated that none of the
types of chemicals found on the property are used in the Micron manufacturing
process. During February, 1993, the representatives of the DEP visited the
site. On February 18, 1993, the DEP classified the site as a non-priority
disposal site and granted a waiver under the Application with the stipulation
that Micron evaluate the upgradient, off-site sources which may have caused the
contamination.
As a condition of the waiver approved by the DEP, Micron was required to
prepare a five-year plan of remediation for the property. Micron retained an
environmental consulting firm to organize, design, and implement a plan of
remediation and to represent Micron in its dealings with the regulatory
authorities. In January, 1998, Micron filed a Tier Classification, Tier II
Extension & Tier II Transfer Transmittal Form to allow further subsurface
investigation and a consequent risk assessment to be performed. Upon the
completion of these Phase II activities, Micron will apply for final approval
and clearance from the DEP. The Massachusetts Contingency Plan allows closure
of sites only after a condition of "no significant risk" is demonstrated. If
the DEP determines that the Company needs to implement the last phase of
remediation (Phase III), the
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Company could incur approximately $150,000 to $200,000 of additional clean-up
costs to remove contaminated property as estimated by the environmental
engineering firm hired to represent the Company in its dealing with the DEP.
Although the ultimate outcome is uncertain until the remainder of the work is
completed, the engineering firm and management of the Company believe that
the last phase of remediation will not be required.
During 1997, Micron spent approximately $700,000 for capital improvements
related to modification and upgrading of its manufacturing processes primarily
related to replacement of its waste water equipment. Continued work to
implement savings related to recovery and recycling of water, silver, and other
chemicals to offset some of the costs of the improvements is expected during
1998. The Company expects to spend approximately $200,000 for these
improvements which will be funded from operating cash flow.
OPERATIONS
During 1997, 1996 and 1995, Micron spent approximately $320,000, $137,000 and
$139,000, respectively on an extensive program to evaluate its manufacturing
process, employee training, health and safety programs, air and waste water
treatment systems, and to ensure compliance with current and future federal,
state and local regulations, as well as to evaluate the adequacy of such
systems to facilitate future growth. The nature of certain of the above
expenses are non-recurring, while others are normal recurring expenses
associated with industrial producers in the Commonwealth of Massachusetts. In
1994, costs related to expenditures to improve the efficiency of the
manufacturing process and to help mitigate or prevent possible future
environmental contamination were capitalized. Such costs are amortized over
their estimated useful lives of five years. No costs were capitalized in 1997,
1996, and 1995.
GENERAL
CUSTOMERS AND SALES
ART sells its electrocardiographic, and cardiac catheterization, products to
hospitals where purchasing decisions are typically made on the advice of
physicians affiliated with such hospitals. The electrocardiographic products
are also marketed to individual physicians and clinics. ART's sales cycle,
with respect to hospitals, which generally commences at the time a hospital
issues a request for proposal and ends upon submission of a purchase order, may
take up to nine months. The sales cycle with respect to physicians and clinics
is significantly shorter, typically 30 to 60 days. ART generally fills orders
within approximately 30 days of receipt of customer orders for
electrocardiographic products and within approximately 60-90 days for cardiac
catheterization products. Because orders are filled shortly after receipt,
backlog is not usually material to ART's business.
Micron manufactures its sensor elements against specific customer purchase
orders in accordance with supply agreements between Micron and the electrode
manufacturers. There are approximately 50 significant manufacturers of
silver/silver chloride-plated disposable electrodes world-wide. Micron sells
its sensor elements to most of these manufacturers. During the year ended
December 31, 1997, three major customers accounted for 35%, 23% and 13% of net
sales of Micron.
The following table sets forth, for the periods indicated, the approximate
consolidated net sales and percentages of net sales derived from sales of the
Company's products in its geographic markets:
8
<PAGE>
<TABLE>
<CAPTION>
NET SALES YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1997 % 1996 % 1995 %
------------- --- ------------- --- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
United States .................. $ 7,156,957 60 $ 15,935,126 64 $ 16,380,540 71
Europe ......................... 2,726,142 23 4,829,713 20 4,325,860 19
Canada, Mexico & South America . 1,715,115 15 1,587,372 6 1,078,263 5
Pacific Rim .................... 236,654 2 2,303,520 9 1,101,085 5
Other 52,319 - 132,118 1 42,341 -
------------- --- ------------- --- ------------- ---
Total $ 11,887,187 100 $ 24,787,849 100 $ 22,928,089 100
------------- --- ------------- --- ------------- ---
------------- --- ------------- --- ------------- ---
</TABLE>
INSTALLATION AND SERVICE
ELECTROCARDIOGRAPHIC, AND CARDIAC CATHETERIZATION
INSTALLATION. When a purchase order is received for SAECG products, ART's
sales representatives or distributors are responsible for installation of the
systems. ART records the revenue at shipment in these cases, as the title and
risk of loss passes to the customer at the time of shipment. However, in cases
where ART personnel are scheduled to perform this in-service/installation, this
revenue is not recognized until that time. The period from the time of
execution of the purchase order until completion of installation of such system
typically ranges from one to four weeks. The period from the time of execution
of the purchase order until completion of installation of a K3 Cath-Lab is
approximately 30-45 days.
TRAINING. Ordinarily, the sales representative provides training to customers
in the use of SAECG products. ART personnel are sometimes used to provide
additional training support, as necessary. Generally one day of training is
provided on-site on the day of installation. ART provides training for both
the operation and use of the hardware and of all standard applications of the
software. When a K3 Cath-Lab is installed, two to four days of training is
provided by ART personnel.
WARRANTY AND MAINTENANCE. ART provides a one-year warranty which covers parts
and labor for all of its SAECG software and hardware products. Customers may
renew the warranty annually at a cost of approximately $1,000 to $2,700
depending on the service level and type of system. The K3 comes with a
standard one-year labor and parts warranty included in the purchase price.
Customers may renew the warranty at a cost of approximately $1,000 to $2,000
annually. All K3 repairs are made by Astro-Med personnel.
SENSORS AND SNAPS
Micron sells its sensors and snaps to original equipment manufacturers of
disposable electrodes who assemble the finished product. Micron sales,
manufacturing and customer service personnel provide the electrode
manufacturers with technical support whenever necessary.
PRODUCT SUPPLIERS AND MANUFACTURING
ELECTROCARDIOGRAPHIC
ART currently has limited manufacturing capabilities for its signal averaging
products and relies upon established inventories to fill current sales orders.
When additional units are required, ART plans to sub-contract the basic unit
production and perform final assembly and quality-control testing in-house.
CARDIAC CATHETERIZATION SYSTEMS
ART is dependent upon Astro-Med as the sole manufacturer of the K3 product
line.
SENSORS AND SNAPS
Micron manufactures its sensor elements at its Fitchburg, Massachusetts
facility employing a proprietary non-patented seven-step process. The raw
materials used by Micron in its sensors are (1) plastic resins used to mold the
substrates and (2) silver/silver chloride chemical solutions for plating the
molded plastic substrates. Both the plastic used by Micron and the
silver/silver chloride solutions are in adequate supply. Fluctuations in the
price of silver are contractually passed on to customers.
During February, 1991, Micron entered into a non-exclusive world-wide
distribution agreement for medical snap fasteners manufactured by TRW Inc.
("TRW"). TRW later sold its entire fastener operation and Micron's medical
snap fasteners are currently manufactured by Scovill, Inc. ("Scovill"). The
agreement allows Micron to buy the various snap fasteners in bulk
9
<PAGE>
and to repackage and resell them to its customers. The agreement has a
provision for annual renewals and Micron and its supplier are cooperating to
increase market penetration of the Scovill snap products.
MARKETING AND COMPETITION
ART engages independent sales representatives and distributors of medical
instruments in various regions throughout the United States and foreign
distributors to market all of ART's products. Sales representatives, who are
paid on a commission basis, are generally responsible for identifying customers
and demonstrating products in their respective geographic markets. ART has
arrangements with 34 foreign distributors who sell ART's products in most of
the significant foreign markets. To date, ART's independent sales organization
has accounted for substantially all of ART's sales of SAECG products. All
domestic sales of the K3 products have been initiated by ART's internal sales
force. ART however, is currently in the process of building a direct sales
force domestically. ART believes that a direct sales force will have a greater
commitment to its products and will be more economical.
ART directly employs sales, marketing and management personnel who are
responsible for making sales presentations and working in conjunction with
sales representatives in marketing and selling products to doctors and
hospitals. ART's staff prepares advertising copy, full-color sales brochures,
technical bulletins, reimbursement documentation, and sponsors training
programs. In addition, the in-house marketing department sets sales goals and
manages the independent sales organizations as well as making marketing
decisions with respect to present and future products.
SAECG PRODUCTS
ART's marketing efforts with respect to SAECG products have focused primarily
on those hospitals with an electrophysiology laboratory and
electrophysiologists with the ability to apply the late potential test in a
clinical environment. ART believes that this market segment is a relatively
small percentage of the potential market for signal-averaging instruments. ART
is expanding its marketing focus to include buying groups, cardiologists, and
other physicians involved in the diagnosis of heart problems. In the United
States there are approximately 9,000 cardiologists certified by the American
Board of Internal Medicine. ART markets its SAECG products at regional and
national trade shows in the United States and Europe. In addition, ART markets
its SAECG products through the use of direct mail campaigns to selected
cardiologists.
ART is aware of certain other companies which have developed or are developing
technologies and products which are competitive with ART's products. Other
technologies or products which are functionally similar to ART's signal-
averaging products are currently available from a number of competitors,
including Del Mar Avionics, Marquette Electronics, Inc., and Hewlett-Packard
Company, most of which are well established, have substantially greater
financial and other resources than ART and have established reputations for
success in the development, sale and service of products. ART believes that
its competitive advantage is based on a number of factors, including price,
ease of use, and clinical acceptance of the methodology employed in ART's
signal-averaging products.
CARDIAC CATHETERIZATION PRODUCTS
The K3 Cath-Lab product is marketed through national trade shows in the United
States. Additionally, ART has placed full-page advertisements in trade
journals. Competitors for the K3 include the Midas system from E for M Corp.,
the MAC-Lab/Cath Lab Manager from Marquette, Inc., the Horizon 9000 WS from
Mennen Medical, the Q-Cath-DS from Quinton Instrument, the Cathcor C & T from
Siemens Medical, and the Series II from Witt Biomedical. Most of these
competitors are well established and have substantially greater financial and
other resources than ART. ART believes that its competitive advantage is based
on a number of factors, including price, ease of use, and clinical acceptance
of the methodology employed in the K3.
SENSORS AND SNAPS
Micron sells its sensor elements to most major manufacturers of disposable
silver/silver chloride ECG electrodes. Micron employs one full-time
salesperson for sensors and snaps. The Company believes that it has two
competitors for sensors and that its sales of sensors greatly exceed those of
its competition.
ENGINEERING AND RESEARCH AND DEVELOPMENT
Beginning in mid-1997, ART's engineering and research and development
efforts focused primarily on (i) moving DOS software packages in the SAECG
and K3 cathlab product lines into the Windows environment and (ii) updating
the quality system to reflect and comply with new FDA GMP and ISO 9001
quality system procedures. ART currently employs two engineers engaged in
software and hardware development and one technician for customer telephone
support, warranty repairs, and limited manufacturing. ART also engages
outside consultants for specific projects. For example, Southwest Research
Institute in San Antonio, Texas, were consultants for revising the quality
system procedures. For the fiscal years
10
<PAGE>
ended December 31, 1997, 1996, and 1995 ART had research and development
expenses of approximately $371,000, $173,000, and $183,000, respectively, in
connection with engineering, regulatory, and research and development
activities, which consisted principally of the salaries of its employees and
consultants.
GOVERNMENT REGULATION
Diagnostic products such as those marketed by ART are subject to an extensive
regulatory clearance process by the FDA and comparable agencies in other
countries. ART believes that the products currently marketed in the United
States have all necessary governmental clearances required for the sale of such
products in the United States and each of the countries in which its products
are presently sold. The regulatory process for diagnostic devices, which
sometimes includes the requirements for pre-clinical and clinical testing, can
take many years and requires the expenditure of substantial amounts of money.
In the event ART seeks to market new products or significantly modify a product
currently in commercial distribution, ART would be required to obtain
regulatory clearance.
Federal legislation relating to medical devices could potentially cause
compliance with the pre-market clearance and approval processes to be more time
consuming, difficult and expensive. It is not anticipated that ART's products
will be subject to special controls or regulation, but there can be no
assurance that the FDA will not impose special controls or regulation.
THIRD-PARTY REIMBURSEMENT
Hospitals, physicians and other health care providers that purchase capital or
other equipment, such as the products sold by ART, for use in furnishing care
to their patients typically rely on third-party payers, principally Medicare,
Medicaid, and private health insurance plans, to reimburse all or part of the
costs or fees associated with the medical procedures performed with such
equipment, and of the capital costs of acquiring such equipment. Cost control
measures adopted by third-party payers in recent years and reductions in
Medicare payments for hospital outpatient services and capital costs have had
and may continue to have a significant effect on the purchasing practices of
many such providers, generally causing them to be more selective in the
purchase of medical equipment and to place increasing emphasis on maximizing
the return on investment in new equipment.
The Medicare statute prohibits payment for any items or services that are not
reasonable and necessary for the diagnosis or treatment of illness or injury or
to improve the functioning of a malformed body member. SAECG medical tests are
reimbursed under Part B Medicare in all 50 states. The procedures performed
utilizing the K3 Cath-Lab and CardioLab systems are reimbursed under Part B
Medicare in all states. While third-party payers generally make their own
decisions regarding which items and services to cover, Medicaid and other third-
party payers often apply standards similar to Medicare's in determining whether
to provide coverage for a particular medical procedure.
ART is unable to predict the impact of additional legislation or regulations,
if any, which may be enacted or adopted in the future relating to ART's
business or the health care industry, including third-party coverage and
reimbursement.
INSURANCE
The Company may be exposed to potential product liability claims by patients
who use the Company's products. ART maintains a general liability insurance
policy, which includes product liability coverage of $1,000,000 per occurrence
and $2,000,000 per year in the aggregate. Micron also maintains a general
liability insurance policy which includes product liability coverage of
$2,000,000. To date, there have been no asserted or threatened claims against
the Company. Although Company management believes the present insurance
coverage is adequate for the types of products currently marketed by the
Company, there can be no assurance that such insurance will be sufficient to
cover potential claims or that the present level of coverage will be available
in the future at a reasonable cost.
ART has a directors and officers liability insurance policy with coverage in
the amount of $3,000,000 per occurrence and $3,000,000 per year in the
aggregate.
PATENTS AND PROPRIETARY TECHNOLOGY
ART
The Simson Patent, which covers the core technology, including the signal-
averaging and filtering technologies, on which the 1200 EPX, LP-Pac Q, and
PREDICTOR I are based, is of material importance to ART. ART holds an
exclusive license for the Simson Patent, which expires in December 2000. In
connection with the 1200 EPX, ART is the assignee of three other U. S. Patents,
two of which expire in July 2001 and the other in January 2002. ART holds
foreign patents issued in Austria, Australia, Belgium, Canada, France, United
Kingdom, Holland, Italy, Liechtenstein, Spain, Sweden, Switzerland
11
<PAGE>
and Germany. ART believes that patent protection is important to its business
and anticipates that it will apply for additional patents as deemed
appropriate.
As part of the acquisition of substantially all the Corazonix assets in
1993, including those pertaining to high resolution ECG, ART acquired four
additional patents related to time and frequency domain analysis of
electrocardiogram signals. These patents were allowed in 1993 by the U.S.
Patent Office, and cover the spectral-temporal mapping post-processing
software packages sold by ART. ART currently holds a non-exclusive license to
a fifth U.S. patent.
United States Patent No. 5,609,158 entitled "Apparatus and Method for
Predicting Cardiac Arrhythmia by Detection of Micropotentials and Analysis of
all ECG Segments and Intervals," which covers a frequency domain analysis
technique for SAECG data, was allowed by the U.S. Patent Office in March 1997.
This technique is embodied in the IntraSpect software product, and has been
found to compliment the Simson methodology by increasing the overall predictive
value of the SAECG test.
Rapid technological development in the medical industry results in extensive
patent filings and a rapid rate of issuance of new patents. Although ART
believes that ART's products do not and will not infringe patents or violate
proprietary rights of others, it is possible that its existing patent rights
may not be valid or that infringement of existing or future patents or
proprietary rights may occur. In the event that ART's products infringe
patents or proprietary rights of others, ART may be required to modify the
design of its products or obtain a license. There can be no assurance that ART
will be able to do so in a timely manner upon acceptable terms and conditions.
In addition, there can be no assurance that ART will have the financial or
other resources necessary to enforce or defend a patent infringement or
proprietary rights violation action. Moreover, if ART's products infringe
patents or proprietary rights of others, ART could, under certain
circumstances, become liable for damages, which could have a material adverse
effect on ART. ART does not own or have any license to any patents relating to
the K3 technology. ART does not own or have any license to any patents
relating to the CardioLab or technology incorporated therein and it is not
aware of any patents or licenses to patents that Prucka may hold.
ART also relies on proprietary know-how and employs various methods to protect
the source codes, concepts, ideas and documentation of its proprietary
software. However, such methods may not afford complete protection and there
can be no assurance that others will not independently develop such know-how or
obtain access to ART's know-how or software codes, concepts, ideas and
documentation. Furthermore, although ART has confidentiality agreements with
its employees and appropriate vendors, there can be no assurance that such
arrangements will adequately protect ART's trade secrets.
ART is not aware of any new copyright registration or application for the
software incorporated in the 1200 EPX, LP-Pac Q, PREDICTOR I, K3, CardioLab,
or CardioMapp.
MICRON
Micron employs a highly complex, proprietary non-patented seven step
manufacturing process for its silver/silver chloride-plated sensor elements.
Key employees have executed nondisclosure and non-competition agreements. To
maintain its leadership as a major supplier of sensors and snaps to the
manufacturers of disposable silver/silver chloride ECG electrodes, Micron
submitted a patent application for a radiographically translucent snap that is
manufactured from a flexible electrically conductive thermoplastic polymeric
compound in 1995. In early 1996, the patent for this innovative product was
granted to Micron. Micron has begun marketing and manufacturing this product.
Future increased acceptance for this product and its potential applications is
expected.
EMPLOYEES
ART has eleven full-time employees, including seven administrative, sales,
marketing and supervisory personnel, and four engineering personnel. Micron
employs forty-four full time employees and two part-time employees, including
fifteen administrative, sales and supervisory personnel, fifteen quality
control personnel and sixteen production personnel.
ITEM 2. PROPERTY
During 1997 ART leased approximately 4,000 square feet of space in an office
building in Austin, Texas from an unaffiliated landlord with monthly rental
payments of approximately $7,100.
12
<PAGE>
The manufacturing facility and offices of Micron are located in an industrial
area in Fitchburg, Massachusetts. The facility consists of two buildings. The
first building, which purchased in April 1994, consists of a 22,000 square
foot, six story building. The second building, which was purchased in
September 1996 for $480,000, consists of a 94,000 square foot, two story
building. During 1995, 1996 and through August of 1997 Micron rented 18,800
square feet of space. The average monthly rent in 1995, 1996 and 1997 was
$6,300, $7,100 and $7,100 respectively.
ITEM 3. LEGAL PROCEEDINGS
As further discussed under Environmental Regulation, Micron has been
identified as a potentially responsible party with liability by the DEP. On
February 18, 1993, the site was classified as a non-priority site and Micron's
waiver application was approved. As a condition of the waiver, Micron was
required to prepare a five-year plan of remediation for the property. Micron
has retained an environmental consulting firm, and in 1995 hired an internal
consultant, to organize and implement the remediation plan and to represent
Micron in its dealings with the regulatory authorities. Initial Phase II
activities have been completed, including drilling two borings and installing
three monitoring wells. Additional Phase II activities will likely include
further site history data collection, review and evaluation; evaluation of
upgradient potential sources as required by the DEP waiver; additional soil
sample collection to further redefine source areas; groundwater monitoring;
report and required document preparation; a risk assessment; and regulatory
agency coordination. Upon the completion of Phase II activities Micron will
apply for final approval and clearance from the DEP. The Massachusetts
Contingency Plan allows closure of sites only after a condition of "no
significant risk" is demonstrated.
While the waiver application has been approved, the DEP still retains
jurisdiction and will oversee the remediation. Should Micron not comply with
the terms of the remediation plan, the DEP may institute a lawsuit to enforce a
site clean-up. Micron believes that it is currently in compliance with the
terms of the remediation plan.
Plaintiffs Susan and Kevin McGann filed suit in the Philadelphia Court of
Common Pleas during October, 1996 naming approximately 216 entities as
defendants, including ART and Micron Medical Products Inc. ("MMPI"). This
matter is a latex toxic tort case. Plaintiff, Susan McGann, alleges that she
was injured as a result of having worn latex gloves in her capacity as
emergency room nurse at Albert Einstein Medical Center from June 1990. She
claims to be suffering from "severe and irreversible Type-1 latex allergy,
which is believed to be permanent and life threatening" as a result of her
exposure. The complaint contains an allegation of defect and includes the
following counts: negligence: strict 402A liability; breach of implied
warranty of merchantability; breach of express warranty; misrepresentation;
fraudulent concealment; violation of unfair trade practice/consumer protection
law; loss of consortium (Mr. McGann's claim); and punitive damages.
After negotiations with plaintiffs' counsel, plaintiffs and ART and MMPI
presented the Court with a Stipulation of Discontinuance for Fewer Than All
Parties, which the Court approved on July 18, 1997. Pursuant to said
Stipulation, both ART and MMPI were dismissed from the action without
prejudice. According to the terms of that Stipulation, should discovery
uncover facts that suggest that ART and/or MMPI are proper defendants,
plaintiffs may reinstate this action against ART and /or MMPI without prior
notice of such reinstatement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. Annual meeting of shareholders was held on September 18, 1997
b. Lawrence S. Black, Michael A. McManus and Paul F. Walter were elected as
directors of the Company at the meeting. E..P. Marinos, Julius Tabin,
Ph.D., Anthony A. Cetrone, Russell C. Chambers and Sidney Barbanel
continued to serve as directors.
Lawrence S. Black 3,183,012 FOR, 35,600 WITHHELD
Michael A. McManus 3,182,997 FOR, 35,615 WITHHELD
Paul F. Walter 3,183,012 FOR, 35,600 WITHHELD
c. Not applicable
d. Not applicable
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ART's Common Stock was listed on the American Stock Exchange on March 3, 1992
and trades under the ticker symbol HRT. Prior to that, ART's stock was listed
on NASDAQ .
The following table sets forth, for the period indicated, the high and low
closing prices per share for ART's Common Stock as quoted by the American
Stock Exchange and the high and low bid prices as quoted by the National
Quotation Bureau, Inc. and the National Association of Securities Dealers, Inc.
The NASDAQ quotations reflect inter-dealer prices without retail mark-up, mark-
down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- ------
<S> <C> <C>
Year Ended December 31, 1996
1st Quarter ...................................... $ 4 7/8 $3 1/4
2nd Quarter ...................................... 3 5/8 2 3/4
3rd Quarter ...................................... 3 9/16 2 3/8
4th Quarter ...................................... 3 9/16 2 3/8
Year Ended December 31, 1997
1st Quarter ...................................... $ 3 3/16 $2
2nd Quarter ...................................... 2 3/8 1 7/8
3rd Quarter ...................................... 3 1/16 1 3/4
4th Quarter ...................................... 2 11/16 1 1/2
</TABLE>
As of March 20, 1998 the number of recordholders of ART's common stock was
estimated to be 1,500. On March 20, 1998 the closing price for the common
stock on the American Stock Exchange was $1 3/8.
DIVIDEND POLICY
To date, ART has not paid any dividends on its Common Stock. The Company's
long-term debt agreements contain various restrictions and conditions including
restrictions regarding the payment of dividends. ART does not intend to
declare any dividends in the foreseeable future, but instead intends to retain
all earnings, if any, for use in the Company's business.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below for each of the years ended
December 31 has been derived from the Company's audited financial statements.
The data should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Financial
Statements, including the notes thereto, appearing elsewhere in this report.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS DATA: YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue .............................. $ 11,887 $ 24,788 $ 22,928 $ 17,381 $ 17,797
Cost of sales ........................ 7,932 20,115 17,947 13,389 11,188
--------- --------- --------- --------- ---------
Gross profit ..................... 3,955 4,673 4,981 3,992 6,609
Selling and marketing ................ 499 610 474 1,128 2,285
General and administrative ........... 2,491 2,420 2,150 2,393 1,870
Research and development ............. 371 173 183 235 196
Amortization of goodwill ............. 134 115 115 115 127
Write-down of assets ................. - - - 3,751 -
--------- --------- --------- --------- ---------
Income (loss) from operations .... 460 1,355 2,059 (3,630) 2,131
Acquisitions expense ................. - - - (164) 86
Interest and other expenses, net ..... (378) (278) (116) 10 43
--------- --------- --------- --------- ---------
Income (loss) before income taxes ... 82 1,077 1,943 (3,784) 2,088
Income tax benefit (expense) ......... (50) (460) (818) 309 (843)
--------- --------- --------- --------- ---------
Net income (loss) ................ $ 32 $ 617 $ 1,125 $ (3,475) $ 1,245
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted net income
(loss) per share ................ $ .01 $ .17 $ .31 $ (.95) $ .34
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common and
dilutive common equivalent shares
outstanding ........................ 3,563 3,608 3,683 3,653 3,716
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA: DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
Total assets ......................... $ 11,832 $ 12,964 $ 12,968 $ 12,711 $ 15,835
Long term obligations
(including current portion) ........ $ 1,466 $ 928 $ 1,089 $ 1,018 $ 1,274
Redeemable common stock .............. $ - $ - $ 10 $ 637 $ 1,241
Working capital ...................... $ 2,293 $ 2,891 $ 2,803 $ 1,149 $ 3,149
Shareholders' equity ................. $ 8,087 $ 8,012 $ 7,353 $ 5,845 $ 8,965
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the percentages of
revenue represented by certain items reflected in the Company's statements of
operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Revenue ............................. 100.0 100.0 100.0
Cost of sales ....................... 66.7 81.0 78.3
Gross profit ....................... 33.3 19.0 21.7
Selling and marketing ............... 4.2 2.5 2.1
General and administrative .......... 21.0 9.8 9.4
Research and development ............ 3.1 0.7 0.8
Amortization of goodwill ............ 1.1 0.5 0.5
Other, net .......................... (3.2) (1.1) (0.5)
----------------------------------
Income before income taxes .......... 0.69 4.4 8.5
Income tax provision ................ (.42) (1.9) (3.6)
----------------------------------
Net income .................... 0.27% 2.5% 4.9%
----------------------------------
----------------------------------
</TABLE>
REVENUE
Revenue decreased by approximately $12,900,000 or 52% for the year ended
December 31, 1997 as compared to 1996. The decrease in revenues is
attributable primarily to the change in the Prucka contract for 1997, as
discussed below.
Pursuant to an agreement signed April 1, 1994, ART became the exclusive
distributor for both the CardioMapp and CardioLab product lines which are
manufactured by Prucka Engineering of Houston, Texas. Under the agreement, ART
was obligated to purchase CardioMapp and CardioLab from Prucka which were
resold to the customers. The fiscal year ending 1996 was the final year in
which ART was the exclusive distributor under the Prucka contract. In 1997,
ART ceased to be responsible for marketing, selling, invoicing and collecting
for Prucka products. In 1997 and 1998, ART receives a 4% commission on net
sales of CardioLab systems and accessories sold anywhere in the world, up to a
ceiling of $10,000,000 in total annual net sales. From January 1, 1999 through
December 31, 2002, ART will receive a commission of 3% of net sales of
CardioLab systems sold anywhere in the world, up to a ceiling of $10,000,000 in
total annual net sales. ART will receive a 4% commission on net sales of
CardioMapp products and accessories sold anywhere in the world, up to a ceiling
of $10,000,000 in total annual net sales for the year 1997, the final year in
which ART will receive commissions for CardioMapp products. ART will receive
25% of the commissions it would otherwise be entitled to receive for revenues
attributable to Prucka products that exceed $10,000,000.
Revenue increased by approximately $1,860,000 or 8% for the year ended
December 31, 1996 as compared to the year ended December 31, 1995. The
increase in revenues is attributable primarily to increased electrophysiology
system sales in the domestic market and, to a lesser extent, an increase in
sales of sensors by Micron.
Sales of signal averaging products have represented a declining percentage of
the Company's revenue since the introduction of the CardioLab in 1991 and the
acquisition of Micron in 1992, which resulted in a change in product mix.
Sales of signal-averaging products had declined in absolute dollars since the
year ended December 31, 1990 and through 1995, however, there was an increase
of approximately $130,000 in 1996, and decrease of approximately $260,000 in
1997 from 1996. The Company believes that the current primary market for the
1200 EPX, hospitals with an electrophysiology laboratory, has been saturated
and is looking to sell to non-traditional markets, primarily physician's
offices and clinics, to increase revenues.
16
<PAGE>
The following table sets forth for the periods specified, the net sales
derived from the products of ART and its subsidiary Micron (collectively the
"Company"):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 % 1996 % 1995 %
--------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Sensors & Snaps ............... $ 9,495,653 80 $ 9,240,474 37 $ 8,448,343 37
CardioLab & CardioMapp ........ 1,332,099 11 14,611,720 59 13,671,703 60
SAECG equipment ............... 673,414 6 935,655 4 808,043 3
K-3 CathLab ................... 386,021 3 - - - -
--------------------- ------------------- -------------------
Total ..................... $ 11,887,187 100 $ 24,787,849 100 $ 22,928,089 100
--------------------- ------------------- -------------------
--------------------- ------------------- -------------------
</TABLE>
COST OF SALES
Cost of sales as a percentage of revenue decreased from 81% in 1996 to 66.7%
in 1997. The decrease is due primarily to the Prucka contract. ART
exclusively sold and distributed the electrophysiology products on behalf of
Prucka. 1996 was the final year in which ART was the exclusive distributor
under the Prucka contract. In 1997, the Company receives a commission on
sales, and does not report the gross revenues or the related cost of sales for
CardioLab and CardioMapp products which approximated $14,612,000 and
$13,455,000, respectively, for the year ended December 31, 1996, and
$13,672,000 and $12,139,000, respectively, for the year ended December 31,
1995.
SELLING AND MARKETING
Selling and marketing expenses as a percentage of sales increased from 2.5% in
1996 to 4.2% in 1997 The increase is primarily due to the selling and
marketing expenses remaining constant compared to the decrease in sales due to
the Prucka contract.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses as a percentage of sales remained constant
from 1995 to 1996, but increased as a percentage of sales from 9.8% in 1996 to
21.0% in 1997 due to the decrease in sales.
RESEARCH AND DEVELOPMENT
Research and Development costs as a percent of sales have remained comparable
for the years ended December 31, 1996 and 1995, and increased $200,000 from
1996 to 1997. The increase in gross dollars from 1996 as compared to 1997 is
due to the Company's contract with consulting firms to develop a windows based
version of the CathLab and the Predictor line of products. Research and
development costs have not been material to the operations of Micron.
INTEREST EXPENSE
Interest expense was approximately $238,000 in 1997 as compared to $268,000 in
1996. The majority of the interest costs incurred by the Company stem from its
borrowings under its line(s) of credit and term loan with a financial
institution used to finance inventory and accounts receivable with a bank.
INCOME TAXES
For the year ended December 31, 1997 taxes on income approximate the statutory
rate paid by the Company. The rate is higher than the federal maximum rate of
34% due to the Massachusetts state income tax of 9.5% on Micron's earnings.
Management evaluated the recoverability of the net deferred tax asset at
December 31, 1997 and believes that future taxable income of the Company will be
sufficient to realize the net deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $2,293,000 and $2,891,000 and
cash and cash equivalents of approximately $215,000 and $232,000 at December
31, 1997 and 1996, respectively. The Company improved its liquidity and
working capital due primarily to the restructuring of the ART operations in
late 1994 which significantly helped the Company's return to profitability in
1995. During 1996 and 1997, working capital decreased primarily due to
capital expenditures. Implementation of a new waste water treatment system, and
repayments of debt.
In November 1995, the Company obtained funding for a consolidated $3.5
million working capital line of credit and a $375,000 term loan with a bank.
The line of credit is collateralized by the accounts receivable and inventory
of ART and Micron and bears interest at prime plus .75%. The consolidated
working capital line of credit replaced the individual lines of credit
maintained by ART and Micron. Previously, the individual lines of credit
maintained by the parent and its subsidiary hampered the Company's ability to
maximize its credit-worthiness to meet its liquidity needs. In 1997 the Company
obtained
17
<PAGE>
an additional $400,000 consolidated term loan. The working capital line of
credit and term loans (originally) matured December 15, 1999, however, the
maturity date has been extended to December 15, 2002.
On April 14, 1997, ART acquired from Astro-Med, Inc. substantially all of the
assets related to the K3 Products. A promissory note payable in the amount of
$300,000 was issued in the acquisition of these products. The note is due and
payable not later than the third anniversary of the closing date. Interest
only payments are payable on the last day of each quarter during the first year
after the closing and, thereafter, principal and interest payments, in an
amount necessary to fully amortize the then-outstanding balance of the note in
equal quarterly payments are payable on the last day of each quarter.
Pursuant to an asset purchase agreement, dated March 5, 1997, Micron acquired
from Newmark, Inc. substantially all of its assets used in the business of
manufacturing, marketing, assembling, marketing, leasing and selling medical
stud and eyelet application machines. The purchase price for the acquired
assets included a non-interest bearing promissory note in the principal sum of
$200,000, payable in twenty equal monthly installments of $10,000 each.
In August 1995, the Company completed a $600,000 private bond placement. The
bonds are subordinated to the bank, carry an 11% interest rate, and are payable
in 5 years. ART issued the bondholders an aggregate of 279,000 warrants to
purchase ART stock at $3.00 per share as part of the private placement. The
warrants expire 5 years from the date of the bond. The bond proceeds were used
to help ART meet common stock repurchase commitments and to provide working
capital for new product acquisitions and development.
In September 1995, ART repurchased 48,958 shares of its common stock at $7.90
a share from a shareholder pursuant to a settlement agreement in connection
with the purchase of Micron by the Company in 1992. The funds required to meet
the repurchase obligation were obtained from cash on hand from the bond
proceeds. The Company intends to hold the shares in treasury at this time. An
additional 16,566 shares were repurchased in the fourth quarter of 1995 at a
price of $7.13 per share. The funds required to repurchase the shares were
drawn under the Company's working capital line of credit. The shares are held
in treasury and are not expected to be retired. In 1996,
Net cash provided by operating activities for 1997, 1996 and 1995 was
approximately $1,958,878, $1,972,000, and $1,252,000, respectively. The
changes in cash provided by operations was due primarily to the changes in net
income, reduction of inventories and increase in accounts receivables and
payables, during 1997, 1996 and 1995.
Net cash used in investing activities in 1997 was approximately $1,462,932,
principally as a result of expenditures on capital equipment for Micron's
manufacturing. Micron spent approximately $700,000 for capital assets relating
to the waste water treatment. Net cash used in investing activities in 1996
was approximately $1,141,000 as a result of expenditures on capital equipment
for Micron's manufacturing facility partially offset by the proceeds received
from the sales of investments and capital equipment.
Capital expenditures during 1997 and 1996 were due primarily to Micron's need
to upgrade and maintain its manufacturing equipment and facilities. During
1997 significant capital expenditures were due to the purchase of a waste water
system treatment plant which was financed partially by a term loan and in part
from operating cash flows. During 1996, the Company's capital expenditures
were funded from operating cash flows.
As discussed under Environmental Regulation, Micron had approximately $92,000
and $92,000 accrued at December 31, 1997 and 1996, respectively, to cover
estimated costs to be incurred related to site assessment, monitoring, and
remediation. Management estimates that these costs could approximate from
$90,000 to $225,000 depending upon the final decision by the DEP.
During 1997, 1996 and 1995, Micron spent approximately $320,000, $137,000 and
$139,000, on an extensive program to evaluate its manufacturing process,
employee training, health and safety programs, air and waste water treatment
systems, and to ensure compliance with current and future federal, state and
local regulations as well as to evaluate the adequacy of such systems to
facilitate future growth. The capitalized expenditures are related to future
benefits as described below, whereas the other environmental costs expensed
during 1997, 1996 and 1995 are normal expenses associated with industrial
producers in the Commonwealth of Massachusetts. Using the results of the
study, Micron implemented a manufacturing process and air and waste water
treatment redesign. The actual redesign, which took place in 1997, required
the purchase of capital equipment to upgrade, augment or replace existing
manufacturing and waste treatment equipment. It is expected that Micron will
benefit from a certain level of improved efficiency and savings related to
recovery and recycling of water, silver and other chemicals to help offset some
of the costs of the improvements. (See Environmental Regulation and Note 12 to
the Financial Statements).
During 1997 and 1996, net cash used in financing activities totaled
approximately $513,143 and $996,445 principally to pay down credit facilities
and long-term debt.
18
<PAGE>
Net cash used in financing activities during 1995 totaled approximately
$567,000, principally as a result of repurchases of redeemable common stock
totaling approximately $505,000 and repayment of debt of approximately
$773,000 offset by the receipt of proceeds from a $600,000 private bond
placement and $68,000 in cash received from the exercise of stock options.
For information on the impact of future changes in accounting principles, see
Note 2 to the Consolidated Financial Statements, appearing elsewhere herein.
INFLATION
The Company does not believe that inflation in the domestic United States or
international markets in recent years has had a significant effect on its
results of operations.
YEAR 2000
The Company has and will continue to make certain investments in software
systems and applications to ensure the Company is year 2000 compliant. The
financial impact to the Company has not been and is not aticipated to be
material to the financial position or results of operations in any given year.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Cautionary statements under the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995: This Form 10-K contains certain
statements of a forward looking nature relating to future events or the future
financial performance of the Company. Such forward-looking statements are only
predictions and are subject to risks and uncertainties that could cause actual
results or events to differ materially and adversely form the results discussed
in the forward-looking statements. When used in this Form 10-K, the words or
phrases "believes," "anticipates," "expects," intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify
predictions and the actual events or results may differ materially from the
results discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, risks
regarding demand for new and existing products; the success of new product
development efforts; the uncertainty as to whether certain products will
receive approval for sale in the United States; the Company's highly
competitive industry and rapid technological change within the industry and the
fact that the industry is dominated by large companies with much greater
resources then the Company; and the reliance on key personnel.
The Company cautions investors and others to review the cautionary statements
set forth in this Form 10-K and cautions that other factors may prove to be
more important in affecting the Company's business and results of operations.
These forward-looking statements speak only as of the date of this report. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date of this report or to reflect the
occurrence of anticipated events.
19
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants .................................. 21
Consolidated Balance Sheets as of December 31, 1997 and 1996 ....... 22
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 ................................. 23
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995 ................. 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ................................. 25
Notes to Consolidated Financial Statements ......................... 26
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Arrhythmia Research Technology, Inc.
We have audited the accompanying consolidated balance sheets of Arrhythmia
Research Technology, Inc. and Subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arrhythmia
Research Technology, Inc. and Subsidiary as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Austin, Texas
March 20, 1998
21
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................ $ 214,938 $ 232,135
Trade and other accounts receivable, net of
allowance for doubtful accounts
of $61,318 and $29,864 ........................ 2,397,269 4,447,624
Inventories ...................................... 2,001,123 2,238,436
Deposits, prepaid expenses and other current
assets ........................................ 63,861 164,879
Income taxes recoverable ......................... 262,810 -
----------- -----------
Total current assets ........................... 4,940,001 7,083,074
Property and equipment, net ........................ 4,195,167 3,177,862
Goodwill, net of accumulated amortization of
$635,476 and $504,448 ............................ 2,025,597 1,818,625
Other intangibles, net of accumulated amortization . 85,667 99,613
Deferred income taxes, net ......................... 458,923 493,767
Other assets ....................................... 127,055 291,298
----------- -----------
Total assets ................................... $11,832,410 $12,964,239
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facilities ...................... $ 467,135 $ 1,158,660
Current maturities of capital lease obligations .. 100,371 107,197
Current maturities of bonds payable and other
long-term debt ................................. 320,328 149,130
Accounts payable ................................. 1,091,550 2,390,188
Income taxes payable ............................. - 34,161
Accrued expenses ................................. 667,172 353,101
----------- -----------
Total current liabilities ...................... 2,646,556 4,192,437
----------- -----------
Bonds payable and long term debt ................... 953,086 484,090
Capital lease obligations, net of current portion .. 92,082 187,825
Deferred revenue ................................... 53,896 87,706
----------- -----------
Total liabilities .............................. 3,745,620 4,952,058
----------- -----------
Shareholders' equity:
Preferred stock, $1 par value; 2,000,000 shares
authorized, none issued ........................ - -
Common stock, $.01 par value; 10,000,000 shares
authorized; 3,679,216 issued ................... 36,792 36,792
Additional paid-in-capital ......................... 8,909,307 8,909,307
Common stock held in treasury, 116,115
shares at cost ................................... (878,787) (878,787)
Unearned ESOP compensation ......................... (82,134) (124,991)
Retained earnings .................................. 101,612 69,860
----------- -----------
Total shareholders' equity. 8,086,790 8,012,181
----------- -----------
Total liabilities and shareholders' equity. $11,832,410 $12,964,239
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
22
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1997 1996 1995
-------------- --------------- ----------------
<S> <C> <C> <C>
Net sales .............................................. $ 11,887,187 $ 24,787,849 $ 22,928,089
Cost of sales .......................................... 7,931,599 20,114,557 17,947,294
-------------- --------------- ----------------
Gross profit ........................................ 3,955,588 4,673,292 4,980,795
Selling and marketing .................................. 498,907 610,352 473,990
General and administrative ............................. 2,491,519 2,419,777 2,150,251
Research and development ............................... 371,063 173,120 182,524
Amortization of goodwill ............................... 134,324 114,864 114,864
-------------- --------------- ----------------
Income from operations ................................. 459,775 1,355,179 2,059,166
Other income (expense):
Interest expense ..................................... (238,313) (268,015) (263,493)
Other, net ........................................... (139,710) (9,931) 147,624
-------------- --------------- ----------------
Income before income taxes ............................. 81,752 1,077,233 1,943,297
Income tax provision:
Current ........................................... (15,156) (283,739) (359,202)
Deferred .......................................... (34,844) (176,916) (458,869)
-------------- --------------- ----------------
(50,000) (460,655) (818,071)
-------------- --------------- ----------------
Net income ............................................. $ 31,752 $ 616,578 $ 1,125,226
-------------- --------------- ----------------
-------------- --------------- ----------------
Per share amounts:
Basic and diluted net income per share ................. $ 0.01 $ 0.17 $ 0.31
-------------- --------------- ----------------
-------------- --------------- ----------------
Weighted average number of common and dilutive common
equivalent shares outstanding ..................... 3,563,101 3,607,614 3,683,371
-------------- --------------- ----------------
-------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
23
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Retained
Common Shares Additional Unrealized Unearned Earnings
------------------ Paid-in Treasury Securities ESOP (Accumulated
Number Amount Capital Stock Gains Compensation Deficit) Total
--------- ------ ---------- --------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 .................. 3,613,035 $36,622 $8,002,299 ($363,939) $53,130 ($210,705) ($1,671,946) $5,845,461
Exercise of options .............. 17,000 170 67,830 68,000
Issuance of warrants ............. 202,000 202,000
Maturity and repurchases of
redeemable common stock ........ 627,132 627,132
ESOP payments .................... 42,857 42,857
Treasury stock purchase .......... (65,524) (504,801) (504,801)
Sale of securities ............... (53,130) (53,130)
Net income ....................... 1,125,226 1,125,226
--------- ------ ---------- --------- ---------- ------------ ------------ -----------
December 31, 1995 ................ 3,564,511 36,792 8,899,261 (868,740) - (167,848) (546,720) 7,352,745
Maturity and repurchases of
redeemable common stock ........ 10,047 10,047
Treasury stock purchase .......... (1,410) (10,047) (10,047)
ESOP payments .................... 42,856 42,856
Net income ....................... 616,580 616,580
--------- ------ ---------- --------- ---------- ------------ ------------ -----------
December 31, 1996 ................ 3,563,101 $36,792 $8,909,307 ($878,787) - ($124,992) $69,860 $8,012,181
Maturity and repurchases of
redeemable common stock ........
Treasury stock purchase ..........
ESOP payments .................... 42,857 42,857
Net income ....................... 31,752 31,752
--------- ------ ---------- --------- ---------- ------------ ------------ -----------
December 31, 1997 ................ 3,563,101 $36,792 $8,909,307 ($878,787) - ($82,135) $101,612 $8,086,790
--------- ------ ---------- --------- ---------- ------------ ------------ -----------
--------- ------ ---------- --------- ---------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
24
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995
------------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 31,752 $ 616,578 $ 1,125,226
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................. 577,915 514,123 474,571
Amortization .................................................. 159,765 152,483 173,414
Gain on sales of investments .................................. - - (72,912)
(Gain) loss on sales of equipment ............................. - 3,291 (62,820)
Deferred income tax provision ................................. 34,844 176,916 458,869
Deferred revenue .............................................. (33,810) 38,658 (36,207)
Changes in assets and liabilities:
Trade and other accounts receivable ........................ 2,050,355 (708,578) (207,048)
Inventories ................................................ 237,313 752,910 (434,550)
Accounts payable, income taxes payable and accrued expenses. (1,101,707) 280,542 (194,884)
Payable to affiliates ...................................... - (30,899) (16,773)
Deposits, prepaid expenses and other current assets......... 2,451 176,305 45,472
------------- ----------- ------------
Net cash provided by operating activities .................... 1,958,878 1,972,329 1,252,358
------------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of investments .................................... - - 119,787
Proceeds from sale of equipment ...................................... - 6,435 77,822
Capital expenditures ................................................. (1,110,141) (1,022,053) (404,229)
Changes in other assets .............................................. (14,791) (105,063) (77,734)
Other intangibles .................................................... (338,000) (20,867) (25,844)
------------- ----------- ------------
Net cash used in investing activities ........................ (1,462,932) (1,141,548) (310,198)
------------- ----------- ------------
Cash flows from financing activities:
Net borrowings (repayments) under credit facilities .................. (691,525) (780,312) (193,942)
Proceeds from (repayments) of notes payable .......................... 462,920 100,000 (253,000)
Proceeds from issuance of bonds payable .............................. - - 600,000
Principal payments on long-term debt ................................. (410,374) (348,943) (326,265)
Proceeds from issuance of common stock under stock option plan ....... - - 68,000
Purchase of treasury stock ........................................... - (10,047) (504,801)
Reduction of unearned ESOP compensation .............................. 42,857 42,857 42,857
Increase in cash overdraft............................................ 82,979 - -
------------- ----------- ------------
Net cash used in financing activities ......................... (513,143) (996,445) (567,151)
------------- ----------- ------------
Net increase (decrease) in cash and cash equivalents ..................... (17,197) (165,664) 375,009
Cash and cash equivalents at beginning of year ........................... 232,135 397,799 22,790
------------- ----------- ------------
Cash and cash equivalents at end of year ................................. $ 214,938 $ 232,135 $ 397,799
------------- ----------- ------------
------------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
25
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Arrhythmia Research Technology, Inc. ("ART"), a Delaware corporation, is
engaged in marketing computerized medical instruments for monitoring, analyzing
and treating heart disease. Micron Products Inc. ("Micron"), a wholly-owned
subsidiary of ART, is a manufacturer of silver/silver chloride-plated sensor
elements, a component used in the manufacture of disposable medical electrodes
designed for electrocardiograph (ECG) and other instrumentation. Additionally,
Micron also acts as a distributor of metal snap fasteners, another component
used in the manufacture of disposable medical electrodes. Micron manufactures
and leases high speed electrode assembly machines to its sensor and snap
customers.
2. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
the accounts of ART and Micron (collectively the "Company"). All intercompany
balances and transactions have been eliminated in consolidation.
REVENUE Revenue from product sales is recognized upon shipment of the
product when independent sales representatives or distributors are responsible
for installation of systems, as the title and risk of loss passes to the
customer at the time of shipment. However, in cases where ART personnel are
scheduled to perform this in-service/installation, the revenue is not
recognized until completion of such obligations. Revenue from the sale of
extended warranties is deferred and amortized ratably over the life of the
warranty.
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand
and on deposit at local banks. The Company considers highly liquid investments
with original maturities of three months or less to be cash equivalents.
INVESTMENTS Investment securities are classified into one of three
categories: held-to-maturity, available-for-sale, or trading. Held-to-
maturity securities are measured at amortized cost and available-for-sale and
trading securities are measured at fair value. Unrealized holding gains and
losses for trading securities are included in earnings. Unrealized holding
gains and losses for available-for-sale securities are excluded from earnings
and reported net of deferred taxes in a separate component of shareholders'
equity until realized. Realized gains and losses are computed on a specific
identified cost basis and included in current period income. The Company
adopted and implemented Statement of Financial Accounting Standards (SFAS) No.
115 effective January 1, 1994.
INVENTORIES Inventories are stated at the lower of cost or market. Cost of
finished goods inventory of ECG products is determined using the specific
identification method. Cost of inventories at Micron is determined by the
first-in, first-out method.
CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially expose
the Company to concentrations of credit risk, as defined by SFAS No. 105,
consist primarily of trade accounts receivable cash and cash equivalents.
ART's customer base for ECG and electrophysiology products is primarily
comprised of hospitals and to a much lesser extent of cardiologists and office
based practitioners. Micron products are sold to manufacturers of disposable
electrodes, who are typically large diversified medical product manufacturers.
The Company does not generally require collateral for its sales; however, the
Company believes that its terms of sale provide adequate protection against
significant credit risk.
It is the Company's policy to place its cash and cash equivalents in high
quality mutual funds, marketable equity securities and municipal revenue bonds.
The Company does not believe significant credit risk exists with respect to
these securities.
ADVERTISING EXPENSES. Advertising expenses consist primarily of costs
incurred in promoting the Company's products, printed brochures and other
activities. The Company expenses advertising costs as incurred. The Company's
advertising expense was approximately $69,000, $89,000, and $20,000 in 1997,
1996, and 1995 respectively.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at
cost and include expenditures which substantially extend their useful lives.
Depreciation on property, plant and equipment is calculated using the
straight-line method over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to earnings as incurred.
When equipment is retired or sold, the resulting gain or loss is reflected in
earnings.
GOODWILL AND OTHER INTANGIBLES The excess of the aggregate purchase price
over the fair value of net assets of businesses acquired is amortized over 20
years using the straight-line method. The Company periodically reviews
goodwill of acquired
26
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
businesses to assess recoverability based on future operating projections.
Impairments would be recognized in operating results if a permanent
diminution in value were to occur on an undiscounted basis.
Direct costs to acquire patent technology and legal costs associated with
securing and defending patents are capitalized and amortized using the straight-
line method over the remaining useful life of the patents. The Company
periodically reviews its patent assets to assess recoverability based on future
undiscounted projected earnings from operations. Impairments are recognized in
operating results when a permanent diminution in value occurs.
Certain software development costs incurred subsequent to establishment of
technological feasibility are capitalized and amortized using the straight-line
method over the estimated economic life of the related product, generally three
years. Amortization commences when the product is available for general
release. Costs to establish the technological feasibility of the product are
expensed as research and development. Amortization of software development
costs amounted to $1,134, $16,047, and $42,409, for the years ended December
31, 1997, 1996, and 1995, respectively.
INCOME TAXES The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
NET INCOME PER SHARE DATA Earnings per share is calculated by dividing the
net income (loss) by the weighted average number of common shares and common
share equivalents outstanding during the year. In 1997 the Company adopted
SFAS No. 128 "Earnings Per Share" which requires the Company to present its
basic earnings per share and diluted earnings per share, and certain other
earnings per share disclosures for each year presented. Basic earnings per
share is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding. The computation of
diluted loss per share is similar to the computation of basic loss per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential common
shares had been issued. In addition, the numerator is adjusted for any changes
in income or loss that would result from the assumed conversions of those
potential shares. The Company adopted SFAS No. 128 for the year ended December
31, 1997. Previously reported EPS have been restated to conform to SFAS No.
128.
Basic and diluted EPS computation for the years ended December 31,1997, 1996,
and 1995 are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
BASIC EPS
Net income available to common stockholders.. 31,752 616,578 1,125,226
Weighted average common shares outstanding... 3,563,101 3,563,454 3,601,338
Basic EPS.................................... 0.01 0.17 0.31
DILUTED EPS
Net income available to common stockholders.. 31,752 616,578 1,125,226
Weighted average common share outstanding.... 3,563,101 3,563,454 3,601,338
Assumed conversion of common shares issuable
under stock option plan ..................... - 44,160 82,033
Weighted average common and common equivalent
shares outstanding .......................... 3,563,101 3,607,614 3,683,371
Diluted EPS ................................. 0.01 0.17 0.31
</TABLE>
In 1997 and 1996 the Company had common stock options outstanding during the
years which were not included in the diluted earnings per share calculation
because they would have been antidulutive. As of December 31, 1997 and 1996,
the Company had 177,000 and 197,000 options outstanding, respectively.
RECLASSIFICATIONS Certain prior year financial statement items of the Company
have been reclassified to conform to the current year presentation.
27
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS In 1995, the Company adopted SFAS No.
107, "Disclosure about Fair Value of Financial Instruments," which requires
disclosures of fair value information about financial instruments, whether or
not recognized in the balance sheet.
The carrying amount reported in the balance sheets for cash and cash
equivalents, accounts receivable and accounts payable and accrued liabilities
approximate their fair value due to the immediate or short-term maturity of
such instruments. The carrying amounts reported for the term note, mortgage
payable and bonds payable approximate fair value based on the Company's
incremental borrowing rates.
RECENT ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose finacial statements. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
YEAR 2000
The Company utilizes various mainframe and PC based computer software packages
as tools in running its daily operations. Management does not believe that the
Company will encounter any material problems with this software as a result of
the change in the millennium on January 1, 2000.
3. ACQUISITIONS ACTIVITY
On April 14, 1997, ART acquired from Astro-Med, Inc. substantially all of the
assets related to the following products (i) the basic cardiac catheterization
monitoring system (the "K3-I"), (ii) the stand-alone hemodynamic analysis
package (the "K3-II"), (iii) the network ready hemodynamic analysis package
(the K3-III"), and (iv) the control work station (the K3-WI") (collectively,
the "K3 Products"). The purchase price for the assets was $350,000, with
$50,000 paid at closing and a promissory note issued in the amount of $300,000.
The note is due and payable not later than the third anniversary of the closing
date. Interest only payments are payable on the last day of each quarter
during the first year after the closing and, thereafter, principal and interest
payments, in an amount necessary to fully amortize the then-outstanding balance
of the note in equal quarterly payments are payable on the last day of each
quarter.
Simultaneously, with the execution of the asset purchase agreement, ART
entered into a manufacturing agreement with Astro-Med. The term of the
agreement began on April 14, 1997 and continues for three years; provided,
however, that ART may, on sixty days' prior written notice to Astro-Med,
terminate the manufacturing agreement after the date of the first anniversary.
During the term of the manufacturing agreement, Astro-Med will manufacture the
K3 Products at prices which are specified in the agreement.
Pursuant to an asset purchase agreement dated March 5, 1997, Micron acquired
from Newmark, Inc. substantially all of its assets used in the business of
manufacturing, assembling, marketing, leasing and selling medical stud and
eyelet application machines. The purchase price for the acquired assets was
$400,000, payable as follows: (i) cash paid on account in the amount of
$58,368; (ii) cash in the amount of $141,632 paid on March 31, 1997; and (iii)
a non-interest bearing promissory note in the principal sum of $200,000,
payable in twenty equal monthly installments of $10,000 each.
At the same time it entered into the asset purchase agreement, Micron executed
a manufacturing agreement with Newmark pursuant to which Newmark will continue
to manufacture and service the machines on behalf of Micron for a period of one
year for a specified price. The manufacturing agreement is automatically
renewable for successive one-year terms.
LITE- TECH, L.P.
In August 1994, the Company elected to terminate acquisition discussions with
Lite-Tech, L.P. The Company had entered into a letter of intent with Lite-
Tech, L.P. to acquire certain assets for cash and common stock and assume
certain liabilities. As of December 31, 1996, the Company, through its Micron
subsidiary, had a net note receivable from Lite-Tech in the amount of $54,000
for the return of an initial good-faith deposit. During 1997, the remaining
good faith deposit of $54,000 was written off as a doubtful account
receivable..
28
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
4. INVENTORIES
Inventories consist of the following:
DECEMBER 31,
1997 1996
----------- ----------
Raw materials .............. $ 288,255 $ 320,736
Work-in-process ............ 282,929 354,838
Finished goods ............. 1,429,939 1,562,862
----------- ----------
Total .................. $ 2,001,123 $2,238,436
----------- ----------
----------- ----------
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
ASSET LIVES 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Machinery and equipment ........................ 5 to 15 years $ 4,086,672 $ 2,924,230
Equipment held for leases ...................... 5 to 15 years 362,352 60,000
Building and Leaseholds ........................ 20 years 1,787,118 1,745,354
Furniture and fixtures ......................... 3 to 4 years 281,241 192,580
------------ ------------
6,517,383 4,922,164
Accumulated depreciation ....................... (2,322,216) (1,744,302)
------------ ------------
Total .......................................... $ 4,195,167 $ 3,177,862
------------ ------------
------------ ------------
</TABLE>
The Company had approximately $244,000 and $244,000 of assets under capital
leases, included in machinery and equipment, at December 31, 1997 and 1996,
respectively. Accumulated depreciation on these assets was approximately
$33,000 and $33,000 at December 31, 1997 and 1996, respectively. During 1994,
equipment leased by the Company for Phoenix Polymers, Inc. ("Phoenix"),
totaling $290,535, with related accumulated depreciation of $14,527, was
written-down to its net realizable value of $80,000 and is included in other
assets as of December 31, 1996.
EQUIPMENT LEASING
The Company leases attaching machines under operating leases for periods of up
to one year with renewable terms. The cost of the leased equipment is
depreciated on a straight-line basis over ten years. Accumulated depreciation
on leased equipment was $39,996 and $6,000 at December 31, 1997 and 1996.
6. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following:
December 31,
---------------------------
1997 1996
------------ -------------
Goodwill ........................................ $ 2,661,073 $ 2,323,073
Accumulated amortization ........................ (635,476) (504,448)
------------ -------------
$ 2,025,597 $ 1,818,625
------------ -------------
------------ -------------
Patents .......................................... $ 286,108 $276,317
Software development costs ....................... 222,418 217,418
Accumulated amortization ......................... (422,859) (394,122)
------------ -------------
$ 85,667 $ 99,613
------------ -------------
------------ -------------
29
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
7. DEBT
REVOLVING CREDIT FACILITY
In November 1995, the Company entered into a credit facility with a bank which
includes a $3,500,000 working capital line of credit and a $375,000 term loan
maturing September 1997. In June 1997 the credit facility was amended
increasing the term loan to $400,000 and extending the maturity date to
December 2002. The line of credit is collateralized by the accounts
receivable and inventory of the Company and bears interest at prime plus .75%
(9.0% at December 31, 1997). The working capital line of credit replaced the
individual lines of credit maintained by ART and Micron originally maturing
September 1997 and was extended to December 15, 2002. The available
balance of the working capital line of credit as of December 31, 1997 and 1996
was $467,135 and $1,158,660, respectively.
The weighted average interest rate during the year for the Company's credit
facilities was 9%. The new loan agreement contains covenants which require ART
to maintain certain specific financial ratios and limit asset acquisitions to
$50,000 or less for ART and $500,000 or less for Micron without prior written
approval. At December 31, 1997 the Company was in compliance with the terms
of the new loan agreement or has obtained waivers for any event of
non-compliance.
Long-term borrowings, excluding capital lease obligations, consist of:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
$400,000 term note payable to a bank, bearing interest
at 9% per annum, payable in monthly installments of $8,303
through, maturity, December 2002, collateralized by Micron
equipment and unallocated ESOP shares ............................ $ 325,001 $ 84,375
Bonds payable .................................................... 485,935 437,935
$300,000 promissory note for acquisition of machines, bearing
interest at 8% per annum, payable interest only in the first year
and in quarterly installments of $28,203 through June 2000,
collateralized by equipment purchased ............................ 300,000 -
$200,000 promissory note for acquisition of machines, bearing
no interest, payable in equal monthly installments of $10,000
through maturity, November 1998, discounted at 9% to reflect
fair value, collateralized by machines purchased ................. 105,207
Mortgage payable, bearing interest at 9.25% per annum, payable
in monthly installments of $6,253 through maturity, August 1998,
collateralized by mortgage on land and building .................. 46,155 100,000
Other obligations ................................................ 11,116 10,910
---------- ----------
1,273,414 633,220
Less current maturities .......................................... (320,328) (149,130)
---------- ----------
Total bonds and long-term debt ............................. $ 953,086 $ 484,090
---------- ----------
---------- ----------
</TABLE>
In August 1995, the Company completed a $600,000 private bond placement. The
bonds are subordinated to the credit facility, carry an 11% interest rate, and
are payable in five years.
In connection with the private bond placement, ART issued an aggregate of
279,000 warrants to the bondholders to purchase ART common stock at $3.00 per
share. The warrants were exercisable upon issuance and expire in five years.
The Company recorded the allocation between the detachable warrants and debt
securities based on their relative fair values, as determined by a third party
appraisal as of the issuance date. Accordingly, the proceeds related to the
warrants are reported as additional paid-in capital and a discount on the debt
securities of $202,000, which is being amortized to interest expense over the
five-year term of the warrants. For the year ended December 31, 1997, the
Company recorded amortization of bond discount of $48,000 and interest expense
of $66,000. The unamortized bond discount remaining as of December 31, 1997
and 1996 was $135,374 and $162,065, respectively.
30
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
On March 5, 1997, Micron acquired assets used in the business of
manufacturing, marketing, assembling, leasing and selling medical stud and
eyelet application machines and obtained a promissory note in the principal sum
of $200,000, payable in twenty equal monthly installments of $10,000 each with
no interest.
On April 14, 1997, ART incurred a promissory note in the amount of $300,000,
bearing interest of 8% per annum, through the acquisition of property and
equipment from a manufacturer. Interest only payments are payable on the last
day of each quarter during the first year, thereafter, principal and interest
payments, in an amount necessary to fully amortize the then-outstanding balance
of the note in equal quarterly payments are payable on the last day of each
quarter. The note contains a subjective acceleration clause which states that
any material adverse change in the Company's financial condition would result
in the note becoming due and payable without further notice.
CAPITAL LEASES
The Company leases equipment under agreements which are classified as capital
leases and expire on various dates. The lease agreements generally provide
purchase options at the end of the original lease. Future minimum lease
payments under noncancelable leases consist of the following:
FISCAL YEAR 1997
- ------------------------------------------ -----------
1998 $ 115,577
1999 49,269
2000 27,800
2001 22,639
2002 4,315
Total minimum lease payments 219,600
Less amounts representing interest (27,147)
-----------
192,453
Less current portion (100,371)
-----------
Long-term obligations under capital leases $ 92,082
-----------
-----------
8. INCOME TAXES
The Company reports income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." SFAS No. 109 utilizes a tax liability (or asset) approach
to inter-period tax allocations and requires tax liabilities to be stated at
current effective tax rates.
The income tax provision (benefit) for each of the three years in the period
ended December 31, 1997 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Current:
Federal ....................................... $ - $ 283,739 $ 340,346
State ......................................... 15,156 - 18,856
--------- --------- ----------
Total .................................... 15,156 283,739 359,202
Deferred ........................................... 34,844 176,916 458,869
--------- --------- ----------
Total income tax expense (benefit) ................. $ 50,000 $ 460,655 $ 818,071
--------- --------- ----------
--------- --------- ----------
</TABLE>
Micron's net operating loss ("NOL") carryforwards for income tax purposes
approximated $2,496,000 and $2,528,000 at December 31, 1997 and 1996,
respectively. During the three years ended December 31, 1997, Micron utilized
approximately $32,000, $425,000, and $773,000 of its NOL carryforwards. The
NOL carryforwards expire through 2007. The use of the loss carryforwards to
reduce future income tax obligations are limited in any given year due to
restrictions defined in the Internal Revenue Code related to a change in
ownership control.
31
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
The components of the net deferred tax assets were as follows as of
December 31:
1997 1996
----------- -----------
Deferred tax liabilities:
Software development costs .................. $ (1,558) $ (711)
----------- -----------
Total deferred tax liability ................ (1,558) (711)
----------- -----------
Deferred tax assets:
Inventories ................................. 303,626 339,767
Mortgage participation certificates ......... 960,000 960,000
Corazonix Patents ........................... 313,826 344,983
Other ....................................... 298,176 291,782
Net operating loss carryforwards ............ 848,832 957,067
Valuation allowance ......................... (2,263,979) (2,399,121)
----------- -----------
Total deferred tax asset .................... 460,481 494,478
----------- -----------
Net deferred tax asset ........................... $ 458,923 $ 493,767
----------- -----------
----------- -----------
Deferred tax assets are recognized by reducing the valuation allowance as the
Company generates income, or when, in the opinion of management, significant
positive evidence exists that the Company will be more likely than not to
realize the tax benefits related to temporary differences which give rise to
deferred tax assets
The significant components of deferred tax expense were as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Utilization of net operating loss carryforwards .... $ 10,682 $ 47,012 $ 262,845
Valuation reserve .................................. (135,142) - -
Other .............................................. 159,304 129,904 196,024
--------- ---------- ----------
Total ......................................... $ 34,844 $ 176,916 $ 458,869
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The Company files a consolidated federal income tax return. For financial
statement purposes, the actual effective consolidated tax rates have been
applied to the income from operations before taxes when calculating the tax
provision. The actual income tax provision differs from the statutory income
tax rate (34%) as follows:
32
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Tax provision computed at statutory rate ............ $ 27,795 $ 366,260 $ 660,721
Increases (reductions) due to:
Nondeductible expenses ......................... 2,720 2,773 3,750
Amortization of goodwill ....................... 39,054 39,054 39,054
State income taxes net of federal benefit ...... - 52,568 114,546
Increase in valuation allowance ................ - - -
Other .......................................... (19,569) - -
---------- ----------- -----------
Income tax expense (benefit) ........................ $ 50,000 $ 460,655 $ 818,071
---------- ----------- -----------
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Micron established an Employee Stock Ownership Plan ("ESOP") as a result of a
previous plan of reorganization The ESOP is noncontributory on the part of
its participants. All employees of the Company are eligible for participation
in the ESOP. The ESOP borrowed $300,000 to purchase the Company's shares. The
proceeds were used to pay creditors electing to receive cash under the ESOP
plan. The shares issued by the Company to the ESOP are reflected as a
reduction in shareholders' equity. The Company accounts for its ESOP in
accordance with Statement of Position 76-3. Accordingly, all shares held by
the ESOP, allocated or unallocated, are treated as outstanding in the earnings
per share calculation. The Company has elected to recognize compensation
expense based on contributions made. There are no repurchase obligations by
the Company. The Company contributed and recorded compensation expense of
$42,857, $42,857, and $42,857 during the years ended December 31, 1997, 1996,
and 1995, respectively.
The Company sponsors an Employee Savings and Investment Plan under Section
401(k) of the Internal Revenue Code covering all eligible employees of the
Company. Employees can contribute up to 15% of their eligible compensation or
up to the maximum allowable by the IRS. The Company does not make any matching
contributions.
10. COMMITMENTS AND CONTINGENCIES
ROYALTIES
ART licenses its signal-averaging technology from an unrelated entity for a
royalty fee of 4.5% of gross sales, less certain allowances for selling
commissions and discounts. Costs of obtaining patents are offset against
royalties due. To retain an exclusive license for the technology, ART is
obligated to pay a minimum royalty of $60,000 annually.
ELECTROPHYSIOLOGY PRODUCTS CONTRACT
Effective April 1, 1994, ART and Prucka Engineering, Inc. ("Prucka"), the
manufacturer of the CardioLab and CardioMapp products (the "Products"),
executed an agreement related to ART's exclusive distribution of the Products.
Under the agreement, during the distribution period which expired December 31,
1996, purchase orders for Products were received in ART's name; Prucka
manufactured and invoiced ART for the Products at a predetermined discount and
received payment from ART; and ART invoiced customers and received payments.
Beginning January 1997 and thereafter, ART will receive commissions on certain
Products sold through December 31, 2002.
During 1997 and 1998, ART will receive a 4% commission on net sales of
CardioLab systems and accessories sold anywhere in the world, up to a ceiling
of $10,000,000 in total annual net sales. From January 1, 1999 through
December 31, 2002, ART will receive a commission of 3% of net sales of
CardioLab systems sold anywhere in the world, up to a ceiling of $10,000,000 in
total annual net sales. ART will receive a 4% commission on net sales of
CardioMapp products and accessories sold anywhere in the world up to a ceiling
of $10,000,000 in total annual net sales for the year 1997, the final year in
which ART will receive commissions for CardioMapp products. ART will receive
25% of the commissions it would otherwise be entitled to receive for revenues
attributable to Prucka products that exceed $10,000,000.
SALES TAX
In 1997 the state of California gave notice to the Company that sales tax
statements had not been filed by the Company since 1989. As a result, the
Company has notified all applicable customers with invoices during the period
that they would be responsible for sales and use taxes for the specific
invoices. The Company has a reserve of $125,000 in 1997 for California sales
tax liability. Going forward, the Company is charging and collecting sales tax
as customers are billed.
33
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
LEGAL PROCEEDINGS
The Company is a defendant in various civil lawsuits involving normal and
usual claims arising in the ordinary course of its business. In the opinion of
management, all such matters are either covered by insurance or involve amounts
such that an unfavorable disposition of the proceedings would not have a
material adverse impact on the consolidated financial position, results of
operations or cash flows of the Company.
ENVIRONMENTAL
GROUNDWATER
Like many industial processes, the Micron manufactuing process utilizes
hazardous and non-hazardous chemicals, the treatment and disposal of which are
subject to federal and state regulation. Since its inception, Micron has
expended significant funds to train its personnel, install waste treatment and
recovery equipment and to retain an independent environmental consulting fim to
constantly review, monitor and upgrade its air and waste water treatrment
activities. As a result, Micron believes that the operations of its
manufacturing facility is in compliance with currently applicable safety,
health and environmental laws and regulations.
Micron has been identified as a "potential responsible party" (PRP) under the
Comprehensive Environmental Response and may be required to share in the cost
of cleanup with respect to Fitchburg, Massachusetts manufacturing facility. In
January 1998, Micron filed information with the Massachusetts Departement on
Environmental Protection (DEP) to allow further subsurface investigation and a
consequent risk assessment to be performed. The Company's environmental
engineers have developed estimates of the possible remediation costs for this
facility of $150,000 to $200,000. The Company accrues the best estimates of
these costs whenit is probable that a liability has been incurred. At December
31, 1997 and 1996, the balance sheet included an accrual for these costs of
approximately $92,000 and $92,000, respectively. In addition, to comply with
environmental laws and regulations, the Company spent approximately $700,000
for capital improvements in 1997 and expects to spend approximately $200,000 in
1998, funded from operating cash flow.
Based on the Company's analyses and subject to the difficulty in estimating
these future costs, the Company expects that any sum it may be required to pay
in connection with environmental matters is not reasonably likely to exceed the
amounts disclosed in an amount which would have a material adverse effect on
financial condition, result of operations or liquidity.
OPERATING LEASES
The Company leases certain facilities and equipment under non-cancelable lease
arrangements. During 1997, the Company leased 4,009 square feet of office
space in an office building in Austin, Texas and 18,800 square feet of
manufacturing and quality control space in an industrial building in Fitchburg,
Massachusetts for part of the year. The lease on the office space will expire
in November 1998 and the manufacturing facility lease expired in July 1997.
Rent expense under all operating leases was approximately $157,749, $195,559
and $170,000 in 1997, 1996 and 1995, respectively.
Future minimum operating lease payments as of December 31, 1997 are as follows:
YEAR OPERATING LEASES
-------------------------- ----------------
1998 ..................... $ 64,600
Total .................... $ 64,600
11. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for income taxes and interest for the years ended December 31:
1997 1996 1995
------------ ----------- -----------
Income taxes $ 350,000 $ 230,000 $ 440,513
------------ ----------- -----------
------------ ----------- -----------
Interest $ 245,845 $ 276,719 $ 256,878
------------ ----------- -----------
------------ ----------- -----------
34
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
Non-cash activities:
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- ---------
<S> <C> <C> <C>
Acquisition of property and equipment by capital
lease or debt ................................ $485,080 $ 87,790 $ 47,635
-------- --------- ---------
-------- --------- ---------
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Company obtains legal services with respect to its patents from a law
firm, a partner of which is a shareholder and Director of the Company. Fees
for services and patent prosecution costs paid to this firm were approximately
$20,000, $30,000 and $43,000 for years 1997, 1996 and 1995, respectively. The
amounts owed to this firm at December 31, 1997, 1996 and 1995 were
approximately $22,000, $21,000 and $23,000, respectively.
Cardio Digital Inc. ("CDI") has four shareholders who are also shareholders of
the Company. Royalties to CDI were $6,300, $10,500, and $8,400 for years 1997,
1996, and 1995. The amounts owed to CDI at December 31, 1997, 1996 and 1995
were $16,300, $10,500, and $8,400, respectively.
During the years 1997, 1996, and 1995 healthcare coverage premiums of $8,900,
$5,900 and $5,300 were paid on behalf of a Director of the Company in exchange
for consulting services.
The Company obtains consulting services, with respect to acquisitions, SEC
filings, financial road shows, and other negotiations, from a shareholder and
Director of the Company. Fees for services paid to this Director were
approximately $25,000 in 1997. The amounts owed to this Director at December
31, 1997 were approximately $4,200.
13. STOCK OPTIONS
The Company has reserved 250,000 shares of its Common Stock for issuance to
officers and key employees pursuant to a Incentive Stock Option Plan (the
"Option Plan"). Under the Option Plan, options become exercisable commencing
one year from the date of grant at the rate of 20% of the total granted per
year and expire ten years from the date of grant. The exercise price is the
fair market value of the Common Stock on the date of grant, which was $2.25 to
$6.50 per share for all options outstanding and granted under the Option Plan.
Transactions under the Option Plan are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>>
Options outstanding at beginning of year ............... 177,000 240,750 131,250
Granted ................................................ 25,000 - 130,000
Forfeited .............................................. 39,000 - -
Terminated ............................................. - 63,750 20,500
------- ------- -------
Options outstanding at end of year ..................... 163,000 177,000 240,750
------- ------- -------
Options exercised to date .............................. 2,000 2,000 2,000
------- ------- -------
Available for grant at end of year ..................... 85,000 71,000 7,250
------- ------- -------
------- ------- -------
Exercisable at end of year ............................. 91,800 64,200 52,550
Weighted-average fair value of options granted ......... $1.34 - $1.91
------- ------- -------
------- ------- -------
</TABLE>
During 1989 and 1988, certain non-plan options (the "Non-plan options") were
granted by the Board of Directors to six employees and an independent sales
person. These Non-plan options were for 41,250 shares at an exercise price
ranging from $2.00 to $4.00, the approximate market price at the date of grant.
The options were approved by the shareholders and have all expired. During
1991, options for 219,000 shares, expiring in 1996, at an exercise price of
$4.00 were granted to the Directors, the President and three employees. During
1994, options for 144,000 shares, expiring in 2004, at an exercise price of
$3.00, were granted to eight current Directors. Additionally, options to
purchase 5,200 shares of common stock, expiring in 1996, at an exercise price
of $6.00, were granted to a former officer of the Company under a separation
agreement. In 1996, the shares were terminated pursuant to a letter amendment
to the original separation agreement. During 1995, Non-
35
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
plan options for 29,000 shares, expiring in 2005, at an exercise price of
$3.00 were granted to two key officers of the Company.
During 1993, options for 48,000 shares at an exercise price of $4.00 were
granted to two directors. The options vest at 1,000 per month to an aggregate
of 24,000 per director. At the date of the grant the market price was $5.75.
The difference between the grant price and the market price is compensation
which is being amortized over the vesting period. Total compensation expense
related to these options were recognized in the prior years. Compensation
expense recorded during the years ended December 31, 1997, 1996 and 1995 was
$0, $0, and $22,750 respectively.
Transactions relative to Non-plan options are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year ............. 197,000 353,700 366,700
Granted .............................................. - - 29,000
Exercised ............................................ - - 17,000
Terminated/forfeited ................................. 20,000 156,700 25,000
------- ------- -------
Options outstanding at end of year ................... 177,000 197,000 353,700
------- ------- -------
------- ------- -------
Exercisable at end of year ........................... 136,500 182,500 331,950
------- ------- -------
------- ------- -------
</TABLE>
The Company has applied Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations, in
accounting for their stock option plans. Accordingly, no compensation expense
has been recognized for the plans. Had compensation cost for the plans been
determined based upon the fair value at the grant date for awards under the
plans consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, ART's
net income would have decreased by the pro forma amounts
indicated below, for the years ended December 31, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Net income - as reported ................. $ 31,752 $ 616,579
--------- ----------
--------- ----------
Net income - pro forma ................... $ (10,867) $ 580,389
--------- ----------
--------- ----------
Basic income per share - as reported ..... $ .01 $ .17
--------- ----------
--------- ----------
Basic income per share - pro forma ....... $ (.01) $ .16
--------- ----------
--------- ----------
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the option-pricing method with the following weighted average
assumptions: dividend yield of 0.0%, expected volatility of 57%, risk-free
interest rate of 6.22%, and an expected life of 5.8 years.
The underwriter of the June 1991 public offering was granted warrants to
purchase 75,000 shares at $4.40 per share, expiring in 1996. The Common Stock
to be issued upon exercise of the warrants was registered with the Securities
and Exchange Commission under Form S-3 during 1993. The underwriter exercised
warrant rights and shares were issued for 15,000 shares of common stock during
1993. The remaining underwriter's warrants expired unexercised in June 1996.
In August 1995, warrants were issued to bondholders to purchase an aggregate of
279,000 shares of common B stock at $3.00 per share. The bondholders' warrants
expire five years from the date of the bond.
36
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
14. EXPORT SALES AND SIGNIFICANT CUSTOMERS
The following table sets forth the geographic distribution of the Company's
net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
United States ................................. $ 7,156,957 $ 15,935,126 $ 16,380,540
Europe ........................................ 2,726,142 4,829,713 4,325,860
Canada, Mexico & South America ................ 1,715,115 1,587,372 1,078,263
Pacific Rim ................................... 236,654 2,303,520 1,101,085
Other ......................................... 52,319 132,118 42,341
------------ ------------- -------------
Net Sales ..................................... $ 11,887,187 $ 24,787,849 $ 22,928,089
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
During the year ended December 31, 1997 three major customers accounted for
35%, 23% and 13% of net sales of Micron. There was no single significant
customer for ART during the three years in the period ended December 31, 1997.
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Anthony A. Cetrone......................... 69 Chairman of the Board of Directors,
Chief Executive Officer of Micron, Director
Sidney M. Barbanel......................... 61 President and Chief Executive Officer, Director
Eric K. Y. Chan, Ph.D...................... 41 Vice President of Engineering
Nancy C. Arnold............................ 50 Vice President, Secretary and General Counsel
Julius Tabin, Ph.D......................... 78 Director
Paul F. Walter, MD......................... 60 Director
Russell C. Chambers, MD.................... 54 Director
E.P. Marinos............................... 56 Director
Lawrence S. Black.......................... 68 Director
</TABLE>
The Directors are divided into three classes with rotating three-year terms.
Dr.Walter, Mr. Black, and Mr. McManus were elected to serve as Directors
until the 2000 annual meeting of shareholders. Mr. McManus subsequently
resigned. Dr.Chambers, Mr. Cetrone, and Mr. Barbanel have been elected to
serve until the 1999 annual meeting of shareholders. Dr. Tabin and Mr. Marinos
have been elected to serve as Directors until the 1998 annual meeting of
shareholders. The Company's executive officers are appointed by the Board of
Directors and serve at the pleasure of the Board.
E.P. (LOU) MARINOS was appointed President and Chief Executive Officer of the
Company in March 1995 and resigned in May, 1997. Mr. Marinos, until he
resigned, also served in the capacity of Chief Financial Officer and Chief
Operating Officer since joining the Company in May, 1994. Prior to joining the
Company Mr. Marinos held senior executive management or Director positions with
Intermedics, Inc., Carbon Implants, Inc., Bio-International, Inc. and Endevco,
Inc. He was also a senior partner with Deloitte & Touche. Mr. Marinos is
presently President and Chief Executive Officer of Midcoast Interstate
Transmission, Inc.
ANTHONY A. CETRONE has been President of Micron since 1988 and chairman of its
Board from June 1990 to the present, Mr. Cetrone also served as President and
Chief Executive Officer of the Company from January 1993 to March 1995. Mr.
Cetrone was appointed Chairman of the Board in November 1996.
NANCY C. ARNOLD has been Secretary of the Company since March 1988 and
General Counsel since January 1990. She was elected Vice President in 1997.
ERIC K. Y. CHAN, PH.D. has been Vice President of Engineering since April
1993, and was Director of Engineering from August 1991.
JULIUS TABIN, PH.D. has been a director of the Company since its inception.
Since 1949, Dr. Tabin has been a partner in the law firm of Fitch, Even, Tabin
& Flannery.
PAUL F. WALTER, MD. has been a director of the Company since its inception.
Dr. Walter is a Professor of Medicine at Emory University where he has been on
the faculty since 1971.
RUSSELL C. CHAMBERS, MD. has been a director of the Company since its
inception and served as the Company's Chairman of the Board until August 1990.
For more than the past five years, Dr. Chambers has been primarily engaged in
the management of his personal investments.
LAWRENCE S. BLACK has been a director of the Company since October 1994. He
is the Chairman and founder of Black & Company, Inc., investment bankers. Mr.
Black is also a director of Mt. Bachelor Corp.
SIDNEY M. BARBANEL has been a director of the Company since September 1997.
He was appointed President and Chief Executive Officer in September 1997.
Prior to joining the Company, Mr. Barbanel held Senior Executive positions in
ABAS Associates and Cook Pacemaker, Inc. for more than five years.
38
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth certain information concerning compensation of
and stock options held by the Company's President and Chief Executive Officer
and the President of the Company's subsidiary, Micron:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- -------- ---------
STOCK LONG-TERM ALL
OPTIONS INCENTIVE OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) (SH) PAYOUTS COMPENSATION
- ------------------------------------------- ------ ------------ ----- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
E. P. Marinos, former President and Chief 1997 $ 62,800 $ 4,000 - - - -
Executive Officer
Anthony A. Cetrone, President, Micron 1997 $ 98,000 13,569 - - - -
Products Inc.
Sidney M. Barbanel, President and Chief 1997 $ 43,800 - - - - -
Executive Officer
E. P. Marinos, former President and 1996 $ 100,000 $ 2,000 - - - -
Chief Executive Officer
Anthony A. Cetrone, President, Micron 1996 $ 98,000 $ 17,118 - - - -
Products Inc.
E.P. Marinos, former President and 1995 $ 92,300 - - 80,000(1) - -
Chief Executive Officer
Anthony A. Cetrone, President Micron 1995 $ 98,000 $ 21,907 5,250 29,000(1) - -
Products, Inc.
</TABLE>
(1) Mr. Marinos and Mr. Cetrone were granted 60,000 and 20,000 options to
purchase shares, respectively, under the Option Plan. The shares vest at the
rate of 20% per year for five years until fully vested. The exercise price was
based on the market price on the date of grant. Mr. Marinos relinquished
36,000 options in June 1997. Mr. Marinos and Mr. Cetrone were granted 20,000
and 9,000 options to purchase shares at an exercise price of $3.00,
respectively, outside the Option Plan. Twenty-five percent of the shares vest
immediately and the remainder vest at twenty-five percent on each anniversary
date, until fully vested. The shares granted outside the Option Plan were
approved by the shareholders. The market price at the date of grant was $3.00.
Mr. Marinos relinquished all 20,000 options in June 1997.
OPTION GRANTS IN LAST FISCAL YEAR
There were no option grants/SARS in fiscal year 1997.
39
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
VALUE REALIZED NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES (MARKET PRICE AT HELD AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
ACQUIRED EXERCISE LESS ----------------------------- --------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
E.P. Marinos ....... - $ - 42,000 - $ - $ -
Anthony A. Cetrone . - $ - 76,100 17,400 $ - $ -
</TABLE>
Mr. David Jenkins, previous President and Chairman of the Board of Directors,
submitted his resignation effective on January 25, 1993.. In March, 1994, Mr.
Jenkins exercised options for 5,000 shares at $4.00 per share. In August 1995,
Mr. Jenkins exercised options for 12,000 shares at $4.00 per share. In
September 1995, Mr. Jenkins exercised the balance of his options for 5,000
shares at $4.00 per share.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Based solely upon the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors and greater
than ten percent beneficial owners complied with the filing requirements
applicable to them pursuant to Section 16(a) of the Securities Exchange Act
during 1997.
EMPLOYMENT ARRANGEMENTS
ANTHONY A. CETRONE
Mr. Cetrone's employment agreement expired in 1996 It is currently being
renegotiated. He is receiving the same compensation he received pursuant to his
agreement. He is being paid a base salary of $98,000 per annum and he is
entitled to bonus compensation in the amount of 5% of Micron's net income after
taxes. .
SIDNEY M. BARBANEL
Sidney M. Barbanel receives a salary of $100,000 per annum and participates
in such bonus and compensation plans as the Board may institute from time to
time. Although Mr. Barbanel does not have an employment agreement with the
Company, he has signed a confidentiality and non-compete agreement.
STOCK OPTIONS
1987 INCENTIVE STOCK OPTION PLAN
In 1987, the Company adopted a stock option plan (the "Option Plan") pursuant
to which 250,000 shares of Common Stock have been reserved for issuance to
officers and other key employees and to certain other persons who are employed
or engaged by the Company. Options are designated as "incentive stock options"
within the meaning of the Internal Revenue Code of 1986, as amended. The
purpose of the Option Plan is to encourage stock ownership by persons
instrumental to the success of the Company, in order to give them a greater
personal interest in the Company's business. The exercise price of any stock
option granted to an eligible employee may not be less than 100% of the fair
market value of the shares underlying such option on the date of grant, unless
such employee owns more than 10% of the outstanding Common Stock, in which case
the exercise price of any incentive stock option may not be less than 110% of
such fair market value. The term of each option and the manner in which it may
be exercised is determined by the Board of Directors provided that no option
may be exercisable more than 10 years after the date of grant and, in the case
of a stock option granted to an eligible
employee owning more than 10% of the Common Stock, no more than five years.
Generally, options become exercisable one year from the date of grant and each
year thereafter at a rate of 20% per year. Options are not transferable,
except upon death of the option holder.
Options to purchase an aggregate of 229,009 shares of Common Stock at an
exercise price of $2.25 to $6.50 per share have been granted under the Option
Plan to twenty current and former employees. Of these, options for 2,000
shares were exercised and options to purchase 87,500 shares granted to ten
former employees were canceled due to termination of employment or death of the
employees. During 1993, 2,000 shares were exercised. As of December 31, 1995,
included in the total are options to purchase 97,000, 60,000, 25,000, and
30,000 shares, granted to E.P. Marinos, Anthony Cetrone, Nancy C. Garbade, and
William E. Cooper, respectively. Mr. Coopers' options terminated upon his
resignation in 1996. During the year ended December 31, 1997, 25,000 options
to purchase shares were granted to one employee. Mr. Marinos forfeited 56,000
options upon his resignation in 1997. During the year ended December 31, 1996,
no options were granted. During the year ended December 31, 1995, options to
purchase 130,000 shares were granted to eight employees.
40
<PAGE>
OTHER OPTIONS
In addition, options to purchase an aggregate of 518,450 shares of Common
Stock have been granted at exercise prices ranging from $2.00 to $4.00; such
options were not granted under the Option Plan. At December 31, 1997, options
for 55,251 shares have been exercised and options for 260,700 shares have been
terminated/forfeited
During 1988 and 1989 options to purchase 18,750 shares were granted to four
employees, all of which have been exercised or terminated as of December 31,
1993. During 1988, options to purchase 7,500 shares were granted to Wayne
Schroeder at an exercise price of $2.00 per share. The options were exercised
during 1993.
During 1990, options to purchase 25,000 shares of Common Stock were granted to
Robert A. Simms, at an exercise price of $4.00 per share, all of which were
terminated in 1997 upon the resignation of Mr. Simms as director. Options to
purchase an aggregate of 125,000 shares were granted to David Jenkins, from
1988 to 1991, at exercise prices ranging from $2.00 to $4.00 per share, of
which 95,500 were terminated in January, 1993 when Mr. Jenkins resigned as
President of the Company. Also in January, 1993, Mr. Jenkins exercised options
for 7,500 shares at $2.00, and relinquished the balance of his options, except
for 22,000 options in which he is fully vested, which were granted him as a
director of the Company. In March, 1994, Mr. Jenkins exercised 5,000 options
at an exercise price of $4.00 per share. In August 1995, Mr. Jenkins exercised
12,000 options at an exercise price of $4.00 per share. In September 1995, Mr.
Jenkins exercised the balance of his options for 5,000 shares at an exercise
price of $4.00 per share.
During 1991, options to purchase 25,000 shares of common stock were granted to
three employees, of which 17,500 shares have been exercised or terminated.
In March 1991, five-year options to purchase 24,000 shares were granted to
each of the six current directors of the Company (including Mr. Jenkins),
exercisable at a rate of 1,000 shares per month at an exercise price of $4.00
per share. All such options expired unexercised in 1996. During 1991, options
to purchase 25,000 shares at $4.00, expiring in 1996, were granted to three
employees.
In March 1993, options for 48,000 shares at an exercise price of $4.00 were
granted to two directors. The options vest at 1,000 per month to an aggregate
of 24,000 per director. At the date of the grant the market price was $5.75.
The difference between the grant price and the market price is compensation
which is being amortized over the vesting period. All compensation expenses
related to these options were recognized in the prior years. Compensation
expense recorded during 1995 and 1994 was $22,750 and $29,750, respectively.
In October 1994, options for 144,000 shares, expiring in 2004, at an exercise
price of $3.00, were granted to eight current Directors. The shares were
immediately exercisable. Additionally, options to purchase 5,200 shares of
common stock, expiring in 1996, at an exercise price of $6.00, were granted to
a former officer of the Company under a separation agreement.
In November 1995, options to purchase 29,000 shares, expiring in 2005, at an
exercise price of $3.00, were granted to two Officers and Directors of the
Company. Twenty-five percent of the shares vest immediately and the remaining
shares vest at twenty-five percent per year on each anniversary date until
fully vested.
MEDICAL CONSULTANTS
From time to time, the Company consults with medical advisors who report on
advances in technology and on developments in their respective fields. During
1995 , 1996 and 1997, the Company used consultants on a specific project
basis. Amounts paid to consultants during 1995, 1996 and 1997 were not
material.
41
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 20, 1998 based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than five percent of the outstanding shares of
Common Stock, (ii) each director of the Company and (iii) all officers and
directors as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------- -------- ---------
<S> <C> <C>
R.C. Chambers Irrevocable Trust (2) ................... 222,350 6.00
1807 Lake Street
Lake Charles, Louisiana 70601
Russell C. Chambers, M.D. (3) ......................... 170,450 5.30
Julius Tabin, Ph.D. ................................... 38,375 1.07
Paul F. Walter, M.D. .................................. 69,375 1.09
Anthony A. Cetrone (4) ................................ 129,067 3.62
E.P. Marinos .......................................... 42,000 0.30
Lawrence S. Black ..................................... 19,500 0.50
Sidney M. Barbanel .................................... 6,333 0.10
All officers and directors as a group (9 persons) (5).. 746,425 20.95
</TABLE>
1. Unless otherwise noted, each person has sole voting and investment power
with respect to the shares of Common Stock beneficially owned.
2. The beneficiary of all of the trust's income is Dr. Chambers' son. Dr.
Chamber's son has a 50% ownership interest in the assets held by the trust
and Dr. Chamber's wife's estate has the remaining 50% ownership interest.
Dr. Chambers disclaims any beneficial ownership of the Common Stock held
by the trust.
3. Includes 2,500 shares over which Dr. Chambers has voting power pursuant
to an agreement, 12,500 shares held as custodian for his son and 2,500 shares
held as custodian for a niece.
4. Includes 67,567 shares held by the Micron Employee Stock Ownership Plan
over which Mr. Cetrone shares voting power as Trustee.
5. Includes options to purchase shares of Common Stock, all of which are
exercisable at December 31, 1997, as follows:
NAME NUMBER
----------------------------------- ------------
Russell C. Chambers, M.D. ......... 18,000
Julius Tabin ...................... 18,000
Paul F. Walter, M.D. .............. 18,000
Nancy C. Arnold ................... 13,000
Anthony A. Cetrone ................ 76,100
Eric Chan ......................... 12,000
E.P. Marinos ...................... 42,000
Lawrence S. Black ................. 18,000
-----------
Total ........................ 215,100
-----------
-----------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To date, all transactions between the Company and its officers, directors, or
their affiliates have been approved or ratified by a majority of the directors
who did not have an interest in, and who were not employed by the Company at
the time of, such transaction. The Company's Board of Directors adopted
resolutions providing that any transaction between the Company and its
officers, directors or their affiliates must be approved by a majority of the
Board of Directors who do not have an interest in, and who are not employed by
the Company at the time of, such transaction. The Company believes that all
transactions entered into with affiliates of the Company were on terms no less
favorable than could have been obtained from unaffiliated third parties.
42
<PAGE>
In May 1983, ART entered into an agreement with Cardiodigital Industries,
Inc., a Texas corporation ("CDI"), pursuant to which ART granted an exclusive
license to CDI to use the technology covered by the Simson Patent in connection
with research and development of signal-averaging devices. In consideration
for the license, CDI provided $175,000 of financing and granted ART an option
to acquire any technology developed by CDI on an exclusive basis at a price of
either $1,250,000 or a royalty fee of $150 per cardiac signal-averaging device
sold by ART, up to a maximum of $1,250,000. ART exercised its option to
purchase such technology at the fee of $150 per signal-averaging device sold by
ART. Dr. Julius Tabin, is a director of ART and a shareholder of CDI. In
addition, the estate of G. Russell Chambers (Dr. Chambers' father), is a
principal shareholder of CDI. Royalty fees for the years ended December 31,
1997, 1996 and 1995 were $7,300, $5,800, and $5,500, respectively.
Dr. Julius Tabin, a member of the law firm of Fitch, Even, Tabin & Flannery,
the Company's patent counsel, has been a director of the Company since its
inception and he and other members of the firm are shareholders of the Company.
For the years ended December 31, 1997, 1996 and 1995, the law firm billed the
Company approximately $20,000, $30,000, and $43,000 respectively, for legal
services rendered and patent prosecution costs. The amounts owed to the firm
at December 31, 1997, 1996, and 1995 were approximately $22,000, $21,000, and
$23,000 respectively.
Dr. Russell C. Chambers, a director and shareholder of the Company, is
engaged as a consultant to the Company. For the years ended December 31, 1997,
1996 and 1995, health insurance premiums paid on Dr. Chambers behalf amounted
to approximately $8,900, $5,900 and $5,300, respectively.
In October, 1994, the Marshalled Cherubs Trust loaned the Company $100,000,
with interest accruing at 11% per annum, under a demand note. The loan, plus
accrued interest, was repaid in August 1995. The Marshalled Cherubs Trust is
for the benefit of the Jason Chambers, the son of Dr. Russell C. Chambers, a
director and shareholder of the Company. However, Dr. Chambers holds no voting
or dispositive power with respect to Company shares hold by the Trust.
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as a part of this report:
(1) All Financial Statements
See index to financial statements on page 20 for a list of all financial
statements filed as part of this report.
(2) Financial Statement Schedules
(A) Schedule II
All schedules for which provision is made in Regulation S-X of the Securities
and Exchange Commission not included here are omitted as the required
information is inapplicable or the information is presented in the financial
statements or related notes.
(3) Exhibits
The following exhibits, required by Item 601 of Regulation S-K are submitted
herewith:
<TABLE>
<CAPTION>
DESCRIPTION OF EXHIBIT
---------------------------------------------------------------------------
<S> <C>
10.34 Asset Purchase Agreement, dated March 5, 1997, between Micron Products,
Inc. and Newmark, Inc. ....................................................
10.35 Manufacturing Agreement, dated March 5, 1997, between Micron Products,
Inc. and Newmark, Inc. ....................................................
10.36 Asset Purchase Agreement, dated April 14, 1997, between Arrhythmia
Research Technology, Inc. and Astro-Med, Inc. .............................
10.37 Manufacturing Agreement, dated April 14, 1997, between Arrhythmia
Research Technology, Inc. and Astro-Med, Inc. .............................
10.38 Software Conversion Agreement, dated April 21, 1997, between Arrhythmia
Research Technology, Inc. and Softheart, Inc. .............................
10.39 License Agreement, dated April 21, 1997, between Arrhythmia Research
Technology, Inc. and Softheart, Inc. ......................................
</TABLE>
(b) Reports filed in the fourth quarter on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
BY: /s/ SIDNEY M. BARBANEL
--------------------------------------
Sidney M. Barbanel
President & Chief Executive Officer
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
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------- --------------------------------------- -----------------
<S> <C> <C>
Chairman of the Board, Arrhythmia
Research Technology, Inc., President &
Chief Executive Officer, Micron
/s/ Anthony A. Cetrone Products Inc. March 31, 1998
- -----------------------------
Anthony A. Cetrone
/s/ Russell C. Chambers Director March 31, 1998
- -----------------------------
Russell C. Chambers
/s/ Julius Tabin Director March 31, 1998
- -----------------------------
Julius Tabin
/s/ E. P. Marinos Director March 31, 1998
- -----------------------------
E. P. Marinos
Director, President and Chief Executive
Officer of Arrhythmia Research
/s/ Sidney M. Barbanel Technology, Inc. March 31, 1998
- -----------------------------
Sidney M. Barbanel.
/s/ Lawrence S. Black Director March 31, 1998
- -----------------------------
Lawrence S. Black
/s/ Paul F. Walter Director March 31, 1998
- -----------------------------
Paul F. Walter
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------- ------------------------------------------------------------------------- ------
<S> <C> <C>
3.0 Articles of Incorporation................................................ (a)
3.1 By-laws.................................................................. (a)
3.2 Certificate of Agreement of Merger of Arrhythmia Research Technology,
Inc., a Louisiana Corporation, and Arrhythmia Research Technology, Inc.,
a Delaware Corporation................................................... (a)
3.3 Articles of Merger of Arrhythmia Research Technology, Inc., a Louisiana
Corporation, and Arrhythmia Research Technology, Inc., a Delaware
corporation.............................................................. (a)
4.0 Form of Certificate evidencing shares of the Company's Common Stock...... (a)
4.1 Form of Non-plan Options to purchase Company Common Stock................ (c)
4.2 Form of Options to purchase Company Common Stock under the 1987
Incentive Stock Option Plan.............................................. (a)
4.3 Form of Underwriter's Warrant............................................ (c)
4.4 Bond Indenture and Bond Form.............................................
4.5 Form of Option for E.P. (Lou) Marinos under 1995 Key Employees Stock
Option Plan..............................................................
4.6 Form of Option for Anthony A. Cetrone under 1995 Key Employees Stock
Option Plan..............................................................
10.0 Distribution Agreement by and between Prucka Engineering, Inc. and
ART, dated November 20, 1989............................................. (b)
10.1 Amendment to Distribution Agreement dated November 20, 1989.............. (b)
10.2 Lockup Agreement......................................................... (a)
10.3 Manufacturing Agreement by and between ART and Mortara Instrument,
Inc. dated March 8, 1987................................................. (a)
10.4 Amendment to Manufacturing agreement dated June 15, 1987................. (a)
10.5 Letter agreement by and between ART and Mortara Instrument, Inc.
dated October 26, 1989................................................... (c)
10.6 Letter agreement by and between ART and Mortara Instrument, Inc.
dated February 21, 1990.................................................. (c)
10.7 Letter agreement by and between ART and Mortara Instrument, Inc.
dated February 21, 1990.................................................. (c)
10.8 Letter agreement by and between ART and Mortara Instrument, Inc.
dated July 31, 1990...................................................... (c)
10.9 License Agreement dated November 15, 1981 by and between University
Patents, Inc., and ART................................................... (a)
10.10 Amendment to License Agreement dated June 1, 1985........................ (a)
10.11 License of Cardiac Signal Average and Base Technology by ART to
Cardiodigital Industries, Inc. to ART.................................... (a)
10.12 Grant of Option to Acquire Exclusive License for Use of Signal
Averaging Technology from Cardiodigital Industries, Inc. to ART.......... (a)
10.13 Agreement and Plan of Merger executed by ART and Arrhythmia Research
Technology, Inc., a Louisiana corporation................................ (a)
10.14 Settlement Agreement, dated February 23, 1990, by and among Baylor
College of Medicine, The Methodist Hospital Foundation and The
Methodist Hospital and Matthew W. Prucka, Delphi Computer Systems
Inc., Prucka Engineering, Inc., Dr. Christopher Wyndham and Arrhythmia
Research Technology, Inc................................................. (c)
10.15 Form of Employment Agreement dated June 1, 1991, by and between the
Company and David A. Jenkins............................................. (c)
10.16 Amendment No. 2 to License Agreement between ART and University
Patents, Inc. dated February 6, 1991..................................... (b)
10.17 O E M Agreement by and between Vascor Medical Corporation, Vascomed
and ART dated December 14, 1991.......................................... (d)
10.18 Amendment to O E M Agreement dated December 14, 1991. ................... (d)
10.19 O E M agreement by and between Professional Catheter Corporation and
ART dated September 11, 1992............................................. (f)
10.20 Distribution Agreement by and between Prucka Engineering, Inc. and
ART, dated May 28, 1992.................................................. (f)
46
<PAGE>
10.21 Employment Agreement, dated November 24, 1992, between the Company
and Anthony A. Cetrone................................................... (f)
10.22 Asset Purchase Agreement, dated February 17, 1993, by and among
Hubbard, Thurman, Tucker & Harris, L.L.P. and ART........................ (f)
10.23 Agreement and Plan of Merger, dated November 25, 1992, among Arrhythmia
Research Technology, Inc., ART Merger Subsidiary II, Inc., Micron
Products Inc. and Micron Medical Products Inc............................ (e)
10.24 Merger Agreement, dated November 25, 1992, between ART Merger
Subsidiary II, Inc. and Micron Products Inc.............................. (e)
10.25 Asset Purchase Agreement, dated July 9, 1993, between Arrhythmia
Research Technology, Inc. and Corazonix Corporation...................... (g)
10.26 Amendment to Asset Purchase Agreement, dated November 5, 1993,
between Arrhythmia Research Technology, Inc. and Corazonix Corporation... (i)
10.27 Manufacturing and Equipment Lease Agreement, dated November 5, 1993,
between Arrhythmia Research Technology, Inc. and Corazonix Corporation... (i)
10.28 Letter of Intent dated September 28, 1993, between Arrhythmia Research
Technology, Inc. and Lite Tech, L. P..................................... (i)
10.29 Letter of Intent, dated September 28, 1993 by and between Arrhythmia
Research Technology, Inc. and Mr. John Curley and Mr. Thomas Krug........ (i)
10.30 Agreement by and between Arrhythmia Research Technology, Inc. and
Prucka Engineering, Inc., dated August 1994.............................. (j)
10.31 First and Second Amendments to Manufacturing and Equipment Lease,
dated August 31, 1994 and October 6, 1994, respectively, between
Arrhythmia Research Technology, Inc. and Corazonix Corporation........... (j)
10.32 Agreement and Modification of Second Amendment to Manufacturing and
Equipment Lease Agreement dated November 4, 1994, between Arrhythmia
Research Technology, Inc. and Corazonix Corporation...................... (j)
10.33 Employment Agreement, dated March 1, 1996, between the Company and
E. P. Marinos............................................................
10.34 Asset Purchase Agreement, dated March 5, 1997, between Micron Products,
Inc. and Newmark, Inc....................................................
10.35 Manufacturing Agreement, dated March 5, 1997, between Micron Products,
Inc. and Newmark, Inc....................................................
10.36 Asset Purchase Agreement, dated April 14, 1997, between Arrhythmia
Research Technology, Inc. and Astro-Med, Inc.............................
10.37 Manufacturing Agreement, dated April 14, 1997, between Arrhythmia
Research Technology, Inc. and Astro-Med, Inc.............................
10.38 Software Conversion Agreement, dated April 21,1 997, between Arrhythmia
Research Technology, Inc. and Softheart, Inc.............................
10.39 License Agreement, dated April 21, 1997, between Arrhythmia Research
Technology, Inc. and Softheart, Inc......................................
22.0 Subsidiaries............................................................. (f)
28.0 1987 Incentive Stock Option Plan......................................... (a)
28.1 Option Agreement, dated March 18, 1991, between the Company and Julius
Tabin.................................................................... (f)
28.2 Option Agreement, dated March 18, 1991, between the Company and Robert
A. Simms................................................................. (f)
28.3 Option Agreement, dated March 18, 1991, between the Company and Tom
Podl..................................................................... (f)
28.4 Option Agreement, dated March 18, 1991, between the Company and Paul
F. Walter................................................................ (f)
28.5 Option Agreement, dated March 18, 1991 between the Company and Russell
C. Chambers.............................................................. (f)
28.6 Option Agreement, dated August 21, 1990, between the Company and
Robert A. Simms.......................................................... (f)
28.7 Option Agreement, dated March 8, 1993, between the Company and Anthony
A. Cetrone............................................................... (i)
28.8 Option Agreement, dated March 8, 1993, between the Company and Wayne
Schroeder................................................................ (i)
28.9 Merger Agreement, dated December 26, 1993, between Micron Products
Inc. and Micron Medical Products Inc..................................... (i)
28.10 Articles of Merger of Parent and Subsidiary.............................. (i)
28.11 Consent Judgment signed by Arrhythmia Research Technology, Inc. and
Corazonix Corporation and entered on November 15, 1993................... (h)
(a) Incorporated herein by reference from a Registration Statement on
Form S-18 as filed with the Commission in April, 1988, Registration
Statement No. 33-20945-FW.
47
<PAGE>
(b) Incorporated herein by reference from a Form 10-K as filed with the
Commission in March 1990.
(c) Incorporated herein by reference from a Registration Statement on
Form S-1 as filed with the Commission in August 1990, Registration
Statement No. 33-36607.
(d) Incorporated herein by reference from a Form 10-K as filed with the
Commission in March 1992.
(e) Incorporated by reference from Form 8-K as filed with the Commission on
December 10, 1992.
(f) Incorporated herein by reference from a Form 10-K as filed with the
Commission in March 1993
(g) Incorporated by reference from Form 8-K as filed with the Commission on
July 15, 1993
(h) Incorporated by reference from Form 8-K as filed with the Commission on
November 22, 1993.
(i) Incorporated by reference from Form 10-K as filed with the Commission in
March, 1994.
(j) Incorporated by reference from Form 10-K as filed with the Commission in
March 1995
</TABLE>
48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
To the Shareholders
Arrhythmia Research Technology, Inc.
Our report on the consolidated financial statements of Arrhythmia Research
Technology, Inc. and Subsidiary is included on page 21 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the financial statement schedule listed in Item 14(a)(2) herein.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Austin, Texas
March 20, 1998
49
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
DESCRIPTION PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------------- ------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997....................................... $ 29,864 $ 39,000 $ 7,546(1) $ 61,318
------------ --------- -------- ----------
------------ --------- -------- ----------
1996....................................... $ 18,820 $ 17,547 $ 6,503(1) $ 29,864
------------ --------- -------- ----------
------------ --------- -------- ----------
1995....................................... $ 126,665 $ 14,411 $122,256(1) $ 18,820
------------ --------- -------- ----------
------------ --------- -------- ----------
Allowance for slow-moving inventories:
1997....................................... $ 912,952 $ - $ 92,342(2) $ 820,610
------------ --------- -------- ----------
------------ --------- -------- ----------
1996....................................... $ 1,113,232 $ - $200,280(2) $ 912,952
------------ --------- -------- ----------
------------ --------- -------- ----------
1995....................................... $ 1,182,897 $ - $ 69,645(2) $1,113,232
------------ --------- -------- ----------
------------ --------- -------- ----------
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory written off.
50
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, made and entered into as of this 5th day of
March, 1997 ("Agreement"), is by and between Micron Products Inc., a
Massachusetts corporation having an office and place of business at 25 Sawyer
Passway, Fitchburg, Massachusetts 01420 ("Purchaser"), and Newmark, Inc., a
Connecticut corporation having an office and place of business at 182 Sandbank
Road, Cheshire, Connecticut 06410-1158 ("Seller").
W I T N E S S E T H
WHEREAS, Seller is engaged in the business of manufacturing, marketing and
selling electrical connectors, medical studs, components and products relating
thereto; and
WHEREAS, Seller, as an adjunct to its principal business has developed,
assembled, marketed, leased and sold medical stud and eyelet application
machines (hereinafter the "Machine Business"); and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, substantially all of the assets, properties and rights of
Seller used in or constituting the Machine Business, subject to the terms and
conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Seller and Purchaser agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
of this Agreement, at the Closing (as hereinafter defined), Seller shall sell,
convey, transfer, assign and deliver to Purchaser, and Purchaser shall purchaser
from Seller, all of the following assets, properties and rights used in and/or
constituting the Machine Business (all such assets, properties and rights being
herein collectively referred to as the "Assets" and individually as an "Asset"):
(a) all patents, trademarks, service marks, copyrights and
applications therefor, all tradenames, brand names, logos, inventions,
discoveries, improvements, processes, technology, know-how, formulae,
drawings, schematics, specifications, trade secrets, confidential
information, plans, computer software (including source and object code
thereof and other documentation, including, without limitation, copies
thereof in machine readable form), files, programs, instruction manuals,
promotional materials, notebooks and records, and all other proprietary,
technical and other information and intellectual property, technical and
other information and intellectual property and all licenses, permits and
other rights to use the foregoing, whether patentable or unpatentable, used
in
<PAGE>
or associated with the operation of the Machine Business and all goodwill
associated with the foregoing (or, to the extent Seller does not own such
proprietary, technical and other information and technical property, a
current or royalty-free license or permit to use the foregoing), including
but not limited to those listed in and more specifically described in
Exhibit 1.1(a) hereto (the "Intellectual Property Rights");
(b) all of Seller's rights under the license agreements, product
purchase and sales contracts and other agreements used in or constituting
the Machine Business, including, without limitation, those described in
Exhibit 1.1(b) hereto, but excluding the Other Arrangements (as hereinafter
defined) (the "Business Arrangements");
(c) all parts unassembled and partly assembled ("In-Process
Inventories") and assembled parts and machines ("Finished Inventories")
whenever located and whether in transit or otherwise, used, manufactured,
leased or sold in connection with the Machine Business, including without
limitation, those listed and more specifically described in Exhibit 1.1(c)
hereto (collectively, the "Inventories"). The inventories referred to
herein have been valued as of March 5, 1997. Increases to such inventories
occurring after March 5, 1997 shall be adjusted and paid for by Purchaser
pursuant to the terms of a Manufacturing Agreement of even date herewith
between Micron and Seller;
(d) all engineering and research and development materials and
inactive and other spare parts, wherever located and whether in transit or
otherwise, used by Seller in connection with the Machine Business,
including, without limitation, those listed and more specifically described
in Exhibit 1.1(d) hereto (collectively, the "Engineering Spare Parts");
(e) all supplier lists and supplier data relating to the Machine
Business (the "Supplier Data");
(f) all customer records and files relating to the Machine Business
(the "Customer Data");
(g) all rights under express or implied warranties from the sellers
of goods and services to the Machine Business (the "Warranty Rights"); and
(h) those portions of Seller's books, records and other documents
used in or associated with the operation of the Machine Business (the
"Books and Records").
1.2 CONVEYANCE INSTRUMENTS AND RELATED MATTERS. At the Closing, the
Assets shall be conveyed by Seller as follows: Seller shall convey to Purchaser
the Intellectual Property Rights, Business Arrangements, Permits, Engineering
Spare Parts,
2
<PAGE>
Inventories, Supplier Data, Customer Data, Warranty Rights and Books and
Records by a Bill of Sale, General Assignment and Conveyance in the form set
forth in Exhibit 1.2 hereto.
2. PURCHASE PRICE.
2.1 PRICE. The purchase price for the Acquired Assets shall be Four
Hundred Thousand and No/100 ($400,000) (the "Purchase Price").
2.2 PAYMENTS. The Purchase Price shall be payable as follows:
(a) Cash previously paid on account in the amount of Fifty-Eight
Thousand Three Hundred Sixty-Eight and No/100 ($58,368.00);
(b) Cash in the amount of One Hundred Forty-One Thousand Six Hundred
Thirty-Two and No/100 ($141,632) paid on March 31, 1997; and
(c) A Promissory Note in the principal sum of Two Hundred
Thousand and No/100 Dollars ($200,000). Such Promissory Note shall be
payable in twenty (20) equal monthly installments of $10,000 each
commencing on May 5, 1997. The Promissory Note shall be non-interest
bearing.
3. THE CLOSING.
3.1 CLOSING AND CLOSING DATE. The closing (the "Closing") of the
transactions contemplated hereby shall be held on or before May 10, 1997, at
10:00 a.m. Eastern Time at the offices of Newmark, Inc., 182 Sandbank Road,
Cheshire, Connecticut 06410; provided, however, that if the conditions precedent
to the Closing as set forth in this Agreement shall not have been satisfied or
waived on said date, and unless this Agreement is terminated as provided herein,
the Closing shall take place on the fifth business day following said
satisfaction or waiver of such conditions, or on such other date as Seller and
Purchaser shall agree upon in writing, but in no event later than May 30, 1997,
unless such date is extended by mutual agreement in writing. The time and date
of closing is referred to herein as the "Closing Date."
3.2 TITLE, POSSESSION, RISK OF LOSS. Title to, possession of and
risk of loss or destruction or damage to the Assets shall pass to Purchaser at
the Closing; provided, however that this Section 3.2 shall not diminish, limit
or otherwise impair in any manner Seller's or Purchaser's rights under the other
provisions of this Agreement or the instruments, agreements, certificates and
documents to be executed and delivered in
3
<PAGE>
connection herewith that apportion liability between the parties with respect
to events, occurrences, omissions or other matters arising or occurring
during specified periods.
3.3 ITEMS TO BE DELIVERED AT CLOSING BY SELLER. At Closing, and
subject to the terms and conditions herein contained, Seller shall deliver to
Purchaser the following:
(a) the Bill of Sale, General Assignment and Conveyance duly executed
by Seller; and
(b) such other good and sufficient instruments and documents of
conveyance and transfer, in a form reasonably satisfactory to Purchaser and
its counsel, as shall be necessary and effective to transfer and assign to,
and vest in, Purchaser all of Seller's right, title and interest in and to
the Assets; and
simultaneously with such delivery, all such steps will be taken as may be
required to put Purchaser in actual possession and operating control of the
Assets.
3.4 ITEMS TO BE DELIVERED AT CLOSING BY PURCHASER. At Closing, and
subject to the terms and conditions herein contained, Purchaser shall deliver to
Seller the following:
(a) the Assumption Agreement; and
(b) such other documents, instruments and undertakings, in a form
reasonably satisfactory to Seller and its counsel, as shall be necessary to
consummate the payment, performance or discharge, as appropriate, of the
Assumed Obligations.
3.5 OTHER DOCUMENTS. At or prior to Closing, the parties shall
exercise reasonable efforts to deliver to each other the other agreements,
opinions, certificates, instruments and documents referred to in Section 9
hereof.
4. CONDUCT PRIOR TO THE CLOSING AND CERTAIN OTHER MATTERS.
4.1 CONDUCT OF MACHINE BUSINESS. Seller represents, warrants,
covenants and agrees that, from the date hereof until the Closing Date:
(a) Seller will use its best efforts to preserve for Purchaser
favorable business relations with all persons dealing with the Assets and
the Machine Business;
(b) Seller will cooperate fully with Purchaser as to arrangements for
the transfer of the Assets to Purchaser in an orderly fashion;
4
<PAGE>
(c) Seller will promptly notify Purchaser of (i) its receipt of any
notice or claim, written or oral, of default or breach by Seller under, or
of any termination or cancellation, or threat of termination or
cancellation, of any of the Business Arrangements, as a result of which the
Assets or Machine Business shall have been or may be adversely affected,
individually or in the aggregate, in an amount in excess of $5,000, and
(ii) any loss of, damage to or disposition of any of the Assets (other than
the sale or use of Inventories in the ordinary course of business) which
shall involve an amount, individually or in the aggregate, in excess of
$5,000;
(d) Seller, without the prior written consent of Purchaser, shall not
sell, dispose of, distribute, encumber or enter into any agreement or
arrangement for the sale, disposition, distribution or encumbrance of any
of the Assets (other than the sale, lease or use of Inventories in the
ordinary course of business) or make any offer or enter into any
negotiations with respect thereto, or enter into any transaction, the
effect of which would be to diminish the amount or value of the Assets or
to adversely affect the Machine Business by an amount, individually or in
the aggregate, in excess of $5,000, and Seller shall exercise its best
efforts to cause its officers, directors, employees, representatives,
agents and stockholders to comply with this Section 4.1(d); and
(e) Seller shall not operate the Assets or conduct the Machine
Business outside the ordinary course of business or in a manner
inconsistent with prior practice.
4.2 ACCESS TO PROPERTIES AND RECORDS. From the date of this
Agreement until the Closing, Seller will (i) keep Purchaser advised of all
developments relevant to the consummation of this Agreement and the Machine
Business; cooperate fully, both in permitting Purchaser and Purchaser's
representatives, advisers, consultants, auditors and other experts to make a
full investigation, at Purchaser's sole cost and expense, and at reasonable
times and upon reasonable notice, of the properties and operations of the Assets
and the Machine Business, and in bringing about the consummation of the
transactions contemplated hereby; and (ii) afford Purchaser and Purchaser's
representatives, advisers, consultants and other experts, at Purchaser's sole
cost and expense, and at reasonable times and upon reasonable notice, reasonable
access to the machinery and equipment, inventory and supplies, records, files,
books of account, agreements and commitments including, without limitation,
information with respect to all products of and parts required in the operation
of the Machine Business. Notwithstanding the above, Purchaser and Purchaser's
representatives, advisors, consultants and other experts shall incur no
liability for any of the Assets or the Machine Business as a result of such
consultation or access, or as a result of Seller's performance (or
non-performance) of the covenants set forth in Section 4.1 above. Purchaser
covenants and agrees that, prior to the Closing, neither Purchaser nor any of
Purchaser's agents, attorneys, employees or representatives will unreasonably
interfere with any of
5
<PAGE>
the Business Arrangements, Other Arrangements, Permits and/or Intellectual
Property Rights.
4.3 SATISFACTION OF CONDITIONS; COOPERATION. Each of Seller and
Purchaser will use its best reasonable efforts to (a) obtain, as soon as
possible, all governmental approvals required to be obtained by it and make, as
soon as possible, all filings with any governmental authority required on its
part to consummate the transactions contemplated hereby, and (b) obtain, as soon
as possible, other consents to and approvals required to be obtained by it to
consummate the transactions contemplated hereby.
4.4 TECHNICAL SUPPORT. Seller agrees to provide Purchaser with such
engineering and technical support and related services as Purchaser may
reasonably request subsequent to the Closing Date in order that Purchaser may
efficiently combine the Machine Business with the business and operations of
Purchaser and may otherwise realize the full benefit of the consummation of the
transactions contemplated by this Agreement.
6. REPRESENTATIONS AND WARRANTIES.
6.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby
represents and warrants to Purchaser as follows:
(a) Seller is a corporation duly organized, validly existing and,
except as set forth in Exhibit 6.1(a), in good standing under the laws of the
State of Connecticut and is duly qualified or licensed as a foreign corporation
authorized to do business in each jurisdiction in which the character of the
properties and assets now owned or held by it requires it to be so licensed or
qualified, except where the failure to obtain such license or qualification
would not have an adverse effect on the Assets or the Machine Business.
(b) Seller has full right, power, legal capacity and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby and to consummate the transactions
contemplated herein and thereby, including the full right, power, legal capacity
and authority to sell, assign and transfer the Assets. This Agreement has been
duly executed and delivered by Seller and, upon obtaining the foregoing
approvals, will constitute, and all documents and instruments referred to herein
or contemplated hereby when duly executed and delivered by Seller will
constitute, legal, valid and binding obligations of Seller enforceable in
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity).
(c) Except for the consents specified in Exhibit 6.1(c), no
approval, consent or other order or action of or filing with any court,
administrative agency, governmental authority or other third party is required
for the execution, delivery or
6
<PAGE>
performance by Seller of this Agreement or the other documents and instruments
referred to herein or contemplated hereby, and no other consents or approvals
of third parties are required for the consummation of the transactions
hereby, the absence of which will result in the imposition of any additional
conditions on the use or value of the Assets. Except as disclosed on Exhibit
6.1(c), there are no prior consent rights or preferential purchaser rights,
rights of first refusal or other similar rights in third parties with respect
to any of the Assets. Seller will exercise its commercially reasonable
efforts (short of paying additional consideration to any third party) to
deliver the consents specified in Exhibit 6.1(c) to Purchaser as soon as
practicable prior to the Closing Date.
(d) At the Closing, Seller shall convey to Purchaser full legal and
beneficial title to all of the Assets, free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts and encumbrances
except for the Assumed Obligations.
(e) At the time of the Closing, and subject to the satisfaction of
the conditions set forth in Section 8, below, including, without limitation, the
execution, delivery and performance of this Agreement and the other documents
and instruments referred to herein or contemplated hereby, and the consummation
of the transactions contemplated hereby and thereby and the performance by
Seller of its obligations hereunder and thereunder will not cause the imposition
of any additional conditions on the use or value of the Assets, and, except as
set forth in Exhibit 6.1(e), will not constitute a violation of, conflict with,
or result in a default under, (i) any mortgage, indenture, charter or by-law
provision, contract, agreement, commitment or other instrument of any kind to
which Seller is a party or by which Seller or any of its properties or assets
may be bound or affected or (ii) any law, rule or regulation applicable to
Seller or any court injunction, order or decree, or any valid and enforceable
order of any governmental agency having jurisdiction over Seller, which
violation, conflict or default would have or would cause a material adverse
effect on the Assets of the Machine Business.
(f) Except as set forth in Exhibit 6.1(f) hereto, Seller has not
given to any person or party, and there is not currently existing, any power of
attorney of any type pertaining to the Assets or the Machine Business.
(g) Except as set forth in Exhibit 6.1(g) hereto, there are no sales,
use or similar taxes payable by the Purchaser to any taxing authority in any
state arising from the transactions contemplated by this Agreement.
(h) The Intellectual Property Rights are valid and enforceable in
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity). The Intellectual Property Rights will upon Closing afford Purchaser
the right to use all technology, proprietary information, know-how or patented
ideas, designs or inventions owned by Seller or
7
<PAGE>
others necessary for the present operation of the Machine Business and the
marketing, distribution, sale and use (whether by Purchaser or Purchaser's
direct or indirect customers) of the products produced in connection with the
Machine Business, subject, however to the consents required as set forth in
Exhibit 6.1(c) hereto. None of the ownership, access to, use or practice of
the Intellectual Property Rights by Purchaser upon Closing will, to the best
knowledge and belief of Seller infringe on the rights of any other party,
subject, however, to any consents required as set forth in Exhibit 6.1(c)
hereto. Set forth on Exhibit 6.1(h) is a description of the license fees and
royalties payable in connection with the use and practice of the Intellectual
Property Rights and the terms and conditions on which and period for which
such license fees and royalties are payable. The Seller has delivered to
Purchaser copies of each of the agreements described on Exhibit 6.1(h), and
such copies are true, correct and complete in all material respects. Except
as otherwise set forth in Exhibit 6.1(h), Seller is not in default in any
material respect and has not been in default in any material respect under
any agreement described in Exhibit 6.1(h) obligating it to pay license fees
or royalties, and has not received a notice of any such default. The
agreements described on Exhibit 6.1(h) have not been terminated and will
remain in full force and effect.
(i) The Assets are all of the assets and properties, tangible and
intangible, which are necessary to the operation of the Machine Business as a
going concern on a basis consistent with past practice. No representation or
warranty by Seller in this Agreement and no statement respecting the Assets or
the Machine Business contained in any document delivered by Seller to Purchaser
or its representatives in connection with the transactions contemplated hereby
and no Exhibit hereto contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were or will be made, not misleading.
(j) Except for the Other Arrangements, the contracts, leases,
agreements, undertakings and commitments listed on one or more of the Exhibits
contemplated by Section 1.1 are all the material contracts, leases, agreements,
undertakings and commitments related to the operation of the Machine Business or
constituting any of the Assets. Except as disclosed in Exhibit 6.1(j), Seller
is not (nor, to the knowledge of Seller, is any other party) in default under,
nor does any condition, event, circumstance or situation exist (i) which, with
the giving of notice of passage of time, or both, will cause a default or cause
the imposition of any material adverse burden or condition under any of the
Business Arrangements, Permits or Intellectual Property Rights or under any
judgment, order or decree of any court or any government agency or
instrumentality relating to the ownership of the Assets or the conduct of the
Machine Business, or (ii) as a result of which any person, firm, corporation or
other entity is or may be entitled to assert any rights against any of the
Assets or the Machine Business.
(k) Except as disclosed in Exhibit 6.1(k) hereto, as of December
31, 1996 and except as may occur in the ordinary course of business of Seller
consistent with past practice since December 31, 1996, Seller has not received
any payment under any
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agreement or instrument for the sale, processing, exchange, storage or
transportation of products included in the Assets or produced by the Machine
Business which requires delivery in the future to any other party thereto of
products previously paid for, in full or in part; and Seller, as of the
Closing Date, will not have delivered, under any such agreement or
instrument, more product than any other party thereto is obligated to
acquire; there exists no requirement to "make up" any deliveries of products
to any third party and there has not been delivered under any such agreement
or instrument less product than any other party thereto paid for or is
obligated to purchase or acquire.
(l) Except as disclosed in Exhibit 6.1(l), there are no bonds,
deposits, financial assurance requirements or insurance coverages required to be
submitted to regulatory authorities for the continued ownership of the Assets or
the conduct of the Machine Business.
(m) Except as provided or disclosed in Exhibit 6.1(m) hereto, at the
Closing, Seller will have timely paid or will have made adequate provision
(according to terms set forth in writing and acceptable to Purchaser) for the
payment of all federal, state and local income, profits, franchise, sales, use,
employment and similar taxes, and all interest and penalties thereon due and
payable by it for all periods ended on or prior to the Closing Date, the
non-payment of which would result in a lien or encumbrance on any Asset,
would otherwise materially adversely affect the Machine Business or would
result in the Purchaser becoming liable or responsible therefor. Seller will
timely pay or make adequate provision (according to terms set forth in
writing and acceptable to Purchaser) for the payment of all tax liabilities,
assessments, interest and penalties that have accrued but that are not yet
due and payable, the non-payment of which would result in a lien or
encumbrance on any Asset, would otherwise materially adversely affect the
Machine Business or would result in the Purchaser becoming liable therefor.
(n) All of the In-Process Inventories are items of the quantity and
quality required to produce Finished Inventories in the ordinary course of
business consistent with prior practice. Except as disclosed in Exhibit 6.1(n)
hereto, all of the Finished Inventories are items of a quality and quantity that
may be used, leased and sold in the ordinary course of business at the market
prices of such products consistent with prior practice.
(o) Except as disclosed in Exhibit 6.1(o), Seller has full power,
authority and legal right and has all licenses, permits, qualifications, and
other documentation necessary or appropriate to own the Assets and to carry on
the Machine Business as being conducted on the date of this Agreement, and such
Machine Business has been and is now being conducted in compliance with all
applicable laws, ordinances, rules and regulations of any governmental
department, commission, board, bureau, agency or instrumentality of the United
Sates, any state or political subdivision thereof, or any foreign jurisdiction,
and all applicable court or administrative agency decrees, awards and orders,
and to Seller's knowledge there is no condition or state of facts which would
give rise to a violation thereof or a liability or default thereunder which
would have a
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material adverse effect on the Assets or the Machine Business in the hands of
Purchaser following the Closing.
(p) Except as set forth in Exhibit 6.1(p), no legal action, suit or
proceedings, judicial or administrative, or grievance, arbitration,
investigation or claim by or before any governmental agency, for which Purchaser
will be responsible or liable or to which any of the Assets will be subject on
or after Closing is pending or, to the knowledge of Seller, threatened, which
involves or may involve any Asset or the operation of the Machine Business or
the purchase, sale, transportation or processing of parts or products in
connection with the Machine Business, which, if adversely determined could have
a material adverse effect on any Asset in the hands of Purchaser after the
Closing, the operation of the Machine Business by Purchaser after the Closing,
the purchase, sale, transportation or processing a raw materials or products in
connection with the Machine Business, or the ability of Seller to perform its
obligations under this Agreement or any other document or instrument referred to
herein or contemplated hereby. Except to the extent disclosed on Exhibit
6.1(p), Seller is not aware of any fact which to its knowledge might result in
any action, suit, or proceeding, judicial or administrative, or grievance,
arbitration, investigation or claim which could cause a material adverse change
in the Machine Business or the condition (financial or otherwise) of any Asset
and for which Purchaser will be responsible or liable or to which an of the
Assets will be subject in the hands of Purchaser on or after Closing.
(q) Except as disclosed on Exhibit 6.1(q), since December 31, 1996,
Seller has not operated the Assets or conducted the Machine Business outside of
the ordinary course of business or in a manner inconsistent with prior practice.
(r) Except as disclosed on Exhibit 6.1(r), since December 31, 1996,
Seller has not received any notice or claim of the types described in clause (i)
of section 4.1(c), and no loss, damage or disposition of the types described in
clause (ii) of Section 4.1(c) has occurred.
(s) Since December 31, 1996, and except as contemplated hereby,
Seller has not sold, disposed of, distributed, encumbered or entered into any
agreement or arrangement for the sale, disposition, distribution or encumbrance
of any of the Assets (other than the sale or use of Inventories in the ordinary
course of business), or made any offer or entered into any negotiations with
respect thereto, or entered into any transaction, the effect of which would be
to diminish the amount or value of the Assets or to adversely affect the Machine
Business by an amount, individually or in the aggregate, in excess of $5,000.
6.2 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly licensed or
qualified as
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a foreign corporation and authorized to do business in each jurisdiction in
which the character of the properties and assets owned or held by it requires
it to be so licensed or qualified, except where the failure to obtain such
license or qualification would not have an adverse effect on the assets, the
business, operations or financial condition of the Purchaser and its
subsidiaries, taken as a whole.
(b) Purchaser has full right, power, legal capacity and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby and thereby, and to consummate the
transactions contemplated hereby, including the full right, power, legal
capacity and authority to purchase the Assets. This Agreement has been duly
executed and delivered by Purchaser and constitutes, and all documents and
instruments referred to herein or contemplated hereby, when duly executed and
delivered by Purchaser will constitute legal, valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms and conditions,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
(c) The execution, delivery and performance of this Agreement and the
other documents and instruments referred to herein or contemplated hereby, and
the consummation of the transactions contemplated hereby and thereby and the
performance by Purchaser of its obligations hereunder and thereunder will not
constitute a violation of, conflict with, or result in a default hereunder, (i)
any mortgage, indenture, charter or by-law provision, contract, agreement,
commitment or other instrument of any kind to which Purchaser is a party or by
which Purchaser may be bound or affected, or (ii) any law, rule or regulation
applicable to Purchaser, or any court injunction, order or decree, or any valid
and enforceable order of any governmental agency having jurisdiction over
Purchaser.
(d) No legal action, suit or proceeding, judicial or administrative,
or grievance, arbitration, investigation or claim, by or before any governmental
agency, is pending or, to the knowledge of Purchaser, threatened which, if
adversely determined, could have an adverse effect on the ability of Purchaser
to perform its obligations under this Agreement or any other document or
instrument referred to herein or contemplated hereby.
(e) Except for the consents contemplated hereby or specified on
Exhibit 6.2(e), no approval, consent or other order or action of or filing with
any court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by Purchaser of this
Agreement, or the other documents and instruments referred to herein or
contemplated hereby. Purchaser will exercise its commercially reasonable
efforts (short of paying additional consideration to any third party) to deliver
the consent specified in Exhibit 6.2(e) to Seller as soon as practicable prior
to the Closing Date.
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7. SURVIVAL; INDEMNIFICATION.
7.1 SURVIVAL. The respective representations, warranties and
covenants of Seller and Purchaser herein shall survive the Closing.
7.2 INDEMNIFICATION BY SELLER. Subject to Sections 7.4, 7.6 and 7.7
herein, Seller hereby agrees, effective as of the Closing, to indemnify, save
and hold harmless Purchaser and its direct and indirect subsidiaries and its and
their successors and permitted assigns and all of their respective officers,
directors, stockholders, agents, attorneys, representatives and employees
(collectively, the "Purchaser Indemnified Parties") from and against any and all
damages, liabilities, losses, claims, deficiencies, penalties, interest,
expenses, fines, assessments, charges or costs (including attorneys' fees and
court costs) (collectively, the "Damages") arising from, out of or in any manner
connected with (a) any liability, obligation, contract, debt, lien, litigation,
dispute or commitment of Seller other than Assumed Obligations, (b) acts,
omissions, events, conditions or circumstances involving or relating to the
Assets or the Machine Business, or the employees or contractors of Seller
occurring or existing on or prior to the Closing Date, other than the Assumed
Obligations, (c) the operation of the Assets or the Machine Business or the
sale, disposal, transportation, storage or use of products or raw materials in
connection with the Machine Business on or prior to the Closing Date, including,
without limitation, product liabilities for products sold by Seller on or before
the Closing Date, (d) the breach of any covenant of Seller or the failure of
Seller to perform any obligation of Seller contained herein or in the documents
or instruments required to be delivered by Seller in connection with the
transactions contemplated hereby, (e) any inaccuracy in or breach of any
representation or warranty of Seller under this Agreement or any document or
instrument required to be delivered by Seller prior to or at the Closing or in
connection with the transactions contemplated hereby, (f) all tax liabilities of
Seller arising from or related to or based on events, occurrences, transactions,
revenues, income, operations or assets during any period prior to the Closing or
arising from or related to or based on the sale of the Assets as contemplated
hereunder, (g) the matters for which Seller retains liability under Sections 10
and 12, and (h) any liability to employees or former employees of Seller or
their beneficiaries arising from the severance or discharge (or constructive
severance or discharge) of such employees by Seller or their rights to benefits
under the Company Plans or other employment related claims.
7.3 INDEMNIFICATION BY PURCHASER. Subject to Sections 7.4, 7.6, and
7.7, Purchaser hereby agrees, effective as of the Closing, to indemnify, save
and hold harmless Seller and its successors and their permitted assigns and all
of their officers, directors, stockholders, agents, attorneys, representatives
and employees (collectively the "Seller Indemnified Parties") from and against
any Damages arising from, out of or in any manner connected with (a) the Assumed
Obligations, (b) acts, omissions, events, conditions or circumstances involving
or relating to the Assets or the Machine Business, or the employees or
contractors of Purchaser (or its subsidiary) occurring or existing after, but
not on or before, the Closing Date (other than those for which the Purchaser
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Indemnified Parties are entitled to be indemnified by Seller under Section 7.2),
(c) the operation of any of the Assets, the operation of any other business in
which the Purchaser (or its subsidiary) shall engage, or the sale, disposal,
transportation, storage or use of products or raw materials in connection with
the Machine Business by Purchaser (or its subsidiary) after, but not on or
before, the Closing Date, including, without limitation, product liabilities for
products (other than the Inventories) sold by Purchaser (or its subsidiary)
after, but not on or before, the Closing Date (other than matters for which the
Purchaser Indemnified Parties are entitled to be indemnified by Seller under
Section 7.2), (d) the breach of any covenant of Purchaser contained herein or in
the documents or instruments required to be delivered by Purchaser in connection
with the transactions contemplated hereby, (e) any inaccuracy in, or breach of
any representation or warranty of Purchaser under this Agreement or any document
or instrument required to be delivered by Purchaser in connection with the
transactions contemplated hereby, and (f) the matters for which Purchaser
assumes liability under Sections 10 and 12, below.
7.4 LIMITATIONS ON LIABILITY.
(a) NO BENEFIT TO OTHERS. The representations and warranties,
covenants and agreements contained in this Agreement are for the sole
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and permitted assigns,
and, except as otherwise specifically provided, they shall not be construed
as conferring any rights on any other persons.
(b) LIMITATION ON SURVIVAL. Notwithstanding any other provision
of this Agreement, no claim shall be made for misrepresentation, breach of
representation or warranty, breach of covenant, or for indemnification
hereunder unless written notice specifying the nature of such claim, in
reasonable detail, shall be given to the party against whom such claim is
asserted prior to June 1, 2001.
7.5 NOTICE AND RIGHT TO DEFEND. Seller, on the one hand and
Purchaser, on the other, agree to give prompt notice to the other of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought hereunder. Any failure on the part of
either party to this Agreement to give the notice described in this Section 7.5
to the other party hereto shall relieve the party to whom such notice was not
provided of its obligations under this Section 7 only to the extent that such
non-notified party has been prejudiced by the lack of timely and adequate
notice. This notification requirement shall not apply to communications that
are part of or that relate to a judicial or administrative proceeding in which
the parties hereto are litigating claims against each other. The indemnifying
party shall have the right and obligation to assume the defense or settlement of
any third-party claim, suit, action or proceeding in respect of which it has an
obligation to provide indemnity hereunder, and such indemnity may be sought
hereunder by giving prompt notice to the indemnifying party; PROVIDED, HOWEVER,
that (a) the indemnified party shall at all times have the right, at
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its option and expense, to participate fully therein, and (b) if the
indemnifying party does not proceed diligently to defend the claim within ten
days after receipt of such notice, the indemnified party shall have the
right, but not the obligation, to undertake the defense of any such claim for
the account of and at the risk of the indemnifying party and the indemnifying
party shall be bound by any defense or settlement that the indemnified party
may make as to such claim. The parties shall cooperate in defending any such
third-party claim, and the defending party shall have reasonable access to
the books and records, and personnel in the possession or control of the
other party which are pertinent to the defense. The parties agree that the
indemnified party may join the indemnifying party in any action, claim or
proceeding brought by a third party, as to which any right of indemnity
created by this Agreement would or might apply, for the purpose of enforcing
any right of the indemnity granted to such indemnified party pursuant to this
Agreement.
7.6 APPORTIONMENT. Consistent with the provisions of Section 7.2 and
7.3, any Damages arising from or out of or relating to acts, omissions,
conditions, events or circumstances which occur or exist both on or prior to and
after the Closing Date shall be allocated between Seller and Purchaser in
proportion to the extent to which such acts, omissions, conditions, events or
circumstances occurring or existing on or prior to the Closing Date, which will
be Seller's responsibility, and the extent to which such acts, omissions,
conditions, events or circumstances occurring or existing after (but not on or
before) the Closing Date, which will be Purchaser's responsibility, cause or
contribute to such Damages.
7.7 REDUCTION. After the Closing, the amount payable by either party
hereto (the "Indemnifying Party") to a person entitled to indemnity hereunder
(the "Indemnified Party") with respect to any claim for indemnity hereunder by
such Indemnified Party shall be reduced (but not below zero) (or, if previously
collected by a Purchaser Indemnified Party, refunded [but not in any amount in
excess of the amount collected from Seller] at the time of receipt by such
Purchaser Indemnified Party, to the Seller) by any net proceeds of insurance
actually collected (after giving effect to retroactive, future and other premium
adjustments, whether or not then payable, and any subrogation or similar claims
payable) by such Indemnified Party for the same matter which is the subject of
such claim.
8. CONDITIONS TO CLOSING.
8.1 CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASERS. The obligation
of Purchaser to consummate the transactions contemplated by this Agreement shall
be subject to satisfaction (or the waiver in writing of Purchaser) prior to and
at the Closing of all of the following conditions:
8.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller shall have complied in all material respects with all of its
agreements and covenants contained herein. All of the representations and
warranties of Seller contained herein shall be accurate in all material
respects at and as of the Closing
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with the same effect as though such representations and warranties had
been made at and as of the Closing and Purchaser shall have received a
certificate to such effect executed by the President and Chief Financial
Officer of Seller.
8.1.2. NO CASUALTY, LOSS OR DAMAGE. No material casualty,
loss or damage shall have occurred prior to the Closing Date to any Assets
unless Seller shall have either repaired or replaced such lost or damaged
property.
8.1.3. DOCUMENTS. All documents, instruments and agreements
required to be executed and delivered by Seller or third parties at the
Closing as contemplated hereby, and such other documents, instruments,
estoppel certificates from third parties and other certificates and
opinions as Purchaser shall reasonably request, shall have been duly
executed and delivered by Seller and any other parties required and shall
have been received.
8.1.4. CONSENTS. All consents, estoppel agreements and
approvals of third parties or any regulatory body or authority, whether
required contractually or by applicable federal, state or local law, or
otherwise necessary for the execution, delivery and performance of this
Agreement by Seller, and the transfer of the Assets to Purchaser or
otherwise required to permit the Purchaser to enjoy the use of the Assets,
without the imposition of any additional material burden on the use or
value of the Assets, except as provided in Section 12.2 and except for
approvals of governmental agencies customarily obtained subsequent to
transfer of title, shall have been delivered to Purchaser in form and
substance satisfactory to Purchaser at least two days prior to the Closing
Date and shall not have been withdrawn or revoked.
8.1.5. CORPORATE AUTHORITY. On the Closing Date, Seller shall
have delivered to Purchaser, in such form as Purchaser's legal counsel may
reasonably request, evidence of Seller's corporate authority for the
execution, delivery and performance of this Agreement and the other
agreements and instruments to be executed and delivered by Seller pursuant
hereto and the transactions contemplated hereby and thereby.
8.1.6. VIOLATIONS, CONFLICTS AND DEFAULTS. Any and all
violations, conflicts and defaults described in Exhibit 6.1(e) that pertain
to (a) any material mortgage, indenture, charter, or by-law provision,
contract, agreement, commitment or other instrument of the type described
by clause (i) of Section 6.1(e), or (b) any law, rule, regulation,
injunction, order or decree of the type described in clause (ii) of
Section 6.1(e) shall have been cured in their entirety to the satisfaction
of Purchaser at or prior to the Closing.
Notwithstanding the foregoing, the conditions set forth in Sections 8.1.1,
8.1.2, 8.1.4, and 8.1.6 shall be deemed to be satisfied unless the aggregate
effect of (i) all inaccuracies in the representations and warranties of Seller
set forth in this Agreement, as
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of the date hereof, together with (ii) all further inaccuracies in such
representations and warranties as if they were made again as of the Closing
Date and irrespective of any disclosures thereof, together with (iii) all
breaches of agreements and covenants herein by Seller, together with (iv) all
casualties, losses or damages to the Assets, together with (v) all adverse
burdens or conditions imposed upon the Machine Business, together with (vi)
all adverse changes in or adverse effects on the Assets or the Machine
Business shall be sufficient so that there is a Material Adverse Effect. As
used in the preceding sentence, the term "Material Adverse Effect" means an
effect which is adverse in an amount in excess of $10,000. The consummation
of the Closing shall not be deemed to be a waiver by Purchaser of any of its
rights or remedies hereunder for breach of warranty, covenant or agreement
herein by Seller or for any defects in title to any of the Assets,
irrespective of any investigation made by or on behalf of Purchaser with
respect thereto prior to the Closing, and irrespective of whether Purchaser
knew or should have known of any such breach or defect. Purchaser's
indemnification obligations hereunder and Seller's other rights and remedies
hereunder shall not be affected by the existence or non-existence of a
Material Adverse Effect.
8.2 CONDITIONS PRECEDENT TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions contemplated by this Agreement shall be
subject to satisfaction (or the waiver in writing by Seller) at or prior to the
Closing of all of the following conditions:
8.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
Purchaser shall have complied in all material respects with all of its
agreements and covenants contained herein to be performed at or prior to
the Closing. All the representations and warranties of Purchaser contained
herein shall be accurate in all material respects at and as of the Closing
with the same effect as though such representations and warranties had been
made at and as of the Closing, and Seller shall have received a certificate
to such effect executed by the President (or any Vice President) of
Purchaser.
8.2.2 CORPORATE AUTHORITY. On the Closing Date, Purchaser
shall have delivered to Seller in such form as legal counsel for Seller may
reasonably request, evidence of Purchaser's corporate authority for the
execution, delivery and performance of this Agreement and the other
agreements and instruments to be delivered pursuant hereto and the
transactions contemplated hereby and thereby.
8.2.3 DOCUMENTS. All documents, instruments and agreements
required to be executed and delivered by Purchaser or third parties at the
Closing as contemplated hereby, and such other documents, instruments,
certificates and opinions as Seller shall reasonably request, shall have
been duly executed and delivered by Purchaser and any other parties
required and shall have been received. Purchaser and Seller shall have
entered into an agreement entitled
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"MANUFACTURING AGREEMENT" in form and substance as set forth in Exhibit
8.2.3 hereto.
8.2.4 CONSENTS. All consents, estoppel agreements and
approvals of third parties or any regulatory body or authority, whether
required contractually or by applicable federal, state or local law, or
otherwise necessary for the execution, delivery and performance of this
Agreement by Purchaser, and the execution, delivery and performance of the
Assumption Agreement by Purchaser, and the taking of all other actions to
be taken and the performance of all other obligations to be performed by
Purchaser at Closing, to permit Seller to obtain all of the benefits
contemplated by this Agreement, without interference or claim from any
third party, shall have been delivered to Seller in form and substance
satisfactory to Seller at least two days prior to the Closing Date and
shall not have been withdrawn or revoked.
Notwithstanding the foregoing, the conditions set froth in Sections 8.2.1,
8.2.4 shall be deemed to be satisfied unless the aggregate effect of (i) all
inaccuracies in the Agreement, as of the date hereof, together with (ii) all
further inaccuracies in such representations and warranties as if they were made
again as of the Closing Date and irrespective of any disclosures thereof,
together with (iii) all breaches of agreements and covenants herein by Purchaser
shall be sufficient so that there is a Material Adverse Effect. As used in the
preceding sentence, the term "Material Adverse Effect" means an effect which is
adverse in an amount in excess of $5,000. The consummation of the Closing shall
not be deemed to be a waiver by Seller of any of its rights or remedies
hereunder for breach of warranty, covenant or agreement herein by Purchaser,
irrespective of any investigation made by or on behalf of Seller with respect
thereto prior to the Closing, and irrespective of whether Seller knew or should
have known of any such breach. Seller's indemnification obligations hereunder
and Purchaser's other rights and remedies hereunder shall not be affected by the
existence or non-existence of a Material Adverse Effect.
9. TERMINATION.
9.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the written agreement of Seller and Purchaser; or
(b) by Seller or by Purchaser, by written notice to the other, if the
Closing shall not have occurred by 5:00 p.m., Eastern Times on April 30,
1997, unless such date is extended by mutual agreement in writing; or
(c) by Seller or by Purchaser, by written notice to the other, if on
the date scheduled for Closing any proceeding or action shall have been
filed seeking to restrain, enjoin or otherwise prevent the consummation of
this Agreement or
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the transaction contemplated hereby or any order shall have been entered
restraining or prohibiting consummation of the transactions contemplated
hereby.
9.2 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted under Section 9.1, such termination shall be without liability to
either party, except that such termination shall be without prejudice to any and
all remedies the parties may have against each other for any breach of this
Agreement.
10. RECEIVABLES; PAYABLES; APPORTIONMENT.
10.1 RECEIVABLES. If any monies or other assets are received by
Purchaser to which Seller is entitled and that are not included in the Assets,
Purchaser shall hold such monies and assets received by Purchaser in trust for
Seller and shall account for any pay same to Seller within fifteen (15) days of
receipt. If any monies or other assets are received by Seller to which
Purchaser is entitled, and that are included in the Assets, or which represent
prepayments or deposits made by customers or others after the Closing Date with
respect to the purchase of any Inventory or under any Business Arrangements
included within the Assets, Seller shall hold such monies and assets received by
Seller in trust for Purchaser and Seller shall account for and pay same to
Purchaser within fifteen (15) days of receipt.
10.2 LIABILITIES. All liabilities of whatever kind or nature,
whether absolute or contingent, direct or indirect, or fixed or contingent of
Seller, arising from acts, omissions, events, conditions or circumstances
occurring or existing for any period of time on or prior to Closing (whether or
not known by Purchaser), other than the Assumed Obligations, shall be retained
by Seller and shall not be assumed by Purchaser, and Seller covenants and agrees
to pay the same when due or otherwise make adequate provision (according to
terms set forth in writing and acceptable to Purchaser) for the discharge of the
same.
10.3 APPORTIONMENT. Ad valorem and similar taxes imposed by any
taxing authority on the Assets and applicable to periods both prior to and after
the Closing Date with respect to the Assets shall be prorated as of the Closing
Date. Seller and Purchaser shall agree on the amounts owing to Seller by
Purchaser or to Seller resulting from such proration within sixty days after the
Closing Date, and such amounts shall be paid within thirty (30) days thereafter.
10.4 OTHER TAXES. To the extent there are any sales, use, or
similar taxes payable to any taxing authority in any state arising from this
transaction they shall be borne by Seller and Seller agrees to indemnify
Purchaser therefor, except to the extent to do so would violate law, in which
case they shall be borne by Purchaser and collected by Seller for remittance to
the taxing authority. In the event any taxing authority in any state assesses
any such taxes after the Closing, the parties shall follow the procedure set
forth in Section 7.6 with respect thereto. The party responsible for bearing
the tax shall have the right to approve all sales tax information and returns
submitted to tax authorities
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and to designate the amount of sales tax shown due thereon arising from the
transaction contemplated hereby.
11. CERTAIN BUSINESS AND OTHER ARRANGEMENTS.
11.1 ADDITIONAL ASSIGNMENTS. The parties recognize that a separate
instrument or instruments of assignment and assumption may be necessary or
proper with respect to certain Business Arrangements, Permits and Intellectual
Property Rights, and accordingly, the parties shall duly execute and deliver at
the Closing or thereafter, as required, such separate instrument or instruments
as may be reasonably required to effect the assignment by Seller and assumption
by Purchaser of all Business Arrangements, Permits and Intellectual Property
Rights.
11.2 CONSENTS TO ASSIGNMENTS. Each party shall assist the other in
attempting to obtain any consents required for the assignment of any Business
Arrangements, Permits or Intellectual Property Rights requested by Purchaser
prior to Closing to be included in the Assets. If such consents cannot be
obtained prior to Closing, Seller and Purchaser shall cooperate in any
arrangement reasonably satisfactory to the parties designed to fulfill Seller's
obligations thereunder and to afford Purchaser the benefits thereof.
11.3 NO RECISSION. Rescission of the Agreement shall not be
available as a remedy at law or in equity to either party hereto or their
successors or permitted assigns in the event of a breach of or other default
under this Agreement. Nothing herein contained shall affect any other right or
remedy of either party hereto.
11.4 BOOKS AND RECORDS. Seller shall provide Purchaser with true and
accurate copies of those portions of its Books and Records as are applicable to
the Machine Business or, if such Books and Records or portions thereof are
separate from Seller's regular Books and Records, Seller shall make copies
thereof and deliver the originals to Purchaser. Following Closing, Purchaser
shall give Seller access to the Books and Records for reasonable and lawful
business purposes related to post-Closing events or occurrences affecting Seller
and pertaining to the Assets, including the right to make copies thereof, during
normal business hours. Purchaser shall keep such Books and Records safely and
in good order for a reasonable period of time and for such further periods, at
Seller's expense, as Seller may reasonably request; provided, that Purchaser may
at any time deliver any such Books and records to Seller and shall have access
thereto in the same manner as set forth below.
Seller may keep the originals of books, records and documents as may be
agreed upon in writing by Purchaser prior to Closing. With respect to any such
originals, Seller shall give Purchaser access thereto and the right to make
copies thereof during normal business hours. Seller shall keep such books,
records and documents safely and in good order for a reasonable period of time
following Closing and for such further periods, at Purchaser's expense, as
Purchaser may reasonably request; provided, that Seller may at
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any time deliver such books, records and documents to Purchaser, and Seller
shall have access thereto in the same manner as set forth above.
12. MISCELLANEOUS.
12.1 NOTICE. Any notice required or permitted to be given under this
Agreement shall be in writing, and shall be mailed or delivered to the
addresses, or sent by telecopy to the telecopy numbers, as follows:
SELLER: Newmark, Inc.
182 Sandbank Road
Cheshire, Connecticut 06410
Attention: President
Telecopy No.: (203) 272-8890
PURCHASER Micron Products Inc.
25 Sawyer Passway
Fitchburg, Massachusetts 01420
Attention: President
Telecopy No.: (508) 342-0168
or such other address as shall be furnished in writing by such parties, and such
notice shall be effective and be deemed to have been given as of the date
actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 12.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
12.2 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
waived except by an instrument in writing signed on behalf of each of the
parties hereto.
12.3 FURTHER DOCUMENTS. Seller shall, at any time and from time to
time after the Closing, upon request by Purchaser and without further
consideration, execute and deliver such instruments of transfer or other
documents and take such further action as may be reasonably required in order to
convey, transfer, assign and deliver to Purchaser the Assets and the Machine
Business in accordance with this Agreement or to perfect any other undertaking
made by Seller hereunder. Purchaser shall at any time and from time to time
after the Closing, upon request by Seller and without further
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consideration, execute and deliver such documents and take such further
action as may be reasonably required in order to perfect any undertaking made
by Purchaser hereunder.
12.4 OTHER ASSISTANCE. Purchaser shall, at the request of Seller,
provide reasonable assistance in the collection of information or documents and
make Purchaser's employees available as witnesses when reasonably requested by
Seller. Seller shall reimburse Purchaser for all reasonable out-of-pocket costs
and expenses incurred by Purchaser (including salaries or wages of Purchaser's
employees) in providing said assistance.
12.5 ASSIGNABILITY; ENFORCEABILITY. Neither party shall assign this
Agreement in whole or in part without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, however, that
at or after Closing Purchaser may assign this Agreement and any other closing
documents, and its rights and obligations hereunder and thereunder, to any
direct or indirect wholly-owned subsidiary of Purchaser, and Purchaser (or any
such wholly-owned subsidiary) may assign its rights hereunder and under any
other such closing documents to the financial institution(s) or their affiliates
financing or refinancing the transactions contemplated hereby; and provided
further, that upon foreclosure or sale in lieu of foreclosure or deed in lieu of
foreclosure or deed of the Assets or a substantial portion thereof by or to any
such financial institutions or their affiliates, the warranties, representation,
obligations, agreements and indemnities (in Section 7, 10 and elsewhere herein)
between Purchaser and Seller herein and in other documents will inure to the
benefit of such financial institutions (or their affiliates) or any purchaser or
grantee of such Assets. Any assignments made or attempted in violation of this
Section 12.5 shall be void and of no effect.
This Agreement shall be binding on and enforceable by Seller and
Purchaser.
Any provision contained in this Section 12.5 to the contrary
notwithstanding, Seller shall remain liable for and with respect to the
obligations of Seller under this Agreement following any assignment by Seller of
this Agreement or its rights and obligations hereunder, the Purchaser shall
remain liable for an with respect to the obligations of Purchaser under this
Agreement following any assignment by Purchaser of this Agreement or its rights
and obligations hereunder.
Except as set forth in this Section 12.5, and except to the extent
that the Purchaser Indemnified Parties and Seller Indemnified Parties shall be
entitled to the benefits of the indemnities set forth herein, no person or
entity not a party to this Agreement shall have rights under this Agreement as a
third party beneficiary or otherwise.
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12.6 EXHIBITS. The Exhibits (and any appendices thereto) inclusive,
referred to in this Agreement and all amendments thereto from the time of
agreement hereto, are and shall be incorporated herein and made a part hereof.
12.7 SECTIONS AND ARTICLES. All Sections and Articles referred to
herein are sections and articles of this Agreement and all Exhibits referred to
herein are exhibits attached to this Agreement.
12.8 ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement,
no conditions, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
either party with respect to any breach or default or of any right or remedy and
no course of dealing, shall be deemed to constitute a continuing waiver of any
other breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
12.9 HEADINGS. Headings as to the contents of particular articles
and sections are for convenience only and are in no way to be construed as part
of this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
12.10. CONTROLLING LAW AND JURISDICTION. THE VALIDITY, INTERPRETATION
AND PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MASSACHUSETTS
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
12.11 PUBLIC ANNOUNCEMENT. Until the Closing, no press release,
public announcement, confirmation or other information regarding this Agreement
or the contents hereof shall be made by either party without the prior
consultation of the other party, except as may be necessary in the opinion of
counsel of either party to meet the requirements or regulations of any
applicable law, governmental unit or agency or stock exchange on which the
securities of such party may be listed.
12.12 FINDER'S FEES AND COMMISSIONS. Seller and Purchaser agree to
indemnify each other and hold each other harmless from any liability, cost or
expense
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(including, but not limited to, fees and disbursements of legal counsel)
resulting from any agreement, arrangement or understanding made by the
indemnifying party with any third party for brokerage or finder's fees or
other commissions in connection with this Agreement, the documents and
instruments referred to herein, or the transactions contemplated hereby or
thereby.
12.13 CONFIDENTIALITY AGREEMENTS. At the Closing, any confidentiality
agreements among Seller and Purchaser and any representatives, advisors, lenders
and others acting on behalf of Purchaser shall terminate to the extent they
involve information or documents related exclusively to the Machine Business or
Assets, but shall remain in full force and effect as to other information and
documents. After the Closing Date, without the prior written consent of the
other, (a) Seller shall not, directly or indirectly, use or provide to, and
shall not permit any affiliate, directly or indirectly, to use or provide any
other person any non-public information pertaining to the Machine Business or
the Assets, and (b) Purchaser shall not, directly or indirectly, use or provide
to, and shall not permit any affiliate, directly or indirectly, to use or
provide any other person any non-public information concerning Seller, except to
the extent such non-public information pertains to the Machine Business or the
Assets. Purchaser or Seller, as the case may be, may disclose such non-pubic
information to the extent required by law, provided that notice of the
requirement for such disclosure is given to the other prior to making any
disclosure and the party that is being compelled to make such disclosure
cooperates as the other party may reasonably request in resisting such
disclosure; and further provided, that Purchaser or Seller may disclose such
non-public information to the extent reasonably required in connection with a
proceeding to enforce its rights under this Agreement. Any provision contained
herein to the contrary notwithstanding, this Section 12.13 shall not limit the
right of Purchaser (or any successor or permitted assign) to provide any such
non-public information to its or their lenders, placement agents, underwriters
or advisors.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
NEWMARK, INC.
By:
-------------------------------------
Francis R. Powell, President
MICRON PRODUCTS INC.
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By:
-------------------------------------
Anthony A. Cetrone, President
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MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT ("Agreement"), dated as of March 5, 1997,
by and between Micron Products, Inc., a Massachusetts corporation having an
office and place of business at 25 Sawyer Passway, Fitchburg, Massachusetts
01420 ("Micron") and Newmark, Inc., a Connecticut corporation having an
office and place of business at 182 Sandbank Road, Cheshire, Connecticut
06410 ("Newmark").
W I T N E S S E T H
WHEREAS, Micron and Newmark have entered into an Asset Purchase
Agreement, dated as of March 5, 1997 (the "Asset Purchase Agreement")
providing for the purchase of certain assets by Micron from Newmark; and
WHEREAS, in connection with such purchase of assets, Micron desires that
Newmark manufacture certain products for Micron, on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. TERM AND TERMINATION. The term of this Agreement ("Term") shall
begin on May __, 1997 and shall continue for one (1) year. This Agreement
will automatically be renewed for successive one-year terms unless either
party notifies the other at least ninety (90) days prior to the expiration of
the then current term of its desire to terminate this Agreement. If at any
time either party:
(a) shall be in breach of any material covenant, agreement, term,
provision or condition of this Agreement and shall not remedy such breach
within twenty days from its receipt of written notice from the other party
of such breach;
(b) shall be unable to materially perform any of its obligations
under this Agreement by reason of any cause beyond its reasonable control
pursuant to the Force Majeure provisions of Section 7 hereof for a
continuous period exceeding thirty (30) days; or
(c) shall file a voluntary or suffer the filing of an involuntary
petition in bankruptcy court seeking relief under any federal, state or
other statute or regulation, or have a trustee, receiver or liquidator
appointed for all or any substantial part of its assets, which remains
undismissed, unvacated or unstayed, as the case may be, for an aggregate of
sixty (60) days,
the other party shall have the right, at its sole election, in addition and
without prejudice to its other legal and equitable remedies, to terminate
this Agreement with immediate
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effect upon written notice to the other party. Termination shall not relieve
either party of any obligation to make payments properly arising out of the
performance by the other party of its obligations under this Agreement.
The date on which this Agreement shall be terminated in accordance with
the provisions hereof shall hereinafter be referred to as the "Termination
Date."
2. MANUFACTURING ARRANGEMENTS.
2.1 MANUFACTURE, SALE AND PURCHASE. During the Term of this
Agreement, Newmark shall manufacture and sell to Micron and Micron shall
purchase from Newmark the products ("Products") described in Exhibit A
attached hereto in such quantities, at such prices and under such terms as
are set forth or described herein.
2.2 PRICE. The prices payable by Micron for the Products shall be
the cost of parts and materials plus thirty (30%) percent. The Products
will be prepared for shipment and shipped to Micron by Newmark, at Micron's
sole expense. If Micron shall direct Newmark to ship any such Products to
the end-user of same, Micron or said end-user shall bear all costs associated
with said shipment.
2.3 QUANTITIES. Newmark agrees to manufacture and sell to Micron
and Micron agrees to purchase from Newmark Micron's requirements for the
Products.
2.4 SPECIFICATIONS. All Products sold an purchased under this
Agreement shall meet and comply with the written specifications
("Specifications") therefor currently in effect and made available to Micron
by Newmark. Newmark shall maintain accurate records and data for any quality
testing done by or for Newmark of any Products purchased by Micron hereunder
and shall make such records and test data available to Micron upon reasonable
request. Micron shall have the right to conduct its own independent testing
of such Products at Micron's expense. Any changes to the Specifications
shall require the prior written agreement of both Newmark and Micron.
2.5 TITLE AND RISK OF LOSS. Title to and risk of loss of Products
sold and purchased hereunder shall pass to Micron from Newmark at the point
of shipment at Newmark's place of business in Cheshire, Connecticut.
2.6 PAYMENT TERMS. Newmark shall purchase such parts and
materials as are reasonable and necessary to manufacture the Products
contemplated by this Agreement. Newmark shall furnish Micron with copies of
its purchase orders as soon as possible after placing such orders. Micron
may, if it so desires, direct Newmark within three (3) business days of
receipt of said purchase orders to cancel such order or orders. Absent
cancellation by Micron, Newmark shall, upon receipt of an invoice for such
ordered parts and materials thereafter invoice Micron for the cost thereof
(as evidenced by the invoice) plus thirty percent (30%). Except to the
extent that other payment terms are set forth in written purchase orders
covering the Products issued by Micron and
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accepted by Newmark hereunder, such invoice shall be payable by Micron to
Newmark upon Newmark's standard terms, I.E., 1% ten days, net thirty (30)
days.
2.7 CHANGES IN SPECIFICATIONS. The parties will mutually
establish and periodically review improvement objectives for the Products.
If the parties mutually agree to changes in the Specifications for the
Products, they also shall mutually agree to price modifications (increases or
decreases, whichever the case may be) to the affected Products. At Micron's
request, Newmark will substantiate conformance of the affected Products to
the revised Specifications therefor.
2.8 LEGAL COMPLIANCE. Newmark will comply with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings and charges thereunder) in connection with the
manufacture and sale of the Products.
3. INVENTORIES, NON-EXCLUSIVE LICENSE AND WORKING CAPITAL.
3.1 INVENTORIES.
3.1.1 Contemporaneously with the execution and delivery of
this Agreement, Micron is purchasing all of Newmark's Machine Business
and Inventories as those terms are defined in the Asset Purchase
Agreement between Micron and Newmark of even date herewith. Such
Inventories consist of unassembled, partly assembled and finished
parts and products, the ultimate product being a medical stud and
eyelet application machine known as Model 8N. Such Inventories have
been valued at Newmark's cost plus thirty percent (30%) as of the 5th
day of March 1997. Micron acknowledges that it has satisfied itself
that the Inventories purchased by it as of the effective date of the
Asset Purchase Agreement, I.E., March 5, 1997 (the "Effective Date"),
complied with the requirements of said agreement as of the Effective
Date. Micron and Newmark acknowledge that Newmark has, subsequent to
the Effective Date, purchased additional parts necessary to the
assembly and creation of the Products (the 8N medical stud and eyelet
application machine). Micron and Newmark, as soon as possible
following the closing pursuant to the aforementioned Asset Purchase
Agreement shall conduct an inventory of those parts and/or products
purchased after the Effective Date and through the date hereof.
Micron shall upon completion of said inventory pay to Newmark
Newmark's cost of such inventory, plus thirty percent (30%).
3.1.2 Micron agrees that Newmark may retain possession of the
Inventories, both existing and hereafter acquired, and use and consume
same in the manufacture of the Products. Unless otherwise directed by
Micron, Newmark shall use its own judgment with regard to the purchase
of additional inventory and shall only restock those Inventories which
it deems necessary to meet projected requirements for the Products.
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3.1.3 Micron acknowledges that the Inventories will and do
consist of unassembled parts, partly assembled parts, and the final
product, I.E., Model 8N medical stud and eyelet application machines,
and further acknowledges that such machines are presently and
ultimately destined for lease to third party users pursuant to a
leasing program to be managed by Newmark for the benefit of Micron.
Newmark shall, at the option of Micron, provide monthly reports to
Micron within seven (7) days following the close of each month and/or
within seven (7) days following the termination of this agreement
which reports will reflect a physical inventory of the parts on hand
and the Products leased. Micron, or its representatives, at its or
their option, may observe the physical inventory and may inspect any
records pertaining to the machines leased.
3.1.4 Within ten (10) days following the Termination Date,
Newmark shall deliver to Micron or to its designee at such place or
places as Micron shall designate, the Inventories held by Newmark.
Micron shall be responsible for shipment costs.
3.1.5 Newmark agrees that it will neither sell, transfer,
assign, pledge, hypothecate, encumber or otherwise dispose of any of
the Inventory or Products except as provided herein, nor represent the
Inventory or Products as the property of any person other than Micron.
Newmark further agrees that it will execute and deliver to Micron such
Financing Statements on Form UCC-1 or such other instruments as Micron
shall reasonably require evidencing Micron's ownership of the
Inventory and Products.
3.2 NON-EXCLUSIVE LICENSE. Newmark and Micron acknowledge and
agree that Micron has purchased from Newmark all of the Intellectual Property
Rights, as that term is defined in the Asset Purchase Agreement, used in or
associated with the manufacture, marketing and sale of the Products and,
consequently, absent the permission of Micron, Newmark would not be permitted
to manufacture, market or sell the Products. Micron hereby grants to Newmark
a non-exclusive license, which license shall terminate upon the termination
of this Agreement to manufacture, market and sell the Products in accordance
with and for the limited purposes set forth in this Agreement and to fulfill
Newmark's existing warranty obligations to customers as specified in Exhibit
C hereto. In consideration of such license, Newmark agrees that it will not
manufacture the Products (or any products capable of performing functions
similar to those of the Products) for, or sell any Products (or any Products
capable to performing functions similar to those of the Products) to , any
person other than Micron (or other than any person designated in writing from
time to time by Micron); provided, however, that Newmark shall not be
prohibited from manufacturing for, or selling products capable of performing
functions similar to those of the Products, to any one after the termination
of
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this Agreement, so long as such products do not infringe the intellectual
property rights of Micron.
Each party hereto acknowledges that a remedy at law for any breach or
attempted breach of this Section 3.2 will be inadequate, agrees that the
other party hereto shall be entitled to specific performance and injunctive
and other equitable relief in case of any such breach or attempted breach.
4. AGENCY.
Micron has or will create a separate legal entity known as Micron
Leasing Inc. for the purpose of holding title to and leasing the Model 8N
medical stud and eyelet application machines to third party users. Micron
has requested that Newmark act as its leasing agent with regard to such
leases and Newmark has accepted such appointment. Newmark shall, in such
capacity, enter into lease agreements with third parties on behalf of Micron
Leasing Inc. on the same terms and conditions it has previously used in the
conduct of the Machine Business prior to the sale to Micron. Micron hereby
authorizes Newmark to take the following actions on behalf of Micron Leasing
Inc.:
(a) Enter into and execute leases with third party users of the
Model 8N machines;
(b) Receive, collect and deposit for an on behalf of Micron
Leasing Inc. all lease revenues received.
(c) Provide monthly reports to Micron Leasing Inc. and/or Micron
of all collections and other matters concerning the leased machines.
(d) Unless otherwise directed directed by Micron Leasing Inc.
and/or Micron, take such other and further actions regarding the leased
machines as an owner/lessor might take in the ordinary course of such
business.
Newmark shall not in its capacity as leasing agent charge any fees
to Micron or Micron Leasing Inc. for such service so long as this
manufacturing agreement is in full force and effect. Micron Leasing Inc.
shall reimburse Newmark for reasonable out-of-pocket expenses incurred in
operating the leasing business. Micron and Micron Leasing Inc. agree to
indemnify and hold harmless Newmark as leasing agent of and from any and all
loss, damage, costs or liability whatsoever, including reasonable attorneys'
fees, for matters arising out of its actions as leasing agent, unless such
were the result of Newmark's negligence or caused by Newmark acting contrary
to written directives from either Micron or Micron Leasing Inc. with regard
to the leasing business conducted on their behalf.
5. REPRESENTATIONS AND WARRANTIES.
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5.1 TITLE TO PRODUCTS. Newmark hereby represents and warrants to
Micron that title to the Products to be sold and conveyed to Micron hereunder
shall be good, clear and marketable, subject to no liens, security interests
or other encumbrances of any kind, except for a purchase money security interest
in favor of Newmark as permitted by applicable law to secure payment to Newmark
of the purchase price for such Products.
5.2 REPAIR AND REPLACEMENT. Newmark hereby represents and
warrants that the Products will be manufactured in accordance with the
applicable Specifications and that the Products will, when delivered, be free
of defects in workmanship or material. If any failure to conform to this
warranty becomes apparent within twelve months after delivery, Newmark shall,
upon prompt written notice and compliance by Micron with such instructions as
it shall give with respect to the return of the defective Product or parts
correct such non-conformity by replacing the defective Product or parts or,
if not correctable, then by refunding the purchase price paid by Micron
therefor.
6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY NEWMARK. Newmark hereby agrees to
indemnify, save and hold harmless Micron and its direct and indirect
subsidiaries and its and their successors and permitted assigns and all of
their respective officers, directors, stockholders, agents, attorneys,
representatives and employees (collectively, the "Micron Indemnified
Parties") from and against any and all damages, liabilities, losses,
assessments, charges or costs (including attorneys' fees and court costs)
(collectively, the "Damages") arising from, out of or in any manner connected
with (a) the breach of, or the failure to perform or satisfy any of, the
representations, warranties, covenants or agreements made by Newmark in or
under this Agreement, and (b) any liability to any party directly or
indirectly from the operations carried on by or on behalf of Newmark in
connection with the manufacture, lease and sale of the Products, including,
without limitation, any liability to any party arising from or relating to
any theory of product liability covering the manufacturing, sale,
introduction into commerce or use of the Products which fail to comply with
the Specifications, except to the extent, in each case, that such Damages are
subject to section 6.2 hereinbelow.
6.2 INDEMNIFICATION BY MICRON. Micron hereby agrees to indemnify,
save and hold harmless Newmark and its successors and all of their respective
permitted assigns and their officers, directors, stockholders, agents,
attorneys, representatives and employees (collectively, the "Newmark
Indemnified Parties") from and against any Damages arising from, out of or in
any manner connected with (a) the breach of, or the failure to perform or
satisfy any of, the representations, warranties, covenants, or agreements
made by Micron in or under this Agreement, or (b) any liability to any party
whether incurred under statute or contract or in tort arising from or
relating to any theory of product liability covering the manufacture, lease,
sale, introduction into commerce or
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use of the Products that comply with the Specifications, except and to the
extent, in each case, that such Damages are also subject to Section 6.1,
above.
6.3 CLAIMS; THIRD PARTY ACTIONS. Micron and Newmark each agree
that promptly after any of its officers becomes aware of the discovery of
facts giving rise to a claim by it for indemnification hereunder ("Claim"),
such party will provide notice thereof in writing to the other party. The
failure of either party to so notify the other party of a Claim shall relieve
the other party from any liability in respect of such Claim to the extent
such other party is prejudiced by the failure to receive timely notice. For
purposes of this Section 6.3, receipt by a party of notice of any demand,
assertion, claim, action, or proceeding (judicial, administrative or
otherwise) by or from any person or entity (other than the other party to
this Agreement) or governmental authority ("Third Party Action") which may
give rise to a Claim on behalf of such party shall constitute the discovery
of facts giving rise to a Claim by it and shall require prompt notice of the
receipt of such matter as provided in the first sentence of this Section 6.3.
Any notice pursuant to this Section 6.3 shall set forth all information
respecting the Claim and the Third Party Action, if any, as such party shall
then have and shall contain a statement to the effect that the party giving
the notice is making a Claim pursuant to and formal demand for
indemnification under this Section 6.
6.4 INDEMNIFYING PARTY; INDEMNIFIED PARTY. For purposes of this
Section 6, the term "Indemnifying Party" as to a particular Claim or Third
Party Action shall mean the party having or which is held to have an
obligation to indemnify the other party with respect to such Claim or Third
Party Action pursuant to this Section 6, and the term "Indemnified Party" as
to a particular Claim or Third Party Action shall mean the party having or
which is held to have the right to be indemnified with respect to such Claim
or Third Party Action by the other party pursuant to this Section 6.
6.5 DEFENSE OF THIRD PARTY CLAIMS. Except as otherwise expressly
provided herein, Indemnifying Party shall be entitled at its cost and expense
to contest and defend by all appropriate legal proceedings in connection with
any Third Party Action with respect to which it is called upon to indemnify
Indemnified Party under the provisions of this Agreement; provided, however,
that with respect to any Claim arising from the assertion of any Third Party
Action, notice of the intention so to contest shall be delivered by
Indemnifying Party to Indemnified Party within twenty (20) days from the date
of receipt by Indemnifying Party of notice from Indemnified of the assertion
of the Third Party Action. Any such contest with respect to a Third Party
Action may be conducted in the name and on behalf of Indemnifying Party or
the Indemnified Party, as appropriate. Except as otherwise expressly
provided herein, such contest shall be conducted by attorneys employed by
Indemnifying Party, but Indemnified Party shall have the right to participate
in such proceedings and to be represented by attorneys of its own choosing at
its cost and expense. If after notice as provided for herein, Indemnifying
Party does not elect to contest any Third Party Action as provided in this
Section 6.5, Indemnifying Party shall be bound by the result obtained with
respect thereto by Indemnified Party and the Indemnified Party may (but shall
have no obligation to) contest
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any such Third Party Action or settle or admit liability with respect
thereto, all for the account of Indemnifying Party. At any time after the
commencement of defense of any such Third Party Action, Indemnifying Party
may request Indemnified Party to agree in writing to the abandonment of such
contest or the payment or compromise by Indemnifying Party of the asserted
Third Party Action whereupon such action shall be taken unless Indemnified
Party so determines that the contest should be continued, and so notifies
Indemnifying Party in writing within fifteen (15) days of such request from
Indemnifying Party. In the event that Indemnified Party determines that the
contest should be continued, Indemnifying Party shall be liable with respect
to such Third Party Action only to the extent of the lesser of (i) the amount
which the third party taking the Third Party Action had agreed to accept in
payment or compromise as of the time Indemnifying Party made its request
therefor to Indemnified Party, or (ii) such amount for which Indemnifying
Party may be liable with respect to such Claim by reason of the provisions
hereof.
6.6 COOPERATION. If requested by Indemnifying Party, Indemnified
Party agrees to cooperate with Indemnifying Party and its counsel in
contesting any Third Party Action which Indemnifying Party elects to contest
or, if appropriate, in making any counterclaim against the third party taking
the Third Party Action, or any cross-complaint against any other person or
entity not a party hereto, but Indemnifying Party will reimburse Indemnified
Party for any expenses incurred by it in so cooperating. Indemnifying Party
agrees to cooperate with Indemnified Party with respect to any request by the
latter to maintain its relationship with a person or entity taking Third
Party Action; provided, however, that Indemnifying Party shall not be obliged
to take or forego any action if to do so would in Indemnifying Party's sole
judgment prejudice its interests. Indemnified Party agrees to afford
Indemnifying Party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons or entities, including
governmental authorities, taking Third Party Action against Indemnified Party
or conferences with representatives of or counsel for such persons or
entities.
6.7 PAYMENT OF DAMAGES. Indemnifying Party shall pay to
Indemnified Party, upon demand, the amount of any Damages to which
Indemnified Party may become entitled by reason of the provisions of this
Section 6.
7. FORCE MAJEURE.
7.1 FAILURE OR DELAY IN PERFORMANCE. Neither Newmark on one hand,
nor Micron on the other, shall be liable to the other party for failure or
delay in performance to the extent that performance hereunder is prevented by
Force Majeure, which is herein defined to include but not be limited to war
(whether declared or undeclared), fire, flood, lightning, earthquake, storm,
or any act of God; strikes, lockouts, or other labor difficulties; civil
disturbances, riot, or sabotage; accidents, explosions, breakages, freezing
or partial or entire failure of machines, equipment, pipelines, or other
property; any official order, directive or industry-wide request or
suggestion by any governmental authority or instrumentality thereof which, in
the reasonable judgment of
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the party affected, makes it necessary to cease or reduce production; any
disruption or breakdown of labor; any inability to secure necessary fuel,
power, equipment, transportation, or raw materials, including inability to
secure such items by reason of allocations promulgated by authorized
governmental agencies; or any other contingency, whether similar or
dissimilar to the foregoing, beyond the reasonable control of the affected
party which prevents performance hereunder.
7.2 SUSPENSION OF PERFORMANCE. Performance under this Agreement
shall be suspended during the period of such Force Majeure to the extent
permitted thereby; provided, however, that the settlement of strikes,
lockouts, industrial disputes, or disturbances shall be entirely within the
discretion of the party so settling to accede to the demands of any opposing
party.
7.3 NO EXTENSION; RESUMPTION OF PERFORMANCE. No curtailment,
suspension or acceptance of performance pursuant to this Section 7 shall
operate to extend the Term of or, except as provided in Section 1(b), above,
to terminate this Agreement. Performance under this Agreement shall resume
to the extent made possible by the end of amelioration of the Force Majeure
event.
7.4 NOTICE OF FORCE MAJEURE EVENT. Upon the occurrence of any
event of Force Majeure, the party claiming Force Majeure shall notify the
other party promptly in writing of such event and, to the extent possible,
inform the other party of the expected duration of the Force Majeure event
and the performance to be affected by the suspension or curtailment.
8. INSURANCE. Throughout the term of this Agreement, Newmark, at its
sole cost and expense, shall maintain:
(a) workers' compensation and employer's liability insurance
required by law on the employees of Newmark and all of its
subsidiaries, if any, engaged in performing services under this
Agreement; and
(b) general and public liability insurance, together with
products liability insurance, for the benefit of and payable to Micron
as its interest may appear, against loss or damage on account of
liability which may be imposed against Newmark or Micron, or both of
them, in connection with the sale or lease by Micron of the Products,
having a face value of not less than one million dollars ($1,000,000).
Such policies shall (i) be effected with one or more insurers reasonably
acceptable to Micron, (ii) contain a provision that they may not be canceled
without at least 30 days' prior notice to Micron, and (iii) cover, in
perpetuity, any covered claims which may at any time be brought so long as
they occurred in connection with the sale of the Products or the use of the
Equipment and were made at any time during the period when such insurance was
in effect. Newmark has, contemporaneously with the execution of this
Agreement, delivered to Micron a true and complete copy of the policies of
insurance
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currently maintained by it as well as a binder for such insurance showing
that it is in full force and effect and shall, from time to time, furnish
Micron with all changes to the terms of said policies of insurance which
Newmark desires to effect. In the event Newmark shall fail to maintain the
insurance coverages specified in this Section 8, Micron shall have the right,
but not the obligation, to obtain such insurance coverages. In any such
event, Newmark shall promptly repay to Micron the cost thereof.
9. CONFIDENTIALITY. Except as otherwise required under applicable law
or the Asset Purchase Agreement, Newmark and Micron agree to maintain as
confidential and not to disclose to any third party or use in any manner
adverse to the other party any and all information provided by one party to
the other or otherwise obtained by one party from the other party in the
performance of this Agreement.
10. MISCELLANEOUS.
10.1 NOTICE. Any notice required or permitted to be given under
this Agreement shall be in writing, and shall be deemed sufficiently given
when delivered in person or transmitted by telex, or when actually received
when sent by certified, registered or express mail, postage prepaid, to the
addresses given below or sent by telecopy to the telecopier numbers set forth
below.
Newmark: Newmark, Inc.
182 Sandbank Road
Cheshire, Connecticut 06410
ATTN: Francis R. Powell, President
Micron: Micron Products Inc.
25 Sawyer Passway
Fitchburg, Massachusetts 01420
ATTN: Anthony A. Cetrone, President
Either party hereto may change its address for the purpose of notice
hereunder by giving written notice of such change of address to the other
party in the manner specified herein. To the extent any notice provision in
any other agreement, instrument or document required to be executed or
contemplated herein contains a notice provision that is different from the
notice provision contained in this Section 10.1 with respect to matters
arising under such other agreement, instrument or document, the notice
provision in such other agreement, instrument or document shall control.
10.2 AUDITS. Micron shall have the right to cause the books,
records and accounts that shall be maintained by Newmark in connection with
the quantity and value of its Inventories (including leased machines) to be
audited by a mutually acceptable independent public accounting firm for
purposes of verifying or confirming the accuracy
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of any information set forth in any Inventory Report furnished to Micron
hereunder. Any such audits shall be conducted during normal business hours
and at the sole expense of Micron.
1.03 PURCHASE OF PRODUCTS BY MICRON. Micron will place orders
with Newmark for products which it requires in the operation of its business
for so long as Newmark has the capacity to produce same and is able to do so
at competitive prices.
10.4 CONTROLLING LAW AND JURISDICTION. THE VALIDITY,
INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED
HEREWITH SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
10.5 ENTIRE AGREEMENT. The parties intend that the terms of this
Agreement shall constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior negotiations,
undertakings, representations and agreements of the parties hereto.
10.6 AMENDMENT AND WAIVERS. This Agreement may not be amended
except upon the written consent of the parties hereto. By an instrument in
writing, either party may waive compliance by the other party with any term
or provision of this Agreement that the other party was or is obligated to
comply with or perform; provided, however, that such waiver shall not operate
s a waiver of, or estoppel with respect to, any other or subsequent failure.
No failure to exercise and no delay in exercising any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any partial exercise
of any right, remedy or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy or power provided
herein or by law or in equity.
10.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
10.8 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall constitute one and the same instrument.
10.9 FURTHER ASSURANCES. Subject to the terms and conditions
hereof, each party agrees to use its best efforts to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement as
expeditiously as practicable, including, without limitation, the performance
of such further acts or the execution and delivery of any additional
instruments or documents as any party may reasonably request in order to
carry out the purposes of this Agreement and the transactions contemplated
hereby.
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10.10 ASSIGNMENT. No party shall assign this Agreement in whole or
in part without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Any assignment made or attempted in
violation of this Section 10.10 shall be void and of no effect. Subject to
the foregoing, this Agreement shall be binding on Micron and Newmark and
their respective legal representatives, successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
NEWMARK, INC. MICRON PRODUCTS INC.
By: By:
------------------------------ --------------------------------
Francis R. Powell, President Anthony A. Cetrone, President
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, made and entered into as of this _____ day
of February, 1997 ("Agreement"), is by and between Arrhythmia Research
Technology, Inc., a Delaware corporation having an office and place of business
at 5910 Courtyard Drive, Suite 300, Austin, Texas 78731 ("Purchaser"), and
Astro-Med, Inc., a Rhode Island corporation having an office and place of
business at Astro-Med Industrial Park, West Warwick, Rhode Island 02893
("Seller").
W I T N E S S E T H
WHEREAS, Seller is engaged in the line of business of developing,
manufacturing, marketing and selling catheterization laboratories for the
medical marketplace (the "Business"); and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, substantially all of the assets, properties and rights of
Seller used in or constituting the Business, subject to the terms and conditions
of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Seller and Purchaser agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
of this Agreement, at the Closing (as hereinafter defined), Seller shall sell,
convey, transfer, assign and deliver to Purchaser, and Purchaser shall purchaser
from Seller, all of the following assets, properties and rights (other than the
Excluded Assets [as hereinafter defined]) (all such assets, properties and
rights being herein collectively referred to as the "Assets" and individually as
an "Asset"):
(a) all patents, trademarks, service marks, copyrights and
applications therefor, all tradenames, brand names, logos, inventions,
discoveries, improvements, processes, technology, know-how, formulae,
drawings, schematics, specifications, trade secrets, confidential
information, plans, computer software (including source and object code
thereof and other documentation, including, without limitation, copies
thereof in machine readable form), files, programs, instruction manuals,
promotional materials, notebooks and records, and all other proprietary,
technical and other information and intellectual property, technical and
other information and intellectual property and all licenses, permits and
other rights to use the foregoing, whether patentable or unpatentable, used
in or associated with the operation of the Business and all goodwill
associated with
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the foregoing (or, to the extent Seller does not own such proprietary,
technical and other information and technical property, a current or
royalty-free license or permit to use the foregoing), including but
not limited to those listed in and more specifically described in
Exhibit 1.1(a) hereto (the "Intellectual Property Rights");
(b) all of Seller's rights under the license agreements, product
purchase and sales contracts and other agreements used in or constituting
the Business, including, without limitation, those described in Exhibit
1.1(b) hereto, but excluding the Other Arrangements (as hereinafter
defined) (the "Business Arrangements");
(c) all testing and validation equipment and supplies and other
tangible personal property used in or associated with the operation of the
Business including, without limitation, the testing and validation
equipment and supplies and other tangible personal property identified in
Exhibit 1.1(c) hereto (the "Equipment");
(d) all franchises, licenses, permits, authorizations, or other
rights granted by governmental authorities and all certificates of
convenience or necessity, immunities, privileges, licenses, easements,
consents, grants, ordinances and other rights of every character whatsoever
that are used in or associated with the operation of the Business,
including, without limitation, those listed in and more specifically
described in Exhibit 1.1(d) hereto (the "Permits");
(e) all raw materials ("Raw Materials"), in-process goods and
products ("In-Process Goods Inventories") and finished goods and products
("Finished Goods Inventories"), wherever located and whether in transit or
otherwise, used or manufactured and sold in connection with the Business,
including without limitation, those listed and more specifically described
in Exhibit 1.1(e) hereto (collectively, the "Inventories");
(f) all engineering and research and development materials and
inactive and other spare parts, wherever located and whether in transit or
otherwise, used by Seller in connection with the Business, including,
without limitation, those listed and more specifically described in Exhibit
1.1(f) hereto (collectively, the "Engineering Spare Parts");
(g) all supplier lists and supplier data relating to the Business
(the "Supplier Data");
(h) all customer records and files relating to the Business (the
"Customer Data");
(i) all rights under express or implied warranties from the sellers
of goods and services to the Business (the "Warranty Rights"); and
(j) all books, records and other documents used in or associated with
the operation of the Business (the "Books and Records").
1.2 ASSETS NOT TO BE CONVEYED. Notwithstanding any other provision of
this Agreement, or any inference to be drawn from any such provision, the Assets
to be conveyed to Purchaser shall not include the following assets of Seller
which might otherwise be considered as used in, constituting or associated with
the Business (collectively, the "Excluded Assets"):
(a) all arrangements set forth in Exhibit 1.2(a) (the "Other
Arrangements");
(b) all permits that are not transferable by law, which permits are
set forth or described in Exhibit 1.2(b) (the "Excluded Permits");
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(c) all cash, cash-equivalents, securities and bank deposits, of
whatever description;
(d) all accounts receivable;
(e) Seller's corporate seal, certificate and articles of
incorporation, minute books, stock books, tax returns, books of account and
other records having to do with the corporate organization of Seller;
(g) the rights to any of Seller's claims for any federal, state,
local or foreign tax refunds;
(h) the rights which accrue or will accrue to Seller under this
Agreement;
(i) the rights to carry forward, carry back or otherwise utilize any
of Seller's net operating losses for federal and state income tax purposes;
and
(j) all proprietary, technical and other information and intellectual
property and licenses, permits and other rights to use the same, and all
other assets used in or constituting technologies of Seller's lines of
business outside the Business.
1.3 CONVEYANCE INSTRUMENTS AND RELATED MATTERS. At the Closing, the
Assets shall be conveyed by Seller as follows:
(a) Seller shall convey to Purchaser the Intellectual Property
Rights, Business Arrangements, Equipment, Permits, Engineering Spare Parts,
Inventories, Supplier Data, Customer Data, Warranty Rights and Books and
Records by a Bill of Sale, General Assignment and Conveyance in the form
set forth in Exhibit 1.3(a) hereto.
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(b) In addition to the Bill of Sale, General Assignment and
Conveyance, Seller shall convey to Purchaser the United States patents and
any applications therefor included in the Intellectual Property Rights by
instrument of conveyance in the form set forth in Exhibit 1.3(b) hereto
("Patent Assignments"). At no additional cost to Purchaser, Seller shall
exercise its best efforts (short of paying additional consideration to any
third party) to either cause the appropriate third parties to grant to
Purchaser (or to any such subsidiary) licenses reasonably satisfactory to
the parties to use the Intellectual Property Rights owned by such third
parties or assign to Purchaser (or to any such subsidiary) Seller's
licenses from such third parties with respect to such Intellectual Property
Rights.
2. PURCHASE PRICE.
2.1 PRICE. The purchase price for the Acquired Assets shall be Three
Hundred Fifty Thousand and No/100 ($350,000) (the "Purchase Price").
2.2 PAYMENTS. The Purchase Price shall be payable as follows:
(a) Cash at the Closing in the amount of Fifty Thousand and No/100
Dollars ($50,000); and
(b) A Promissory Note in the principal sum of Three Hundred
Thousand and No/100 Dollars ($300,000). Such Promissory Note shall be due
and payable on or before three (3) years from date and be an interest only
note, with interest payable quarterly, during the first year. Thereafter,
principal and interest shall be payable quarterly. The Promissory Note
shall bear interest at the rate of eight percent (8%) per annum.
With respect to the Three Hundred Thousand Dollars ($300,000) in
principal, ART shall pay to Astro-Med fifty percent (50%) of the net sales
price from the sale of each of the first three K-3 systems sold by ART, up
to a total of $70,000; provided, however, that such three K-3 systems shall
be systems which ART shall have purchased out of inventory from Astro-Med
at the Closing. ART's obligation shall be limited to those systems
purchased out of inventory. Thus, if ART purchases only two systems out of
inventory and sell both systems for a total of $100,000, ART shall be
required to pay to Astro-Med only $50,000.
"Net sales price" shall mean gross sales revenue collected on a per
sale basis, less (i) sales taxes and other governmental assessments; (ii)
transportation and insurance charges; (iii) prompt payment discounts
actually allowed and credited; and (iv) allowances/and or trade discounts
allowed and credited.
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3. THE CLOSING.
3.1 CLOSING AND CLOSING DATE. The closing (the "Closing") of the
transactions contemplated hereby shall be held on or before March 31, 1997, at
10:00 a.m. Eastern Time at the offices of Astro-Med, Inc., Astro-Med Industrial
Park, West Warwick, Rhode Island 02893, provided, however, that if the
conditions precedent to the Closing as set forth in this Agreement shall not
have been satisfied or waived on said date, and unless this Agreement is
terminated as provided herein, the Closing shall take place on the fifth
business day following said satisfaction or waiver of such conditions, or on
such other date as Seller and Purchaser shall agree upon in writing, but in no
event later than April 30, 1997, unless such date is extended by mutual
agreement in writing. The time and date of closing is referred to herein as the
"Closing Date."
3.2 TITLE, POSSESSION, RISK OF LOSS. Title to, possession of and
risk of loss or destruction or damage to the Assets shall pass to Purchaser at
the Closing; provided, however that this Section 3.2 shall not diminish, limit
or otherwise impair in any manner Seller's or Purchaser's rights under the other
provisions of this Agreement or the instruments, agreements, certificates and
documents to be executed and delivered in connection herewith that apportion
liability between the parties with respect to events, occurrences, omissions or
other matters arising or occurring during specified periods.
3.3 ITEMS TO BE DELIVERED AT CLOSING BY SELLER. At Closing, and
subject to the terms and conditions herein contained, Seller shall deliver to
Purchaser the following:
(a) the Bill of Sale, General Assignment and Conveyance duly executed
by Seller;
(b) the Patent Assignments duly executed by Seller;
(c) such other good and sufficient instruments and documents of
conveyance and transfer, in a form reasonably satisfactory to Purchaser and
its counsel, as shall be necessary and effective to transfer and assign to,
and vest in, Purchaser all of Seller's right, title and interest in and to
the Assets; and
simultaneously with such delivery, all such steps will be taken as may be
required to put Purchaser in actual possession and operating control of the
Assets.
3.4 ITEMS TO BE DELIVERED AT CLOSING BY PURCHASER. At Closing, and
subject to the terms and conditions herein contained, Purchaser shall deliver to
Seller the following:
(a) the Assumption Agreement; and
(b) such other documents, instruments and undertakings, in a form
reasonably satisfactory to Seller and its counsel, as shall be necessary to
consummate the payment, performance or discharge, as appropriate, of the
Assumed Obligations.
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3.5 OTHER DOCUMENTS. At or prior to Closing, the parties shall
exercise reasonable efforts to deliver to each other the other agreements,
opinions, certificates, instruments and documents referred to in Section 9
hereof.
4. CONDUCT PRIOR TO THE CLOSING AND CERTAIN OTHER MATTERS.
4.1 CONDUCT OF BUSINESS. Seller represents, warrants, covenants and
agrees that, from the date hereof until the Closing Date:
(a) the Equipment will be maintained and repaired in the usual and
ordinary course and operated in a good, workmanlike and prudent manner in
accordance with prior practice;
(b) Seller will use its best efforts to preserve for Purchaser
favorable business relations with all persons dealing with the Assets and
the Business;
(c) Seller will cooperate fully with Purchaser as to arrangements for
the transfer of the Assets to Purchaser in an orderly fashion;
(d) Seller will promptly notify Purchaser of (i) its receipt of any
notice or claim, written or oral, of default or breach by Seller under, or
of any termination or cancellation, or threat of termination or
cancellation, of any of the Business Arrangements, as a result of which the
Assets or Business shall have been or may be adversely affected,
individually or in the aggregate, in an amount in excess of $10,000, and
(ii) any loss of, damage to or disposition of any of the Assets (other than
the sale or use of Inventories in the ordinary course of business) which
shall involve an amount, individually or in the aggregate, in excess of
$10,000;
(e) Seller, without the prior written consent of Purchaser, shall not
sell, dispose of, distribute, encumber or enter into any agreement or
arrangement for the sale, disposition, distribution or encumbrance of any
of the Assets (other than the sale or use of
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Inventories in the ordinary course of business) or make any offer or
enter into any negotiations with respect thereto, or enter into any
transaction, the effect of which would be to diminish the amount or
value of the Assets or to adversely affect the Business by an amount,
individually or in the aggregate, in excess of $10,000, and Seller
shall exercise its best efforts to cause its officers, directors,
employees, representatives, agents and stockholders to comply with this
Section 4.1(e);
(f) Seller shall not operate the Assets or conduct the Business
outside the ordinary course of business or in a manner inconsistent with
prior practice; and
4.2 ACCESS TO PROPERTIES AND RECORDS. From the date of this
Agreement until the Closing, Seller will (i) keep Purchaser advised of all
developments relevant to the consummation of this Agreement and the Business;
cooperate fully, both in permitting Purchaser and Purchaser's representatives,
advisers, consultants, auditors and other experts to make a full investigation,
at Purchaser's sole cost and expense, and at reasonable times and upon
reasonable notice, of the properties and operations of the Assets and the
Business, and in bringing about the consummation of the transactions
contemplated hereby; and (ii) afford Purchaser and Purchaser's representatives,
advisers, consultants and other experts, at Purchaser's sole cost and expense,
and at reasonable times and upon reasonable notice, reasonable access to the
machinery and equipment, inventory and supplies, records, files, books of
account, agreements and commitments including, without limitation, information
with respect to all products of and raw materials required in the operation of
the Business. Notwithstanding the above, Purchaser and Purchaser's
representatives, advisors, consultants and other experts shall incur no
liability for any of the Assets or the Business as a result of such consultation
or access, or as a result of Seller's performance (or non-performance) of the
covenants set forth in Section 4.1 above. Purchaser covenants and agrees that,
prior to the Closing, neither Purchaser nor any of Purchaser's agents,
attorneys, employees or representatives will unreasonably interfere with any of
the Business Arrangements, Other Arrangements, Permits and/or Intellectual
Property Rights. All information obtained by Purchaser through any
investigation of or access to the properties, operations and financial condition
of the Assets and the Business shall at all times prior to the Closing remain
subject to the terms and conditions of that certain Confidentiality Agreement
between Seller and Purchaser, dated March __, 1997, which is incorporated herein
by reference.
4.3 SATISFACTION OF CONDITIONS; COOPERATION. Each of Seller and Purchaser
will use its best reasonable efforts to (a) obtain, as soon as possible, all
governmental approvals required to be obtained by it and make, as soon as
possible, all filings with any governmental authority required on its part to
consummate the transactions contemplated hereby, and (b) obtain, as soon as
possible, other consents to and approvals required to be obtained by it to
consummate the transactions contemplated hereby.
4.4 TECHNICAL SUPPORT. Seller agrees to provide Purchaser with such
engineering and technical support and related services as Purchaser may
reasonably request subsequent to the Closing Date in order that Purchaser may
efficiently combine the Business with the business and operations of Purchaser
and may otherwise realize the full benefit of the consummation of the
transactions contemplated by this Agreement, all pursuant to the terms set forth
in the Consulting Agreement.
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6. CERTAIN CONTRACTS. In the event that Seller shall not have
obtained, prior to the Closing, the consents of one or more of the other parties
to the Business Arrangements, Permits or Intellectual Property Rights, which
consents shall be required in connection with the assignment of such Business
Arrangements, Permits or Intellectual Property Rights to Purchaser: (i) Seller
shall exercise its best efforts (short of paying additional consideration to any
third party) to effect the assignment of such Business Arrangements, Permits or
Intellectual Property Rights to Purchaser as soon as possible after the Closing
at no additional cost to Purchaser; and (ii) Seller shall retain any such
Business Arrangements, Permits or Intellectual Property Rights pending any such
assignment and, at the request of Purchaser, shall enter into an agreement with
Purchaser under which Seller shall agree to provide or afford to Purchaser the
full benefit of any such Business Arrangements, Permits or Intellectual Property
Rights at no additional cost to Purchaser.
7. REPRESENTATIONS AND WARRANTIES.
7.1 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby
represents and warrants to Purchaser as follows:
(a) Seller is a corporation duly organized, validly existing and,
except as set forth in Exhibit 7.1(a), in good standing under the laws of the
State of Rhode Island and is duly qualified or licensed as a foreign corporation
authorized to do business in each jurisdiction in which the character of the
properties and assets now owned or held by it requires it to be so licensed or
qualified, except where the failure to obtain such license or qualification
would not have an adverse effect on the Assets or the Business.
(b) Seller has full right, power, legal capacity and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby and to consummate the transactions
contemplated herein and thereby, including the full right, power, legal capacity
and authority to sell, assign and transfer the Assets. This Agreement has been
duly executed and delivered by Seller and, upon obtaining the foregoing
approvals, will constitute, and all documents and instruments referred to herein
or contemplated hereby when duly executed and delivered by Seller will
constitute, legal, valid and binding obligations of Seller enforceable in
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity).
(c) Except for the consents specified in Exhibit 7.1(c), no
approval, consent or other order or action of or filing with any court,
administrative agency, governmental authority or other third party is required
for the execution, delivery or performance by Seller of this Agreement or the
other documents and instruments referred to herein or contemplated hereby, and
no other consents or approvals of third parties are required for the
consummation of the transactions hereby, the absence of which will result in the
imposition of any additional conditions on the use or value of the Assets.
Except as disclosed on Exhibit 7.1(c), there are no prior
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consent rights or preferential purchaser rights, rights of first refusal or
other similar rights in third parties with respect to any of the Assets.
Seller will exercise its commercially reasonable efforts (short of paying
additional consideration to any third party) to deliver the consents
specified in Exhibit 7.1(c) to Purchaser as soon as practicable prior to the
Closing Date.
(d) At the Closing, Seller shall convey to Purchaser full legal and
beneficial title to all of the Assets, free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts and encumbrances
except for the Assumed Obligations.
(e) At the time of the Closing, and subject to the satisfaction of
the conditions set forth in Section 9, below, including, without limitation, the
execution, delivery and performance of this Agreement and the other documents
and instruments referred to herein or contemplated hereby, and the consummation
of the transactions contemplated hereby and thereby and the performance by
Seller of its obligations hereunder and thereunder will not cause the imposition
of any additional conditions on the use or value of the Assets, and, except as
set forth in Exhibit 7.1(e), will not constitute a violation of, conflict with,
or result in a default under, (i) any mortgage, indenture, charter or by-law
provision, contract, agreement, commitment or other instrument of any kind to
which Seller is a party or by which Seller or any of its properties or assets
may be bound or affected or (ii) any law, rule or regulation applicable to
Seller or any court injunction, order or decree, or any valid and enforceable
order of any governmental agency having jurisdiction over Seller, which
violation, conflict or default would have or would cause a material adverse
effect on the Assets of the Business.
(f) Except as set forth in Exhibit 7.1(f) hereto, Seller has not
given to any person or party, and there is not currently existing, any power of
attorney of any type pertaining to the Assets or the Business.
(g) Except as set forth in Exhibit 7.1(g) hereto, there are no sales,
use or similar taxes payable by the Purchaser to any taxing authority in any
state arising from the transactions contemplated by this Agreement.
(h) The Intellectual Property Rights are valid and enforceable in
accordance with their respective terms and conditions, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity (whether applied in a proceeding at law or
in equity). The Intellectual Property Rights will upon Closing afford Purchaser
the right to use all technology, proprietary information, know-how or patented
ideas, designs or inventions owned by Seller or others necessary for the present
operation of the Business and the marketing, distribution, sale and use (whether
by Purchaser or Purchaser's direct or indirect customers) of the products
produced in connection with the Business, subject, however to the consents
required as set forth in Exhibit 7.1(c) hereto. None of the ownership, access
to, use or practice of the Intellectual Property Rights by Purchaser upon
Closing will infringe on the rights of any other party, subject, however, to any
consents required as set forth in Exhibit 7.1(c) hereto. Set forth on Exhibit
7.1(h) is a description of the license fees and royalties payable in connection
with the use and practice of the Intellectual Property Rights and the terms and
conditions on which and period for which such license fees and royalties are
payable. The Seller has delivered to Purchaser copies of each of the agreements
described on Exhibit 7.1(h), and such copies are true, correct and complete in
all material respects. Except as otherwise set forth in Exhibit 7.1(h), Seller
is not in default in any material respect and has not been in default in any
material respect under any agreement described in Exhibit 7.1(h) obligating it
to pay license fees or royalties, and has not received a notice of any such
default. The agreements described on Exhibit 7.1(h) have not been terminated
and will remain in full force and effect.
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(i) Except as described in Exhibit 7.1(i) hereto, the Equipment has
been properly maintained and is in satisfactory operating condition (except for
ordinary wear and tear which in the aggregate would not have a material adverse
effect on the Business) and is capable of being used in the Business without
present need for material repair or replacement except in the ordinary course of
business.
(j) With the exception of the Excluded Assets, the Assets are all of
the assets and properties, tangible and intangible, which are necessary to the
operation of the Business as a going concern on a basis consistent with past
practice. No representation or warranty by Seller in this Agreement and no
statement respecting the Assets or the Business contained in any document
delivered by Seller to Purchaser or its representatives in connection with the
transactions contemplated hereby and no Exhibit hereto contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were or will be made, not
misleading.
(k) Except for the Other Arrangements, the contracts, leases,
agreements, undertakings and commitments listed on one or more of the Exhibits
contemplated by Section 1.1 are all the material contracts, leases, agreements,
undertakings and commitments related to the operation of the Business or
constituting any of the Assets. Except as disclosed in Exhibit 7.1(k), Seller
is not (nor, to the knowledge of Seller, is any other party) in default under,
nor does any condition, event, circumstance or situation exist (i) which, with
the giving of notice of passage of time, or both, will cause a default or cause
the imposition of any material adverse burden or condition under any of the
Business Arrangements, Permits or Intellectual Property Rights or under any
judgment, order or decree of any court or any government agency or
instrumentality relating to the ownership of the Assets or the conduct of
Business, or (ii) as a result of which any person, firm, corporation or other
entity is or may be entitled to assert any rights against any of the Assets or
the Business.
(l) Except as disclosed in Exhibit 7.1(l) hereto, as of December
31, 1996 and except as may occur in the ordinary course of business of Seller
consistent with past practice since December 31, 1996, Seller has not received
any payment under any agreement or instrument for the sale, processing,
exchange, storage or transportation of products included in the Assets or
produced by the Business which requires delivery in the future to any other
party thereto of products previously paid for, in full or in part; and Seller,
as of the Closing Date, will not have delivered, under any such agreement or
instrument, more product than any other party thereto is obligated to acquire;
there exists no requirement to "make up" any deliveries of products to any third
party and there has not been delivered under any such agreement or instrument
less product than any other party thereto paid for or is obligated to purchase
or acquire.
(m) Except as disclosed in Exhibit 7.1(m), there are no bonds,
deposits, financial assurance requirements or insurance coverages required to be
submitted to regulatory authorities for the continued ownership of the Assets or
the conduct of the Business.
(n) Except as provided or disclosed in Exhibit 7.1(n) hereto, at
the Closing, Seller will have timely paid or will have made adequate
provision (according to terms set forth in writing and acceptable to
Purchaser) for the payment of all federal, state and local income, profits,
franchise, sales, use, employment and similar taxes, and all interest and
penalties thereon due and payable by it for all periods ended on or prior to
the Closing Date, the non-payment of which would result in a lien or
encumbrance on any Asset, would otherwise materially adversely affect the
Business or would result in the Purchaser becoming liable or responsible
therefor. Seller will timely pay or make adequate
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provision (according to terms set forth in writing and acceptable to
Purchaser) for the payment of all tax liabilities, assessments, interest and
penalties that have accrued but that are not yet due and payable, the
non-payment of which would result in a lien or encumbrance on any Asset,
would otherwise materially adversely affect the Business or would result in
the Purchaser becoming liable therefor.
(o) All of the Raw Materials and In-Process Goods Inventories are
items of the quantity and quality required to produce Finished Goods Inventories
in the ordinary course of business consistent with prior practice. Except as
disclosed in Exhibit 7.1(o) hereto, all of the Finished Goods Inventories are
items of a quality and quantity that may be used and sold in the ordinary course
of business at the market prices of such products consistent with prior
practice.
(p) Except as disclosed in Exhibit 7.1(p), Seller has full power,
authority and legal right and has all licenses, permits, qualifications, and
other documentation necessary or appropriate to own the Assets and to carry on
the Business as being conducted on the date of this Agreement, and such Business
has been and is now being conducted in compliance with all applicable laws,
ordinances, rules and regulations of any governmental department, commission,
board, bureau, agency or instrumentality of the United Sates, any state or
political subdivision thereof, or any foreign jurisdiction, and all applicable
court or administrative agency decrees, awards and orders, and to Seller's
knowledge there is no condition or state of facts which would give rise to a
violation thereof or a liability or default thereunder which would have a
material adverse effect on the Assets or the Business in the hands of Purchaser
following the Closing.
(q) Except as set forth in Exhibit 7.1(q), no legal action, suit or
proceedings, judicial or administrative, or grievance, arbitration,
investigation or claim by or before any governmental agency, for which Purchaser
will be responsible or liable or to which any of the Assets will be subject on
or after Closing is pending or, to the knowledge of Seller, threatened, which
involves or may involve any Asset or the operation of the Business or the
purchase, sale, transportation or processing of raw materials or products in
connection with the Business, which, if adversely determined could have a
material adverse effect on any Asset in the hands of Purchaser after the
Closing, the operation of the Business by Purchaser after the Closing, the
purchase, sale, transportation or processing a raw materials or products in
connection with the Business, or the ability of Seller to perform its
obligations under this Agreement or any other document or instrument referred to
herein or contemplated hereby. Except to the extent disclosed on Exhibit
7.1(q), Seller is not aware of any fact which to its knowledge might result in
any action, suit, or proceeding, judicial or administrative, or grievance,
arbitration, investigation or claim which could cause a material adverse change
in the Business or the condition (financial or otherwise) of any Asset and for
which Purchaser will be responsible or liable or to which an of the Assets will
be subject in the hands of Purchaser on or after Closing.
(r) Except as disclosed on Exhibit 7.1(r), since December 31, 1996,
Seller has not operated the Assets or conducted the Business outside of the
ordinary course of business or in a manner inconsistent with prior practice.
(s) Except as disclosed on Exhibit 7.1(s), since December 31, 1996,
Seller has not received any notice or claim of the types described in clause (i)
of section 4.1(d), and no loss, damage or disposition of the types described in
clause (ii) of Section 4.1(d) has occurred.
(t) Since December 31, 1996, and except as contemplated hereby,
Seller has not sold, disposed of, distributed, encumbered or entered into any
agreement or arrangement for the sale, disposition, distribution or encumbrance
of any of the Assets (other than the sale or use of Inventories in the ordinary
course of business), or made any offer or entered into any negotiations with
respect thereto, or entered into any transaction, the effect of which would be
to diminish the amount or value of the Assets or to
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adversely affect the Business by an amount, individually or in the aggregate,
in excess of $10,000.
(u) Except as disclosed on Exhibit 7.1(u) attached hereto, Purchaser
(nor any successors or permitted assign) shall have no liability, obligation or
other responsibility for or with respect to the payment of any federal or state
income taxes that may be assessed or imposed by the Internal Revenue Service or
any state taxing authority with respect to the sale of the Assets pursuant to
the terms of this Agreement or the consummation of the other transactions
contemplated hereby.
(v) Seller has not conducted business in any name other than
"Astro-Med, Inc." and has not conducted business at an address other than
Astro-Med Industrial Park, West Warwick, Rhode Island since
_____________________.
7.2 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly licensed or
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of the properties and assets owned or held
by it requires it to be so licensed or qualified, except where the failure to
obtain such license or qualification would not have an adverse effect on the
assets, the business, operations or financial condition of the Purchaser and its
subsidiaries, taken as a whole.
(b) Purchaser has full right, power, legal capacity and authority to
execute, deliver and perform this Agreement and all documents and instruments
referred to herein or contemplated hereby and thereby, and to consummate the
transactions contemplated hereby, including the full right, power, legal
capacity and authority to purchase the Assets. This Agreement has been duly
executed and delivered by Purchaser and constitutes, and all documents and
instruments referred to herein or contemplated hereby, when duly executed and
delivered by Purchaser will constitute legal, valid and binding obligations of
Purchaser, enforceable in accordance with their respective terms and conditions,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether applied
in a proceeding at law or in equity).
(c) The execution, delivery and performance of this Agreement and the
other documents and instruments referred to herein or contemplated hereby, and
the consummation of the transactions contemplated hereby and thereby and the
performance by Purchaser of its obligations hereunder and thereunder will not
constitute a violation of, conflict with, or result in a default hereunder, (i)
any mortgage, indenture, charter or by-law provision, contract, agreement,
commitment or other instrument of any kind to which Purchaser is a party or by
which Purchaser may be bound or affected, or (ii) any law, rule or regulation
applicable to Purchaser, or any court injunction, order or decree, or any valid
and enforceable order of any governmental agency having jurisdiction over
Purchaser.
(d) No legal action, suit or proceeding, judicial or administrative,
or grievance, arbitration, investigation or claim, by or before any governmental
agency, is pending or, to the
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knowledge of Purchaser, threatened which, if adversely determined, could have
an adverse effect on the ability of Purchaser to perform its obligations
under this Agreement or any other document or instrument referred to herein
or contemplated hereby.
(e) Except for the consents contemplated hereby or specified on
Exhibit 7.2(e), no approval, consent or other order or action of or filing with
any court, administrative agency, governmental authority or other third party is
required for the execution, delivery or performance by Purchaser of this
Agreement, or the other documents and instruments referred to herein or
contemplated hereby. Purchaser will exercise its commercially reasonable
efforts (short of paying additional consideration to any third party) to deliver
the consent specified in Exhibit 7.2(e) to Seller as soon as practicable prior
to the Closing Date.
8. SURVIVAL; INDEMNIFICATION.
8.1 SURVIVAL. The respective representations, warranties and
covenants of Seller and Purchaser herein shall survive the Closing.
8.2 INDEMNIFICATION BY SELLER. Subject to Sections 8.4, 8.6 and 8.7
herein, Seller hereby agrees, effective as of the Closing, to indemnify, save
and hold harmless Purchaser and its direct and indirect subsidiaries and its and
their successors and permitted assigns and all of their respective officers,
directors, stockholders, agents, attorneys, representatives and employees
(collectively, the "Purchaser Indemnified Parties") from and against any and all
damages, liabilities, losses, claims, deficiencies, penalties, interest,
expenses, fines, assessments, charges or costs (including attorneys' fees and
court costs) (collectively, the "Damages") arising from, out of or in any manner
connected with (a) any liability, obligation, contract, debt, lien, litigation,
dispute or commitment of Seller other than Assumed Obligations, (b) acts,
omissions, events, conditions or circumstances involving or relating to the
Assets or the Business, or the employees or contractors of Seller occurring or
existing on or prior to the Closing Date, other than the Assumed Obligations,
(c) the operation of the Assets or the Business or the sale, disposal,
transportation, storage or use of products or raw materials in connection with
the Business on or prior to the Closing Date, including, without limitation,
product liabilities for products sold by Seller on or before the Closing Date,
(d) the breach of any covenant of Seller or the failure of Seller to perform any
obligation of Seller contained herein or in the documents or instruments
required to be delivered by Seller in connection with the transactions
contemplated hereby, (e) any inaccuracy in or breach of any representation or
warranty of Seller
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under this Agreement or any document or instrument required to be delivered
by Seller prior to or at the Closing or in connection with the transactions
contemplated hereby, (f) all tax liabilities of Seller arising from or
related to or based on events, occurrences, transactions, revenues, income,
operations or assets during any period prior to the Closing or arising from
or related to or based on the sale of the Assets as contemplated hereunder,
(g) the matters for which Seller retains liability under Sections 11 and 14,
and (h) any liability to employees or former employees of Seller or their
beneficiaries arising from the severance or discharge (or constructive
severance or discharge) of such employees by Seller or their rights to
benefits under the Company Plans or other employment related claims.
8.3 INDEMNIFICATION BY PURCHASER. Subject to Sections 8.4, 8.6, and
8.7, Purchaser hereby agrees, effective as of the Closing, to indemnify, save
and hold harmless Seller and its successors and their permitted assigns and all
of their officers, directors, stockholders, agents, attorneys, representatives
and employees (collectively the "Seller Indemnified Parties") from and against
any Damages arising from, out of or in any manner connected with (a) the Assumed
Obligations, (b) acts, omissions, events, conditions or circumstances involving
or relating to the Assets or the Business, or the employees or contractors of
Purchaser (or its subsidiary) occurring or existing after, but not on or before,
the Closing Date (other than those for which the Purchaser Indemnified Parties
are entitled to be indemnified by Seller under Section 8.2), (c) the operation
of any of the Assets, the operation of any other business in which the Purchaser
(or its subsidiary) shall engage, or the sale, disposal, transportation, storage
or use of products or raw materials in connection with the Business by Purchaser
(or its subsidiary) after, but not on or before, the Closing Date, including,
without limitation, product liabilities for products (other than the
Inventories) sold by Purchaser (or its subsidiary) after, but not on or before,
the Closing Date (other than matters for which the Purchaser Indemnified Parties
are entitled to be indemnified by Seller under Section 8.2), (d) the breach of
any covenant of Purchaser contained herein or in the documents or instruments
required to be delivered by Purchaser in connection with the transactions
contemplated hereby, (e) any inaccuracy in, or breach of any representation or
warranty of Purchaser under this Agreement or any document or instrument
required to be delivered by Purchaser in connection with the transactions
contemplated hereby, (f) the matters for which Purchaser assumes liability under
Sections 11 and 14, below, and (g) any untrue statement or alleged information
furnished by Purchaser pursuant to Section 4.12, above, and supplied in the
Disclosure Statement (or amendments or supplements thereto to which Purchaser
shall have consented in writing), or any omission or alleged omission to state
therein a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
8.4 LIMITATIONS ON LIABILITY.
(a) NO BENEFIT TO OTHERS. The representations and warranties,
covenants and agreements contained in this Agreement are for the
sole benefit of the parties hereto and their respective heirs,
executors, administrators, legal representatives, successors and
permitted assigns, and, except as otherwise specifically
provided, they shall not be construed as conferring any rights on
any other persons.
(b) LIMITATION ON SURVIVAL. Notwithstanding any other provision
of this Agreement, no claim shall be made for misrepresentation,
breach of representation or warranty, breach of covenant, or for
indemnification hereunder unless written notice specifying the
nature of such claim, in reasonable detail, shall be given to the
party against whom such claim is asserted prior to December 31,
2002.
8.5 NOTICE AND RIGHT TO DEFEND. Seller, on the one hand and
Purchaser, on the other, agree to give prompt notice to the other of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought hereunder. Any failure on the part of
either party to this Agreement to give the notice described
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in this Section 8.5 to the other party hereto shall relieve the party to whom
such notice was not provided of its obligations under this Section 8 only to
the extent that such non-notified party has been prejudiced by the lack of
timely and adequate notice. This notification requirement shall not apply to
communications that are part of or that relate to a judicial or
administrative proceeding in which the parties hereto are litigating claims
against each other. The indemnifying party shall have the right and
obligation to assume the defense or settlement of any third-party claim,
suit, action or proceeding in respect of which it has an obligation to
provide indemnity hereunder, and such indemnity may be sought hereunder by
giving prompt notice to the indemnifying party; PROVIDED, HOWEVER, that (a)
the indemnified party shall at all times have the right, at its option and
expense, to participate fully therein, and (b) if the indemnifying party does
not proceed diligently to defend the claim within ten days after receipt of
such notice, the indemnified party shall have the right, but not the
obligation, to undertake the defense of any such claim for the account of and
at the risk of the indemnifying party and the indemnifying party shall be
bound by any defense or settlement that the indemnified party may make as to
such claim. The parties shall cooperate in defending any such third-party
claim, and the defending party shall have reasonable access to the books and
records, and personnel in the possession or control of the other party which
are pertinent to the defense. The parties agree that the indemnified party
may join the indemnifying party in any action, claim or proceeding brought by
a third party, as to which any right of indemnity created by this Agreement
would or might apply, for the purpose of enforcing any right of the indemnity
granted to such indemnified party pursuant to this Agreement.
8.6 APPORTIONMENT. Consistent with the provisions of Section 8.2 and
8.3, any Damages arising from or out of or relating to acts, omissions,
conditions, events or circumstances which occur or exist both on or prior to and
after the Closing Date shall be allocated between Seller and Purchaser in
proportion to the extent to which such acts, omissions, conditions, events or
circumstances occurring or existing on or prior to the Closing Date, which will
be Seller's responsibility, and the extent to which such acts, omissions,
conditions, events or circumstances occurring or existing after (but not on or
before) the Closing Date, which will be Purchaser's responsibility, cause or
contribute to such Damages.
8.7 REDUCTION. After the Closing, the amount payable by either party
hereto (the "Indemnifying Party") to a person entitled to indemnity hereunder
(the "Indemnified Party") with respect to any claim for indemnity hereunder by
such Indemnified Party shall be reduced (but not below zero) (or, if previously
collected by a Purchaser Indemnified Party, refunded [but not in any amount in
excess of the amount collected from Seller] at the time of receipt by such
Purchaser Indemnified Party, to the Seller) by any net proceeds of insurance
actually collected (after giving effect to retroactive, future and other premium
adjustments, whether or not then payable, and any subrogation or similar claims
payable) by such Indemnified Party for the same matter which is the subject of
such claim.
9. CONDITIONS TO CLOSING.
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9.1 CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASERS. The obligation
of Purchaser to consummate the transactions contemplated by this Agreement shall
be subject to satisfaction (or the waiver in writing of Purchaser) prior to and
at the Closing of all of the following conditions:
9.1.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller shall have complied in all material respects with all of its
agreements and covenants contained herein. All of the representations and
warranties of Seller contained herein shall be accurate in all material
respects at and as of the Closing with the same effect as though such
representations and warranties had been made at and as of the Closing and
Purchaser shall have received a certificate to such effect executed by the
President and Chief Financial Officer of Seller.
9.1.2. NO CASUALTY, LOSS OR DAMAGE. Except as disclosed in
Exhibit 7.1(i), no material casualty, loss or damage shall have occurred
prior to the Closing Date to any Assets unless Seller shall have either
repaired or replaced such lost or damaged property.
9.1.3. DOCUMENTS. All documents, instruments and agreements
required to be executed and delivered by Seller or third parties at the
Closing as contemplated hereby, and such other documents, instruments,
estoppel certificates from third parties and other certificates and
opinions as Purchaser shall reasonably request, shall have been duly
executed and delivered by Seller and any other parties required and shall
have been received.
9.1.4. CONSENTS. All consents, estoppel agreements and
approvals of third parties or any regulatory body or authority, whether
required contractually or by applicable federal, state or local law, or
otherwise necessary for the execution, delivery and performance of this
Agreement by Seller, and the transfer of the Assets to Purchaser or
otherwise required to permit the Purchaser to enjoy the use of the Assets,
without the imposition of any additional material burden on the use or
value of the Assets, except as provided in Section 6 or 12.2 and except for
approvals of governmental agencies customarily obtained subsequent to
transfer of title, shall have been delivered to Purchaser in form and
substance satisfactory to Purchaser at least two days prior to the Closing
Date and shall not have been withdrawn or revoked.
9.1.5. AD VALOREM AND OTHER TAXES. Except as otherwise
provided in Section 7.1(n), or as otherwise apportioned pursuant to Section
11.3, all ad valorem and other taxes (excluding income) assessed against
the Assets for the year 1995 and all prior years shall have been paid or
adequate provision for the payment thereof shall have been made in the Plan
of Reorganization.
9.1.6. CORPORATE AUTHORITY. On the Closing Date, Seller shall
have delivered to Purchaser, in such form as Purchaser's legal counsel may
reasonably request, evidence of Seller's corporate authority for the
execution, delivery and performance of this Agreement and the other
agreements and instruments to be executed and delivered by Seller pursuant
hereto and the transactions contemplated hereby and thereby.
9.1.7. VIOLATIONS, CONFLICTS AND DEFAULTS. Any and all
violations, conflicts and defaults described in Exhibit 7.1(e) that pertain
to (a) any material mortgage, indenture, charter, or by-law provision,
contract, agreement, commitment or other instrument of the type
described by clause (i) of Section 7.1(e), or (b) any law, rule,
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regulation, injunction, order or decree of the type described in clause
(ii) of Section 7.1(e) shall have been cured in their entirety to the
satisfaction of Purchaser at or prior to the Closing.
Notwithstanding the foregoing, the conditions set forth in Sections 9.1.1,
9.1.2, 9.1.4, and 9.1.7 shall be deemed to be satisfied unless the aggregate
effect of (i) all inaccuracies in the representations and warranties of Seller
set forth in this Agreement, as of the date hereof, together with (ii) all
further inaccuracies in such representations and warranties as if they were made
again as of the Closing Date and irrespective of any disclosures thereof,
together with (iii) all breaches of agreements and covenants herein by Seller,
together with (iv) all casualties, losses or damages to the Assets, together
with (v) all adverse burdens or conditions imposed upon the Business, together
with (vi) all adverse changes in or adverse effects on the Assets or the
Business shall be sufficient so that there is a Material Adverse Effect. As
used in the preceding sentence, the term "Material Adverse Effect" means an
effect which is adverse in an amount in excess of $10,000. The consummation of
the Closing shall not be deemed to be a waiver by Purchaser of any of its rights
or remedies hereunder for breach of warranty, covenant or agreement herein by
Seller or for any defects in title to any of the Assets, irrespective of any
investigation made by or on behalf of Purchaser with respect thereto prior to
the Closing, and irrespective of whether Purchaser knew or should have known of
any such breach or defect. Purchaser's indemnification obligations hereunder
and Seller's other rights and remedies hereunder shall not be affected by the
existence or non-existence of a Material Adverse Effect.
9.2 CONDITIONS PRECEDENT TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions contemplated by this Agreement shall be
subject to satisfaction (or the waiver in writing by Seller) at or prior to the
Closing of all of the following conditions:
9.2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
Purchaser shall have complied in all material respects with all of its
agreements and covenants contained herein to be performed at or prior to
the Closing. All the representations and warranties of Purchaser contained
herein shall be accurate in all material respects at and as of the Closing
with the same effect as though such representations and warranties had been
made at and as of the Closing, and Seller shall have received a certificate
to such effect executed by the President (or any Vice President) of
Purchaser.
9.2.2 CORPORATE AUTHORITY. On the Closing Date, Purchaser
shall have delivered to Seller in such form as legal counsel for Seller may
reasonably request, evidence of Purchaser's corporate authority for the
execution, delivery and performance of this Agreement and the other
agreements and instruments to be delivered pursuant hereto and the
transactions contemplated hereby and thereby.
9.2.3 DOCUMENTS. All documents, instruments and agreements
required to be executed and delivered by Purchaser or third parties at the
Closing as contemplated
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hereby, and such other documents, instruments, certificates and opinions
as Seller shall reasonably request, shall have been duly executed and
delivered by Purchaser and any other parties required and shall have been
received.
9.2.4 CONSENTS. All consents, estoppel agreements and
approvals of third parties or any regulatory body or authority, whether
required contractually or by applicable federal, state or local law, or
otherwise necessary for the execution, delivery and performance of this
Agreement by Purchaser, and the execution, delivery and performance of the
Assumption Agreement by Purchaser, and the taking of all other actions to
be taken and the performance of all other obligations to be performed by
Purchaser at Closing, to permit Seller to obtain all of the benefits
contemplated by this Agreement, without interference or claim from any
third party, shall have been delivered to Seller in form and substance
satisfactory to Seller at least two days prior to the Closing Date and
shall not have been withdrawn or revoked.
Notwithstanding the foregoing, the conditions set froth in Sections 9.2.1,
9.2.4 shall be deemed to be satisfied unless the aggregate effect of (i) all
inaccuracies in the Agreement, as of the date hereof, together with (ii) all
further inaccuracies in such representations and warranties as if they were made
again as of the Closing Date and irrespective of any disclosures thereof,
together with (iii) all breaches of agreements and covenants herein by Purchaser
shall be sufficient so that there is a Material Adverse Effect. As used in the
preceding sentence, the term "Material Adverse Effect" means an effect which is
adverse in an amount in excess of $10,000. The consummation of the Closing
shall not be deemed to be a waiver by Seller of any of its rights or remedies
hereunder for breach of warranty, covenant or agreement herein by Purchaser,
irrespective of any investigation made by or on behalf of Seller with respect
thereto prior to the Closing, and irrespective of whether Seller knew or should
have known of any such breach. Seller's indemnification obligations hereunder
and Purchaser's other rights and remedies hereunder shall not be affected by the
existence or non-existence of a Material Adverse Effect.
10. TERMINATION.
10.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) by the written agreement of Seller and Purchaser; or
(b) by Seller or by Purchaser, by written notice to the other, if the
Closing shall not have occurred by 5:00 p.m., Eastern Times on March 31,
1997, unless such date is extended by mutual agreement in writing; or
(c) by Seller or by Purchaser, by written notice to the other, if on
the date scheduled for Closing any proceeding or action shall have been
filed seeking to restrain, enjoin or otherwise prevent the consummation of
this Agreement or the transaction contemplated hereby or any order shall
have been entered restraining or prohibiting consummation of the
transactions contemplated hereby.
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10.2 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted under Section 10.1, such termination shall be without liability to
either party, except that such termination shall be without prejudice to any and
all remedies the parties may have against each other for any breach of this
Agreement.
11. RECEIVABLES; PAYABLES; APPORTIONMENT.
11.1 RECEIVABLES. If any monies or other assets are received by
Purchaser to which Seller is entitled and that are not included in the Assets,
Purchaser shall hold such monies and assets received by Purchaser in trust for
Seller and shall account for any pay same to Seller within fifteen (15) days of
receipt. If any monies or other assets are received by Seller to which
Purchaser is entitled, and that are included in the Assets, or which represent
prepayments or deposits made by customers or others after the Closing Date with
respect to the purchase of any Inventory or under any Business Arrangements
included within the Assets, Seller shall hold such monies and assets received by
Seller in trust for Purchaser and Seller shall account for and pay same to
Purchaser within fifteen (15) days of receipt.
11.2 LIABILITIES. All liabilities of whatever kind or nature,
whether absolute or contingent, direct or indirect, or fixed or contingent of
Seller, arising from acts, omissions, events, conditions or circumstances
occurring or existing for any period of time on or prior to Closing (whether or
not known by Purchaser), other than the Assumed Obligations, shall be retained
by Seller and shall not be assumed by Purchaser, and Seller covenants and agrees
to pay the same when due or otherwise make adequate provision (according to
terms set forth in writing and acceptable to Purchaser) for the discharge of the
same.
11.3 APPORTIONMENT. Ad valorem and similar taxes imposed by any
taxing authority on the Assets and applicable to periods both prior to and after
the Closing Date with respect to the Assets shall be prorated as of the Closing
Date. Seller and Purchaser shall agree on the amounts owing to Seller by
Purchaser or to Seller resulting from such proration within sixty days after the
Closing Date, and such amounts shall be paid within thirty (30) days thereafter.
11.4 OTHER TAXES. To the extent there are any sales, use, or
similar taxes payable to any taxing authority in any state arising from this
transaction they shall be borne by Seller and Seller agrees to indemnify
Purchaser therefor, except to the extent to do so would violate law, in which
case they shall be borne by Purchaser and collected by Seller for remittance to
the taxing authority. In the event any taxing authority in any state assesses
any such taxes after the Closing, the parties shall follow the procedure set
forth in Section 8.5 with respect thereto. The party responsible for bearing
the tax shall have the right to approve all sales tax information and returns
submitted to tax authorities and to designate the amount of sales tax shown due
thereon arising from the transaction contemplated hereby.
12. CERTAIN BUSINESS AND OTHER ARRANGEMENTS.
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12.1 ADDITIONAL ASSIGNMENTS. The parties recognize that a separate
instrument or instruments of assignment and assumption may be necessary or
proper with respect to certain Business Arrangements, Permits and Intellectual
Property Rights, and accordingly, the parties shall duly execute and deliver at
the Closing or thereafter, as required, such separate instrument or instruments
as may be reasonably required to effect the assignment by Seller and assumption
by Purchaser of all Business Arrangements, Permits and Intellectual Property
Rights.
12.2 CONSENTS TO ASSIGNMENTS. Each party shall assist the other in
attempting to obtain any consents required for the assignment of any Business
Arrangements, Permits or Intellectual Property Rights requested by Purchaser
prior to Closing to be included in the Assets. If such consents cannot be
obtained prior to Closing, Seller and Purchaser shall cooperate in any
arrangement reasonably satisfactory to the parties designed to fulfill Seller's
obligations thereunder and to afford Purchaser the benefits thereof.
12.3 NO RECISSION. Rescission of the Agreement shall not be
available as a remedy at law or in equity to either party hereto or their
successors or permitted assigns in the event of a breach of or other default
under this Agreement. Nothing herein contained shall affect any other right or
remedy of either party hereto.
12.4 BOOKS AND RECORDS. Seller may make copies of any of the Books
and Records. Following Closing, Purchaser shall give Seller access to the Books
and Records for reasonable and lawful business purposes related to post-Closing
events or occurrences affecting Seller and pertaining to the Assets, including
the right to make copies thereof, during normal business hours. Purchaser shall
keep such Books and Records safely and in good order for a reasonable period of
time and for such further periods, at Seller's expense, as Seller may reasonably
request; provided, that Purchaser may at any time deliver any such Books and
records to Seller and shall have access thereto in the same manner as set forth
below.
Seller may keep the originals of books, records and documents as may be
agreed upon in writing by Purchaser prior to Closing. With respect to any such
originals, Seller shall give Purchaser access thereto and the right to make
copies thereof during normal business hours. Seller shall keep such books,
records and documents safely and in good order for a reasonable period of time
following Closing and for such further periods, at Purchaser's expense, as
Purchaser may reasonably request; provided, that Seller may at any time deliver
such books, records and documents to Purchaser, and Seller shall have access
thereto in the same manner as set forth above.
14. MISCELLANEOUS.
14.1 NOTICE. Any notice required or permitted to be given under this
Agreement shall be in writing, and shall be mailed or delivered to the
addresses, or sent by telecopy to the telecopy numbers, as follows:
SELLER: Astro-Med, Inc.
Astro-Med Industrial Park
West Warwick, Rhode Island 02893
Attention: President
Telecopy No.: (401) 821-5314
PURCHASER Arrhythmia Research Technology, Inc.
5910 Courtyard Drive, Suite 300
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Austin, Texas 78731
Attention: President
Telecopy No.: (512) 343-7312
or such other address as shall be furnished in writing by such parties, and such
notice shall be effective and be deemed to have been given as of the date
actually received.
To the extent any notice provision in any other agreement, instrument or
document required to be executed or executed by the parties in connection with
the transactions contemplated herein contains a notice provision which is
different from the notice provision contained in this Section 14.1 with respect
to matters arising under such other agreement, instrument or document, the
notice provision in such other agreement, instrument or document shall control.
14.2 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
waived except by an instrument in writing signed on behalf of each of the
parties hereto.
14.3 FURTHER DOCUMENTS. Seller shall, at any time and from time to
time after the Closing, upon request by Purchaser and without further
consideration, execute and deliver such instruments of transfer or other
documents and take such further action as may be reasonably required in order to
convey, transfer, assign and deliver to Purchaser the Assets and the Business in
accordance with this Agreement or to perfect any other undertaking made by
Seller hereunder. Purchaser shall at any time and from time to time after the
Closing, upon request by Seller and without further consideration, execute and
deliver such documents and take such further action as may be reasonably
required in order to perfect any undertaking made by Purchaser hereunder.
14.4 OTHER ASSISTANCE. Purchaser shall, at the request of Seller,
provide reasonable assistance in the collection of information or documents and
make Purchaser's employees available as witnesses when reasonably requested by
Seller. Seller shall reimburse Purchaser for all reasonable out-of-pocket costs
and expenses incurred by Purchaser (including salaries or wages of Purchaser's
employees) in providing said assistance.
14.5 ASSIGNABILITY; ENFORCEABILITY. Neither party shall assign this
Agreement in whole or in part without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, however, that
at or after Closing Purchaser may assign this Agreement and any other closing
documents, and its rights and obligations hereunder and thereunder, to any
direct or indirect wholly-owned subsidiary of Purchaser, and Purchaser (or any
such wholly-owned subsidiary) may assign its rights hereunder and under any
other such closing documents to the financial institution(s) or their affiliates
financing or refinancing the transactions contemplated hereby; and provided
further, that upon foreclosure or sale in lieu of foreclosure or deed in lieu of
foreclosure or deed of the Assets or a substantial portion thereof by or to any
such financial institutions or their affiliates, the warranties, representation,
obligations, agreements and indemnities (in Section 8, 11 and elsewhere herein)
between Purchaser and Seller herein and in other documents will inure to the
benefit of such financial institutions (or their affiliates) or any purchaser or
grantee of such Assets. Any assignments made or attempted in violation of this
Section 14.5 shall be void and of no effect.
This Agreement shall be binding on and enforceable by Seller and
Purchaser.
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Any provision contained in this Section 14.5 to the contrary
notwithstanding, Seller shall remain liable for and with respect to the
obligations of Seller under this Agreement following any assignment by Seller of
this Agreement or its rights and obligations hereunder, the Purchaser shall
remain liable for an with respect to the obligations of Purchaser under this
Agreement following any assignment by Purchaser of this Agreement or its rights
and obligations hereunder.
Except as set forth in this Section 14.5, and except to the extent
that the Purchaser Indemnified Parties and Seller Indemnified Parties shall be
entitled to the benefits of the indemnities set forth herein, no person or
entity not a party to this Agreement shall have rights under this Agreement as a
third party beneficiary or otherwise.
14.6 EXHIBITS. The Exhibits (and any appendices thereto) inclusive,
referred to in this Agreement and all amendments thereto from the time of
agreement hereto, are and shall be incorporated herein and made a part hereof.
14.7 SECTIONS AND ARTICLES. All Sections and Articles referred to
herein are sections and articles of this Agreement and all Exhibits referred to
herein are exhibits attached to this Agreement.
14.8 ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the parties, a complete allocation of risks between them and a
complete and exclusive statement of the terms and conditions of their agreement
relating to the subject matter hereof and supersedes any and all prior
agreements, whether written or oral, that may exist between the parties with
respect thereto. Except as otherwise specifically provided in this Agreement,
no conditions, usage of trade, course of dealing or performance, understanding
or agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgment or acceptance of documents containing terms or conditions at
variance with or in addition to those set forth in this Agreement. No waiver by
either party with respect to any breach or default or of any right or remedy and
no course of dealing, shall be deemed to constitute a continuing waiver of any
other breach or default or of any other right or remedy, unless such waiver be
expressed in writing signed by the party to be bound. Failure of a party to
exercise any right shall not be deemed a waiver of such right or rights in the
future.
14.9 HEADINGS. Headings as to the contents of particular articles
and sections are for convenience only and are in no way to be construed as part
of this Agreement or as a limitation of the scope of the particular articles or
sections to which they refer.
14.10. CONTROLLING LAW AND JURISDICTION. THE VALIDITY,
INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED
HEREWITH SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
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14.11 PUBLIC ANNOUNCEMENT. Until the Closing, no press release,
public announcement, confirmation or other information regarding this Agreement
or the contents hereof shall be made by either party without the prior
consultation of the other party, except as may be necessary in the opinion of
counsel of either party to meet the requirements or regulations of any
applicable law, governmental unit or agency or stock exchange on which the
securities of such party may be listed.
14.12 FINDER'S FEES AND COMMISSIONS. Seller and Purchaser agree to
indemnify each other and hold each other harmless from any liability, cost or
expense (including, but not limited to, fees and disbursements of legal counsel)
resulting from any agreement, arrangement or understanding made by the
indemnifying party with any third party for brokerage or finder's fees or other
commissions in connection with this Agreement, the documents and instruments
referred to herein, or the transactions contemplated hereby or thereby.
14.13 CONFIDENTIALITY AGREEMENTS. At the Closing, any
confidentiality agreements among Seller and Purchaser and any
representatives, advisors, lenders and others acting on behalf of Purchaser
shall terminate to the extent they involve information or documents related
exclusively to the Business or Assets, but shall remain in full force and
effect as to other information and documents. After the Closing Date, without
the prior written consent of the other, (a) Seller shall not, directly or
indirectly, use or provide to, and shall not permit any affiliate, directly
or indirectly, to use or provide any other person any non-public information
pertaining to the Business or the Assets, and (b) Purchaser shall not,
directly or indirectly, use or provide to, and shall not permit any
affiliate, directly or indirectly, to use or provide any other person any
non-public information concerning Seller, except to the extent such
non-public information pertains to the Business or the Assets. Purchaser or
Seller, as the case may be, may disclose such non-pubic information to the
extent required by law, provided that notice of the requirement for such
disclosure is given to the other prior to making any disclosure and the party
that is being compelled to make such disclosure cooperates as the other party
may
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reasonably request in resisting such disclosure; and further provided, that
Purchaser or Seller may disclose such non-public information to the extent
reasonably required in connection with a proceeding to enforce its rights
under this Agreement. Any provision contained herein to the contrary
notwithstanding, this Section 14.13 shall not limit the right of Purchaser
(or any successor or permitted assign) to provide any such non-public
information to its or their lenders, placement agents, underwriters or
advisors.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto on the date first hereinabove
written.
ASTRO-MED, INC.
By: /s/ Everett Pizutti
-----------------------------------
Everett Pizutti, President
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
By: /s/ E. P. Marinos
-----------------------------------
E. P. Marinos, President and
Chief Executive Officer
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MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT ("Agreement"), dated as of April 14th,
1997, by and between Arrhythmia Research Technology, Inc., a Delaware
corporation having an office and place of business at 5910 Courtyard Drive,
Suite 300, Austin, Texas 78731 ("ART") and Astro-Med, Inc., a Rhode Island
Corporation having an office and place of business at Astro-Med Industrial
Park, West Warwick, Rhode Island 02893 ("Astro-Med").
W I T N E S S E T H
WHEREAS, ART and Astro-Med have entered into an Asset Purchase
Agreement, dated as of the date hereof (the "Asset Purchase Agreement")
providing for the purchase of certain assets by ART from Astro-Med; and
WHEREAS, in connection with such purchase of assets, ART desires that
Astro-Med manufacture certain products for ART, on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. TERM AND TERMINATION. The term of this Agreement ("Term") shall
begin on the date hereof and shall continue until the close of business on
the third anniversary of the date hereof; provided, however, that ART on
sixty (60) days' prior written notice to Astro-Med, may terminate this
Agreement on the date of the first anniversary of this Agreement; and
provided further, that if at any time either party:
(a) shall be in breach of any material covenant, agreement, term,
provision or condition of this Agreement and shall not remedy such breach
within twenty days from its receipt of written notice from the other party
of such breach;
(b) shall be unable to materially perform any of its obligations
under this Agreement by reason of any cause beyond its reasonable control
pursuant to the Force Majeure provisions of Section 7 hereof for a
continuous period exceeding thirty (30) days; or
(c) shall file a voluntary or suffer the filing of an involuntary
petition in bankruptcy court seeking relief under any federal, state or
other statute or regulation, or have a trustee, receiver or liquidator
appointed for all or any substantial part of its assets, which remains
undismissed, unvacated or unstayed, as the case may be, for an aggregate of
sixty (60) days.
The other party shall have the right, at its sole election, in addition and
without prejudice to its other legal and equitable remedies, to terminate this
Agreement with immediate effect upon written notice to the other party.
Termination shall not relieve either party of any obligation to make payments
properly arising out of the performance by the other party of its obligations
under this Agreement.
In addition, if Astro-Med shall be unable to materially perform any of its
obligations under this Agreement by reason of any cause beyond its reasonable
control pursuant to the Force Majeure
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provisions of Section 7 hereof for a continuous period exceeding thirty (30)
days, ART shall have the right, at sole election, in addition and without
prejudice to its other legal and equitable remedies, to terminate this
Agreement with immediate effect upon written notice to Astr-Med. Termination
shall not relieve ART of any obligation to make payments properly arising out
of the performance by Astro-Med of its obligations under this Agreement.
The date on which this Agreement shall be terminated in accordance with the
provisions hereof shall hereinafter be referred to as the "Termination Date."
2. MANUFACTURING ARRANGEMENTS.
2.1 MANUFACTURE, SALE AND PURCHASE. During the Term of this
Agreement, Astro-Med shall manufacture and sell to ART and ART shall purchase
from Astro-Med the products ("Products") described in Exhibit A attached hereto
in such quantities, at such prices and under such terms as are set forth or
described herein.
2.2.2 Notwithstanding the provisions of Section 2.2, in the event
any revisions to the existing rules and regulations promulgated by the Food
and Drug Administration applicable to the manufacture and sale of the
Products, would, in Astro-Med's reasonable judgment, affect Astro-Med's cost
to manufacture and sell the products, the prices payable by ART for the
Products as set forth in Section 2.2 shall no longer apply. In such event,
the parties shall agree to appropriate revised pricing for the Products and
failing the mutual agreement of the parties on such matters, this Agreement
shall be immediately terminated.
2.2 PRICE. The prices payable by ART for the Products are set forth
on Exhibit B attached hereto. The Products will be prepared for shipment and
shipped to ART by Astro-Med, at Astro-Med's sole expense. However, if ART shall
direct Astro-Med to ship any such Products to the end-user of same, ART or said
end-user shall bear all costs associated with said shipment.
2.3 QUANTITIES. Astro-Med agrees to manufacture and sell to ART and
ART agrees to purchase from Astro-Med ART's requirements for the Products.
2.4 SPECIFICATIONS. All Products sold an purchased under this
Agreement shall meet and comply with the written specifications
("Specifications") therefor currently in effect and made available to ART by
Astro-Med. Astro-Med shall maintain accurate records and data for any quality
testing done by or for Astro-Med of any Products purchased by ART hereunder and
shall make such records and test data available to ART upon reasonable request.
ART shall have the right to conduct its own independent testing of such Products
at ART's expense. Any changes to the Specifications shall require the prior
written agreement of both Astro-Med and ART.
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2.5 TITLE AND RISK OF LOSS. Title to and risk of loss of Products
sold and purchased hereunder shall pass to ART from Astro-Med at the point of
shipment at Astro-Med's place of business in West Warwick, Rhode Island.
2.6 PAYMENT TERMS. Except to the extent that other payment terms are
set forth in written purchase orders covering the Products issued by ART and
accepted by Astro-Med hereunder, Astro-Med shall invoice ART for Products
shipped by Astro-Med under this Agreement upon shipment, and payment of the same
shall be made by ART on or before the sixtieth day following the date of each
invoice.
2.7 CHANGES IN SPECIFICATIONS. The parties will mutually establish
and periodically review improvement objectives for the Products. If the parties
mutually agree to changes in the Specifications for the Products, they also
shall mutually agree to price modifications (increases or decreases, whichever
the case may be) to the affected Products. At ART's request, Astro-Med will
substantiate conformance of the affected Products to the revised Specifications
therefor.
2.8 LEGAL COMPLIANCE. Astro-Med will comply with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges thereunder) in connection with the manufacture and
sale of the Products.
2.10 CERTAIN IMPROVEMENTS. Astro-Med has completed on or before
the date hereof the following improvements to the Products on behalf of ART:
(a) in order to incorporate the thermal dilution method of
valve calculations or shunt, Astro-Med has identified for
ART equipment to be purchased which will modify the
Products to include a cardiac output computer.
(b) Astro-Med has modified the Products in order to
eliminate the system failure created by activation of the
electrosurgical cautery instrument; and
(c) Astro-Med has identified for ART equipment to be
purchased which will modify the date storage component
of the Products.
3. INVENTORIES, NON-EXCLUSIVE LICENSE AND WORKING CAPITAL.
3.1 INVENTORIES. Contemporaneously with the execution and
delivery of this Agreement, ART is purchasing from Astro-Med all of
Astro-Med's Inventories, as that term is
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defined in the Asset Purchase Agreement, which Inventories have been
preliminarily valued, subject to adjustment, in accordance with generally
accepted accounting principles applied on a basis consistent with prior
periods. In accordance with the terms and subject to the conditions set
forth herein and as an accommodation to Astro-Med, ART agrees that Astro-Med
may retain possession of the Inventories and use and consume the Inventories
in the manufacture of the Products sold and purchased hereunder. In
consideration of the foregoing, Astro-Med agrees that:
(a) it will regularly restock, at its sole cost and expense, all
Inventories used and consumed in the manufacture of the Products sold
and purchased hereunder with component materials identical to those
included in the Inventories or, if such component materials shall no
longer be available, with component materials substantially similar
thereto (the Inventories, together with all component materials
restocked by Astro-Med following the use and consumption of the
Inventories in the Manufacture of the Products sold and purchased
hereunder, are referred to hereinafter collectively as the "Product
Materials");
(b) within the first two business days following the close of
each month during the Term (and on the last business day immediately
preceding the termination of this Agreement, should such day not be
the last business day of such a month), Astro-Med will conduct (and
allow representatives of ART to observe) a physical inventory of the
Product Materials then held by Astro-Med, wherever located and whether
in transit or otherwise, and will report in writing (the "Product
Materials Report") to ART, within five (5) business days of conducting
said inventory and in such detail as ART shall reasonably require,
information relating to the quantity and the value ("Inventory
Value"), which Inventory Value shall be determined in accordance with
the Valuation Principles, of such Product Materials; and
(c) if the sum of the (i) the Inventory value of the Product
Materials, as set forth in a Product Materials Report furnished to ART
pursuant to Section 3.1(b), above, plus (ii) the aggregate purchase
price ("Aggregate Purchase Price") reflected on all valid purchase
orders issued by Astro-Med to and accepted third-party vendors for
replacement Inventories then pending (copies of which purchase orders,
with evidence of acknowledgment thereof, shall accompany the
corresponding Product Materials Report), should at any time be less
than the value of the Inventories as of the Closing, as that term is
defined in the Asset Purchase Agreement, as finally determined in
accordance with the provisions of Section _____ thereof ("Final
Value") by an amount of $5,000 or more (the "Valuation Shortfall"),
ART may:
(i) treat such an occurrence as a breach of a material
covenant of this Agreement and, subject to compliance with the
notice and right to cure provisions set for in Section 1(a)
above, terminate this Agreement; or
(ii) apply the Valuation Shortfall against any unpaid
invoice issued by Astro-Med and payable by ART hereunder;
provided, however, that should ART elect to apply the Valuation
Shortfall in the manner described in this clause (ii), upon
Astro-Med's restocking of the Product Materials such that the
same have an Inventory Value, as set forth in a Product Materials
Report furnished to ART pursuant to Section 3.1(b) above, no less
than the Final Value, Astro-Med shall be entitled to receive from
ART, upon ten (10) days' written demand, the amount of any such
Valuation Shortfall so applied.
In determining whether there shall be a Valuation Shortfall, ART may require
Astro-Med to demonstrate its ability to pay the Aggregate Purchase Price as the
same becomes due, and if Astro-Med shall at any time be unable to demonstrate
such ability, the portion of the Aggregate Purchase Price that Astro-Med shall
be unable to pay as the same becomes due shall be excluded from the computation
of the Valuation Shortfall.
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(d) within ten (10) days following the Termination Date, Astro-Med, at
its sole cost and expense and without any consideration payable by ART
therefor, shall deliver or cause to be delivered to ART all Product Materials
then held by Astro-Med, which Product Materials shall have an Inventory
Value, as set forth in the final Product Materials Report furnished to ART
pursuant to Section 3.1(b), above, no less than the Final Value; provided,
however, that should the Product Materials so delivered to ART have an
Inventory Value less than the Final Value, any such deficiency shall be paid
by Astro-Med to ART, by wire transfer of immediately available funds, within
ten (10) days of the termination of this Agreement; and
(e) Astro-Med agrees that it will neither sell, transfer, assign, pledge,
hypothecate, encumber or otherwise dispose of any of the Product Materials
except as provided herein, nor represent the Product Materials as the property
of any person other than ART. Astro-Med further agrees that it will execute
and deliver to ART such Financing Statements on Form UCC-1 or such other
instruments as ART shall reasonably require evidencing ART's ownership of the
Product Materials.
3.2 NON-EXCLUSIVE LICENSE. Astro-Med and ART acknowledge and
agree that ART has purchased from Astro-Med all of the Intellectual Property
Rights, as that term is defined in the Asset Purchase Agreement, used in or
associated with the manufacture, marketing and sale of the Products and,
consequently, absent the permission of ART, Astro-Med would not be permitted
to manufacture, market or sell the Products. ART hereby grants to Astro-Med
a non-exclusive license, which license shall terminate upon the termination
ofd this Agreement to manufacture, market and sell the Products in accordance
with and for the limited purposes set forth in this Agreement and to fulfill
Astro-Med's existing warranty obligations to customers as specified in
Exhibit C hereto. In consideration of such license, Astro-Med agrees that it
will not manufacture the Products (or any products capable of performing
functions similar to those of the Products) for, or sell any Products (or any
Products capable to performing functions similar to those of the Products) to
, any person other than ART (or other than any person designated in writing
from time to time by ART); provided, however, that Astro-Med shall not be
prohibited from manufacturing for, or selling products capable of performing
functions similar to those of the Products, to any one after the termination
of this Agreement, so long as such products do not infringe the intellectual
property rights of ART.
Each party hereto acknowledges that a remedy at law for any breach or
attempted breach of this Section 3.2 will be inadequate, agrees that the
other party hereto shall be entitled to specific performance and injunctive
and other equitable relief in case of any such breach or attempted breach.
3.3 WORKING CAPITAL. In the event ART shall, by written purchase
order, request Astro-Med to manufacture any Products in quantities that would
require an increase in the value of the Product Materials in excess of the Final
Value of the Inventories held by Astro-Med at the Closing, Astro-Med's
acceptance of any such purchase order may be made conditional upon the
requirement that ART prepay, in part or full, the purchase price for any such
Products.
4. EQUIPMENT LEASE ARRANGEMENTS.
4.1 EQUIPMENT LEASE. In accordance with the terms and subject to
the conditions set forth herein, ART hereby leases to Astro-Med and Astro-Med
hereby leases from ART the equipment described on Exhibit D hereto
("Equipment"). Astro-Med agrees to pay ART during the Term, without any
set-off or deduction whatsoever, lease rentals in the amount of $10.00 ("Base
Rental") per month, and all such other sums of money as shall become due
hereunder. Except as otherwise provided, the Base Rental shall be due and
payable in advance in twelve equal installments on the first day of each
calendar month during the Lease Term, and Astro-Med hereby agrees to pay such
Base Rental at ART's address provided herein monthly in advance without
demand.
4.2 REPAIRS; USE; ALTERATIONS. Astro-Med, at its own cost and
expense, shall keep the Equipment in good repair and shall not alter the
Equipment without ART's prior written consent.
4.3 SURRENDER. Unless this Agreement is extended to a later date
under any other term or provision hereof, on the Termination Date, Astro-Med, at
its expense, shall return the Equipment by delivering it in the same condition
as when delivered to Astro-Med,
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reasonable wear and tear excepted, to such place or on board such carrier,
packed for shipping, as ART may specify.
4.4 LOSS OR DAMAGE. Astro-Med shall bear the entire risk of loss,
theft, destruction or damage of Equipment or any item thereof (herein "Loss
or Damage"), from any cause whatsoever. No Loss or Damage shall relieve
Astro-Med of any obligation under this Agreement. In the event of Loss or
Damage, Astro-Med, at its option, shall (a) place the same in good condition
and repair, or (b) replace the same with like equipment in good condition and
repair with clear title thereto in ART.
4.5 TAXES; LIENS. As directed by ART, Astro-Med shall pay all
charges and taxes (local, state and federal) that may now or hereafter be
imposed or levied upon the sale, purchase, ownership, leasing, possession or
use of the Equipment, excluding, however, all taxes on or measured by ART's
net income. Astro-Med shall keep the Equipment free and clear of, and shall
discharge, at its sole expense, any and all levies, liens and encumbrances
that may be imposed thereon as a result of Astro-Med's possession or use of
the same.
4.6 ART'S PAYMENT. If Astro-Med fails to pay said charges and
taxes, or to discharge said levies, liens and encumbrances, ART shall have
the right, but not the obligation, to pay such charges and taxes, or to
effect such discharge. In any such event, Astro-Med shall promptly repay to
ART the cost thereof.
4.7 ASSIGNMENT; OWNERSHIP; PERSONAL PROPERTY. Without ART's prior
written consent, Astro-Med shall not (a) assign, transfer, pledge,
hypothecate or otherwise dispose of the Equipment, or any interest therein,
or (b) sublet or lend the Equipment or permit it to be used by anyone other
than Astro-Med or Astro-Med's employees. The Equipment is and shall at all
times remain the property of ART, and Astro-Med shall have no right, title or
interest therein or thereto except as expressly set forth in this Agreement.
The Equipment is, and shall at all times be and remain, personal property
notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner affixed or attached to real property or any
improvements thereon. The parties hereto agree that, for Federal income tax
purposes, ART shall be treated as the owner of the Equipment and Astro-Med
shall be treated as the lessee thereof. Astro-Med agrees that it will execute
and deliver to ART such Financing Statements on Form UCC-1 or such other
instruments as ART shall reasonably require evidencing ART's ownership of the
Equipment.
5. REPRESENTATIONS AND WARRANTIES.
5.1 TITLE TO PRODUCTS. Astro-Med hereby represents and warrants to
ART that title to the Products to be sold and conveyed to ART hereunder shall be
good, clear and marketable, subject to no liens, security interests or other
encumbrances of any kind, except for a purchase money security interest in
favor of Astro-Med as permitted by applicable law to secure payment to Astro-Med
of the purchase price for such Products.
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5.2 STATUTORY COMPLIANCE OF PRODUCTS. Astro-Med hereby represents
and warrants to ART that the Products will comply with all pertinent
provisions of the Federal Food, Drug and Cosmetic Act (as amended from time
to time), and with all rules and regulations promulgated by the Food and Drug
Administration applicable to the manufacture and sale by Astro-Med to ART of
the Products, in all material respects.
5.3 REPAIR AND REPLACEMENT. Astro-Med hereby represents and
warrants that the Products will be manufactured in accordance with the
applicable Specifications and that the Products will, when delivered, be free
of defects in workmanship or material. If any failure to conform to this
warranty becomes apparent within twelve months after delivery, Astro-Med
shall, upon prompt written notice and compliance by ART with such
instructions as it shall give with respect to the return of the defective
Product or parts, correct such non-conformity by replacing the defective
Product or parts or refunding the purchase price paid by ART therefor.
6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY ASTRO-MED. Astro-Med hereby agrees to
indemnify, save and hold harmless ART and its direct and indirect
subsidiaries and its and their successors and permitted assigns and all of
their respective officers, directors, stockholders, agents, attorneys,
representatives and employees (collectively, the "ART Indemnified Parties")
from and against any and all damages, liabilities, losses, assessments,
charges or costs (including attorneys' fees and court costs) (collectively,
the "Damages") arising from, out of or in any manner connected with (a) the
breach of, or the failure to perform or satisfy any of, the representations,
warranties, covenants or agreements made by Astro-Med in or under this
Agreement, and (b) any liability to any party directly or indirectly from the
operations carried on by or on behalf of Astro-Med in connection with the
manufacturing and sale of the Products, including, without limitation, any
liability to any party arising from or relating to any theory of product
liability covering the manufacturing, sale, introduction into commerce or use
of the Products which fail to comply with the Specifications prior to the
time risk of loss has passed to ART, except to the extent, in each case, that
such Damages are subject to section 6.2 hereinbelow.
6.2 INDEMNIFICATION BY ART. ART hereby agrees to indemnify, save
and hold harmless Astro-Med and its successors and all of their respective
permitted assigns and their officers, directors, stockholders, agents,
attorneys, representatives and employees (collectively, the "Astro-Med
Indemnified Parties") from and against any Damages arising from, out of or in
any manner connected with (a) the breach of, or the failure to perform or
satisfy any of, the representations, warranties, covenants, or agreements
made by ART in or under this Agreement, or (b) any liability to any party
whether incurred under statute or contract or in tort arising from or
relating to any theory of product liability covering the manufacture, sale,
introduction into commerce or use of the Products that comply with the
Specifications on and after the time the risk of loss has passed to ART,
except and to the extent, in each case , that such Damages are also subject
to Section 6.1, above.
6.3 CLAIMS; THIRD PARTY ACTIONS. ART and Astro-Med each agree
that promptly after any of its officers becomes aware of the discovery of
facts giving rise to a claim by it for indemnification hereunder ("Claim"),
such party will provide notice thereof in writing to the other party. The
failure of either party to so notify the other party of a Claim shall relieve
the other party from any liability in respect of such Claim to the extent
such other party is prejudiced by the failure to receive timely notice. For
purposes of
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this Section 6.3, receipt by a party of notice of any demand, assertion,
claim, action, or proceeding (judicial, administrative or otherwise) by or
from any person or entity (other than the other party to this Agreement) or
governmental authority ("Third Party Action") which may give rise to a Claim
on behalf of such party shall constitute the discovery of facts giving rise
to a Claim by it and shall require prompt notice of the receipt of such
matter as provided in the first sentence of this Section 6.3. Any notice
pursuant to this Section 6.3 shall set forth all information respecting the
Claim and the Third Party Action, if any, as such party shall then have and
shall contain a statement to the effect that the party giving the notice is
making a Claim pursuant to and formal demand for indemnification under this
Section 6.
6.4 INDEMNIFYING PARTY; INDEMNIFIED PARTY. For purposes of this
Section 6, the term "Indemnifying Party" as to a particular Claim or Third
Party Action shall mean the party having or which is held to have an
obligation to indemnify the other party with respect to such Claim or Third
Party Action pursuant to this Section 6, and the term "Indemnified Party" as
to a particular Claim or Third Party Action shall mean the party having or
which is held to have the right to be indemnified with respect to such Claim
or Third Party Action by the other party pursuant to this Section 6.
6.5 DEFENSE OF THIRD PARTY CLAIMS. Except as otherwise expressly
provided herein, Indemnifying Party shall be entitled at its cost and expense
to contest and defend by all appropriate legal proceedings in connection with
any Third Party Action with respect to which it is called upon to indemnify
Indemnified Party under the provisions of this Agreement; provided, however,
that with respect to any Claim arising from the assertion of any Third Party
Action, notice of the intention so to contest shall be delivered by
Indemnifying Party to Indemnified Party within twenty (20) days from the date
of receipt by Indemnifying Party of notice from Indemnified of the assertion
of the Third Party Action. Any such contest with respect to a Third Party
Action may be conducted in the name and on behalf of Indemnifying Party or
the Indemnified Party, as appropriate. Except as otherwise expressly
provided herein, such contest shall be conducted by attorneys employed by
Indemnifying Party, but Indemnified Party shall have the right to participate
in such proceedings and to be represented by attorneys of its own choosing at
its cost and expense. If after notice as provided for herein, Indemnifying
Party does not elect to contest any Third Party Action as provided in this
Section 6.5, Indemnifying Party shall be bound by the result obtained with
respect thereto by Indemnified Party and the Indemnified Party may (but shall
have no obligation to) contest any such Third Party Action or settle or admit
liability with respect thereto, all for the account of Indemnifying Party.
At any time after the commencement of defense of any such Third Party Action,
Indemnifying Party may request Indemnified Party to agree in writing to the
abandonment of such contest or the payment or compromise by Indemnifying
Party of the asserted Third Party Action whereupon such action shall be taken
unless Indemnified Party so determines that the contest should be continued,
and so notifies Indemnifying Party in writing within fifteen (15) days of
such request from Indemnifying Party. In the event that Indemnified Party
determines that the contest should be continued, Indemnifying Party shall be
liable with respect to such Third Party Action only to the extent of the
lesser of (i) the amount which the third party taking the Third Party Action
had agreed to accept in payment or compromise as of the time Indemnifying
Party made its request therefor to
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Indemnified Party, or (ii) such amount for which Indemnifying Party may be
liable with respect to such Claim by reason of the provisions hereof.
6.6 COOPERATION. If requested by Indemnifying Party, Indemnified
Party agrees to cooperate with Indemnifying Party and its counsel in
contesting any Third Party Action which Indemnifying Party elects to contest
or, if appropriate, in making any counterclaim against the third party taking
the Third Party Action, or any cross-complaint against any other person or
entity not a party hereto, but Indemnifying Party will reimburse Indemnified
Party for any expenses incurred by it in so cooperating. Indemnifying Party
agrees to cooperate with Indemnified Party with respect to any request by the
latter to maintain its relationship with a person or entity taking Third
Party Action; provided, however, that Indemnifying Party shall not be obliged
to take or forego any action if to do so would in Indemnifying Party's sole
judgment prejudice its interests. Indemnified Party agrees to afford
Indemnifying Party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons or entities, including
governmental authorities, taking Third Party Action against Indemnified Party
or conferences with representatives of or counsel for such persons or
entities.
6.7 PAYMENT OF DAMAGES. Indemnifying Party shall pay to
Indemnified Party, upon demand, the amount of any Damages to which
Indemnified Party may become entitled by reason of the provisions of this
Section 6.
7. FORCE MAJEURE.
7.1 FAILURE OR DELAY IN PERFORMANCE. Neither Astro-Med on one
hand, nor ART on the other, shall be liable to the other party for failure or
delay in performance to the extent that performance hereunder is prevented by
Force Majeure, which is herein defined to include but not be limited to war
(whether declared or undeclared), fire, flood, lightning, earthquake, storm,
or any act of God; strikes, lockouts, or other labor difficulties; civil
disturbances, riot, or sabotage; accidents, explosions, breakages, freezing
or partial or entire failure of machines, equipment, pipelines, or other
property; any official order, directive or industry-wide request or
suggestion by any governmental authority or instrumentality thereof which, in
the reasonable judgment of the party affected, makes it necessary to cease or
reduce production; any disruption or breakdown of labor; any inability to
secure necessary fuel, power, equipment, transportation, or raw materials,
including inability to secure such items by reason of allocations promulgated
by authorized governmental agencies; or any other contingency, whether
similar or dissimilar to the foregoing, beyond the reasonable control of the
affected party which prevents performance hereunder.
7.2 SUSPENSION OF PERFORMANCE. Performance under this Agreement
shall be suspended during the period of such Force Majeure to the extent
permitted thereby; provided, however, that the settlement of strikes,
lockouts, industrial disputes, or disturbances shall be entirely within the
discretion of the party so settling to accede to the demands of any opposing
party.
7.3 NO EXTENSION; RESUMPTION OF PERFORMANCE. No curtailment,
suspension or acceptance of performance pursuant to this Section 7 shall
operate to extend the Term of or, except as provided in Section 1(b), above,
to terminate this Agreement. Performance under this
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Agreement shall resume to the extent made possible by the end of amelioration
of the Force Majeure event.
7.4 NOTICE OF FORCE MAJEURE EVENT. Upon the occurrence of any event
of Force Majeure, the party claiming Force Majeure shall notify the other party
promptly in writing of such event and, to the extent possible, inform the other
party of the expected duration of the Force Majeure event and the performance to
be affected by the suspension or curtailment.
8. INSURANCE. Throughout the term of this Agreement, Astro-Med, at its
sole cost and expense, shall maintain:
(a) workers' compensation and employer's liability insurance
required by law on the employees of Astro-Med and all of its
subsidiaries, if any, engaged in performing services under this
Agreement;
(b) general and public liability insurance, together with
products liability insurance, for the benefit of and payable to ART as
its interest may appear, against loss or damage on account of
liability which may be imposed against Astro-Med or ART, or both of
them, in connection with the sale by ART of the Products or the use by
Astro-Med of the Equipment, having a face value of not less than one
million dollars ($1,000,000); and
(c) property insurance against the loss or theft of or damage to
the Equipment, for the full replacement value thereof, with loss
payable to ART as its interest may appear.
Such policies shall (i) be effected with one or more insurers reasonably
acceptable to ART, (ii) contain a provision that they may not be canceled
without at least 30 days' prior notice to ART, (iii) cover, in perpetuity,
any covered claims which may at any time be brought so long as they occurred
in connection with the sale of the Products or the use of the Equipment and
were made at any time during the period when such insurance was in effect,
and (iv) shall have such other terms and conditions, deductible limits,
coverages, exclusions and the like which are reasonable acceptable to ART.
Astro-Med has, contemporaneously with the execution of this Agreement,
delivered to ART a true and complete copy of the policies of insurance
currently maintained by it as well as a binder for such insurance showing
that it is in full force and effect and shall, from time to time, furnish ART
with all changes to the terms of said policies of insurance which Astro-Med
desires to effect. In the event Astro-Med shall fail to maintain the
insurance coverages specified in this Section 8, ART shall have the right,
but not the obligation, to obtain such insurance coverages. In any such
event, Astro-Med shall promptly repay to ART the cost thereof.
9. CONFIDENTIALITY. Except as otherwise required under applicable law
or the Asset Purchase Agreement, Astro-Med and ART agree to maintain as
confidential and not to disclose to any third party or use in any manner
adverse to the other party any and all information provided by one party to
the other or otherwise obtained by one party from the other party in the
performance of this Agreement.
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10. MISCELLANEOUS.
10.1 NOTICE. Any notice required or permitted to be given under
this Agreement shall be in writing, and shall be deemed sufficiently given
when delivered in person or transmitted by telex, or when actually received
when sent by certified, registered or express mail, postage prepaid, to the
addresses given below or sent by telecopy to the telecopier numbers set forth
below.
Astro-Med: Astro-Med, Inc.
Astro-Med Industrial Park
West Warwick, Rhode Island
ATTN: Everett Pizutti, President
ART: Arrhythmia Research Technology, Inc.
5910 Courtyard Drive, Suite 300
Austin, Texas 78731
ATTN: E. P. Marinos, President and CEO
Either party hereto may change its address for the purpose of notice
hereunder by giving written notice of such change of address to the other
party in the manner specified herein. To the extent any notice provision in
any other agreement, instrument or document required to be executed or
contemplated herein contains a notice provision that is different from the
notice provision contained in this Section 10.1 with respect to matters
arising under such other agreement, instrument or document, the notice
provision in such other agreement, instrument or document shall control.
10.2 AUDITS. ART shall have the right to cause the books, records and
accounts that shall be maintained by Astro-Med in connection with the
quantity and value of its Product Materials to be audited by a mutually
acceptable independent public accounting firm for purposes of verifying or
confirming the accuracy of any information set forth in any Product Materials
Report furnished to ART hereunder. Any such audits shall be conducted during
normal business hours and at the sole expense of ART.
10.3 CONTROLLING LAW AND JURISDICTION. THE VALIDITY, INTERPRETATION
AND PERFORMANCE OF THIS AGREEMENT AND ANY DISPUTE CONNECTED HEREWITH SHALL BE
GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
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10.4 ENTIRE AGREEMENT. The parties intend that the terms of this
Agreement shall constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all prior negotiations,
undertakings, representations and agreements of the parties hereto.
10.5 AMENDMENT AND WAIVERS. This Agreement may not be amended
except upon the written consent of the parties hereto. By an instrument in
writing, either party may waive compliance by the other party with any term
or provision of this Agreement that the other party was or is obligated to
comply with or perform; provided, however, that such waiver shall not operate
s a waiver of, or estoppel with respect to, any other or subsequent failure.
No failure to exercise and no delay in exercising any right, remedy or power
hereunder shall operate as a waiver thereof, nor shall any partial exercise
of any right, remedy or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy or power provided
herein or by law or in equity.
10.6 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.
10.7 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall constitute one and the same instrument.
10.8 FURTHER ASSURANCES. Subject to the terms and conditions
hereof, each party agrees to use its best efforts to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement as
expeditiously as practicable, including, without limitation, the performance
of such further acts or the execution and delivery of any additional
instruments or documents as any party may reasonably request in order to
carry out the purposes of this Agreement and the transactions contemplated
hereby.
10.9 ASSIGNMENT. No party shall assign this Agreement in whole
or in part without the prior written consent of the other party, which
consent shall not be unreasonably withheld. Any assignment made or attempted
in violation of this Section 10.9 shall be void and of no effect. Subject to
the foregoing, this Agreement shall be binding on ART and Astro-Med and their
respective legal representatives, successors and permitted assigns.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ASTRO-MED, INC.
By: /s/ Everett Pizutti
-------------------------------
Everett Pizutti, President
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
By: /s/ E. P. Marinos
-------------------------------
E. P. Marinos, President and CEO
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EXHIBIT A
PRODUCTS
K3 Level I and Level II Systems
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EXHIBIT B
PRICING
$19,819.59 for the K3 Level I System and $20,819.59 for the K3 Level II
System, subject to adjustment per Section 3.1 of this Agreement. The
foregoing pricing is exclusive of the costs associated with obtaining and
integrating the hemodynamic analysis package which ART will be licensing from
Softheart, Inc.
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EXHIBIT C
EXISTING ASTRO-MED CUSTOMERS UNDER WARRANTY
1. Pomona Valley Hospital, Pomona, California
2. McMinnville Hospital, McMinnville, Oregon
3. Veterans Administration Hospital, Albuquerque, New Mexico
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EXHIBIT D
EQUIPMENT
The "Equipment" purchased from Astor-Med by ART pursuant to the Asset
Purchase Agreement.
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SOFTWARE CONVERSION AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of April, 1997,
by and between Arrhythmia Research Technology, Inc., a Delaware corporation
having an office and place of business at 5910 Courtyard Drive, Suite 300,
Austin, Texas 78731 (hereinafter "ART") and Softheart, Inc., a Vermont
corporation having an office and place of business at 147 Clark Road,
Charlotte, Vermont 05445 (hereinafter "Softheart").
WHEREAS, ART is the exclusive licensee, pursuant to a License Agreement
with Softheart of even date herewith (the "License Agreement"), of certain
existing software which operates under the DOS operating system, for cardiac
catheterization laboratory signal acquisition from a patient, data analysis
and storage; and
WHEREAS, Softheart agrees to upgrade the existing software known as the
K-3 System Software (Version 3.0) by converting it to run under the
Windows-TM- NT or 95 operating system.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings hereinafter defined:
1.1 "EXISTING SOFTWARE" shall mean the software and documentation
of the current K-3 System Software (Version 3.0).
1.2 "WINDOWS UPGRADE" shall mean the Existing Software (except the
On-Line Cath Lab Analysis Computer Program without modifications, to be sold
as an "add-on" product) upgraded to operate under the Windows NT or 95
operating system, recognizing that there will be differences in program
interfaces and flow because of opportunities provided by and limitations of
the Windows environment, and because of mutually agreed upon changes, which
may include but are not necessarily limited to, changing program flow to
facilitate ease of use, providing access to patient data by using standard
Access-TM- database structures, and providing flexible program structures
that allow integration of future enhancements and product developments.
2. DUTIES OF SOFTHEART.
2.1 Softheart shall modify the Existing Software to create the
Windows Upgrade in accordance with the timetable and milestones for
performance as set forth in Schedule A attached hereto and made a part
hereof. The Windows Upgrade shall be subject to ART's acceptance as set
forth in Paragraph 3.2 below.
2.2 Softheart shall correct any deliverables rejected as set forth
in
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Paragraph 3.2 and resubmit the same to ART within sixty (60) days after
rejection for ART's acceptance as provided in Paragraph 3.2 below. If
Softheart fails to cure as set forth in Paragraph 3.2 hereof, Softheart shall
be deemed to have breached a material provision of this Agreement.
3. DUTIES OF ART.
3.1 ART shall identify a Beta test hospital, negotiate the
financial arrangements, and provide and install the equipment required to
test the Windows Upgrade. ART shall pay Softheart's reasonable and necessary
out-of-pocket expenses in connection with any travel which may be required to
and from the test site during the Beta test phase of the software development.
3.2 ART shall promptly accept or reject the Windows Upgrade and
all deliverables and tasks. If, within thirty (30) days of receipt of the
Windows Upgrade and all deliverables and tasks, ART determines that the
Windows Upgrade and all deliverables and tasks do not substantially comply
with the Specifications set forth in Paragraph 1.2, ART may return the
Windows Upgrade and all deliverables and tasks with a report detailing the
reasons for its unacceptability. Softheart shall have a period of sixty (60)
days within which to cure any such non-compliance with the Specifications as
described in Paragraph 1.2. The Windows Upgrade and all deliverables and
tasks shall be deemed to be accepted by ART if (i) a system is sold with the
upgraded software, or (ii) ART fails to reject the upgrade within thirty (30)
days of receipt of the Windows Upgrade and all deliverables and tasks or any
cure provided for hereunder.
4. PROPRIETARY RIGHTS
ART acknowledges and agrees that the Windows Upgrade embodies and
constitutes valuable proprietary information and trade secrets of Softheart.
ART agrees that this Agreement in no way confers title, ownership, or
proprietary rights in the Windows Upgrade to ART, and that all such title,
ownership and proprietary rights belong to and shall remain with Softheart.
Softheart shall be obligated to obtain such copyrights, patents, and
trademarks as are necessary at its sole expense.
5. COMPENSATION.
5.1 ART shall advance to Softheart One Hundred Forty-Five Thousand
and No/100 Dollars ($145,000), payable as follows:
(a) Thirty Thousand Seven Hundred Twenty-Five and No/100 Dollars
($30,725) upon execution of this Agreement; and
(b) Six Thousand Seven Hundred Twenty-Five Dollars ($6,725) on
the last day of the month next succeeding the execution of this Agreement
and on the
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last day of the next sixteen (16) months following such next succeeding
month. The seventeen monthly payments shall be subject to the provisions
of Paragraph 3 of Exhibit B of the License Agreement.
5.2 For travel required as set forth herein, or as otherwise
requested by ART, ART will pay for the reasonable and actual costs of travel
and living accommodations of Softheart's employees and/or consultants in
accordance with ART's then applicable expense reimbursement policies for
corporate officers.
5.3 All amounts due and payable to Softheart hereunder shall be
inclusive of all applicable taxes.
6. FDA AUTHORIZATION.
6.1 Softheart shall have full responsibility for obtaining FDA
510(k) authorization for the use of the Windows Upgrade as part of or in
connection with ART products, if necessary. It is presently contemplated
that a "letter to file" and the associated documentation will be adequate to
retain the current FDA authorization. However, in the event that a new
510(k) becomes necessary, Softheart will prepare the application and provide
whatever further information the FDA may require. All out-of-pocket expenses
shall be paid or reimbursed by ART upon presentation of adequate
documentation. To the extent that FDA compliance requires a commitment of
time by Softheart beyond that which is necessary for 510(k) authorization,
the parties shall negotiate a new fee arrangement for the FDA aspect of this
Agreement only and ART shall be entitled to recoup its fees and expenses at
the rate of $2,000 per unit for products sold, other than Coronary Reporting
and Inventory programs, as provided in Paragraph 3 of Exhibit B of the
License Agreement.
6.2 Softheart shall indemnify ART to the extent described in this
Paragraph 6.2 for any and all liability, loss, expenses (including, but not
limited to, attorneys' fees), actions or damages of any kind or nature
incurred by ART as a result of any claim or proceeding against ART by any
person not a party to this Agreement or any governmental authority (including
the FDA) which claim or proceeding is based in whole or in part on an
allegation that the use of the Windows Upgrade violates the Medical Device
Amendments to the Food, Drug and Cosmetic Act, or any rules, regulations or
orders promulgated or issued thereunder, but only to the extent that such
claim or proceeding is based on a finding by the FDA that the sale or
marketing of the Windows Upgrade violates such Medical Device Amendments;
provided ART promptly notifies Softheart of any such claim or proceeding in
writing and gives Softheart the opportunity to defend or settle any such
claim or proceeding. If Softheart successfully defends or settles such
claim, it shall have no further liability under this Paragraph 6.2. To the
extent that such third-party liability is not based on Softheart's
negligence, willful misfeasance or willful malfeasance, ART's remedies shall
be limited to terminating this Agreement as provided in Paragraph 9.1(b)
below or obtaining access to the Source Code as set forth in Paragraph 11
hereof.
7. WARRANTY.
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7.1 Softheart warrants and represents that:
(a) The Windows Upgrade meets or will meet the specifications of
Paragraph 1.2 of this Agreement. The Windows Upgrade runs or will run on
the PC operating under the current version of Windows NT or 95; and there
are or will be no substantial errors, malfunctions or defects in the
Windows Upgrade or any portion thereof.
(b) The Windows Upgrade and all portions of the foregoing are or
will be created solely by Softheart pursuant to this Agreement.
(c) The Windows Upgrade and all portions thereof do not or will
not infringe any patents, copyrights, trade secrets, or other proprietary
rights of any third parties, and Softheart has or will have no reason to
believe that any such infringement exists or claims thereof can be made by
third parties.
(d) Softheart has the right to enter into this Agreement, to
grant to ART the rights and licenses set forth herein, and to perform all
other obligations of this Agreement.
7.2 If Softheart is in breach of any warranty or representation
hereunder, Softheart shall return to ART the Existing Software and all monies
paid to Softheart hereunder.
8. CONFIDENTIALITY.
8.1 All information, documentation, and software, including the
Existing Software, Windows Upgrade and all portions thereof shall be held in
confidence by Softheart and may not be used by Softheart (other than for
performance of services hereunder) nor disclosed to third parties without the
prior written consent of ART; provided, however, that nothing contained
herein shall prevent or prohibit Softheart from using any subroutines or
portions of the Windows Upgrade and incorporating them into any software or
products so long as said software or products do not become the functional
equivalent of the Windows Upgrade.
8.2 The terms and conditions of this Agreement may not be
disclosed or made available by either party hereto to third parties without
the prior written consent of the other party. However, nothing contained
herein shall prevent either party from complying with applicable law,
regulation, or court order.
9. TERMINATION AND CANCELLATION.
9.1 This Agreement may be terminated/canceled upon the occurrence
of one or more of the following events, and the terminating/canceling party
shall not be liable to the other party for the rightful exercise of its right
of termination/cancellation:
(a) By either party if the other party seeks protection under
the
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bankruptcy laws (other than as a creditor), or makes any assignment for
the benefit of creditors, or a trustee is appointed for all or any portion
of such party's assets; or
(b) By either party if the other party is in default of any
material provision of this Agreement and such default is not cured within
thirty (30) days after receipt of written notice of default by such other
party.
9.2 If this Agreement is terminated/canceled by ART pursuant to
Paragraph 9.1, all amounts paid to Softheart pursuant to Paragraph 5.1, if
any, shall be recouped by ART pursuant to the provisions of Paragraph 3 of
Exhibit B of the License Agreement. ART shall further be entitled to recoup
all subsequent development costs, up to $175,000 when aggregated with the
amounts previously paid pursuant to Paragraph 5.1. If this Agreement is
terminated/canceled by Softheart pursuant to Paragraph 9.1, then Softheart
shall be entitled to retain all amounts previously paid by ART.
10. INDEMNITIES.
10.1 Softheart shall indemnify and hold harmless ART and its
customers against any claims that the Windows Upgrade, or any portion
thereof, infringes any patent, copyright, trade secret, or other proprietary
right and shall defend and/or settle any cause of action related thereto. If
ART and/or its customers are enjoined from exercising any rights and licenses
granted hereunder, Softheart shall obtain for ART and its customers the right
to continue to exercise such rights and licenses at no cost to ART or its
customers.
10.2 Softheart shall indemnify and hold ART harmless against any
and all liability for personal injury and property damage arising out of or
related to the performance of this Agreement by Softheart or its employees,
agents, or representatives. This Paragraph 10.2 does not relate to the
performance or non-performance of the Windows Upgrade.
10.3 In the event of any claim hereunder with respect to the
Windows Upgrade which has been delivered to and accepted by ART in accordance
with Paragraph 3.2 hereof, Section 18 of the License Agreement shall control.
11. SOURCE CODE.
Provided ART is not in material breach of this Agreement, Softheart
shall deliver to ART a machine readable form of the Source Code for the
Windows Upgrade, as well as any enhancements, updates and corrections and, to
the extent Softheart develops such materials in the ordinary course of its
business, all related documentation (such as descriptions of the general
program, architecture, module design specifications and FDA applications when
applicable) and all instructions reasonably necessary to permit a skilled
programmer to support, enhance and modify the Windows Upgrade, if (i)
Softheart fails in a material respect to perform in accordance with the
timetable and milestones set forth in Schedule A, and does not provide
reasonable efforts to cure such failure within sixty (60) days after notice
thereof; (ii) Softheart makes the source code generally available to any
other party; (iii) Softheart ceases doing business for any reason; (iv)
Softheart commits any
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act of bankruptcy (except for a Chapter 11 proceeding) within the meaning of
the Federal Bankruptcy Laws; or if bankruptcy (except for a Chapter 11
Proceeding), receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceedings shall be instituted by or against
Softheart; or if a bankruptcy proceeding is converted into a Chapter 7
proceeding; or (v) Softheart fails to correct any substantial error in the
Windows Upgrade and does not cure such failure within sixty (60) days after
notice thereof as provided in Paragraph 3.2 hereof. In the event ART
receives the source code in the manner provided hereunder, ART shall have,
subject to all the terms and conditions of this Agreement, a fully paid-up
license to use and modify the Source Code, subject to the terms of this
Agreement, solely for purposes of completing, maintaining, operating and/or
upgrading the Windows Upgrade.
12. ASSIGNMENT. This Agreement and all rights or obligations of
Softheart hereunder may not be assigned, subcontracted, or transferred by
Softheart without the prior written consent of ART, which consent will not be
unreasonably withheld.
13. NOTICES. All notices required to be given pursuant to this
Agreement shall be deemed given when actually delivered, if delivered in
person, or three days after being deposited in the United States mail,
certified mail/return receipt requested, postage prepaid and addressed to the
receiving party as follows:
For Softheart: Softheart, Inc.
147 Clark Road
Charlotte, Vermont 05445
ATTN: President
For ART: Arrhythmia Research Technology, Inc.
5910 Courtyard Drive, Suite 300
Austin, Texas 78731
ATTN: President
14. ENTIRE AGREEMENT. This Agreement is the entire agreement between
the parties relating to the subject matter hereof and supersedes all prior
agreements, proposals, representations, and commitments. This Agreement may
be amended only by an instrument executed by the authorized representatives
of both parties hereto.
15. GOVERNING LAW. This Agreement shall be interpreted in its entirety
in accordance with the substantive laws of the State of Texas without
reference to any conflicts of law.
16. ARBITRATION. ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE
SUBJECT TO BINDING ARBITRATION PURSUANT TO THE RULES THEN OBTAINING OF THE
AMERICAN ARBITRATION ASSOCIATION IN PITTSBURGH, PENNSYLVANIA AND JUDGMENT ON
THE AWARD RENDERED MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives and have caused this Agreement to
become effective as of the date first above written.
SOFTHEART, INC.
By:
-----------------------------------
Roy Ditchey, M.D., President
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
By:
-----------------------------------
E. P. Marinos, President and CEO
software agreement
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LICENSE AGREEMENT
AGREEMENT, dated April 21, 1997, by and between Arrhythmia Research
Technology, Inc., a Delaware corporation having an office and place of
business at 5910 Courtyard Drive, Suite 300, Austin, Texas 78731 (hereinafter
referred to as "ART") and Softheart, Inc., a Vermont corporation having an
office and place of business at 147 Clark Road, Charlotte, Vermont 05445
(hereinafter referred to as "Softheart").
WHEREAS, Softheart is the developer and the owner of all rights
(including all patents and copyrights) in and to certain software for
catheterization laboratory recording or signal acquisition from a patient; and
WHEREAS, ART develops, manufactures and markets hardware, firmware and
software for products sold as medical devices under authorization of the
United States Food and Drug Administration (the "FDA"); and
WHEREAS, ART desires an exclusive license to sell Softheart's software
in ART's products under Softheart's authorization from the FDA pursuant to
Section 510(k) of the Medical Device Amendments to the Food Drug and Cosmetic
Act; and ART desires to reproduce and distribute such software to third
parties in binary machine-readable form for use in ART's products.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
hereinafter defined:
1.1 "AFFILIATE" means with respect to either party, any company,
individual, corporation, partnership, association, or business that
now or hereafter directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with such party. The term "control" including the terms
"controlling," "controlled by," and "under common control with" means
the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a person or entity,
whether through the ownership of voting shares, by contract or
otherwise.
1.2 "ART EQUIPMENT" means equipment manufactured, supplied or sold from
time to time by ART suitable for catheterization laboratory recording
or signal acquisition from a patient.
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1.3 "BASIC SOFTWARE PACKAGE" means a sublicense granted by ART to a
Permitted End User allowing such end user the right to use one copy of one
or more of the Licensed Products in a transaction involving the sale,
lease, loan or other transfer of a single unit of integrated ART Equipment
which has been integrated with a single copy of the Exclusive Licensed
Product.
1.4 "COPYRIGHTS": See Section 15.1.
1.5 "DISPUTE": See Section 18.3.
1.6 "ERROR" means (1) any defect which causes an incorrect functioning or
nonfunctioning of Licensed Software, or (2) an incorrect or incomplete
statement or diagram in Documentation, if either such defect renders the
Licensed Software inoperable, causes the Licensed Software to substantially
fail to meet the specifications thereof, causes the Documentation to be
inaccurate or inadequate in any material respect, causes incorrect results,
or causes incorrect functions to occur.
1.7 "ESCROW AGENT": See Section 12.
1.8 "EXCLUSIVE LICENSED PRODUCT" means the Licensed Product known as
Softheart's "ON-LINE CATH LAB ANALYSIS COMPUTER PROGRAM," identified on
Exhitib A as being licensed exclusively to ART.
1.9 "EXHIBIT" means, when followed by a letter, the exhibit attached to
this Agreement bearing that letter and by such reference fully incorporated
in this Agreement.
1.10 "INTELLECTUAL PROPERTY RIGHTS" means any and all property rights,
rights of ownership and proprietary rights of any kind or nature, including
exclusionary rights existing from time to time anywhere in the world under
patent law, copyright law, trade-secret law, trademark law, unfair
competition law, or otherwise.
1.11 "LICENSED MARKS" means the trademarks of Softheart described in
Exhibit C.
1.12 "LICENSED PRODUCT" means the executable code version of the Licensed
Software and a single printed or disk version of the User Documentation in
form for formatting, reproduction and subsequent delivery to Permitted
End-Users, each reproduction of the foregoing made pursuant to this
Agreement.
1.13 "LICENSED SOFTWARE" means the executable code for the computer
program identified in Exhibit A, to be modified, corrected, enhanced and
updated from time to time as hereinafter provided or otherwise, including
Upgrades. Licensed Software shall be deemed to include the Source Code for
such programs only as and when ART may become entitled to a license to use
it in accordance with the provisions of Section 14 below.
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1.14 "MAINTENANCE MODIFICATIONS" means any modifications or revisions,
other than enhancements or Upgrades, to Code or Documentation that correct
Errors or provide incidental corrections.
1.15 "NET REVENUE" means the invoice price for the ART Equipment and all
related software, including all components of the cath lab recorder system,
the Licensed Software, and all items that require the use of the Licensed
Software when operated in conjunction with the ART Equipment. "Net
Revenue" is exclusive of freight and delivery charges, sales taxes, value
added taxes, import or export duties included in the invoice price and
identified as such, and reflects allowances for returns and cash discounts
shown on the invoice or otherwise allowed to customers in accordance with
normal trade practices (but without deductions for uncollectible accounts).
1.16 "NON-EXCLUSIVELICENSED PRODUCTS" means those Licensed Products
identified on Exhibit A (other than the Exclusive Licensed Product).
1.17 "OTHER EQUIPMENT" means equipment not manufactured, supplied or sold
by ART suitable for catherization laboratory recording or signal
acquisition from the patient.
1.18 "PERMITTED END-USER(S)" means person(s) or entity(ies) in the
business of providing health care or other person(s) or entity(ies) (such
as medical educators) mutually agreed upon by ART and Softheart.
1.19 "SECTION" means, when followed by a numeral, the section or
subsection of this Agreement bearing that numeral, and when not followed by
a number, the section or subsection of this Agreement where such term
appears.
1.20 "SOFTWARE CONVERSION AGREEMENT" means the Software Conversion
Agreement of even date herewith between ART and Softheart which is annexed
hereto as Exhibit D.
1.21 "SOURCE CODE" means computer programming code, other than object
code, and related source code level system documentation and flow charts,
comments and procedural code such as job control language, which may be
printed out or displayed in a form readable and understandable by a skilled
programmer.
1.22 "SUIT": See Section 18.1.
1.23 "TERM": See Section 13.
1.24 "UPGRADE" means (i) a derivative of a Licensed Product which renders
an existing Licensed Product obsolete or unmarketable, (ii) a revision or
modification of a Nonexclusive Licensed Product that Softheart elects to
separately price or market, (iii) or a derivative of a Licensed Product
which, in the mutual judgment of the parties, should be offered to
existing end-users as an upgrade to one or more
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existing Licensed Products. Upgrade does not include (i) new products that
are capable of operating independently from the On-Line Cath Lab Analysis
Computer Program and including basic functionality not included in the
Licensed Products. It is specifically contemplated that the Windows
Upgrade which is the subject of the Software Conversion Agreement shall be
deemed an "Upgrade".
1.25 "USER DOCUMENTATION" means documentation that describes the function
and use of the Licensed Software in sufficient detail to permit use of the
Licensed Software, but does not include (a) instructions concerning the
substantive field in which the computer program is used, or (b)
instructions concerning the use of a computer system(s), or (c)
instructions concerning use of software (E.G., operating systems) other
than the Licensed Software.
1.26 "WINDOWS UPGRADE" means the software upgrade, described in the
Software Conversion Agreement of even date herewith, which will convert
the Licensed Software to a Windows operating system.
1.27 "VALUE-ADDED TRANSACTION" means a transaction whereby (a) ART grants
a license to use one or more of the Licensed Products to a Permitted End
User in conjunction with a sale, lease, loan or other transfer of ART
Equipment or has previously granted such a license, or (b) where ART grants
to a Permitted End User or has previously granted to such end user, a
license to use the On-Line Cath Lab Analysis Computer Program without
modifications, to be sold as an "add-on" product for Other Equipment.
2. SUBLICENSE RIGHTS.
2.1 Subject to all of the terms and conditions of this Agreement,
Softheart hereby grants to ART the exclusive (except as set forth in
Section 2.2), non-transferable (except as set forth in Section 27) right
and license to market and sublicense the Exclusive Licensed Product only
to Permitted End Users, and a non-exclusive, non-transferrable right and
license to market and sublicense the Non-Exclusive Licensed Products only
to Permitted End-Users, in each case only as part of a Value Added
Transaction.
2.2 ART may duplicate the Licensed Products for the purpose of furnishing
copies to Permitted End-Users in the valid exercise of the foregoing
license. In connection therewith, ART may make translations of the User
Documentation and reproductions thereof as set forth in the preceding
sentence. ART shall not directly or indirectly market, sublicense,
transfer, encumber, assign, duplicate or otherwise make any use of the
Licensed Software or Products, in whole or in part, except as expressly
provided in this Agreement. This license does not grant to ART the right
to modify the Licensed Software or the Licensed Products, with the sole
exception that ART may, subject to the approval of Softheart which shall
not be unreasonably withheld, modify and create derivative works of the
User Documentation manuscript delivered by Softheart for the purpose of
including instructions as to the use of the Exclusive Licensed Product on
ART Equipment or
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use of the On-Line Cath Analysis Computer Program without modification on
Other Equipment.
2.3 Except in the situation in which ART has terminated this Agreement for
cause as provided in Section 14 below, during the term of this Agreement
and for a period of one (1) year thereafter, ART shall not directly or
indirectly, independently or in combination with any person or entity,
market, separately or as a component of any equipment or system, any
computer programs that are functionally equivalent to the Licensed
Software. In the event ART terminates/cancels this Agreement for cause,
ART shall be permitted to develop and market, separately or as a component
of any equipment or system, computer programs that are functionally
equivalent to the Licensed Software.
2.4 During the term of this Agreement, Softheart shall not market the
Exclusive Licensed Product, nor shall Softheart encumber, assign (except as
provided in Section 27 hereof) or transfer any rights in the Licensed
Products. However, nothing contained herein shall prevent or prohibit
Softheart from using any subroutines or other portions of the Licensed
Software and Products and incorporating them into any software or products
so long as said software or products do not become the functional
equivalent of the Licensed Product from which the subroutines or portions
were derived. Softheart shall not license, sublicense, grant rights in or
otherwise permit the sale of, the On-Line Cath Lab Analysis Computer
Program to or by other original equipment manufacturers (OEMs).
2.5 Nothing herein shall convey to ART any right in the Licensed Products
or Licensed Software other than those rights expressly granted herein.
Subject to the limitations set forth above, Softheart retains all rights
and ownership in the Licensed Software and Products not expressly granted
to ART in this Agreement.
3. COMPENSATION.
Each party shall pay to the other the amounts specified in Exhibit B with
respect to the Licensed Products. Compensation will be earned by Softheart
at the time of the collection of the proceeds of a sale by ART.
4. PAYMENT.
Not later than the thirtieth (30th) day after the end of each calendar
month in which compensation is due by either party, each party owing
compensation to the other shall provide the other party with a detailed
written report of its sales activities with respect to the Licensed
Products for the calendar month then ended, in form and substance
reasonably satisfactory to the receiving party, which report shall be
accompanied by payment of the compensation payable under Section 3 due for
such period.
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5. TAXES.
Each party shall pay or reimburse the other party for all federal, state
and local sales, excise, or similar taxes based on the receipt of the
payments to be made hereunder (excluding, however, any tax on the income of
the recipient).
6. CONDITIONS OF SUBLICENSING.
The right of ART to sublicense Licensed Products is subject to the
following conditions:
6.1 ART shall not sublicense any Licensed Product except pursuant to
a written sublicense agreement that contains such terms and
conditions as shall be reasonably acceptable to Softheart,
including but not limited to those mandatory terms and conditions
set forth on Exhibit E attached hereto.
6.2 ART shall be exclusively responsible for all warranty
obligations, returns and customer service and support for any
Licensed Product sublicense by ART, and for any On-Line Cath Lab
Analysis Computer Program sold as an "add-on" product for Other
Equipment (as further described in Exhibit A) licensed by
Softheart provided such license is pursuant to a license
agreement that contains such terms and conditions as shall be
reasonably acceptable to ART, but without regard to any pricing
terms. Upon termination or expiration of this Agreement, ART
shall remain liable for warranty, support and service for the
period of any warranty given to its customers in connection with
the sublicense or service of any Licensed Product.
6.3 ART shall use its best efforts to market and promote the Licensed
Products.
6.4 ART shall be required to meet certain minimum sales requirements
during the Term of this Agreement as follows: (i) during each
of the first two (2) years following the completion of the
Windows Upgrade identified in the Software Conversion Agreement,
ART shall be required to sell three (3) cath lab systems
incorporating the Licensed Product; (ii) during the third and
fourth years during the Term of this Agreement, ART shall be
required to sell a total of fifteen (15) cath lab systems
incorporating the Licensed Product; and (iii) during each
two-year period thereafter, ART shall be required to sell a
total of twenty-four (24) cath lab systems incorporating the
Licensed Product.
7. ADVERTISING AND PROMOTION
7.1 ART will assume full costs and responsibility of all of its
advertising, promotional, and selling expenses, including, but
not limited to,
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correspondence with customers, travel and entertaining expenses,
salaries and commissions of salesmen and agents.
7.2 Softheart shall forward to ART for its handling a copy of all
inquiries regarding the Exclusive Licensed Product or ART
Equipment received along with a copy of any acknowledgments
Softheart may have made. Softheart shall make available to ART
such sales, product and technical information as it shall have
available to assist in handling such inquiries. ART will supply
Softheart with information as to the disposition of all referred
inquiries.
7.3 Promotional, advertising and marketing materials for the Licensed
Software shall give appropriate recognition to Softheart.
7.4 Softheart shall retain sole ownership of all goodwill associated
with the Licensed Products, as represented and symbolized by the
Licensed Marks.
8. WARRANTIES.
8.1 Softheart warrants, represents and covenants to ART that (a) the
Licensed Software, as delivered by Softheart, used in accordance
with the User Documentation and operated on the ART Equipment, or
other DOS- and or Windows-compatible equipment recommended by
Softheart, as applicable, and in the operating environment set
forth in the User Documentation, will operate properly and
substantially in accordance with the specifications for the K3
System Software (Version 3.0) or any other applicable
documentation for new versions of the Licensed Software delivered
by Softheart to ART; and (b) Softheart has the right to grant the
rights to use, reproduce, distribute and sublicense the Licensed
Software, User Documentation and Licensed Marks as set forth in
this Agreement. If Softheart is able to cure each breach of the
warranties set forth in the preceding sentence within sixty (60)
days after notice thereof, then ART's sole and exclusive remedy,
and Softheart's sole and exclusive obligation, for breach of the
warranty set forth in clause (a) of the preceding sentence shall
be to deliver promptly corrections to the Licensed Software
necessary to make the Licensed Software operate in accordance
with the User Documentation, and ART's sole and exclusive remedy,
and Softheart's sole and exclusive obligation, for breach of the
warranty set forth in clause (b) of the preceding sentence shall
be to perform as set forth in Section 18.1 below. If Softheart
is unable to cure each breach within sixty (60) days after notice
thereof, ART shall be entitled to exercise all rights and
remedies of ART, subject to any limitations set forth herein.
8.2 ART ACKNOWLEDGES THAT NO EXPRESS WARRANTIES HAVE BEEN MADE BY
SOFTHEART EXCEPT FOR THE LIMITED WARRANTIES MADE IN THE PRECEDING
PARAGRAPH. THESE LIMITED WARRANTIES AND THE
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ASSOCIATED LIMITED REMEDIES ARE PROVIDED IN LIEU OF ALL OTHER
WARRANTIES AND REMEDIES. SOFTHEART DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
9. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY
TO PERSONS OR DAMAGE TO PROPERTY, ARISING FROM OR RELATING TO THIS
AGREEMENT, UNDER ANY LEGAL THEORY INCLUDING WITHOUT LIMITATION
WARRANTY, TORT, CONTRIBUTION AND INDEMNITY, REGARDLESS OF WHETHER SUCH
PARTY IS ADVISED, HAS OTHER REASON TO KNOW, OR IN FACT KNOWS OF THE
POSSIBILITY THEREOF. NOTHING IN THIS SECTION 9 SHALL LIMIT THE
PARTIES' RESPECTIVE OBLIGATIONS UNDER SECTION 18.
10. CONSULTING SERVICES AND SUPPORT.
10.1 For the shorter of the "useful life" of the Licensed
Software or for the term specified in Paragraph 13 hereof, Softheart,
at no charge to ART, shall furnish to ART all Maintenance
Modifications to such Licensed Software. Such Maintenance
Modifications shall, upon their availability, become part of such
Licensed Software for purposes of this Agreement. As used herein,
"useful life" shall mean the period of time between the acceptance of
the Licensed Software by ART and one year after the introduction of a
new product or new industry standard operating system which makes the
current Product obsolete or such other event as the parties may
mutually agree. In the event ART elects to continue to support the
Licensed Software for more than one (1) year after the introduction of
a new product or a new industry standard operating system, then ART
shall pay Softheart for Maintenance Modifications at Softheart's
standard rates in effect from time to time as provided in Section 10.2
below.
10.2 Upon the request of ART from time to time, Softheart shall
provide reasonable consulting services, software changes or new
products, and technical support with respect to the Licensed Software.
In addition, at ART's request, Softheart shall provide training and
marketing support with respect to the Licensed Software, including
personnel for presentations. ART shall pay for services provided
pursuant to this Section at Softheart's standard rates in effect from
time to time (which rates are currently $110 per person per hour).
Such rates shall not increase by more than 10% per year. Travel time
shall be billed
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at the rate of 35% of Softheart's standard rates in effect from time
to time. ART shall pay or reimburse Softheart's reasonable
out-of-pocket travel, lodging and meal expenses incurred in providing
such services. Invoices shall be issued monthly and shall be due and
payable within thirty (30) days after the date thereof, after which
late charges at the rate of 1% per month shall accrue.
Consulting fees shall be reviewed by the parties at the end of the
fifth year of the term of this Agreement and, if such fees are not
competitive with rates within the software industry, then the parties
shall renegotiate the fees payable to Softheart at such time.
11. CHANGES AND ENHANCEMENTS.
11.1 Upon making corrections or providing solutions for the
Licensed Products as required under Section 8, Softheart
shall provide ART with the executable code on magnetic
media incorporating such corrections and solutions and
any changes to the User Documentation necessitated
thereby. ART shall promptly deliver to its existing
licensees any such corrections or solutions which affect
patient care issues, and may at its discretion deliver
other corrections and solutions.
11.2 Softheart shall provide ART with executable code and
supporting User Documentation for any modifications,
enhancements and new versions of the Licensed Products
made by Softheart in the ordinary course of its business
at no additional charge. ART at its discretion may
incorporate such items into all copies of Licensed
Products sublicensed thereafter, subject to all of the
terms and conditions of this Agreement. In addition, if
Softheart agrees to provide enhancements or customizations
requested by ART, ART shall pay Softheart's ordinary rates
in effect from time to time, plus all out-of-pocket
expenses, which shall be quoted in advance.
12. SOURCE CODE.
12.1 Softheart shall keep and maintain current in escrow a diskette
or CD ROM of the Source Code for the Licensed Products, as well as any
Enhancements, Updates and corrections, and shall keep there all related
documentation (such as descriptions of the general program architecture,
module design specifications and FDA applications when applicable) and all
instructions reasonably necessary to permit a skilled programmer or analyst
to support, enhance, and modify the Licensed Software without the help of
any other person or reference to any other materials, to the extent
Softheart develops and maintains such materials in the ordinary course of
its business. Softheart will deliver the Source Code to a Third Party in
Austin, Texas, acceptable to Softheart and ART, or any successor thereof,
who shall act as Escrow Agent ("Escrow Agent"). The Escrow Agent shall be
paid by ART. Provided ART is not in material breach of this Agreement, ART
will be
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entitled to obtain the Source Code from Escrow Agent if (i) Softheart fails
to provide the services set forth in Sections 8.1(a), and does not provide
reasonable efforts to cure such failure within thirty (30) days after
notice thereof; or (ii) Softheart makes the Source Code generally available
to any other party; or (iii) Softheart ceases doing business for any
reason; or (iv) Softheart commits any act of bankruptcy (except for a
Chapter 11 proceeding) within the meaning of the Federal Bankruptcy Laws;
or if bankruptcy (except for a Chapter 11 proceeding), receivership,
insolvency, reorganization, dissolution, liquidation or other similar
proceeding shall be instituted by or against Softheart; or if a bankruptcy
proceeding is converted into a Chapter 7 proceeding. In the event ART
receives the Source Code in the manner provided hereunder, ART shall have,
subject to all the terms and conditions of this Agreement, a fully paid-up
license to use and modify the Source Code, subject to the terms of this
Agreement, solely for purposes of maintaining, operating and/or upgrading
the Licensed Products, but nothing herein contained shall relieve ART from
any obligation to pay License Fees. ART shall have the right at any time
to contact the Escrow Agent for purposes of confirming the existence of the
Source Code. ART will at all times be entitled to remove temporarily the
Source Code from the Escrow Agent's facilities, under the Escrow Agent's
and Softheart's supervision, if Softheart so desires, in order to verify
that Softheart has complied with its obligations under this Section. ART
will bear all expenses related to such verification, and will also pay
Escrow Agent's related out-of-pocket expenses unless the Source Code is
not current and complete, in which case Softheart shall reimburse ART for
all such expenses.
12.2 Softheart shall, from time to time as requested by ART, deliver
directly to ART, or arrange for the release from Escrow and delivery to
ART, those portions of the Source Code that involve interfaces to ART
Equipment, as may be necessary for the development, manufacture and/or
support of the ART Equipment.
13. TERM.
This Agreement shall take effect on the date hereof and, except for those
provisions that shall survive the expiration or termination of this
Agreement, shall extend for fifteen (15) years from and after the date
hereof (the "Commencement Date").
14. TERMINATION.
14.1 The following procedures shall govern termination of this
Agreement if either party fails to cure any material breach of
any material obligation under this Agreement:
(a) The nonbreaching party shall give the breaching party
written notice describing the breach and a 45-day cure
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period commencing upon receipt of the notice (except a
10-day cure period as to any default of a payment
obligation).
(b) The breaching party shall be deemed to have cured such
breach if within the applicable cure period it takes steps
reasonably adequate to alleviate any damage to the
nonbreaching party resulting from the breach (which in the
case of Licensed Software shall include repairs,
corrections or solutions as set forth in Section 8) and to
prevent a similar future breach.
(c) If a breach has not been cured at the end of its applicable
cure period, then upon written notice given by the
nonbreaching to the breaching party within ninety (90) days
after the expiration of the cure period this Agreement
shall terminate immediately without the need for further
action on the part of the nonbreaching party.
14.2 Upon expiration of this Agreement or termination of this
Agreement in accordance with the procedures set forth in
Section 14.1, then:
(a) The rights granted to ART under Section 2 shall immediately
cease and terminate, and ART shall immediately cease using
and return to Softheart all copies of the Licensed Products
and Software in its possession other than such copies as
are reasonably necessary in furtherance of its support
obligation in respect thereof; provided, however, that ART
shall have a period of sixty (60) days following
termination to sell off any ART Equipment containing the
Exclusive Licensed Product; and provided further, however,
that all other rights and obligations of the parties shall
survive termination or expiration; and
(b) Within thirty (30) days after the effective date of
termination, the parties shall pay to each other any
amounts owed pursuant to this Agreement.
14.3 A failure of either party to make any payment due under this
Agreement within thirty (30) days after notice that such payment
is overdue shall be deemed to be a material breach of a material
obligation of this Agreement.
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14.4 The failure of ART to meet the minimum sales requirements set
forth in Section 6.4 shall be deemed to be a material breach of
a material obligation of this Agreement.
14.5 ART may terminate this Agreement for its convenience upon ten
(10) days' notice to Softheart, subject to the provisions of
Section 2.3. ART shall not market, sell, license, transfer,
distribute or otherwise deal or do business in any computer
software that is the functional equivalent of the Exclusive
Licensed Product for the duration of the Term and one year
thereafter.
15. PROPRIETARY RIGHTS.
15.1 ART recognizes and shall not contest Softheart's exclusive
ownership, right, title and interest in and to Softheart's
copyrights in the Licensed Software, the Licensed Products and
the User Documentation (the "Copyrights"). Softheart may, but
shall not be required to, maintain registrations of the
Copyrights with the United States Copyright Office. ART shall
not be deemed to acquire any right, title or interest in any of
the Copyrights or any other intellectual property rights in the
Licensed Software, the Licensed Products and the User
Documentation during or after the term of this Agreement.
15.2 ART shall keep each and every item to which Softheart retains
title free and clear of all claims, liens and encumbrances, and
any act of ART purporting to create such a claim, lien or
encumbrance shall be void. ART hereby assigns to Softheart all
of its right, title and interest, if any, in and to any changes,
additions, derivatives and enhancements made by ART to the
Licensed Software, Licensed Products and the User Documentation
or other materials provided by Softheart, and shall execute all
documents and instruments reasonably requested by Softheart to
effectuate such assignment. Under no circumstances (a) shall
ART acquire any rights in any translations of the Licensed
Products, nor (b) shall Softheart have any rights in any
derivatives prepared by ART in accordance with Paragraph 2.2 to
the extent that the same do not violate any of Softheart's
proprietary rights. ART recognizes that Softheart represents
that the Licensed Software, Licensed Products and the User
Documentation and related materials, techniques and procedures
furnished or disclosed by Softheart to ART hereunder embody
exceptionally valuable trade secrets, and they are, and shall
remain, the sole property of Softheart. ART shall not create or
attempt to create, by decompilation, disassembly or reverse
engineering, the source programs for the
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Licensed Software and Licensed Products from the object programs
or other information made available by Softheart. ART shall not
disclose or divulge or communicate the Licensed Software,
Licensed Products, the User Documentation or any portion thereof
to any person except (a) ART may disclose the User Documentation
and may demonstrate and/or display the Licensed Products to the
extent necessary or useful to marketing, interface development,
distribution and support of the Licensed Products, and (b) ART
may make copies of the Licensed Products available for
evaluation purposes (pursuant to a written evaluation agreement
that contains such terms and conditions as shall be reasonably
acceptable to ART and Softheart, including but not limited to
those mandatory terms and conditions set forth on Exhibit E
attached hereto) to the extent necessary or useful to marketing
and distribution of the Licensed Products.
15.3 ART will not alter, deface, remove, cover up, or mutilate in any
manner whatsoever any copyright or other proprietary notice
which Softheart may incorporate in or attach or affix to the
Licensed Software and/or User Documentation.
15.4 Softheart hereby grants to ART for the term of this Agreement a
nontransferable (except as set forth in Section 27), fully
paid-up license to use the Licensed Marks in connection with the
marketing, distribution and sublicensing of Licensed Products
pursuant to the terms and conditions of this Agreement, but for
no other purpose. Softheart shall provide ART with such
documentation and other assistance as may be reasonably required
to fully exercise these rights in the Licensed Marks. ART shall
acquire no rights in the Licensed Marks by its permitted use
thereof. Any promotional or technical material referring to
Softheart, the Licensed Products and the Licensed Marks shall be
submitted in advance to Softheart for approval, which approval
shall not be unreasonably withheld, conditioned or delayed.
Upon any termination of this Agreement or the license granted
hereunder, ART shall cease using the Licensed Marks and shall
return to Softheart, or at ART's option, destroy the originals
and all materials bearing the Licensed Marks or permanently
remove or obliterate the Licensed Marks.
16. OBLIGATIONS IN THE EVENT OF SUSPECTED INFRINGEMENT BY THIRD PARTIES.
Each party shall provide the other with ten (10) days' notice prior to
taking any action regarding the infringement or possible infringement
of any Exclusive Licensed Product. During such ten-day period, the
other party
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may in its sole discretion institute any suit or action which it may think
fit in response to such infringement or possible infringement, and the
notifying party if it desires may join as plaintiff in such suit or action
provided that it agrees in writing to pay one-half of the costs of such
suit or action. If the other party fails to institute such suit or action,
the notifying party may institute such suit or action. As to either party
that chooses not to join as plaintiff, it shall cooperate at no
out-of-pocket expense to it in connection with such suit or action taken.
The party initiating the suit or action shall have the sole right to employ
counsel and to direct the handling of the claim and litigation and the
settlement thereof; except to the extent of any claim made against the
other party. Unless the parties otherwise agree, money damages shall be
applied first toward the repayment of the expenses incurred in bringing and
maintaining the suit or action or otherwise terminating the infringement,
including without limitation: (i) out-of-pocket expenses incurred in
connection with the suit or action, and (ii) reasonable attorney's fees,
and then to the payment of the compensation that would have been due under
this Agreement in respect of the Exclusive Licensed Product but for the
infringing acts. The balance of any recovery shall be split among the
parties in the same proportion as their respective payment of the costs of
the suit or action, with such equitable adjustments as the governing
tribunal shall deem appropriate to compensate Softheart for the portion, if
any, of the recovery attributable to Softheart's residual rights in the
Exclusive Licensed Product.
17. ACCESS TO RECORDS.
17.1 At its cost, each party shall be entitled to inspect the other
party's books and records for purposes of verifying the amount
of compensation due such party under this Agreement upon
reasonable notice and during normal business hours.
17.2 Each party shall, upon notice, be entitled to audit during
normal business hours the books and records of the other
pertaining or related to sales of Licensed Products for the
purpose of verifying any reports or statements and otherwise
determining the amount of compensation due. If the difference
between the amount of compensation paid by a party and the
amount determined to be due pursuant to such audit is greater
than $1500 or five percent (5%) of the amount paid, the
non-auditing party shall promptly reimburse the other the
reasonable cost of the audit.
18. INDEMNIFICATION.
18.1 Softheart warrants that it is the owner of the Licensed
Software, User Documentation and Licensed Marks, and that the
use, reproduction, distribution and sublicensing of the Licensed
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Products (in accordance with the User Documentation), User
Documentation and Licensed Marks as expressly permitted by this
Agreement will not infringe upon any intellectual property right
of any third party. Softheart shall, at its own expense,
defend ART and any permitted End User against any claim, suit
or proceeding (hereunder "Suit") brought against ART or any
Permitted End User to the extent it is based upon a claim,
whether rightful or otherwise, that the Licensed Software, User
Documentation and Licensed Marks or any part thereof, furnished
and used as permitted by this Agreement, constitutes an
infringement of any intellectual property right of a third
party. Softheart shall pay all damages and costs (including
reasonable attorneys' fees) awarded against ART and/or any
Permitted End User in connection with such Suit not later than
such time that ART or the Permitted End User is obligated to
pay such amounts. Softheart's obligations under this Section
18.1 are conditioned upon Softheart having full control over
the defense and settlement of such claim or Suit, written notice
given by ART within twenty (20) days of receipt of any claim,
suit or actual knowledge by an officer of such a claim or suit,
and ART's full cooperation in the defense of such claim at
Softheart's expense. Softheart shall not be obligated to pay or
reimburse ART for any out-of-pocket expense incurred by ART in
the defense unless authorized in writing by Softheart. In
defending against such claim or action, Softheart may (i)
consent; (ii) settle; (iii) procure for ART and Permitted End
Users the right to continue using the Licensed Software and
Products as the case may be; or (iv) modify or replace the
Licensed Software or Licensed Products, as the case may be,
so that it no longer infringes; provided, however, Softheart
shall have no authority to take any of the foregoing actions
if they would in any way bind ART for any monetary
obligation or cause a diversion of ART resources or
employees. If Softheart concludes in its judgment that none
of the foregoing options is reasonable, then (i) Softheart
will refund or credit to ART the license fees paid by ART
under this Agreement; (ii) ART will return the original and
all whole or partial copies of the Licensed Software and the
Licensed Products to Softheart; and (iii) the license
granted hereunder will terminate. Softheart has no liability
with respect to patent infringement arising out of features
of the Licensed Software made to ART's order or
specification or use of the Licensed Software in combination
with software or equipment (including ART Equipment) not
developed exclusively by Softheart, if such infringement
would have been avoided by the use of the Licensed Products
alone.
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18.2 ART warrants that it is and will be the owner of all
intellectual property rights in all ART Equipment used in
combination with the Licensed Software and Products and that
the use of the ART Equipment in combination with the
Licensed Products in accordance with instructions provided
by ART will not infringe upon any Intellectual Property
Right of any third party. ART shall, at its own expense,
defend Softheart against any claim, suit or proceeding
(hereunder "Suit) brought against Softheart to the extent it
is based upon a claim, whether rightful or otherwise, that
the use of the ART Equipment in combination with the
Licensed Products in accordance with instructions provided
by ART, constitutes an infringement of any Intellectual
Property Right of any third party. ART shall pay all
damages and costs (including reasonable attorneys' fees)
awarded against Softheart and/or any Permitted End User in
connection with such suit not later than such time that
Softheart or the Permitted End User is obligated to pay such
amounts. ART's obligations under this Section 18.2 are
conditioned upon ART having full control over the defense
and settlement of such claim or suit, written notice given
by Softheart within twenty (20) days of receipt of any
claim, suit or actual knowledge by an officer of such a
claim or suit, and Softheart's full cooperation in the
defense of such claim at ART's expense. ART shall not be
obligated to pay or reimburse Softheart for any
out-of-pocket expense incurred by Softheart in the defense
unless authorized in writing by ART. In defending against
such claim or action, ART may (i) consent; (ii) settle;
(iii) procure the right for itself and Permitted End Users
to use the ART Equipment in combination with the Licensed
Products; or (iv) modify or replace the ART equipment so
that its use in combination with the Licensed Products no
longer infringes; provided, however, ART shall have no
authority to take any of the foregoing actions if they would
in any way bind Softheart for any monetary obligation or
cause a diversion of Softheart's resources or employees.
This paragraph states the entire obligation of ART regarding
infringement of intellectual property rights as a result of
use of the Licensed Products in combination with ART
Equipment, and will survive the termination of this
Agreement.
18.3 If either party defends the other party in a lawsuit,
arbitration, negotiation or other proceeding ("Dispute")
concerning a claim pursuant to this Agreement, the indemnified
party shall have the right to participate, at its own expense,
except as otherwise provided in this Agreement, jointly with
the indemnifying party in the defense. Each party shall be
notified promptly in writing by the other of any such claims to
which these indemnification
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provisions apply and the indemnified party shall provide
reasonable assistance (at its expense) in defending such suit.
19. FORCE MAJEURE.
Performance by the parties of their respective obligations hereunder
(except the obligation to pay money) shall be subject to force
majeure, acts of God, and other causes beyond the reasonable control
of the parties, including, but not limited to, insurrection, riots,
fires, war and warlike operations, explosions, accidents, governmental
acts in sovereign and/or contractual capacity, acts of the public
enemy, raw material shortages and allocations, epidemics, and laws
and/or specific regulations or restrictions of any government (or
agency or subdivision thereof) having jurisdiction over any of the
subject matter of this Agreement. The foregoing shall not excuse,
however, any failure to perform an obligation hereunder that exceeds
ninety (90) days.
20. LEGAL COMPLIANCE.
Each of the parties will comply with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings
and charges thereunder) in connection with the manufacture and sale of the
Licensed Products.
21. SEVERABILITY.
If any portion of this Agreement is held illegal, invalid and
unenforceable, the legality, validity or enforceability of the
remainder shall be unaffected. If any provision of this Agreement is
found by any court of competent jurisdiction to be illegal or
unenforceable, then such provision shall be deemed modified (and the
parties hereby jointly request a court to reform such provision) as
necessary to make it legal and enforceable in a manner approximating
the intention of the parties as closely as possible, and the remaining
provisions of this Agreement shall be unaffected and shall remain in
full force and effect provided there is no material adverse effect on
any of the parties.
22. NOTICES.
Any notice required or permitted to be given under this Agreement
shall be in writing, and shall be deemed sufficiently given when
delivered in person or transmitted by telex, or when actually received
when sent by certified, registered or express mail, postage prepaid,
to the addresses given below or sent by telecopy to the telecopier
numbers set forth below:
Softheart: Softheart, Inc., 147 Clark Road, Charlotte,
Vermont 05445, ATTN: Roy V. Ditchey, M.D., (802) 425-2351
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ART: Arrhythmia Research Technology, Inc., 5910 Courtyard
Drive, Suite 300, Austin, Texas 78731, ATTN: E. P. Marinos,
(512) 343-7312
Either party hereto may change its address for the purpose of notice
hereunder by giving written notice of such change of address to the
other party in the manner specified herein. To the extent any notice
provision in any other agreement, instrument or document required to
be executed or executed by the parties in connection with the
transaction contemplated herein contains a notice provision that is
different from the notice provision contained in this Section 22 with
respect to matters arising under such other agreement, instrument or
document, the notice provision in such other agreement, instrument or
document shall control.
23. GOVERNING LAW.
This Agreement shall be governed and interpreted by the laws of the State
of Texas without reference to any conflicts of laws.
24. ENTIRE AGREEMENT.
This Agreement, together with all exhibits specifically referenced herein,
constitutes the entire agreement between the parties concerning the subject
matter hereof. No prior or contemporaneous representations, inducements,
promises or agreements, oral or otherwise, between the parties with
reference thereto shall be of any force or effect. No modification or
amendment to this Agreement shall be valid or binding unless reduced to
writing and duly executed by the party or parties to be bound thereby.
25. TRADITIONAL WARRANTIES.
ART and Softheart each warrant to the other that:
(a) the warranting party is a duly organized and existing legal
entity under the laws of the jurisdiction of its incorporation;
(b) the warranting party has full power and authority to enter into
this Agreement;
(c) the execution and performance of this Agreement does not and will
not violate or interfere with any other agreement of the
warranting party;
(d) the person executing this Agreement on behalf of the warranting
party has actual authority to bind the warranting party to the
license agreement.
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26. INDEPENDENT PARTIES.
The parties are independent contractors. No partnership or joint venture
is intended to be created by this Agreement, nor any principal-agent or
employer-employee relationship.
27. ASSIGNMENT.
No party may assign any right or delegate any duties under this Agreement,
and any purported assignment or delegation shall be null and void and a
breach of this Agreement, except for the following or as otherwise provided
herein:
(a) either party may assign this Agreement with the express prior
written consent of the other party, which consent shall not be
unreasonably withheld or delayed; provided, however, that it will
not be unreasonable to withhold consent of an assignment to a
competitor of the non-assigning party or when the financial
condition of the proposed assignee is of a nature that it appears
unable to fulfill its obligations under this Agreement.
(b) either party may assign this Agreement to an Affiliate of that
party, provided that the Affiliate in question agrees in writing
to comply with the assigning party's obligations under, and to
be bound by, this Agreement; and
(c) either party may assign all of its rights indivisibly in
connection with a sale or other disposition of substantially all
the assets of the party's business relating to the Licensed
Software to a single acquiring entity, provided that the
acquiring entity agrees in writing to comply with the assigning
party's obligations under, and to be bound by, this Agreement.
Any assignments permitted by this Section 27 shall be subject to all
the terms and conditions of this License Agreement.
28. REMEDIES.
Except as otherwise provided in this Agreement, the remedies set forth
in this Agreement are not exclusive, and either party shall be
entitled alternatively or cumulatively to any remedy available under
this Agreement or otherwise as may be available under applicable law
or in equity.
29. NO WAIVER.
The failure of either party at any time to require performance by the
other party of any provision of this Agreement shall in no way affect
the right of such party to require performance of that provision. Any
waiver by either party of any breach of any provision of this
Agreement shall not be construed as a
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waiver of any continuing or succeeding breach of such provision, a
waiver of the provision itself or a waiver of any right under this
Agreement.
30. BINDING ON SUCCESSORS.
This Agreement shall be binding upon and inure to the benefit of the
parties and their successors and assigns permitted by this Agreement.
31. SECTION HEADINGS.
The section headings contained herein are for reference purposes only
and shall not in any way control the meaning or interpretation of this
Agreement.
32. SOLICITATION AND HIRING OF EMPLOYEES.
During the term of this Agreement and for a period of one year after
its termination for any reason, neither party shall solicit employment
of or employ any person known to an officer of such party to have been
an employee of the other within three months prior to such
solicitation or employment.
33. INTERPRETATION.
This Agreement has been mutually negotiated, and therefore shall be
deemed to have been negotiated and prepared at the joint request,
direction, and construction of all parties, at arms length, with the
advice and participation of counsel for each party, and shall be
interpreted in accordance with the terms without favor to any party.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representative on the 21 day of April, 1997.
SOFTHEART, INC.
By: /s/ Roy V. Ditchey
---------------------------------
Roy V. Ditchey, President
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
By: /s/ E. P. Marinos
---------------------------------
E. P. Marinos, President and CEO
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EXHIBIT A
LICENSED SOFTWARE
1. BASIC SOFTWARE PACKAGE (KNOWN AS THE "K3 SYSTEM SOFTWARE")
On-Line Cath Lab Analysis Computer Program modified to run on ART
Equipment(1)
Enhanced Report Generator (excluding coronary angiography) Computer
Program(2)
Exportable List of Materials Used to Generate Computer Program(2)(3)
2. On-Line Cath Lab Analysis Computer Program without Modifications, to be
sold as an "add-on" product for Other Equipment
3. Coronary Angiography Reporting Package(2)
4. Inventory Management Package(2)
The Basic Software Package shall be converted from a DOS environment to a
Windows 95 or NT environment by Softheart pursuant to the Software Conversion
Agreement.
- --------------------
(1) Exclusive Licensed Product
(2) Nonexclusive Licensed Product
(3) Not subject to any compensation from ART to Softheart
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EXHIBIT B
1. With respect to purchase orders for the Licensed Products received by ART
prior to the completion of the conversion of the Licensed Software to a Windows
format pursuant to the Software Conversion Agreement, the License Fees will be
as follows:
ITEM LICENSE FEE (% OF NET REVENUE)
---- ------------------------------
K3 Level I (if Softheart software is used) 2%
K3 Level II 8%
K3 Level III 9%
Upgrade (Level I to II) 20%
Extra Workstation 25%
Add-On System 20%
Upgrade (Level II to III) 10%
Coronary Reporting 50%
Inventory Program 50%
2. With respect to purchase orders for the Licensed Products received by
ART subsequent to the completion of the conversion of the Licensed Software to a
Windows format pursuant to the Software Conversion Agreement, the License Fees
will be as follows:
ITEM LICENSE FEE (% OF NET REVENUE) MINIMUMS
---- ------------------------------ --------
K3 Level I (if Softheart Software is used) 2.5%
K3 Level II 12% 8,000
K3 Level III 12% 9,000
Upgrade (Level II to III) 12% 1,000
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Extra Workstation 40% 2,000
Upgrade (Level I to Level II) 50% 8,000
Coronary Reporting 50% 4,000
Inventory Program 50% 1,500
3. Pursuant to the terms of the Software Conversion Agreement, ART has
agreed to advance to Softheart $145,000 for the conversion of the DOS-based
software to Windows-based software. ART and Softheart hereby agree that, until
such time as the Windows Upgrade is complete and accepted, the License Fees due
to Softheart for products other than the Coronary Reporting and Inventory
programs will be credited against the $145,000 until such time as there is a
zero balance. After the Windows based software is completed and accepted by
ART, and if the total reimbursement of the $145,000 conversion fee has not been
recouped by ART, portions of the license fees in the amount of $2,000 per unit
for products sold, other than Coronary Reporting and Inventory programs, will be
credited against such remaining amount until total reimbursement is received by
ART. At all times, all fees not credited to the advance to Softheart will be
paid directly to Softheart in accordance with Section 4 hereof. In the event ART
terminates the Software Conversion Agreement pursuant to Section 9.1 thereof,
then ART shall be entitled to recoup any payments actually made to Softheart
prior to the termination in addition to the amount of ART's subsequent
conversion and development costs; PROVIDED, HOWEVER, that the aggregate amount
of the payments made to Softheart and the subsequent development costs shall not
exceed $175,000. Amounts recouped by ART pursuant to Section 6 of the Software
Conversion Agreement shall be in addition to the $175,000 and shall be recouped
after ART has realized the full $175,000.
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EXHIBIT C
LICENSED MARKS
- --------------
SOFTHEART
SOFTHEART, INC.
---------------
---------------
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EXHIBIT D
SOFTWARE CONVERSION AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of April, 1997,
by and between Arrhythmia Research Technology, Inc., a Delaware corporation
having an office and place of business at 5910 Courtyard Drive, Suite 300,
Austin, Texas 78731 (hereinafter "ART") and Softheart, Inc., a Vermont
corporation having an office and place of business at 147 Clark Road,
Charlotte, Vermont 05445 (hereinafter "Softheart").
WHEREAS, ART is the exclusive licensee, pursuant to a License Agreement
with Softheart of even date herewith (the "License Agreement"), of certain
existing software which operates under the DOS operating system, for cardiac
catheterization laboratory signal acquisition from a patient, data analysis
and storage; and
WHEREAS, Softheart agrees to upgrade the existing software known as the
K-3 System Software (Version 3.0) by converting it to run under the
Window-Registered Trademark- NT or 95 operating system.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings hereinafter defined:
1.1 "EXISTING SOFTWARE" shall mean the software and documentation
of the current K-3 System Software (Version 3.0).
1.2 "WINDOWS UPGRADE" shall mean the Existing Software (except the
On-Line Cath Lab Analysis Computer Program without modifications, to be sold
as an "add-on" product) upgraded to operate under the Windows NT or 95
operating system, recognizing that there will be differences in program
interfaces and flow because of opportunities provided by and limitations of
the Windows environments, and because of mutually agreed upon changes, which
may include but are not necessarily limited to, changing program flow to
facilitate ease of use, providing flexible program structures that allow
integration of future enhancements and product developments.
2. DUTIES OF SOFTHEART.
2.1 Softheart shall modify the Existing Software to create the
Windows Upgrade in accordance with the timetable and milestones for
performance as set forth in Schedule A attached hereto and made a part
hereof. The Windows Upgrade shall be subject to ART's acceptance as set
forth in Paragraph 3.2 below.
2.2 Softheart shall correct any deliverables rejected as set forth
in Paragraph 3.2 and resubmit the same to ART within sixty (60) days after
rejection for ART's acceptance as provided in Paragraph 3.2 below. If
Softheart fails to cure as set forth in Paragraph 3.2 hereof, Softheart shall
be deemed to have breached a material provision of this Agreement.
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3. DUTIES OF ART.
3.1 ART shall identify a Beta test hospital, negotiate the
financial arrangements, and provide and install the equipment required to
test the Windows Upgrade. ART shall pay Softheart's reasonable and necessary
out-of-pocket expenses in connection with any travel which may be required to
and from the test site during the Beta test phase of the software
developments.
3.2 ART shall promptly accept or reject the Windows Upgrade and all
deliverables and tasks. If, within thirty (30) days of receipt of the
Windows Upgrade and all deliverables and tasks, ART determines that the
Windows Upgrade and all deliverables and tasks do not substantially comply
with the Specifications set forth in Paragraph 1.2, ART may return the
Windows Upgrade and all deliverables and tasks with a report detailing the
reasons for its unacceptability. Softheart shall have a period of sixty (60)
days within which to cure any such non-compliance with the Specifications as
described in Paragraph 1.2. The Windows Upgrade and all deliverables and
tasks shall be deemed to be accepted by ART if (i) a system is sold with the
upgraded software, or (ii) ART fails to reject the upgrade within thirty (30)
days of receipt of the Windows Upgrade and all deliverables and tasks or any
cure provided for hereunder.
4. PROPRIETARY RIGHTS.
ART acknowledges and agrees that the Windows Upgrade embodies and
constitutes valuable proprietary information and trade secrets of Softheart.
ART agrees that this Agreement in no way confers title, ownership, or
proprietary rights in the Windows Upgrade to ART, and that all such title,
ownership and proprietary rights belong to and shall remain with Softheart.
Softheart shall be obligated to obtain such copyrights, patents, and
trademarks as are necessary at its sole expense.
5. COMPENSATION.
5.1 ART shall advance to Softheart One Hundred Forty-Five Thousand
and No/100 Dollars ($145,000), payable as follows:
(a) Thirty Thousand Seven Hundred Twenty-Five and No/100
Dollars ($30,725) upon execution of this Agreement; and
(b) Six Thousand Seven Hundred Twenty-Five Dollars ($6,725) on
the last day of the month next succeeding the execution of this Agreement and
on the last day of the next sixteen (16) months following such next succeeding
month. The seventeen monthly payments shall be subject to the provisions of
Paragraph 3 of Exhibit B of the License Agreement.
5.2 For travel required as set forth herein, or as otherwise
requested by ART, ART will pay for the reasonable and actual costs of travel
and living accommodations of Softheart's employees and/or consultants in
accordance with ART's then applicable expense reimbursement policies for
corporate officers.
5.3 All amounts due and payable to Softheart hereunder shall be
inclusive of all applicable taxes.
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<PAGE>
6. FDA AUTHORIZATION.
6.1 Softheart shall have full responsibility for obtaining FDA
510(k) authorization of the use of the Windows Upgrade as part of or in
connection with ART products, if necessary. It is presently contemplated that
a "letter to file" and the associated documentation will be adequate to
retain the current FDA authorization. However, in the event that a new 510(k)
becomes necessary, Softheart will prepare the application and provide
whatever further information the FDA may require. All out-of-pocket expenses
shall be paid or reimbursed by ART upon presentation of adequate
documentation. To the extent that FDA compliance requires a commitment of
time by Softheart beyond that which is necessary for 510(k) authorization,
the parties shall negotiate a new fee arrangement for the FDA aspect of
this Agreement only and ART shall be entitled to recoup its fees and
expenses at the rate of $2,000 per unit for products sold, other than
Coronary Reporting and Inventory programs, as provided in Paragraph 3 of
Exhibit B of the License Agreement.
6.2 Softheart shall indemnify ART to the extent described in this
Paragraph 6.2 for any and all liability, loss, expenses (including, but not
limited to, attorneys' fees), actions or damages of any kind or nature
incurred by ART as a result of any claim or proceeding against ART by any
person not a party to this Agreement or any governmental authority (including
the FDA) which claim or proceeding is based in whole or in part on an
allegation that the use of the Windows Upgrade violates the Medical Device
Amendments to the Food, Drug and Cosmetic Act, or any rules, regulations or
orders promulgated or issued thereunder, but only to the extent that such
claim or proceeding is based on a finding by the FDA that the sale or
marketing of the Windows Upgrade violates such Medical Device Amendments;
provided ART promptly notifies Softheart of any such claim or proceeding in
writing and gives Softheart the opportunity to defend or settle any such
claim or proceeding. If Softheart successfully defends or settles such claim,
it shall have no further liability under this Paragraph 6.2. To the extent
that such third-party liability is not based on Softheart's negligence,
willful misfeasance or willful malfeasance, ART's remedies shall be limited
to terminating this Agreement as provided in Paragraph 9.1(b) below or
obtaining access to the Source Code as set forth in Paragraph 11 hereof.
7. WARRANTY.
7.1 Softheart warrants and represents that:
(a) The Windows Upgrade meets or will meet the specifications
of Paragraph 1.2 of this Agreement. The Windows Upgrade runs or will
run on the PC operating under the current version of Windows NT or
95; and there are or will be no substantial errors, malfunctions or
defects in the Windows Upgrade or any portion thereof.
(b) The Windows Upgrade and all portions of the foregoing are
or will be created solely by Softheart pursuant to this Agreement.
(c) The Windows Upgrade and all portions thereof do not or
will not infringe any patents, copyrights, trade secrets, or other
proprietary rights of any third parties, and Softheart has or will
have no reason to believe that any such infringement exists or claims
thereof can be made by third parties.
(d) Softheart has the right to enter into this Agreement, to
grant to ART the rights and licenses set forth herein, and to perform
all other obligations of this
3
<PAGE>
Agreement.
7.2 If Softheart is in breach of any warranty or representation
hereunder, Softheart shall return to ART the Existing Software and all monies
paid to Softheart hereunder.
8. CONFIDENTIALITY.
8.1 All information, documentation, and software, including the
Existing Software, Windows Upgrade and all portions thereof shall be held in
confidence by Softheart and may not be used by Softheart (other than for
performance of services hereunder) nor disclosed to third parties without the
prior written consent of ART; provided, however, that nothing contained
herein shall prevent or prohibit Softheart from using any subroutines or
portions of the Windows Upgrade and incorporating them into any software or
products so long as said software or products do not become the functional
equivalent of the Windows Upgrade.
8.2 The terms and conditions of this Agreement may not be disclosed
or made available by either party hereto to third parties without the prior
written consent of the other party. However, nothing contained herein shall
prevent either party from complying with applicable law, regulation, or court
order.
9. TERMINATION AND CANCELLATION.
9.1 This Agreement may be terminated/canceled upon the occurrence
of one or more of the following events, and the terminating/canceling party
shall not be liable to the other party for the rightful exercise of its
rights of termination/cancellation:
(a) By either party if the other party seeks protection under
the bankruptcy laws (other than as a creditor), or makes any
assignment for the benefit of creditors, or a trustee is appointed
for all or any portion of such party's assets; or
(b) By either party if the other party is in default of any
material provision of this Agreement and such default is not cured
within thirty (30) days after receipt of written notice of default
by such other party.
9.2 If this Agreement is terminated/canceled by ART pursuant to
Paragraph 9.1, all amounts paid to Softheart pursuant to Paragraph 5.1, if
any, shall be recouped by ART pursuant to the provisions of Paragraph 3 of
Exhibit B of the License Agreement. ART shall further be entitled to recoup
all subsequent development costs, up to $175,000 when aggregated with the
amounts previously paid pursuant to Paragraph 5.1. If this Agreement is
terminated/canceled by Softheart pursuant to Paragraph 9.1, then Softheart
shall be entitled to retain all amounts previously paid by ART.
10. INDEMNITIES.
10.1 Softheart shall indemnify and hold harmless ART and its
customers against any claims that the Windows Upgrade, or any portion
thereof, infringes any patent, copyright, trade secret, or other proprietary
right and shall defend and/or settle any cause of action related thereto. If
ART and/or its customers are enjoined from exercising any rights and licenses
granted hereunder, Softheart shall obtain for ART and its customers the right
to continue to exercise such rights and licenses at no cost to ART or its
customers.
4
<PAGE>
10.2 Softheart shall indemnify and hold ART harmless against any
and all liability for personal injury and property damage arising out of or
related to the performance of this Agreement by Softheart or its employees,
agents, or representatives. This Paragraph 10.2 does not relate to the
performance or non-performance of the Windows Upgrade.
10.3 In the event of any claim hereunder with respect to the
Windows Upgrade which has been delivered to and accepted by ART in accordance
with Paragraph 3.2 hereof, Section 18 of the License Agreement shall control.
11. SOURCE CODE.
Provided ART is not in material breach of this Agreement, Softheart
shall deliver to ART a machine readable form of the Source Code for the
Windows Upgrade, as well as any enhancements, updates and corrections and, to
the extent Softheart develops such materials in the ordinary course of its
business, all related documentation (such as descriptions of the general
program, architecture, module design specifications and FDA applications when
applicable) and all instructions reasonably necessary to permit a skilled
programmer to support, enhance and modify the Windows Upgrade, if (i)
Softheart fails in a material respect to perform in accordance with the
timetable and milestones set forth in Schedule A, and does not provide
reasonable efforts to cure such failure within sixty (60) days after notice
thereof; (ii) Softheart makes the source code generally available to any
other party; (iii) Softheart ceases doing business for any reason; (iv)
Softheart commits any act of bankruptcy (except for a Chapter 11 proceeding)
within the meaning of the Federal Bankruptcy Laws; or if bankruptcy (except
for a Chapter 11 Proceeding), receivership, insolvency, reorganization,
dissolution, liquidation or other similar proceedings shall be instituted by
or against Softheart; or if a bankruptcy proceeding is converted into a
Chapter 7 proceeding; or (v) Softheart fails to correct any substantial error
in the Windows Upgrade and does not cure such failure within sixty (60) days
after notice thereof as provided in Paragraph 3.2 hereof. In the event ART
receives the source code in the manner provided hereunder, ART shall have,
subject to all the terms and conditions of this Agreement, a fully paid-up
license to use and modify the Source Code, subject to the terms of this
Agreement, solely for purposes of completing, maintaining, operating and/or
upgrading the Widows Upgrade.
12. ASSIGNMENT. This Agreement and all rights or obligations of
Softheart hereunder may not be assigned, subcontracted, or transferred by
Softheart without the prior written consent of ART, which consent will not be
unreasonably withheld.
13. NOTICES. All notices required to be given pursuant to this
Agreement shall be deemed given when actually delivered, if delivered in
person, or three days after being deposited in the United States mail,
certified mail/return receipt requested, postage prepaid and addressed to the
receiving party as follows:
For Softheart: Softheart, Inc.
147 Clark Road
Charlotte, Vermont 05445
ATTN: President
For ART: Arrhythmia Research Technology, Inc.
5910 Courtyard Drive, Suite 300
Austin, Texas 78731
5
<PAGE>
ATTN: President
14. ENTIRE AGREEMENT. This Agreement is the entire agreement between
the parties relating to the subject matter hereof and supersedes all prior
agreements, proposals, representations, and commitments. This Agreement may
be amended only by an instrument executed by the authorized representatives
of both parties hereto.
15. GOVERNING LAW. This Agreement shall be interpreted in its entirety
in accordance with the substantive laws of the State of Texas without
reference to any conflicts of law.
16. ARBITRATION. ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE
SUBJECT TO BINDING ARBITRATION PURSUANT TO THE RULES THEN OBTAINING OF THE
AMERICAN ARBITRATION ASSOCIATION IN PITTSBURGH, PENNSYLVANIA AND JUDGMENT ON
THE AWARD RENDERED MAY BE ENTERED IN ANY COURT HAVING JURISDICTION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives and have caused this Agreement to
become effective as of the date first above written.
SOFTHEART, INC.
By:
---------------------------------
Roy Ditchey, M.D., President
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
By:
---------------------------------
E.P. Marinos, President and CEO
software agreement
6
<PAGE>
EXHIBIT E
Mandatory Terms of End User Licenses
All sublicense agreements for the sublicensing by ART of each copy of
the Licensed Products (the "Licensed Copy") shall include written provisions
in substance to the effect that:
(1) Only a non-exclusive, nontransferable right to use the
Licensed Copy on a single computer (designated by serial number or
equivalent) is granted to the ART customer, only for the purpose of
processing data in the course of the ART customer's business as a licensed
provider of medical care.
(2) The ART customer acquires no title to the Licensed Copy, and
all copies thereof, and title to the Licensed Copy, or any intellectual
property therein is retained by licensor or Softheart, Inc., as applicable.
(3) The ART customer may not copy the Licensed Copy, except for
backup and archival purposes, and the ART customer shall include on all
copies of the Licensed Copy all copyright and other proprietary notices or
legends included on the Licensed Copy when it was shipped to the ART customer.
(4) The ART customer may not reverse assemble, decompile or
otherwise attempt to derive source code from the Licensed Copy.
(5) Although copyrighted, the Licensed Copy is unpublished and
contains proprietary and confidential information of Softheart, Inc. and is
considered by ART and Softheart, Inc. to embody valuable trade secrets. The
ART customer will hold the Licensed Copy in confidence and shall protect the
confidentiality of the Licensed Copy with at least the same degree of care
with which the ART customer protects its own similar confidential information
or the confidential information of its patients.
(6) Softheart, Inc. is the direct and intended third party
beneficiary of the license agreement and may enforce it directly against the
ART customer, provided however, that ART shall not be liable to the ART
customer for any actions or omission of Softheart, Inc. in connection with
said enforcement, and provided, further, that Softheart, Inc. shall not be
liable to the ART customer for any general, special, direct, indirect,
consequential, incidental or other damages arising out of or related to the
Licensed Copy.
(7) Upon termination of the license for the Licensed Copy, the ART
customer shall return to licensor or Softheart, Inc. all copies of the
Licensed Copy, or, at their option, certify that the ART customer has
destroyed all such copies.
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<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<SECURITIES> 0
<RECEIVABLES> 2,449
<ALLOWANCES> (52)
<INVENTORY> 2,001
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<TOTAL-LIABILITY-AND-EQUITY> 11,832
<SALES> 11,887
<TOTAL-REVENUES> 0
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