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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-18338
I-FLOW CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0121984
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2532 WHITE ROAD, IRVINE, CA 92714
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 553-0888
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of class)
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. [ ]
[COVER PAGE 1 OF 2 PAGES]
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The aggregate market value of the 9,014,677 shares of voting Common Stock of the
registrant held by non-affiliates of the registrant on February 29, 1996, based
on the last sale price of such stock on such date was $36,058,708.
Registrant's outstanding stock as of February 29, 1996 was 9,960,162 shares of
Common Stock and 656,250 shares of Series B Preferred Stock. The Series B
Preferred Stock is convertible by the holders thereof at any time into 700,000
shares of the Company's Common Stock and vote with the Common Stock as a single
class on all matters submitted to holders of Common Stock. All the Preferred
Stock is held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Part III is incorporated by reference to portions of the
Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission within 120 days after
the close of the Registrant's year ended December 31, 1995.
Certain Information required by Parts II and IV is incorporated by reference to
portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1995.
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PART I
ITEM 1. BUSINESS
THE COMPANY
I-Flow Corporation (the "Company" or "I-Flow") designs, develops,
manufactures and markets technically advanced, ambulatory infusion systems that
administer antibiotics, analgesics, chemotherapeutic agents, hormones,
nutrients, hydration therapies and other medical treatments to patients. The
Company's devices are designed for portability, convenience, reliability,
economy and technical sophistication such that cost effective healthcare may be
delivered at various sites, most frequently, the home, hospitals and physician
offices.
In 1990, I-Flow received FDA permission to market the Vivus 4000(TM)
Infusion System, its first product, and in 1991 emerged from its development
stage. The Vivus 4000(TM) Infusion System is a remotely programmable ambulatory
infusion system capable of delivering up to four different solutions, each at
its own schedule. In July 1992, I-Flow began marketing a reusable, low cost IV
infusion pump for the delivery of antibiotics, the SideKick(TM). It offers cost
and convenience benefits to customers, and quality-of-life advantages to
patients. In May 1993, the Company began to market the Paragon(TM), a low cost
IV drug delivery system for chemotherapy, pain medications and other critical
drugs which need to be administered at very low flow rates over many days.
Late in 1994, the Company began to market the elite, an electronic Paragon
with an "end of infusion" alarm. Both the Paragon and the elite are
reimbursable under existing Medicare product codes.
The Company received permission to market five new products from the
FDA during 1995: (1) the Band-It Drug Delivery System which the Company believes
is ideal for delivering medications that can be concentrated in a 10-cc syringe
- -- such as antibiotics, diuretics and bolus chemotherapy, (2) the Fixed Rate
Gravity Set which is used with standard IV bags and provides for the delivery of
medications and intravenous fluids at a controlled flow rate, (3) the Liberty, a
new mechanical-only pump designed to deliver medications from a standard
hospital IV mini-bag, (4) the Med-I-Flow, a mechanical syringe pump which uses
unique spring technology to deliver medications from standard syringes and (5) a
bolus device for patient controlled analgesia (PCA). The Band-It and the Fixed
Rate Gravity Set are currently being marketed and the remaining new products are
scheduled to be introduced sometime during 1996.
The Company was incorporated in the State of California in July 1985.
The Company's corporate offices are located at 2532 White Road, Irvine,
California 92714. The telephone number is (714) 553-0888.
THE PRODUCTS
The ambulatory infusion market may be thought of as having four
segments: (1) the high end, sophisticated, multiple-therapy, computer-controlled
devices, (2) the single drug electro-mechanical, single-therapy, single-channel
infusion devices normally costing $2,000 or more to purchase, (3) reusable,
mechanical-only infusion pumps, and (4) disposable or one time use
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devices such as elastomeric infusers, which are relatively expensive on a cost
per dose delivered basis.
I-Flow's first product, the Vivus System, competes in the high end as a
technologically advanced infusion pump. As the number of patients requiring
multiple drugs or multiple therapies increases, the Company believes this
segment should expand and overlap portions of the second segment.
The Company's more recent products (including the SideKick, Paragon,
elite, and the new products, the Band-It, Liberty and Med-I-Flow) are designed
to be innovative, low-cost, mechanical alternatives for infusion therapies which
compete in the second, third and fourth segments of the market. In fact, the
Company currently has the only reusable mechanical-only infusion pumps, which
because of their low cost per dose delivered, can compete as the low cost
alternative to elastomeric infusers. These reusable mechanical-only pumps may
also replace some of the electro-mechanical pumps in the market, which cost
considerably more. The new products expand the Company's marketplace to include
inpatient as well as outpatient institutions and are designed to address the
managed-care issues of cost without compromising patient care.
Two new products that were introduced towards the end of 1995, are:
The Band-It Syringe Delivery System -- An inexpensive system for
infusing a standard Becton-Dickinson syringe. Cost per dose is below
the cost of standard gravity systems.
Fixed Flow Rate Gravity Sets -- An easy-to-use gravity set that
utilizes a standard IV bag and eliminates the need for drop counting.
This set also eliminates the chance of accidental medication free-flow.
Nursing and patient training time is greatly reduced.
Two additional products, the Liberty and the Med-I-Flow, are expected
to be introduced in early 1996 and will provide a system for both inpatient and
outpatient institutions. These new systems of IV infusion products are designed
to be the lowest cost per dose systems on the market.
THE MARKET
Alternate site health care has grown rapidly. Alternate site revenues
for infusion therapy were estimated at approximately $8 billion in 1993 and are
expected to reach approximately $11 billion by the year 2000. The field has been
identified by the market research firm Biomedical Business International as one
of the fastest growing segments in U.S. health care with revenues rising in
excess of 20% annually.
Ambulatory infusion devices are one of the fastest growing segments in
the alternate-site health care marketplace. An ambulatory pump allows patients
to leave the hospital earlier, making it very attractive to cost-conscious
hospitals and to patients who favor home treatment.
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The Company believes this rapid growth of alternate infusion services
is generally attributed to several factors. Among them:
- Recently imposed third-party reimbursement limits that favor
more economical health care
- Increased awareness and acceptance of home infusion by
physicians, discharge planners, payers and patients
- Continued technological advances in drugs and alternate-site
treatment modes
- The desirability of treating patients in a familiar
environment
- The move toward shorter hospital stays and containment of
spiraling hospital costs
- The growing number of therapies that can be safely delivered
at alternate sites
COMPETITION
The intravenous drug and nutrient infusion segment of the alternate
site health care industry is highly competitive. The Company competes in this
market based on price, service and product performance. Some of the competitors
have significantly greater resources than the Company for research and
development, manufacturing and marketing, and may be better able to compete for
a share of the market, even in areas in which the Company's products may be
superior. The industry is subject to technological changes and there can be no
assurance that the Company will be able to maintain any existing technological
lead long enough to establish its products and to sustain profitability.
The Company has focused its product development efforts on products in
the ambulatory infusion systems market. Amounts spent on Company-sponsored
product development activities are disclosed in the Financial Statements
included elsewhere herein.
SALES AND DISTRIBUTION
Distribution of the Vivus and the new products introduced in late 1995
are currently managed directly through the I-Flow sales force as well as through
a few regional and national medical equipment distributors. As of February 1996,
the Company had four internal sales representatives located throughout the
United States. The Company is actively pursuing additional distribution
arrangements for its new products.
In March 1993, the Company signed an exclusive national distribution
agreement with an outside distributor for the SideKick, Paragon and elite
product lines, which expired in April 1994. Sales to this distributor during
1993 were approximately $3.7 million or 65% of total revenues.
In November 1994, the Company signed an exclusive national distribution
agreement with SoloPak Pharmaceuticals Inc. ("SoloPak") for the SideKick,
Paragon and elite product lines. During the year ended December 31, 1994, the
Company received a $500,000 non-refundable fee in consideration for an option
included in the agreement for the purchase of the
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U.S. distribution rights for these products in June of 1996. In March 1996, this
agreement was superseded with a new agreement in which SoloPak purchased the
exclusive right and license to manufacture and sell the products in the U.S. and
Puerto Rico. Pursuant to the new agreement, SoloPak paid the Company $1.3
million in consideration of the license in March 1996 and will pay the Company
guaranteed royalties of $1.0 million per quarter during each of the three
succeeding quarters in 1996. Additionally, SoloPak will pay I-Flow a royalty
equal to two percent of their net sales of the products for the 1997 and 1998
calendar years. Per the terms of the agreement, I-Flow has the right of first
refusal to supply SoloPak with services and assistance in assembling the
completed products until March 1998. The Company retained the rights to sell the
products outside the United States and Puerto Rico.
The Company sells the SideKick and Paragon into the international
market and has signed agreements with distributors in various countries.
Currently, the Company is selling its products through distributors in the
Canada, Brazil, the Benelux Countries, Germany, England, Ireland, Italy, Mexico,
Spain, Korea, Australia, New Zealand and Israel. Aggregate sales to countries
outside of the United States represented approximately 21% and 18% of the
Company's revenues for the years ended December 31, 1995 and 1994, respectively.
The Company does not have any capital investments in overseas operations.
MANUFACTURING AND OPERATIONS
Electromechanical assembly, calibration, pre and post-assembly quality
assurance inspection and testing, and final packaging for all products have
historically been performed at I-Flow facilities by I-Flow employees using parts
and materials acquired from a variety of outside vendors. The Company maintains
a separate warehouse facility for its components and finished products. Printed
circuit board manufacture and component integration are performed externally,
with I-Flow obtaining custom circuit boards and then providing the electronic
materials and engineering specifications to an outside assembler.
The manufacture of disposable medication bags and IV tubing for the
SideKick has been performed both internally and externally by an outside
supplier. In 1995, the Company expanded its internal manufacturing capabilities
to increase its production of these items internally. The Company is currently
manufacturing all of its products internally. The Company regularly reviews the
use of outside vendors for production versus internal manufacturing, analyzing
factors such as the quality of the products received from vendors, the costs of
the products, timely delivery and employee utilization.
PATENTS AND TRADEMARKS
The Company has filed U.S. patent applications for the Vivus 4000,
Vivus 4000/2, SideKick the Paragon and the Liberty as well as several new
products yet to be introduced. The Company received a patent for the Band-It
Drug Delivery System in 1995. Copyrights have been obtained for the Vivus 4000
programming software. The product name "Vivus 4000" is a registered trademark
and trademark applications are pending for the "Band-It" and "Liberty". There
can be no assurance, that pending patent or trademark applications will be
approved or
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that any patents will provide competitive advantages for the Company's products
or will not be challenged or circumvented by competitors.
REGULATIONS GOVERNING THE COMPANY'S MANUFACTURING OPERATIONS
Development and manufacture of I-Flow products are regulated by the
U.S. Food, Drug and Cosmetic Act. The Food and Drug Administration ("FDA"),
which administers this Act, has issued a number of regulations that dictate the
method by which new products are allowed to enter the U.S. market, and the
documentation and control of the manufacturing processes. In August 1993, the
Company received its biannual inspection from the FDA. There were no reportable
conditions found and no Form 483 was issued.
In addition to the FDA, the State of California has a set of similar
regulations and requires annual production-site inspections to maintain the
relevant manufacturing license. State regulations also address the storage and
handling of certain chemicals and disposal of their wastes.
Products intended for export shipment are also subject to additional
regulations, including compliance with ISO 9000. In May 1995, the Company
received ISO 9001 certification, which ensures that I-Flow's products meet
specified uniform standards of quality and testing. The Company was also granted
permission to use the "CE" mark on its products, which reflects approval of the
Company's products for export into 18 member countries of the European
Community.
The Company has passed all regulatory inspections and believes that it
is currently in compliance with all relevant federal, state and international
requirements in all material respects.
EMPLOYEES
As of February 29, 1996, the Company had a total of 68 full-time
employees, including 5 in management positions, 5 in clerical and
administrative, 8 in sales and marketing, 43 in manufacturing, materials and
quality control and 7 in product development. No employees are covered by a
collective bargaining agreement with a union. The Company considers its
relationship with its employees to be very good. The Company also uses temporary
employees as needed, mainly in manufacturing.
ITEM 2. PROPERTIES
In May 1991, the Company entered into a lease for a 12,576 square foot
stand-alone industrial/office building in Irvine, California. The lease
agreement contains certain scheduled rent increases and expires in June 1997. In
January 1995, the Company entered into a lease for an additional facility in
order to expand its warehousing and manufacturing operations. This lease also
expires in June 1997. The additional facility is approximately 15,000 square
feet and is located in the general area of the Company's headquarters.
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ITEM 3. LITIGATION
As of February 29, 1996, the Company was not involved in any
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the three months ended December 31, 1995.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the executive
officers and directors of the Company as of February 29, 1996. There are no
family relationships between any of the executive officers or directors of the
Company. The executive officers are chosen annually at the first meeting of the
Board of Directors following the annual meeting of shareholders and serve at the
pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name (Age) Position
---------- --------
<S> <C>
Donald M. Earhart (51) President, Chief Executive Officer and
Chairman of the Board
Henry T. Tai, Ph.D., M.D. (52) Secretary and Director
John H. Abeles, M.D. (51) Director
Joel S. Kanter (39) Director
Jack H. Halperin (49) Director
Erik H. Loudon (57) Director
Charles C. McGettigan (51) Director
James J. Dal Porto (43) Executive Vice President, Chief Operating
Officer
Gayle L. Arnold (34) Principal Financial and Accounting Officer
</TABLE>
DONALD M. EARHART, former Corporate Officer and President of the
Optical Division of Allergan, Inc., (from 1986 to 1990) has been Chairman of the
Board since March 1991, and Chief Executive Officer since July 1990. Mr. Earhart
joined the Company as President and Chief Operating Officer in June 1990. Mr.
Earhart, who holds a Bachelor of Engineering from Ohio State University and a
Masters Degree in Business Administration from Roosevelt University, has over 23
years experience in the medical products industry. Prior to his employment at
Allergan, he was a Corporate Officer and Division President of Bausch and Lomb,
and was an operations manager of Abbott Laboratories. He has also served as an
engineering consultant at Peat, Marwick, Mitchell & Co., and as an engineer with
Eastman Kodak Company. Mr. Earhart currently serves on the Board of Directors of
An Ping, a Bermuda Investment Company.
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HENRY T. TAI, PH.D., M.D. is the initial progenitor of the Company's
product and business concept in multiple-drug infusion systems. Dr. Tai was a
director from 1985 to 1988, and has been a director and Secretary of the Company
since 1990. Dr. Tai has been a practicing hematologist and cancer specialist
since 1977. Dr. Tai holds a Bachelor of Arts degree in Molecular Biology from
Harvard University, a Ph.D. in Molecular Biology and an M.D. from the University
of Southern California. He has done postdoctoral research in the molecular
biology of tumor virus DNA at the Weizman Institute of Science in Israel and at
the California Institute of Technology. He is a consultant in hematology and
medical oncology and has an academic appointment at the University of Southern
California School of Medicine, where he is conducting research on cancer
metastases.
JOHN H. ABELES, M.D. has been a director since 1985 and served as
Chairman of the Board from 1988 to March 1991. Dr. Abeles has been President of
MedVest, Inc., a general consulting and venture capital firm in the medical
industry, since January 1980. Dr. Abeles is the general partner of Northlea
Partners, a family investment partnership which is a shareholder in the Company.
Dr. Abeles holds an M.D. from the University of Birmingham, England, and he
currently serves on the Board of Directors of AccuMed International, Inc., Dusa
Pharmaceuticals, Inc., Healthcare Acquisition Corporation and Oryx Technology,
Inc.
JOEL S. KANTER was elected as a director in March 1991. Mr. Kanter has
been President of Windy City, Inc., an investment management firm since 1986. In
February 1995, he became President of Walnut Financial Services, Inc. Mr. Kanter
was the former managing director of Investor's Washington Service, a Washington
D.C. based service that provided information for corporations and institutional
money managers from 1985 to 1986. Mr. Kanter currently serves on the Board of
Directors of Concept Technologies Group, Inc., GranCare, Inc., Healthcare
Acquisition Corporation, Medcross, Inc., Osteoimplant Technologies, Inc. and
Walnut Financial Services, Inc.
JACK H. HALPERIN, ESQ. is a corporate and securities attorney who has
been in private practice since 1988. Mr. Halperin was formerly a member of
Bresler and Bab, a New York law firm from 1987 to 1988. Prior to that Mr.
Halperin was a member of Solinger, Grosz & Goldwasser, P.C. from 1981 to 1987.
Mr. Halperin currently serves on the Board of Directors of AccuMed
International, Inc., Memry Corporation and Xytronics, Inc. Mr. Halperin holds an
A.B. (summa cum laude) from Columbia College and a J.D. degree from New York
University School of Law where he was Note and Comment Editor of the Law Review.
ERIK H. LOUDON is the Managing director of EHL Investment Services
Limited in the Channel Islands. He was a Director of Sarasin Investment
Management, Ltd. in London from 1985 to 1989; and he currently serves on the
Board of Directors of Emerge Capital, Luxembourg, Fotolabo, S.A., Switzerland,
and Leaf Asset Management, Luxembourg.
CHARLES C. MCGETTIGAN was elected as a director of the Company in
October 1992. He was a founding partner in 1991 and is a general partner of
Proactive Investment Managers, L.P., which is the general partner of Proactive
Partners, L.P. Mr. McGettigan was a co-founder of McGettigan, Wick & Co., Inc.,
an investment banking fund , in 1988. From 1984 to 1988, he was a Principal,
Corporate Finance, of Hambrecht & Quist, Inc. Prior to that, Mr. McGettigan
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was a Senior Vice President of Dillon, Read & Co., Inc. He currently serves on
the Board of Directors of Digital Dictation, Inc., Modtech, Inc., NDE
Environmental, Inc., Onsite Energy, Inc., PMR Corporation, Sonex Research, Inc.
and Wray-Tech Instruments, Inc. Mr. McGettigan is a graduate of Georgetown
University, and received his MBA in Finance from the Wharton School at the
University of Pennsylvania.
JAMES J. DAL PORTO joined the Company in October 1989 to serve as
Controller. Mr. Dal Porto was promoted to Treasurer in October 1990, to Vice
President of Finance and Administration in March 1991, to Executive Vice
President, Chief Financial Officer in March 1993 and to Chief Operating Officer
in February 1994. Mr. Dal Porto served as Financial Planning Manager and Manager
of Property Accounting and Local Taxation at CalComp, a high technology
manufacturing company, from 1984 to 1989. Mr. Dal Porto holds a Bachelor of
Science degree in Economics from the University of California, Los Angeles, and
a Masters in Business Administration from California State University,
Northridge.
GAYLE L. ARNOLD joined the Company in April 1991 to serve as Controller
and was promoted to Vice President, Finance in February 1994. Prior to joining
the Company, Ms. Arnold served as Manager with the Accounting firm, Deloitte &
Touche where she was employed from 1984 to 1991. Ms. Arnold is a Certified
Public Accountant and holds a Bachelor of Business Administration degree from
the University of Texas, Austin.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Small-Cap Market under
the symbol "IFLO." The Company's Series B Preferred Stock is not publicly
traded, but is convertible by the holder at any time into shares of Common
Stock. The table below sets forth the high and low sales prices as reported by
The Nasdaq Small-Cap Market.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1994
----
1st Quarter $2.62 $1.62
2nd Quarter $1.81 $1.25
3rd Quarter $1.44 $1.31
4th Quarter $2.06 $1.59
1995
----
1st Quarter $3.38 $1.75
2nd Quarter $3.13 $2.50
3rd Quarter $3.69 $2.56
4th Quarter $6.06 $2.44
</TABLE>
American Stock Transfer & Trust Company is the Company's transfer agent
for its Common Stock. As of February 29, 1996, the Company had approximately 500
shareholders of record, and based upon information received from nominee
holders, the Company believes it has in excess of 2,000 total beneficial
holders.
The Company has not paid, and does not currently expect to pay in the
foreseeable future, cash dividends on its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is shown on page 6 of the Company's Annual
Report to Shareholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations appears on pages 7 to 8 of the Company's Annual Report to
Shareholders and is incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements
There is incorporated herein by reference the information required by
this Item included in the Company's 1995 Annual Report to Shareholders on pages
9 to 19.
(b) Financial Statement Schedules
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- -------------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts $175,000 $50,000 $183,000 $ 42,000
240,000 240,000
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts 42,000 205,000 247,000
Reserve for obsolete inventories 240,000 221,000 461,000
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts 247,000 262,000 509,000
Reserve for obsolete inventories 461,000 296,000 165,000
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
There is incorporated herein by reference the information required by
this Item included in the Company's Proxy Statement for the 1995 Annual Meeting
of Shareholders which will be filed with the Securities and Exchange Commission
no later than 120 days after the close of the fiscal year ended December 31,
1995 and the information from the section entitled "Directors and Executive
Officers of the Registrant" following Part I, Item 4 of this Report.
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ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by
this Item included in the Company's Proxy Statement for the 1995 Annual Meeting
of Shareholders which will be filed with the Securities and Exchange Commission
no later than 120 days after the close of the fiscal year ended December 31,
1995. The Company maintains certain employee benefit plans and programs in which
its executive officers and directors are participants. Copies of these plans and
programs are set forth or incorporated by reference as Exhibits 10.3 and 10.4 to
this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated by reference the information required by this
Item included in the Company's Proxy Statement for the 1995 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference the information required by this
Item included in the Company's Proxy Statement for the 1995 Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
(1) Financial Statements
The following financial statements of the Company and independent
auditors' report are included on pages 9 to 19 of the Company's Annual
Report to Shareholders and are incorporated herein by reference.
<TABLE>
<CAPTION>
Annual Report
Page(s)
-------
<S> <C>
Independent Auditors' Report 9
Financial Statements
Balance Sheets, December 31, 1995 and 1994 10
Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 11
Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 12
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 13
Notes to Financial Statements 14
</TABLE>
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The following are included herein:
Independent Auditors' Report (manually signed) Page 16 of this Report
The Financial Statements and Independent Auditor's Report listed in the
above index which are included in the Company's 1995 Annual Report to
Shareholders are hereby incorporated herein by reference. With
exception of the items referred to above and in Items 6, 7, and 8, the
Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1995 is not deemed filed as part of this Report.
(2) Financial Statement Schedules
The financial statement schedule required pursuant to this item has
been filed as a part of this report under Part II, Item 8. All other
schedules are omitted as the required information is inapplicable.
(3) Exhibits
The list of exhibits contained in the accompanying Index to Exhibits is
herein incorporated by reference.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
I-FLOW CORPORATION
By /s/ Donald M. Earhart
-------------------------------
Donald M. Earhart,
Chairman, President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities indicated on March
26, 1996:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Donald M. Earhart Chairman, President and Chief Executive Officer
------------------------------------
Donald M. Earhart
/s/ James J. Dal Porto Executive Vice President and Chief Operating
------------------------------------
James J. Dal Porto Officer
/s/ Gayle L. Arnold Principal Financial and Accounting Officer
------------------------------------
Gayle L. Arnold
/s/ John H. Abeles Director
------------------------------------
John H. Abeles, M.D.
/s/ Jack H. Halperin Director
------------------------------------
Jack H. Halperin
/s/ Joel S. Kanter Director
------------------------------------
Joel S. Kanter
/s/ Erik H. Loudon Director
------------------------------------
Erik H. Loudon
/s/ Charles C. McGettigan Director
------------------------------------
Charles C. McGettigan
/s/ Henry T. Tai Director
------------------------------------
Henry T. Tai, Ph.D., M.D.
</TABLE>
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
I-Flow Corporation:
We have audited the financial statements of I-Flow Corporation as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated January
26, 1996, except for Note 11 which the date is March 7, 1996. Such
financial statements and report are included in your Annual Report to
Shareholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of I-Flow Corporation listed in
Item 14. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
DELOITTE & TOUCHE, LLP
Costa Mesa, California
January 26, 1996
16
<PAGE> 17
INDEX TO EXHIBITS
Set forth below is a list of the exhibits included as part of this report:
Exhibit No. Exhibit
----------- -------
3.1 (2) Restated Articles of Incorporation
of the Company
3.2 (3) Certificate of Amendment to Restated
Articles of Incorporation dated June 14, 1991
3.3 (5) Certificate of Amendment to Restated
Articles of Incorporation dated May 12, 1992
3.4 (5) Certificate of Determination covering Company's
Series B Preferred Stock filed with the Secretary of
State on October 5, 1992
3.5 (3) Restated Bylaws as of July 22, 1991
of the Company
4.1 (5) Specimen Common Stock Certificate
4.2 (1) Form of Redeemable Common Stock Purchase
Warrant of the Company ("IPO Warrant")
4.3 (5) Certificates of Adjustment to IPO Warrants, dated
May 11, 1992, July 17, 1992 and October 5, 1992
4.4 (1) Warrant Agreement between the Company
and American Stock Transfer & Trust Company,
as Warrant Agent, dated February 13, 1990
4.5 (1) Forms of Warrant (Class A, B and C) dated
February 13, 1990 granted upon conversion of
9% convertible debentures issued in September
and October 1989 (the "Debenture Warrants")
4.6 (1) Warrant Purchase Agreement between the
Company and M.H. Meyerson & Co., Inc., dated
February 13, 1990 (the "Underwriter Warrants")
4.7 (5) Certificates of Adjustment to Underwriter Warrants,
dated May 11, 1992, July 17, 1992 and October 5, 1992
4.8 (4) Form of Warrant (Class D) dated March 18, 1991
included in units sold in 1991 private placement
4.9 (6) Form of Warrant (Class E) dated June 30, 1992
included in units sold in 1992 private placement
4.10 (6) Form of Warrant (Class F) dated October 5, 1992
included in units sold in 1992 private placement of
Preferred Stock
4.11 (7) Form of Warrant (Class G) dated December 17, 1993
included in units sold in 1993 private placement
17
<PAGE> 18
4.12 (7) Certificate of Adjustment to IPO Warrants, dated
December 17, 1993
4.13 (7) Certificate of Adjustment to Underwriter Warrants,
dated December 17, 1993
4.14 (8) Form of Warrant (Class H) dated June 3, 1994, issued
in conjunction with a consulting agreement
10.1 (2)(9) Employment Agreement with Donald M. Earhart dated
May 16, 1990
10.3 (5)(9) 1987-1988 Incentive Stock
Option Plan and Non-Statutory Stock Option Plan
Restated as of March 23, 1992
10.4 (4)(9) 1992 Non-Employee Director Stock Option Plan
10.5 License and Transfer Agreement with SoloPak
Pharmaceuticals Inc., dated March 6, 1996
13 1995 Annual Report to Shareholders (not deemed to be
filed herein except for certain portions which have
been incorporated herein by reference)
23.1 Independent Auditors' Consent
27. Financial Data Schedule
(1) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-32263-LA) declared effective
February 1, 1990.
(2) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended September 30, 1990.
(3) Incorporated by reference to exhibit with this title filed with the
Company's Registration Statement (#33-41207-LA) declared effective
August 8, 1991.
(4) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1991.
(5) Incorporated by reference to exhibit with this title filed with the
Company's Post Effective Amendment to its Registration Statement
(#33-41207-LA) declared effective November 6, 1992.
(6) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1992.
(7) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1993.
(8) Incorporated by reference to exhibit with this title filed with the
Company's Form 10-K for its fiscal year ended December 31, 1994.
(9) Management contract or compensatory plan or arrangement required to
be filed as an exhibit pursuant to applicable rules of the
Securities and Exchange Commission.
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<PAGE> 1
Exhibit 10.5
LICENSE AND TRANSFER AGREEMENT
LICENSE AND TRANSFER AGREEMENT (this "Agreement") dated as of
March 6, 1996 by and between SOLOPAK PHARMACEUTICALS INC., a corporation
organized under the laws of the State of Delaware and having its principal place
of business at 1845 Tonne Road, Elk Grove Village, Illinois 60007 ("SoloPak"),
and I-FLOW CORPORATION, a corporation organized under the laws of the State of
California and having its principal place of business at 2532 White Road,
Irvine, California 92714 ("I-Flow").
WHEREAS I-Flow and SoloPak entered into a Distribution
Agreement dated as of November 1994 (the "Original Agreement") providing for the
sale and distribution by SoloPak of the "Side-Kick" pump and "SideKick"
administration sets and related accessories, the "Paragon" pump and "Paragon"
administration sets and related accessories and the "Paragon elite" pump and
"Paragon" administration sets and related accessories; and
WHEREAS I-Flow is the sole owner of all rights, title and
interest in and to (i) the "SideKick Infusion System" -- a round, spring-driven
infusion pump with dedicated administration sets and related accessories; (ii)
the "Paragon Infusion System" -- a round, spring-driven infusion pump with
dedicated administration sets and related accessories; and (iii) the "Paragon
elite Infusion System" --a round, spring-driven infusion pump with dedicated
administration sets and related accessories which also includes an electronic
alarm to denote the completion of an infusion; and
WHEREAS SoloPak desires to purchase and acquire from I-Flow:
A. The exclusive, perpetual, fully-paid and irrevocable right
and license to: (i) manufacture and sell the Products to Customers located in
and for use in the Territory; and (ii) manufacture the SideKick top assembly and
Paragon and Paragon elite cover assembly for incorporation into SideKick and
Paragon Pumps and to purchase from I-Flow Spring Assemblies and System
Components, all as more specifically set forth herein; and
B. All of I-Flow's rights, title and interest in and to the
Molds; and
WHEREAS the parties wish to confirm their additional
agreements and understandings regarding manufacture, assembly, purchasing and
other commercial transactions relating to the Products; and
WHEREAS SoloPak and I-Flow desire to terminate their
respective covenants, agreements, obligations, duties and liabilities under the
Original Agreement, except as otherwise expressly provided in Article 2 of this
Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree to and with each other as follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, the following words, terms
and phrases where written with an initial capital letter, shall have the meaning
assigned to them in this Article 1 unless the context otherwise requires (the
singular including the plural, and the plural including the singular, as may be
appropriate):
1.1 Administration Set Components. "Administration Set
Components" shall mean the Flow Restrictor, round Drug Bag, Filling Valve,
filter, tubing and various components as set forth in Schedule 1.1 hereto.
1.2 Affiliate. "Affiliate", as applied to any Person, shall
mean any other Person, or group of Persons acting in concert, directly or
indirectly controlling, in control of, or under common control with, that
Person. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling," "controlled" and "under common control with")
shall mean with respect to any Person the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise.
1.3 Assembled Administration Sets. "Assembled Administration
Sets" shall mean an assembled or packaged set of two or more Administration Set
Components sold together as a unit specifically for use with any Product.
1.4 Closing. "Closing" shall have the meaning given such term
in Section 3.7 hereof.
1.5 Closing Date. "Closing Date" shall have the meaning given
such term in Section 3.7 hereof.
1.6 Confidential Information. "Confidential Information" shall
mean all information, other than information expressly designated in writing as
non-confidential by the party disclosing the same, which is directly or
indirectly disclosed to any other party hereto, regardless of the form in which
it is disclosed, relating in any way to the disclosing party's markets,
customers, products, patents, formulae, inventions, procedures, methods,
designs, strategies, plans, assets, liabilities, costs, revenues, profits,
organization, employees, agents, distributors or business in general.
1.7 Customers. "Customers" shall mean Persons located in the
Territory purchasing Products (for use only in the Territory) for any and all
human health care-related intravenous applications and uses whatsoever (whether
for administering pharmaceutical or nutritional products or otherwise);
provided, however, that "Customers" shall not include persons purchasing
Products for non-human health care uses (such as animal health care or
industrial applications).
1.8 Dollars. "Dollars or "$" shall mean lawful currency of the
United States of America.
1.9 Drug Bag. "Drug Bag" shall mean the round flexible bag
that is filled with a pharmaceutical or nutritional product and placed in the
Pump bottom.
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<PAGE> 3
1.10 Escrow Agreement. "Escrow Agreement" shall have the
meaning given such term in Section 4.3(b) hereof.
1.11 Filling Valve. "Filling Valve" shall have the meaning
given such term in Schedule 1.11 hereof.
1.12 Flow Restrictor. "Flow Restrictor" shall mean the flow
control orifice used in the Paragon and Paragon elite Infusion Systems and the
calibrated flow control tubing used in the SideKick Infusion System.
1.13 FDA. "FDA" shall mean the United States Food and Drug
Administration and any agency or governmental body succeeding to the duties
thereof.
1.14 510(k) Clearance. "510(k) Clearance" shall mean the
permission to market pursuant to Section 510(k) of the U.S. Food and Drug Act
for the manufacture and sale of the Products in the United States.
1.15 Guaranteed Royalty. "Guaranteed Royalty" shall have the
meaning given such term in Section 3.2(a)(ii) hereof.
1.16 I-Flow. "I-Flow" shall have the meaning given such term
in the introduction to this Agreement.
1.17 Letter of Credit. "Letter of Credit" shall have the
meaning given such term in Section 3.2(b) hereof.
1.18 License. "License" shall have the meaning given such term
in Section 3.1(a) hereof.
1.19 Molds. "Molds" shall mean the molds necessary to
manufacture the top and bottom halves, as well as the molds necessary to
complete the assembly of, the SideKick and Paragon Pumps, all as set forth on
Schedule 1.19 hereof.
1.20 Net Sales. "Net Sales" shall mean the gross sales
revenues resulting from SoloPak's sales of the Products minus (i) normal returns
and allowances of Products and normal discounts on Products allowed and taken
and (ii) any payments made to a Customer by reason of uninsured manufacturing
defects.
1.21 Person. "Person" shall mean any natural person,
corporation, proprietorship, limited partnership, general partnership, joint
stock company, joint venture, association, company, trust company, business
trust or other organization or entity, whether or not a legal entity, or any
governmental agency or subdivision thereof.
1.22 Products. "Products" shall mean the SideKick Infusion
System, the Paragon Infusion System, and the Paragon elite Infusion System.
1.23 Pump. "Pump" shall mean, with respect to any Product, the
fully-assembled Pump Components, including the Spring Assembly.
1.24 Pump Components. "Pump Components" shall mean: (i) the
"top" or upper portion of the pump assembly used for each Product, (ii) the
"bottom" or lower portion of the pump assembly used for each Product, (iii) the
I-Flow proprietary Spring
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<PAGE> 4
Assembly that is used in each Product, and (iv) miscellaneous components
necessary for assembly. Further definitions as per Schedule 1.24.
1.25 Specifications. "Specifications" shall mean those
specifications (including, without limitation, as to quality control) for the
assembly of, the materials used in, and the performance of the Spring Assembly
with the other components used in the SideKick Infusion Systems, the Paragon
Infusion Systems and the Paragon elite Infusion Systems in effect as of the date
hereof as set forth in Schedule 1.25 hereto, as the same may be modified from
time to time by written agreement of SoloPak and I-Flow.
1.26 Spring Assembly. "Spring Assembly" shall mean:
(i) For the SideKick Infusion Systems, the "Spring Assembly"
shall mean the "pressure plate" assembly. The pressure plate assembly is the
I-Flow proprietary spring, the pressure plate and attaching wires.
(ii) For the Paragon and Paragon elite Infusion Systems, the
"Spring Assembly" shall mean the "scissors" assembly. The scissors assembly is
the I-Flow proprietary springs, sliders and links.
1.27 System Components. "System Components" shall mean, with
respect to any Product, the Pump, the Administration Set Components and the
accessories.
1.28 Technology. "Technology" shall mean any and all designs,
plans, specifications, drawings, patents (including, without limitation, pending
applications for patents), formulae, inventions, procedures, manufacturing
techniques, methods, strategies, software, know-how and intellectual property
rights of whatsoever nature.
1.29 Territory. "Territory" shall mean the United States of
America and Puerto Rico.
1.30 Trademarks. "Trademarks" shall mean all trademarks or
other property rights, if any, of I-Flow in and to the names "SideKick",
"Paragon" and "Paragon elite" to the extent used in connection with the Products
in the Territory (including any variations thereof and all trademarks or
tradenames, designs, logos or other marks, if any, incorporating all or any
portion of such trademarks, and all registrations or applications, if any, to
register the same in the Territory and all rights, if any, with respect to any
claims of infringement with respect thereto in the Territory), including the
goodwill of the business in the Territory associated therewith.
1.31 Transferred Assets. "Transferred Assets" shall have the
meaning given such term in Section 3.1(b) hereof.
1.32 U.S. Food and Drug Act. "U.S. Food and Drug Act" shall
mean the United States Federal Food, Drug, and Cosmetics Act, and all
regulations, directives, policy statements and guidelines promulgated thereunder
or issued pursuant thereto, as the same may be amended, modified or replaced
from time to time.
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<PAGE> 5
ARTICLE 2
REMAINING PRODUCT ORDERS UNDER THE ORIGINAL AGREEMENT; TERMINATION
OF THE ORIGINAL AGREEMENT
2.1 Satisfaction of Purchase Obligations; Termination of the
Original Agreement. (a) Prior to the date hereof, SoloPak has purchased a
quantity of I-Flow Products and other goods in satisfaction and discharge of all
of the obligations, duties and liabilities of SoloPak to purchase Products under
the Original Agreement or any other agreement, understanding or arrangement with
I-Flow (other than this Agreement). I-Flow acknowledges and agrees that it has
received payment in full for such purchases prior to the date hereof.
(b) Products and goods purchased from I-Flow by SoloPak as
provided in Section 2.1(a) above have been purchased on the terms and subject to
the conditions set forth in the following Sections of the Original Agreement:
Section 4.01 Prices
Section 4.03 Shipment Terms
Section 6.01 Warranty Information
Section 6.02 Disclaimer of Warranty
Section 6.03 Exclusive Remedies
Section 6.04 Limitation of Liability
Section 6.05 Indemnification of I-Flow
Section 6.06 Indemnification of Distributor
References to the Sections of the Original Agreement specified above shall not
be construed to create or preserve any obligations on the part of SoloPak or
I-Flow under the Original Agreement; provided, however that the obligations of
SoloPak and I-Flow under Sections 6.01, 6.02, 6.03, 6.04, 6.05 and 6.06 of the
Original Agreement, to the extent that they relate to Products and goods sold by
I-Flow to SoloPak prior to the date hereof, shall nevertheless survive for one
year.
(c) I-Flow hereby agrees that, notwithstanding anything in the
Original Agreement to the contrary, no interest or penalty fee or charge (except
as has been previously made by SoloPak which shall be retained by I-Flow) shall
accrue on or be payable with respect to any amounts required to be paid by
SoloPak to I-Flow under the Original Agreement, regardless of any delay between
the date payment was required to have been made and the date such payment was
actually received by I-Flow.
2.2 Termination of the Original Agreement. Except as otherwise
provided in Section 2.1 above, SoloPak and I-Flow acknowledge and agree that (i)
the Original Agreement shall be terminated, discharged and released in all
respects and (ii) neither SoloPak nor I-Flow shall have any continuing liability
or obligation under or in respect of the Original Agreement, and (iii) each
party fully releases the other from any and all claims, liabilities and the like
arising out of, or attributable to, the Original Agreement.
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<PAGE> 6
ARTICLE 3
GRANT OF LICENSE AND RIGHT
3.1 Grant of License; Transfer of Assets. (a) Subject to the
terms and conditions set forth in this Agreement, I-Flow hereby grants to
SoloPak (effective as of the Closing) the perpetual, fully paid and irrevocable
right and license (hereinafter referred to as the "License") to:
(i) exclusively (1) manufacture, assemble, produce, sell and
distribute to Customers in the Territory, and (2) cause to be
manufactured, assembled, produced, sold and distributed to Customers in
the Territory by one or more Affiliates or sublicensees of SoloPak as
it may from time to time select, the Pump Components excluding,
however, the manufacture, production, or assembly of the Spring
Assemblies;
(ii) exclusively purchase and acquire Spring Assemblies and
Administration Set Components from I-Flow or any of I-Flow's Affiliates
or sublicensees for inclusion in Products and Assembled Administration
Sets to be assembled, produced, sold and distributed to Customers in
the Territory;
(iii) exclusively assemble and produce Products (or to cause
one or more Affiliates or sublicensees of SoloPak as it may from time
to time select to assemble and produce Products) for sale and
distribution to Customers in the Territory using Spring Assemblies and
Administration Set Components purchased from I-Flow as provided herein;
(iv) exclusively (1) sell and distribute Products to Customers
in the Territory, (2) promote the sale of Products to Customers in the
Territory, and (3) cause the Products to be sold, distributed and
serviced to Customers in the Territory by SoloPak itself and/or one or
more Affiliates or sublicensees of SoloPak as it may from time to time
select;
(v) modify, improve, enhance, upgrade and redesign the System
Components (but not the Spring Assemblies or the Filling Valves)
incorporated in each Product sold to Customers in the Territory, in
which event the rights and license described in the foregoing clauses
(i) through (iv) shall be deemed to include such System Components as
so modified, improved, enhanced, upgraded or redesigned; and
(vi) have the exclusive right to use any Trademarks in
connection with SoloPak's production, distribution and sale of Products
to Customers in the Territory.
(b) Subject to the terms and conditions set forth in this
Agreement, at the Closing Date, I-Flow shall sell, convey, assign, transfer and
deliver to SoloPak, and SoloPak shall purchase, acquire and accept from I-Flow,
all of I-Flow's right, title and interest in and to the Molds (hereinafter
referred to collectively as the "Transferred Assets").
(c) Nothing in this Agreement shall be deemed to limit or
restrict SoloPak's right to assemble and produce or arrange to assemble and
produce for sale and
6
<PAGE> 7
distribution to Customers in the Territory all or any portion of the
Administration Set Components other than a Component derived from or
constituting I-Flow's proprietary version of the Filling Valve. In addition,
nothing in this Agreement shall be deemed to require SoloPak to purchase from
I-Flow all or any portion of the Administration Set Components (including
without limitation the Filling Valve).
3.2 Consideration. (a) Subject to the terms and conditions set
forth in this Article III, in consideration for the License and the Transferred
Assets,
(i) SoloPak shall pay I-Flow $1,300,000 in cash on the Closing
Date in partial consideration of the License and the Transferred Assets
as provided in Section 3.1 above;
(ii) SoloPak shall pay I-Flow $3,000,000 in cash as a fixed,
guaranteed royalty (the "Guaranteed Royalty"), payable in installments
during 1996 as follows: $1,000,000 on June 20, 1996; $1,000,000 on
September 20, 1996 and $1,000,000 on December 20, 1996; and
(iii) SoloPak shall pay I-Flow a royalty equal to two percent
(2%) of Net Sales of the Products for the 1997 and 1998 calendar years,
inclusive, which payments shall be made as provided in Section 3.6(a)
below.
No other consideration of any nature whatsoever shall be
required to be paid or delivered to I-Flow in consideration of the License, the
Transferred Assets and the other rights granted to SoloPak hereunder, and the
parties hereby covenant and agree that (except as set forth immediately above in
this Section 3.2(a) (x) the License shall be deemed to be fully paid-up,
perpetual and royalty-free from and after the date hereof and (y) that the sole
right and remedy of I-Flow with respect to the purchase price of the License and
the Transferred Assets from and after the date hereof shall be to receive,
subject to the terms and conditions of this Agreement, the amounts required to
be paid to I-Flow by SoloPak as provided in clauses (i), (ii) and (iii) of this
Section 3.2(a).
(b) On the Closing Date SoloPak shall obtain and deliver to
I-Flow an irrevocable standby letter of credit (the "Letter of Credit") from a
bank or other financial institution mutually selected by SoloPak and I-Flow in
an amount, and providing for payments on such dates, as will enable I-Flow to
collect each installment of the Guaranteed Royalty in full no later than five
days after such installment is due if SoloPak shall fail to pay the same as
provided in this Section 3.2. The Letter of Credit shall have such terms and
conditions and shall be in such form as is reasonably acceptable to I-Flow and
its counsel, and all fees and expenses incurred by SoloPak in obtaining and
maintaining such Letter of Credit shall be paid by SoloPak.
3.3 Instruments of Assignment and Grant. (a) At the Closing,
I-Flow shall deliver to SoloPak:
(i) an acknowledgment and such other endorsements, in form
reasonably satisfactory to Reboul, MacMurray, Hewitt, Maynard & Kristol
("SoloPak's Counsel"), as shall be effective to evidence the License
granted to SoloPak as provided in Section 3.1(a); and
(ii) a bill of sale and such endorsements, assignments and
other good and sufficient instruments of transfer, conveyance and
assignment, in form reasonably
7
<PAGE> 8
satisfactory to SoloPak's counsel, as shall be effective to vest in
SoloPak good and valid title, free and clear of all liens and
encumbrances, to the Transferred Assets.
(b) I-Flow shall take all commercially reasonable steps to
assist SoloPak in taking actual possession and operating control of the Molds
ninety (90) days after the Closing Date and will also provide reasonable
assistance to SoloPak as to preparation for shipment. I-Flow shall retain
possession and operating control of the Molds (including any and all risk of
loss or damage thereto) until ninety (90) days after the Closing Date, but
I-Flow covenants, represents and warrants that it has not and will not place
orders for Pump Components from February 15, 1996 to the date that is ninety
(90) days after the Closing Date. All costs of disassembly, shipment and
reassembly of the Molds, together with all other costs and expenses relating
thereto, shall be solely borne by SoloPak.
3.4 Further Assurances. I-Flow shall from time to time, upon
the written request of SoloPak and without further consideration, execute and
deliver such instruments of assignment, transfer and license in addition to
those delivered pursuant to Section 3.3 and take such other actions as SoloPak
may reasonably request more effectively to evidence the grant of the License and
the sale, conveyance, assignment, transfer and delivery of the Transferred
Assets as provided herein.
3.5 Consents. Prior to the Closing, I-Flow shall obtain all
authorizations, consents, waivers and approvals as may be required from any
Person in connection with the grant of the License and the sale, conveyance,
assignment, transfer and delivery of the Transferred Assets as provided herein,
and shall provide SoloPak with copies of all of same on or prior to the Closing.
3.6 Certain Payments. (a) Royalties payable to I-Flow pursuant
to Section 3.2(a)(iii) shall be paid within forty-five (45) days after the end
of each calendar quarter with respect to royalty-bearing sales made or occurring
in such quarter. Royalties shall be paid by SoloPak in U.S. Dollars. Each
royalty payment shall be accompanied by a report showing in reasonable detail
the amount of the Net Sales occurring in such quarter and the calculation of the
relevant royalty payment.
(b) SoloPak shall keep and maintain, in reasonable detail,
accurate books and records with regard to the Net Sales for calendar years 1997
and 1998 and all royalties payable with respect to sales during such years.
Representatives of I-Flow's public accountants (which shall be one of the "big
six" accounting firms) shall be entitled to review, copy and audit such books
and records (no more often than semi-annually) during normal business hours upon
reasonable notice to SoloPak. The expenses of any such examination shall be paid
by I-Flow, except in the event that such examination discloses an underpayment
in excess of three percent (3%) of the total amount paid to I-Flow for the
examined period (in which case the expenses of such examination shall be paid by
SoloPak).
3.7 Closing. The closing (the "Closing") of the transactions
contemplated by this Article 3 shall take place at the offices of Gibson, Dunn &
Crutcher, 4 Park Plaza, Irvine, California, at 7:30 a.m., local time, on March
6, 1996 or at such other place or at such other date and time as the parties may
mutually agree (such date and time of Closing being herein called the "Closing
Date").
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<PAGE> 9
3.8 Conditions to Closing. (a) The obligations of SoloPak
under this Agreement are subject, at the option of SoloPak, to the satisfaction
on or prior to the Closing Date of each of the following conditions:
(i) The representations and warranties of I-Flow contained in
Article 5 hereof shall be true and correct in all material respects on
and as of the Closing Date as though made at and as of that date, and
I-Flow shall have delivered to SoloPak a certificate to that effect;
(ii) The parties to the Escrow Agreement shall have executed
and delivered such Agreement and the Escrowed Assets shall have been
deposited with the Escrow Agent;
(iii) No legal action or proceeding shall have been instituted
or threatened seeking to restrain, prohibit, invalidate or otherwise
affect the consummation of the transactions contemplated hereby; and
(iv) I-Flow shall have obtained all authorizations, consents,
waivers and approvals required in connection with the transfer and
assignment of those licenses and assets to be assigned to SoloPak
pursuant to this Agreement.
(b) The obligations of I-Flow under this Agreement are
subject, at the option of I-Flow, to the satisfaction on or prior to the Closing
Date of each of the following conditions:
(i) The representations and warranties of SoloPak contained in
Article 5 hereof shall be true and correct in all material respects on
and as of the Closing Date as though made at and as of that date, and
SoloPak shall have delivered to I-Flow a certificate to that effect;
(ii) The parties to the Escrow Agreement shall have executed
and delivered such Agreement;
(iii) No legal action or proceeding shall have been instituted
or threatened seeking to restrain, prohibit, invalidate or otherwise
affect the consummation of the transactions contemplated hereby;
(iv) SoloPak shall have obtained all the authorizations,
consents, waivers and approvals, if any, required in connection with
the performance of its obligations hereunder; and
(v) SoloPak shall have delivered the Letter of Credit to
I-Flow as provided in Section 3.2(b) above.
ARTICLE 4
CERTAIN COVENANTS; PRODUCT COMPONENT PURCHASES;
AGREEMENTS NOT TO SELL
4.1 Agreement Not to Sell, Etc. Except as provided in this
Agreement, neither I-Flow nor any Affiliate of I-Flow shall manufacture,
produce, sell or distribute for use by Customers in the Territory (or agree to
manufacture, produce, sell or distribute,
9
<PAGE> 10
directly or indirectly, for use by Customers in the Territory) (a) any infusion
pump or device incorporating a circular or substantially circular bag used to
hold a pharmaceutical or nutritional product in a spring-driven pump, (b) any of
the three Products which are the subject of SoloPak's License, or (c) any
Assembled Administration Sets. In addition, I-Flow will not sell complete or
near-complete sets of Administration Set Components if the purchaser of such
Components could readily assemble the same into Products or Assembled
Administration Sets for sale to Customers in the Territory. Further, and in
order to protect the exclusivity of SoloPak's License, I-Flow shall take all
commercially reasonable steps necessary (including, without limitation, the
enforcement of the provisions of its existing and future distribution, sales and
licensing agreements as such provisions relate to the prohibition of sales of
Products and Assembled Administration Sets to Customers in the Territory) to
ensure that Products, Spring Components and Administration Set Components sold
or distributed by it or by any of its Affiliates or sublicensees as permitted by
the second paragraph of this Section 4.1 are not resold or redistributed to
Customers in the Territory in violation of SoloPak's License.
I-Flow acknowledges and agrees that the foregoing provisions of this Section 4.1
are reasonable and properly required for the protection of the rights and
licenses being sold to SoloPak hereunder. Nothing herein shall be construed or
be deemed in any manner to restrict or limit I-Flow's continuing right and
ability to manufacture, produce, sell and/or distribute Products outside the
Territory or --whether directly or indirectly and whether within or outside the
Territory (as long as such Products are not to be resold, redistributed or
otherwise made available to Customers in the Territory) for human health
care-related intravenous applications -- (a) Products for non-human applications
(such as animal health care or industrial applications), or (b) infusion pumps
or devices that incorporate a non-circular bag even if such infusion pumps or
devices may be used in the same manner and for the same purposes as one or more
of the Products. Additionally, it shall not be deemed a breach of this Section
4.1 if a third party acquires I-Flow or any Affiliate thereof and, at the time
of and following such acquisition, such third party manufactures, produces,
sells or distributes to Customers in the Territory (or has agreements with
others to do the same) an existing line of commercial products (including future
models and products) that are infusion pumps or devices incorporating a circular
or substantially circular or roundish bag.
4.2 Certain Remedies. I-Flow agrees and acknowledges that the
rights and obligations set forth in the first paragraph of Section 4.1 above are
of a unique and special nature and that SoloPak is, therefore, without an
adequate legal remedy in the event of any violation of the covenants set forth
in said Section 4.1 by I-Flow or any of its Affiliates or sublicensees. I-Flow
therefore agrees that the covenants made by it pursuant to said Section 4.1
shall be specifically enforceable in equity in addition to all other rights and
remedies, at law or in equity, that may be available to SoloPak.
4.3 No Transfer of Technology for Spring Assemblies or Filling
Valves; Escrow. (a) SoloPak acknowledges and agrees that I-Flow is not
transferring or licensing and shall not be deemed in any manner to have
transferred or licensed any portion or part of I-Flow's rights, title or
interest in and to the Technology relating to the Spring Assemblies, the Flow
Restrictors, or the Filling Valves, and that the only right granted hereunder to
SoloPak with respect to the Spring Assemblies, the Flow Restrictors and the
Filling Valves is the right to purchase such Spring Assemblies, Flow Restrictors
and Filling Valves, as finished assemblies, from I-Flow for inclusion in
Products to be assembled, produced, sold and distributed by SoloPak to Customers
in the Territory.
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(b) Notwithstanding Section 4.3(a) hereof, in order to induce
SoloPak to enter into this Agreement and to purchase the License and the
Transferred Assets as provided herein, I-Flow hereby agrees to enter into an
Escrow Agreement (the "Escrow Agreement") in the form of Exhibit A hereto
providing for the deposit into escrow of all engineering drawings, standard
manufacturing practices and related Technology owned by I-Flow relating to the
Spring Assemblies and Flow Restrictors (collectively, the "Escrowed Assets"),
which Escrowed Assets shall be held by Data Securities International, Inc., as
Escrow Agent, and made available to SoloPak in accordance with the terms and
subject to the conditions of the Escrow Agreement.
4.4 Agreement Not to Sell; Certain Remedies. (a) SoloPak shall
ensure that neither SoloPak nor any Affiliate or sublicensee of SoloPak shall:
(i) sell or distribute (or agree to sell or distribute,
directly or indirectly) any proprietary System Components to Persons
other than Customers located in and for use in the Territory;
(ii) sell, distribute or promote for sale (or agree to sell,
distribute or promote for sale, directly or indirectly) any Products
(or substantial copies thereof) to Persons other than Customers located
in and for use in the Territory;
(iii) reverse engineer or produce, or cause to be reverse
engineered or produced, any Spring Assemblies or Filling Valves; or
(iv) fail to supply I-Flow with Pump Components in a timely
fashion as per the provisions of Section 4.5 hereof and subject to the
supply terms described therein.
(b) SoloPak agrees and acknowledges that the rights and
obligations set forth in Section 4.4(a) above are of a unique and special nature
and that I-Flow is, therefore, without an adequate legal remedy in the event of
any violation of the covenants set forth in said Section 4.4(a) by SoloPak with
respect to itself or any of its Affiliates or sublicensees. Accordingly, SoloPak
expressly acknowledges that injunctive relief, without bond, would be fully
appropriate in the event of any breach by SoloPak of its obligations under said
Section 4.4(a). SoloPak therefore agrees that the covenants made by it pursuant
to said Section 4.4(a) shall be specifically enforceable in equity (including,
for example, in the event of a breach of (iv) above, providing I-Flow with
operating control of the Molds or requiring SoloPak to produce and deliver Pump
Components) in addition to all other rights and remedies, at law or in equity,
that may be available to I-Flow (including without limitation damages for lost
profits and the like).
4.5 Supply of Pump Components to I-Flow. (a) SoloPak hereby
agrees to fill, in a timely manner, orders by I-Flow to supply Pump Components
to I-Flow for sale to Persons outside of the Territory and to Persons in the
Territory as provided in the second paragraph of Section 4.1 at prices
(excluding shipping, handling, insurance, packaging and other incidental
charges, which shall be paid by I-Flow) equal to the sum of (i) SoloPak's Cost
(as hereinafter defined) thereof (as the same may increase or decrease from time
to time), plus (ii) ten percent (10%) of such Cost, and on such other reasonable
and customary terms (including lead times for manufacturing, projections,
purchase orders, shipping terms and force majeure) and subject to such standard
terms and conditions as SoloPak and I-Flow may mutually agree upon from time to
time. The foregoing shall not
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apply to orders placed by I-Flow prior to February 15, 1996 which shall be
filled, at I-Flow's cost, while the Molds are under I-Flow's operating control.
(b) For the purposes of this Agreement, SoloPak's "Cost" shall
mean, with respect to any Pump Component, SoloPak's fully burdened standard cost
(i.e., the costs of materials, labor, reasonable manufacturing overhead, and
other direct manufacturing costs), it being understood and agreed by SoloPak and
I-Flow that the Cost of Pump Components manufactured by SoloPak are, as of the
date hereof, estimated to be as specified in Schedule 4.5(b) hereto. SoloPak and
I-Flow agree that the methodology of allocating costs reflected in the Cost
specified for the Pump Components identified in Schedule 4.5(b) may not be
changed or modified by either party hereto without the prior written consent of
the other.
(c) Nothing in this Agreement shall be deemed to impose any
obligation on I-Flow to purchase any minimum quantity of Pump Components from
SoloPak.
4.6 Supply of Spring Assemblies and Administration Set
Components to SoloPak.
(a) I-Flow hereby agrees to fill, in a timely manner, orders
by SoloPak to supply Spring Assemblies and Administration Set Components only
for use with the Products to SoloPak and its designees for sale to Customers in
the Territory at prices (excluding shipping, handling, insurance, packaging and
other incidental charges, which shall be paid by SoloPak), equal to the sum of
(i) I-Flow's Cost (as hereinafter defined) thereof (as the same may increase or
decrease from time to time), plus (ii) ten percent (10%) of such Cost, and on
such other reasonable and customary terms (including lead times for
manufacturing, projections, purchase orders, shipping terms and force majeure)
and subject to such conditions as govern I-Flow's purchases from SoloPak under
Section 4.5(a) and Article VII hereof.
(b) For purposes of this Agreement, I-Flow's "Cost" shall
mean, with respect to any Spring Assembly or Administration Set Component,
I-Flow's fully burdened standard cost (i.e., the costs of materials, labor,
reasonable manufacturing overhead, and other direct manufacturing costs), it
being understood and agreed by SoloPak and I-Flow that the Cost of Spring
Assemblies and Administration Set Components manufactured by I-Flow are, as of
the date hereof, estimated to be as specified in Schedule 4.6(b) hereto. SoloPak
and I-Flow agree that the methodology of allocating costs reflected in the Cost
specified for the Spring Assemblies and Administration Set Components identified
in Schedule 4.6(b) may not be changed or modified by either party hereto without
the prior written consent of the other.
(c) SoloPak hereby agrees that, as long as I-Flow is not in
material default of its obligations under this Section 4.6, neither SoloPak nor
any of its Affiliates, designees, distributors, subcontractors or sublicensees
will purchase any Spring Assemblies for inclusion in the Products from any
Person other than I-Flow.
(d) Nothing in this Agreement shall be deemed to impose any
obligation on SoloPak to purchase any minimum quantity of Spring Assemblies or
any minimum quantity of any Administration Set Components from I-Flow.
4.7 I-Flow Right of First Refusal. Commencing the Closing Date
hereof and ending on the second anniversary of the Closing Date, I-Flow shall
have the
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continuing right of first refusal to supply SoloPak and its Affiliates with
services and assistance in assembling completed Products (the "Services"). Prior
to SoloPak's and/or its Affiliates' acceptance of any third party bid or
proposal to manufacture and/or assemble all or any portion of the Products,
SoloPak shall first cause a true and accurate copy of such bid or proposal to be
submitted to I-Flow. In the event that, within fifteen (15) days of I-Flow's
receipt of the third party bid or proposal, I-Flow notifies SoloPak that it will
better (by any amount) the pricing set forth in such third party bid or proposal
and meet the other terms and conditions of such bid or proposal, SoloPak shall
ensure that I-Flow is selected as the provider of the relevant services. After
I-Flow has made a proposal which betters the price of the third party proposal
submitted, no additional third party bids or proposals will be allowed. The term
of each bid shall be for a minimum of one year. Under no circumstances shall
SoloPak and/or any of its Affiliates enter into an agreement relating to the
Services, or agree to a modification of an existing agreement relating to the
Services, with another third party which has not been submitted first to I-Flow
to enable exercise of the foregoing right of first refusal.
ARTICLE 5
CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 By I-Flow. In order to induce SoloPak to enter into this
Agreement, I-Flow represents and warrants to and agrees with SoloPak as follows:
(a) Organization. I-Flow is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and has all requisite corporate power and authority to own and operate its
properties and assets and to carry on the business presently conducted by it and
contemplated by this Agreement.
(b) Authority, Binding Effect. (i) I-Flow has all requisite
corporate power and authority to execute, deliver and perform this Agreement and
the Escrow Agreement; this Agreement and the Escrow Agreement have been duly
executed and delivered by I-Flow and the execution, delivery and performance of
this Agreement and the Escrow Agreement by I-Flow have been duly authorized by
all necessary corporate action on the part of I-Flow. This Agreement and the
Escrow Agreement are valid and binding obligations of I-Flow, enforceable
against it in accordance with their respective terms.
(ii) The execution, delivery and performance of this Agreement
and the Escrow Agreement by I-Flow will not in a material respect violate any
provision of law, the Articles of Incorporation or By-laws of I-Flow or any
judgment, award or decree or any indenture, agreement or other instrument to
which I-Flow is a party, or by which it or its properties or assets are bound or
affected, or conflict with, result in a breach of or constitute (with due notice
and/or lapse of time) an "event of default", as defined in, or a material
default under, any such indenture, agreement or other instrument or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the Transferred Assets or License rights granted to
SoloPak herein.
(c) No Required Consents. No approval, authorization, consent
or order or action of or filing with any Person is required for the execution,
delivery and performance by I-Flow of this Agreement or the Escrow Agreement, or
the consummation of any of the transactions contemplated hereby or thereby.
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(d) Good Title. I-Flow has (and, until their sale to SoloPak
as hereinabove provided, will have), with respect to the Transferred Assets,
good and valid title, and the Transferred Assets are, and upon delivery to
SoloPak will be, free and clear of any and all liens, claims, options, charges,
security interests, encumbrances and rights and interests whatsoever of third
parties.
(e) No Infringement. None of the Transferred Assets, Spring
Assemblies, Filling Valves or related Technology involves any technology, trade
secrets, methods, processes or software or utilizes any information or
documentation proprietary to any third party. No officer or employee of I-Flow
has employed for or on behalf of I-Flow any trade secrets or any information or
documentation proprietary to any former employer and neither I-Flow nor any
Affiliate of I-Flow has violated any confidential relationship which such Person
may have had with any third party, in each case in connection with the
Transferred Assets, Spring Assemblies, Filling Valves or related Technology.
(f) No Litigation. There are no actions, proceedings or
investigations pending, or (to the best knowledge and belief of I-Flow)
threatened against or affecting, or any claims asserted against, I-Flow or any
of its Affiliates with respect to the Products, Transferred Assets, Spring
Assemblies, Filling Valves or related Technology, and I-Flow does not know of
any basis for any such action, proceeding, investigation or claim.
(g) Certain Trademark Representations, Warranties and
Agreements. To the best knowledge of I-Flow, no third party has adopted, uses or
has registered any trademark, service mark, trade name, trading style or
corporate name that infringes any of the Trademarks; provided, however, that
I-Flow itself makes no other representation or warranty as to the existence,
nature or level of rights or protection it has with respect to the Trademarks.
(h) Certain Patent Rights. Certain of the Technology used in
the Spring Assemblies, Drug Bags and Flow Restrictors may be patentable and is
subject to pending applications for patents in the United States as specified in
Schedule 5.1(h) hereto (collectively, the "Patent Applications"). I-Flow owns
all rights, title and interest in and to the Patent Applications and letters
patent that may be issued in respect thereof (collectively, the "Patents"), free
and clear of any and all liens, claims, charges, security interests or other
encumbrances of whatever kind or nature (other than as provided in this
Agreement). The Patent Applications do not infringe on the rights of any person
or entity and, to the best knowledge of I-Flow, no claim has been asserted by
any person or entity with respect to the use of the Patent Applications or
challenging or questioning the validity or effectiveness thereof.
(i) Future Infringement. I-Flow shall notify SoloPak as soon
as practicable upon becoming aware of the use of any product or device by a
third party that would infringe any Patent. In the event of any infringement of
any Patent by any third parties known or brought to the attention of I-Flow,
I-Flow shall consult with SoloPak regarding protective action to be taken and,
if reasonably deemed appropriate by SoloPak, shall promptly demand in writing
that the third party committing such infringement or engaging in such conduct
cease and desist forthwith from committing such infringement or engaging in such
conduct. In the event that within fifteen (15) days after such written demand,
good faith negotiations between I-Flow and said person or entity have not
commenced regarding the cessation of such infringement or other conduct, or in
the event that such negotiations cease to be carried on in good faith, at
SoloPak's expense I-Flow
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shall either (i) bring and diligently and vigorously maintain appropriate legal
proceedings to stop, and to seek such other appropriate relief with respect to,
such infringement and other conduct until a decision is obtained from which no
review can be taken or until otherwise resolved in a manner reasonably
satisfactory to SoloPak, or (ii) assign the infringement claim to SoloPak which
may then prosecute such claim at SoloPak's own expense.
(j) Intellectual Property Indemnification. I-Flow shall
indemnify, defend and hold harmless SoloPak and all of its stockholders,
directors, officers, employees and other agents and representatives from and
against all demands, claims, action or causes of action, assessments, losses,
damages, liabilities, costs and expenses (including, without limitation,
interest, penalties, fines and reasonable attorneys' fees and expenses) asserted
against, resulting to, or imposed upon or incurred by any of them by reason of
or resulting from any infringement or violation, or alleged infringement or
violation, of any patent or other proprietary right of any person or entity by
reason of the sale of any Products or otherwise in connection with any Patent;
provided, however, that the foregoing shall not apply with respect to
infringements or violations caused or allegedly caused by SoloPak or its
Affiliates, sublicensees, subcontractors or distributors.
5.2 By SoloPak. In order to induce I-Flow to enter into this
Agreement, SoloPak represents and warrants to and agrees with I-Flow as follows:
(a) Organization. SoloPak is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own and operate its
properties and assets and to carry on the business presently conducted by it and
contemplated by this Agreement.
(b) Authority, Binding Effect. (i) SoloPak has all requisite
corporate power and authority to execute, deliver and perform this Agreement and
the Escrow Agreement; this Agreement and the Escrow Agreement have been duly
executed and delivered by SoloPak and the execution, delivery and performance of
this Agreement and the Escrow Agreement by SoloPak have been duly authorized by
all necessary corporate action on the part of SoloPak. This Agreement and the
Escrow Agreement are valid and binding obligations of SoloPak, enforceable
against it in accordance with their respective terms.
(ii) The execution, delivery and performance of this Agreement
and the Escrow Agreement by SoloPak will not in a material respect violate any
provision of law, the Certificate of Incorporation or By-laws of SoloPak or any
judgment, award or decree or any indenture, agreement or other instrument to
which SoloPak is a party, or by which it or its properties or assets are bound
or affected, or conflict with, result in a breach of or constitute (with due
notice and/or lapse of time) an "event of default", as defined in, or a material
default under, any such indenture, agreement or other instrument or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the Transferred Assets or License rights granted herein
other than as provided in the documents governing the secured loans made to
SoloPak by LaSalle National Bank and Line Capital and their respective
Affiliates, as the same may be amended, modified, extended or replaced from time
to time.
(c) No Required Consents. No approval, authorization, consent
or order or action of or filing with any Person is required for the execution,
delivery and
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<PAGE> 16
performance by SoloPak of this Agreement or the Escrow Agreement, or the
consummation of any of the transactions contemplated hereby or thereby.
(d) Intellectual Property Indemnification. SoloPak shall
indemnify, defend and hold harmless I-Flow and all of its stockholders,
directors, officers, employees and other agents and representatives from and
against all demands, claims, action or causes of action, assessments, losses,
damages, liabilities, costs and expenses (including, without limitation,
interest, penalties, fines and reasonable attorneys' fees and expenses) asserted
against, resulting to, or imposed upon or incurred by any of them by reason of
or resulting from any infringement or violation, or alleged infringement or
violation, of any patent or other proprietary right of any person or entity by
reason of the sale of any Products or otherwise in connection with any Patent;
provided, however, that the foregoing shall not apply with respect to
infringements or violations caused or allegedly caused by I-Flow or its
Affiliates, sublicensees, subcontractors or distributors.
(e) Molds. SoloPak shall ensure that the Molds are at all
times solely owned by SoloPak, free and clear of any and all liens, claims,
charges and encumbrances except as otherwise disclosed in Section 5.2(b)(ii).
ARTICLE 6
SURVIVAL OF REPRESENTATIONS
6.1 Survival. The representations and warranties made by
I-Flow and SoloPak in or pursuant to this Agreement shall survive the expiration
or termination of this Agreement and the Closing if the same occurs as
contemplated hereby.
ARTICLE 7
WARRANTIES, DISCLAIMERS, LIMITED LIABILITY
AND INDEMNIFICATIONS
7.1 Warranty Information. (a) I-Flow warrants to SoloPak that,
upon shipment, the Spring Assemblies and Administration Set Components supplied
pursuant to Section 4.6 hereof, and any Products supplied pursuant to Section
4.7 hereof (collectively, the "Goods From I-Flow") (i) shall be free and clear
of all liens, claims and encumbrances of any nature whatsoever, (ii) shall be
free from defects in material and workmanship under normal and proper use in
accordance with any applicable instructions and directions from I-Flow, (iii)
shall be properly labeled, and (iv) shall comply in all material respects with
the Specifications. I-Flow further warrants that the Goods From I-Flow will be
safe and efficacious for use when such use is in compliance with the directions
supplied by I-Flow. SoloPak may reject and refuse to accept any shipment of
Goods From I-Flow which are found to be defective or damaged; provided, however,
that any such rejection and refusal must be made within thirty (30) days of
SoloPak's receipt. Goods From I-Flow shall be deemed damaged either: (i) if
their function is impaired, (ii) for finished Administration Sets if their
sterility is compromised, (iii) if they are mislabeled, or (iv) if their
cosmetic appearance is altered to the extent that the labeling is materially
unreadable or to the extent that the Goods From I-Flow would appear to be in
less than good quality condition.
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(b) SoloPak warrants to I-Flow that, upon shipment, the Pump
Components supplied pursuant to Section 4.5 hereof (collectively, the "Goods
From SoloPak") (i) shall be free and clear of all liens, claims and encumbrances
of any nature whatsoever, (ii) shall be free from defects in material and
workmanship under normal and proper use in accordance with any applicable
instructions and directions from SoloPak, (iii) shall be properly labeled, and
(iv) shall comply in all material respects with the specifications for such Pump
Components as they exist as of the date hereof or as may be modified per Section
9.2 hereof. I-Flow may reject and refuse to accept any shipment of Goods From
SoloPak found to be defective or damaged, provided, however, that any such
rejection and refusal must be made within thirty (30) days of I-Flow's receipt.
Goods From SoloPak shall be deemed damaged either (i) if their function is
impaired, (ii) if they are mislabeled, or (iii) if their cosmetic appearance is
altered to the extent that the labeling is materially unreadable or to the
extent that the Goods From SoloPak would appear to be in less than good quality
condition.
(c) Each Party hereto warrants and guarantees that its
obligations hereunder shall be performed in full compliance with all applicable
federal, state and local laws and regulations, including Good Manufacturing
Practices prevailing in the industry, and applicable Federal Food, Drug and
Cosmetic Act guidelines and regulations.
(d) Notwithstanding anything to the contrary herein, I-Flow
will not be responsible for the warranty of any Product manufactured or
assembled by SoloPak, SoloPak's designated supplier or any other party other
than I-Flow.
(e) The Goods From I-Flow and the Goods From SoloPak are
hereinafter collectively referred to as the "Goods."
7.2 Disclaimer of Warranties. THE EXPRESS WARRANTIES DESCRIBED
IN SECTIONS 5.1, 5.2 AND 7.1 CONSTITUTE THE ONLY WARRANTIES WITH RESPECT TO THE
GOODS AND THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW
OR OTHERWISE, FOR ANY GOODS OR PRODUCTS FURNISHED HEREUNDER. I-FLOW AND SOLOPAK
MAKE NO OTHER REPRESENTATION OR WARRANTY OF ANY OTHER KIND WITH RESPECT TO THE
GOODS OR THE PRODUCTS, AND I-FLOW AND SOLOPAK EXPRESSLY DISCLAIM ALL OTHER
WARRANTIES WHETHER EXPRESS OR IMPLIED (EITHER IN FACT OR BY OPERATION OF LAW),
WITH RESPECT TO THE GOODS AND THE PRODUCTS, WHETHER AS TO MERCHANTABILITY,
FITNESS FOR PARTICULAR PURPOSE OR ANY OTHER MATTER. Any other representations or
warranties made by any person with respect to the Goods or Products, including
employees or representatives of I-Flow or SoloPak, which are inconsistent
herewith shall be disregarded by the other party and shall not be binding upon
either party. If any model or sample was shown to either party, such model or
sample was used merely to illustrate the general type and quality of the Goods
and Products and not to represent that the Goods and Products would necessarily
conform to the model or sample.
7.3 Remedies. Except as otherwise provided in Sections 7.5,
7.6 and 7.7, each party's sole obligation under the warranties described in
Section 7.1 shall be to repair or replace, at the sole option of the party
providing the Goods, the defective or nonconforming Goods in a timely and prompt
manner.
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7.4 Limitation of Liability. EXCEPT AS OTHERWISE PROVIDED IN
THIS AGREEMENT, IN NO EVENT SHALL I-FLOW, SOLOPAK OR THEIR RESPECTIVE
SUBSIDIARIES OR AFFILIATES BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES OR LOSS OF USE, REVENUE, OR PROFITS IN CONNECTION WITH OR
ARISING OUT OF THIS AGREEMENT OR ANY BREACH HEREOF, ANY FAILURE OR DEFICIENCY OF
THE GOODS OR PRODUCTS, OR EITHER PARTY'S OR ANY THIRD PARTY'S USE OF ANY GOODS
OR PRODUCTS OR SERVICES PROVIDED UNDER THIS AGREEMENT. EACH PARTY'S SOLE REMEDY
FOR THE OTHER PARTY'S LIABILITY OF ANY KIND, INCLUDING NEGLIGENCE, WITH RESPECT
TO ANY ITEM FURNISHED UNDER THIS AGREEMENT SHALL BE LIMITED TO THE REMEDIES
PROVIDED IN SECTIONS 5.1(j), 5.2(d), 7.3, 7.5, 7.6 AND 7.7 OF THIS AGREEMENT.
THE LIMITATIONS CONTAINED IN THIS SECTION SHALL APPLY EVEN IF ANY LIMITED REMEDY
FAILS IN ITS ESSENTIAL PURPOSE.
7.5 Indemnification of I-Flow. SoloPak agrees to defend,
indemnify and hold harmless I-Flow and its Affiliates, subsidiaries,
stockholders, directors, officers, employees and other agents and
representatives from all losses, damages, judgments, fines, sums, costs,
expenses and reasonable attorneys' fees which any of them may incur or be
obligated to pay arising out of or as a result of any and all claims, demands,
causes of action or judgments of every nature whatsoever arising out of
SoloPak's direct or indirect sale or distribution of the Products, any default
by SoloPak under this Agreement (including without limitation any inaccuracy or
breach of any representation, warranty or covenant contained herein), SoloPak's
failure to comply with the instructions, training and warnings communicated to
SoloPak by I-Flow regarding the Products, any violation of law, error, omission,
or neglect on SoloPak's part, or on the part of any employee, Affiliate,
sublicensee, subcontractor or agent of SoloPak, and any injury, damage or loss
to any purchasers of the Products caused by or resulting from the design,
manufacture or use of the Products; provided, however, that the immediately
foregoing indemnity shall not cover any injury, damage or loss caused in
principal part by any actions or omissions of I-Flow or its Affiliates,
sublicensees, subcontractors or agents.
7.6 Indemnification of SoloPak. I-Flow agrees to defend,
indemnify and hold harmless SoloPak and its subsidiaries, stockholders,
directors, officers, employees and other agents and representatives from all
losses, damages, judgments, fines, sums, costs, expenses and reasonable
attorneys' fees which any of them may incur or be obligated to pay arising out
of or as a result of any and all claims, demands, causes of action or judgments
of every nature whatsoever arising out of I-Flow's direct or indirect sale or
distribution of the Products, any default by I-Flow under this Agreement
(including without limitation any inaccuracy or breach of any representation,
warranty or covenant contained herein), I-Flow's failure to comply with the
instructions, training and warnings communicated to I-Flow by SoloPak regarding
the Products, any violation of law, error, omission, or neglect on I-Flow's
part, or on the part of any employee, Affiliate, sublicensee, subcontractor or
agent of I-Flow, and any injury, damage or loss to any purchasers of the
Products caused by or resulting from the design, manufacture or use of the
Products; provided, however, that the immediately foregoing indemnity shall not
cover any injury, damage or loss caused in principal part by any actions or
omissions of SoloPak or its Affiliates, sublicensees, subcontractors or agents.
7.7 Insurance. Each party shall at all times maintain product
liability insurance under such policies of insurance, against such risks
(including, without limitation and in all events, personal injury, injury to
property and death) and with such insurance
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<PAGE> 19
companies as are at all times in accordance with prevailing, normal and
customary industry practices and in an amount per occurrence not less than
mutually agreed upon by the parties hereto. Each party's policies shall name the
other party and its Affiliates, subsidiaries, stockholders, directors, officers,
employees and other agents and representatives as insureds and loss payees, as
their interests may appear. Each party shall provide a certificate of insurance
to the other party certifying the existence of such insurance in accordance with
the terms hereof.
7.8 Survival of Indemnification. Notwithstanding anything to
the contrary herein, the indemnification obligations set forth in Sections 7.5
and 7.6 above shall survive any termination of this Agreement indefinitely, and
the insurance obligations set forth in Section 7.7 shall survive any termination
of this Agreement for a period of one (1) year following such termination.
ARTICLE 8
CONFIDENTIALITY
8.1 No Disclosure. Neither I-Flow nor SoloPak shall directly
or indirectly disclose to third parties or use or employ except as permitted by
this Agreement, whether prior to the termination of this Agreement or
thereafter, any Confidential Information of the other party. The respective
Confidential Information of each party hereto is, and will remain, the exclusive
property of such party and will be held in trust by the other party for the
exclusive benefit of such party.
8.2 Exceptions. Confidential Information shall not be subject
to Section 8.1 hereof in the following circumstances:
(i) if it is lawfully obtained by the receiving party
from a third party that is not under any obligation of confidentiality,
direct or indirect;
(ii) if it is or becomes known or available to the
public without any act or failure to act by the receiving party in
breach hereof;
(iii) if it is developed by the receiving party
independently of any disclosures made by the disclosing party of such
Confidential Information; or
(iv) if it is required to be disclosed by order of a
court of competent jurisdiction, administrative agency or governmental
body, or by law, rule or regulation provided that prior to such
disclosure the non-disclosing party is given reasonable advance notice
of such order and opportunity to object to such disclosure and provided
further that the party required to make disclosure as contemplated by
this clause (iv) uses its best efforts to protect the confidentiality
of such disclosed Confidential Information to the maximum extent
permitted by law.
ARTICLE 9
IMPROVEMENTS; COOPERATION WITH RESPECT TO 510(k) CLEARANCE
9.1 SoloPak Ownership of Certain Improvements. (a) Any and all
information, inventions, innovations, improvements, modifications, designs,
discoveries, techniques and the like (collectively, "Improvements") in any way
relating to any of the
19
<PAGE> 20
System Components invented, created, discovered or developed by SoloPak or any
of its Affiliates, subcontractors or sublicensees shall be and become, and for
all purposes be deemed to be and to have become, without the payment by SoloPak
or any of its Affiliates to I-Flow or any of its Affiliates of any additional
consideration for any such invention, creation, discovery or development and
without the necessity of SoloPak's or any of its Affiliates' taking any further
action, the sole and exclusive property of SoloPak or its Affiliate, as the case
may be, and I-Flow and its Affiliate, as the case may be, shall promptly
deliver, at SoloPak's request, any instrument necessary or appropriate in the
reasonable judgment of SoloPak and its counsel to vest completely such property
rights in SoloPak or its Affiliate, as the case may be.
(b) Subject to Section 9.1(a) above, SoloPak agrees to
describe to I-Flow any Improvements in any way relating to the System Components
invented, created, discovered or developed by SoloPak or any of its Affiliates,
subcontractors or sublicensees as described above. I-Flow agrees to review any
such Improvements in good faith and, if one or more of such Improvements would
be appropriate for the Products and would (in the reasonable judgment and
discretion of I-Flow) justify the expense and effort of modifying such System
Components, then I-Flow shall implement such Improvements for such System
Components sold to SoloPak hereunder.
9.2 Impact on Pump Components Supply. In the event of
Improvements to the Pump Components, I-Flow in the reasonable exercise of its
discretion shall be free to accept or reject incorporation of each Improvement
to the Pump Components supplied to I-Flow pursuant to Section 4.5 hereof. To
enable I-Flow to exercise its discretion appropriately and in good faith,
SoloPak shall provide all available information to I-Flow as to the impact of
each such Improvement's proposed incorporation on the Cost of the Pump
Components. In any such event, SoloPak shall ensure that the Molds are not
altered or modified without the prior written consent of I-Flow.
9.3 Cooperation on New 510(k) Clearance for SoloPak. (a)
SoloPak shall prepare and submit to the FDA notices under Section 510(k) of the
U.S. Food and Drug Act with respect to manufacture, distribution and sales of
the Products in the Territory. The costs of preparing and submitting such
notices under Section 510(k) shall be borne by SoloPak. I-Flow covenants and
agrees to provide SoloPak with all assistance reasonably required by SoloPak in
connection with the preparation, completion and filing of the materials,
documents, instruments and certifications necessary or desirable with respect to
such Section 510(k) notices, including, without limitation, access to complete
records and files of I-Flow relating to the 510(k) Clearance and access to, and
assistance from, appropriate personnel of I-Flow and I-Flow's agents and
representatives. SoloPak shall reimburse I-Flow for any and all out-of-pocket
costs and expenses incurred by I-Flow in this regard together with payment for
the time spent by I-Flow personnel based on the cost to I-Flow with respect to
the employment of such personnel.
(b) All right, title and interest in and to any 510(k)
clearances obtained by SoloPak as described in Section 9.3(a) above shall be the
exclusive property of SoloPak and shall be registered in the name of SoloPak or
one or more of its Affiliates as it may designate.
20
<PAGE> 21
ARTICLE 10
MISCELLANEOUS
10.1 Relationship. This Agreement does not make either party
the employee, agent, partner, co-venturer, dealer, franchisee, joint venturer or
legal representative of the other party for any purpose whatsoever. In
fulfilling its obligations pursuant to this Agreement, each party shall be
acting as an independent contractor.
10.2 Assignment. (a) The rights and obligations of I-Flow
under this Agreement shall not be assignable without the prior written consent
of SoloPak or its successors and assigns. A successor in interest by merger, by
operation of law, assignment, purchase or otherwise of the stock or all or
substantially all of the assets or business of I-Flow shall be bound by the
terms and conditions of this Agreement as in effect at the time of such merger,
assignment, purchase or other transaction.
(b) SoloPak shall be entitled to transfer and assign any or
all of its rights and obligations hereunder, without the consent of I-Flow, to:
(i) any Person (other than in the manner provided in
clause (ii) below), as long as I-Flow's rights to the payments and
indemnifications to be made and provided to it hereunder are not
diminished, limited or otherwise adversely affected thereby (it being
understood and agreed that such condition that I-Flow's rights to the
payments and indemnifications to be made and provided hereunder not be
diminished, limited or otherwise adversely affected may be satisfied,
at the option of SoloPak, by SoloPak's agreement to remain liable for
the payment and indemnification of such amounts under this Agreement);
or
(ii) a successor in interest by merger, by operation
of law, assignment, purchase or otherwise of the stock or all or
substantially all of the assets or business of SoloPak as long as such
successor in interest shall confirm in writing to I-Flow that such
successor in interest is bound by the terms and conditions of this
Agreement as then in effect.
Any prohibited assignment shall be null and void.
10.3 Notices. Notices permitted or required to be given
hereunder shall be deemed sufficient if given by hand delivery, facsimile
transmission, pre-paid overnight courier, registered or certified air mail
(postage prepaid, return receipt requested), addressed to the attention of, in
the case of I-Flow: President, at the address of I-Flow first above written; and
in the case of SoloPak: Vice President of Finance and Administration, at the
address of SoloPak first above written. Notices so given shall be effective upon
(a) in the case of hand delivery, receipt by the party to which notice is given,
(b) in the case of overnight courier, on the day following the date such notice
was given to such courier for delivery, (c) in the case of registered or
certified mail, on the seventh (7th) day following the date such notice was
posted and (d) in the case of facsimile transmission, on the date such notice
was transmitted by facsimile.
10.4 ENTIRE AGREEMENT. THIS AGREEMENT, INCLUDING ALL ANNEXES,
EXHIBITS AND SCHEDULES ATTACHED HERETO AND WHICH ARE HEREBY INCORPORATED AS AN
INTEGRAL PART OF THIS AGREEMENT, CONSTITUTES THE ENTIRE AGREEMENT OF THE PARTIES
21
<PAGE> 22
WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND SUPERSEDES ALL PREVIOUS
AGREEMENTS BETWEEN I-FLOW AND SOLOPAK AS WELL AS ALL PROPOSALS, ORAL OR WRITTEN,
AND ALL NEGOTIATIONS, CONVERSATIONS OR DISCUSSIONS HERETOFORE HAD BETWEEN THE
PARTIES RELATED TO THIS AGREEMENT. NO PARTY HAS RELIED ON ANY PROMISE, STATEMENT
OR REPRESENTATION NOT SET FORTH HEREIN IN ENTERING INTO THIS AGREEMENT.
10.5 No Third-Party Beneficiaries. Except as contemplated by
the indemnification provisions hereof, the parties hereto are the only
beneficiaries of this Agreement, and neither party hereto intends to confer any
benefit on any other person or entity by entering into this Agreement.
10.6 Amendment. This Agreement shall not be deemed or
construed to be modified, amended, rescinded or canceled, in whole or in part,
except by written amendment signed by the parties hereto.
10.7 Publicity. This Agreement is confidential and neither
party shall issue press releases or engage in other types of publicity of any
nature dealing with the commercial and legal details of this Agreement without
the other party's prior written approval, which approval shall not be
unreasonably withheld or delayed. However, approval of such disclosure shall be
deemed to be given to the extent such disclosure is required to comply with
governmental rules, regulations or other governmental requirements. In such
event, the publishing party shall furnish a copy of such disclosure to the other
party.
10.8 Severability. In the event that any of the terms of this
Agreement are in conflict with any rule of law or statutory provision or are
otherwise unenforceable under the laws or regulations of any government or
subdivision thereof, such terms shall be deemed stricken from this Agreement,
but such invalidity or unenforceability shall not invalidate any of the other
terms of this Agreement and this Agreement shall continue in force, unless the
invalidity or unenforceability of any such provisions hereof does substantial
violence to, or where the invalid or unenforceable provisions comprise an
integral part of, or are otherwise inseparable from, the remainder of this
Agreement.
10.9 Counterparts. This Agreement may be executed in two or
more counterparts, and each such counterpart shall be deemed an original hereof.
10.10 Remedies Cumulative. Except as otherwise expressly
provided herein, no failure by any party to take any action or assert any right
hereunder shall be deemed to be a waiver of such right in the event of the
continuation or repetition of the circumstances giving rise to such right.
10.11 Headings. Article and section headings in this Agreement
are included for convenience of reference only and shall not constitute a part
of this Agreement for any other purpose or be given any substantive effect.
10.12 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. ANY LEGAL
ACTION OR OTHER LEGAL PROCEEDING ARISING OUT OF, OR RELATING TO, THIS
22
<PAGE> 23
AGREEMENT, OR FOR THE BREACH OR ALLEGED BREACH THEREOF, SHALL BE BROUGHT ONLY IN
THE COURTS OF THE STATE OF CALIFORNIA LOCATED IN ORANGE COUNTY OR THE UNITED
STATES DISTRICT COURT LOCATED THEREIN. THE PARTIES HEREBY CONSENT TO THE
JURISDICTION AND PROPER VENUE OF SUCH COURTS.
10.13 No Waiver. No waiver of any term or condition of this
Agreement will be valid or binding on either party unless the same will have
been mutually assented to in writing by both parties. The failure of either
party to enforce at any time any of the provisions of the Agreement, or the
failure to require at any time performance by the other party of any of the
provisions of this Agreement, will in no way be construed to be a present or
future waiver of such provisions, nor in any way affect the validity of either
party to enforce each and every such provision thereafter.
10.14 Construction. The language in all parts of this
Agreement shall in all cases be construed simply, according to its fair meaning,
and shall not be construed strictly for or against either of the parties hereto.
10.15 Attorneys' Fees. Should any party institute any action
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
SOLOPAK PHARMACEUTICALS INC.
BY: /s/LARRY W. ZONNER
----------------------------------
LARRY W. ZONNER
TITLE: VICE PRESIDENT - FINANCE AND
ADMINISTRATION
I-FLOW CORPORATION
BY: /s/DONALD M. EARHART
----------------------------------
DONALD M. EARHART
TITLE: CHAIRMAN, PRESIDENT & CEO
23
<PAGE> 24
SCHEDULES OMITTED
<PAGE> 1
Exhibit 13
SELECTED FINANCIAL DATA I-Flow Corporation
<TABLE>
<CAPTION>
(Amounts in thousands, except Year Ended December 31,
-----------------------
per share amounts) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Revenue:
Net sales $ 9,737 $ 6,321 $ 5,436 $ 1,437 $ 89
Rental income 60 72 212 478 36
Other fees 250 500
Interest and other income 96 208 60 62 114
- ----------------------------------------------------------------------------------------------------------
Total revenue 10,143 7,101 5,708 1,977 239
Costs and expenses:
Cost of sales 4,422 4,062 3,623 1,477 863
Selling and marketing 1,483 1,948 1,356 1,551 588
General and administrative 2,329 2,044 2,119 2,324 1,649
Product development 840 720 1,246 844 796
- ----------------------------------------------------------------------------------------------------------
Total costs and expenses 9,074 8,774 8,344 6,196 3,896
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,069 $(1,673) $(2,636) $(4,219) $(3,657)
- ----------------------------------------------------------------------------------------------------------
Net income (loss) per share (2) $ 0.12 $ (0.20) $ (0.44) $ (0.87) $ (1.33)
- ----------------------------------------------------------------------------------------------------------
Weighted average number of
common and common equivalent
shares outstanding (2) 9,247 8,177 5,990 4,857 2,743
- ----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Working capital $ 6,958 $ 3,564 $ 5,270 $ 3,464 $ 550
Total assets 9,107 6,209 7,737 5,348 1,754
Net shareholders' equity 7,728 4,181 5,812 4,240 1,117
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain amounts previously reported have been reclassified to conform with
the presentation at December 31, 1995.
(2) See Note 1 of Notes to Financial Statements.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1994
Total revenues for the year ended December 31, 1995 were $10,143,000 compared to
$7,101,000 for the prior year. This represents an increase of 43%. This increase
in sales is due to increased sales for the Company's SideKick and Paragon
products. In April 1994, the Company changed its primary U.S. distributor for
these products to SoloPak Pharmaceuticals Inc. and sales to SoloPak accounted
for the majority of the increase in revenue.
In March 1996, SoloPak purchased the exclusive rights and license to manufacture
and sell the SideKick, Paragon and elite products in the U.S. and Puerto Rico.
Pursuant to the new agreement, SoloPak paid the Company $1.3 million in
consideration of the license in March 1996 and will pay the Company guaranteed
royalties of $1.0 million during each of the three succeeding quarters in 1996.
Additionally, SoloPak will pay I-Flow a royalty equal to 2% of their net sales
of the products for the 1997 and 1998 calendar years. Per the terms of the
agreement, I-Flow has the right of first refusal to supply SoloPak with services
and assistance in assembling completed products until March 1998. The Company
retained the rights to sell the products outside the United States. Revenues
from SoloPak for the year ended December 31, 1995 were $6,508,000.
Export sales were over $2,100,000, or 21% of total revenues, for the year ended
December 31, 1995 compared to $1,300,000, or 18% of total revenues, for the year
ended December 31, 1994.
Cost of sales of $4,422,000 were incurred during the year ended December 31,
1995, compared to $4,062,000 for the prior year. As a percentage of revenues,
cost of sales decreased by 14% for the year ended December 31, 1995 compared to
the prior year. The increase in gross profit is primarily the result of
manufacturing efficiencies which have occurred due to increased production and a
change in the product mix to increased Paragon product sales as a percent of
total sales. Paragon products have a gross margin which is approximately 15% to
20% higher than SideKick products.
Selling and marketing expenses for the year ended December 31, 1995 decreased
over the prior year by $465,000 or 24%. This decrease was due primarily to a
reduction in the Company's internal sales force as the Company now generates
most of its sales through outside distributors.
General and administrative expenses for the year ended December 31, 1995
increased from the prior year by $285,000 or 14%. These expenses primarily
represent costs for administrative personnel, facilities and other miscellaneous
items. These costs have increased primarily as a result of increased operations
during 1995.
Product development expenses for the year ended December 31, 1995 increased
compared to those for the prior year by $120,000 or 17% as the Company continued
its efforts to introduce new improved-technology, cost-efficient products into
the market. The Company received permission to market five new products from the
FDA during 1995, two of which it has begun to market and the remainder of which
it will introduce in 1996.
RESULTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1993
Total revenues for the year ended December 31, 1994 were $7,101,000 compared to
$5,708,000 for the prior year. This represents an increase of 24%. This increase
is due to increased market share for the Company's SideKick and Paragon products
in the United States and international markets. Export sales
<PAGE> 3
were over $1,300,000, or 18% of total revenues, for the year ended December 31,
1994 compared to only $200,000, or 4% of total revenues, for the year ended
December 31, 1993.
In April 1994, the Company changed its primary U.S. distributor for the SideKick
and Paragon products. In March 1993, the Company signed an exclusive one-year
national distribution agreement with Fujisawa USA, Inc. to market the SideKick
product. This agreement expired March 31, 1994 and was not renewed.
In April 1994, the Company signed a non-exclusive distribution agreement for the
SideKick, Paragon and elite products with SoloPak Pharmaceuticals Inc. In
November 1994, this agreement was superseded with a new agreement allowing
SoloPak exclusive rights to distribute these products in the United States.
Sales to SoloPak were approximately $3,900,000 during the year ended December
31, 1994 including a $500,000 non-refundable fee collected in accordance with
terms of the agreement.
Cost of sales of $4,062,000 were incurred during the year ended December 31,
1994, compared to $3,623,000 for the prior year. As a percentage of net sales
and rental income, cost of sales was relatively unchanged compared to the prior
year. Cost of sales for the year ended December 31, 1994 included increases in
the reserve for obsolete inventory of $210,000. Without these increases in
inventory reserves, the gross margins for the year ended December 31, 1994 would
have improved by approximately 9% compared to the prior year. This improvement
in the margins was due to changes in the sales mix towards higher sales of
Paragon and international sales which have a higher margin, and increased
efficiencies incurred with the increased amount of production due to higher
sales.
Selling and marketing expenses for the year ended December 31, 1994 increased
over the prior year by $592,000 or 44%. This increase was due primarily to an
increase in the sales force during the first quarter of 1994 from 4 to 13
individuals in conjunction with the changes in the distribution of the SideKick
and Paragon noted above. With the signing of the exclusive distribution
agreement with SoloPak in November 1994, the Company was able to reduce its
internal sales force back down to 6 individuals.
General and administrative expenses for the year ended December 31, 1994
decreased from the prior year by $75,000 or 4%. These expenses primarily
represent costs for administrative personnel, facilities and other miscellaneous
items. These costs decreased primarily as a result of an effort by management to
reduce such costs and keep them to a minimum during 1994 as the Company was
striving to reach profitability.
Product development expenses for the year ended December 31, 1994 decreased
compared to those for the prior year by $526,000 or 42%. Such decreases were
primarily due to non- recurring costs of approximately $373,000 for product
enhancements made to the newly developed SideKick and Paragon products during
the year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995, the Company's operating activities
provided funds of $1,701,000. Such funds consisted primarily of the net income
of $1,069,000, plus non-cash expenses of $198,000, and net decreases in
operating assets and liabilities of $434,000. The changes in operating assets
and liabilities consisted primarily of decreases in accounts receivable of
$798,000, in addition to a reduction in inventories and other current assets of
$285,000 and a decrease in accounts payable and accrued liabilities of $649,000.
The Company used funds for investing activities during the year ended December
31, 1995 by acquiring property (including rental and demonstration equipment)
and other assets aggregating $341,000.
<PAGE> 4
During the year ended December 31, 1995, the Company received funds from
financing activities aggregating $2,434,000. This amount consisted of proceeds
from the exercise of warrants and stock options during the year ended December
31, 1995.
During the year ended December 31, 1995, the Company entered into a financing
agreement with a bank which provides for a working capital line of credit
expiring in August 1996. Under the line of credit, the Company may borrow up to
the lesser of $1,500,000 or 75% of eligible accounts receivable, as defined, at
a banks prime rate plus 1% (9.75% at December 31, 1995). There were no
borrowings under the line during the year ended December 31, 1995.
As of December 31, 1995, the Company had cash on hand of $5,628,000 and net
receivables of $1,567,000. To date, the Company has financed its operations and
working capital requirements primarily through equity financings. Management
believes the Company's funds are sufficient to provide for its projected needs
to maintain operations for the next twelve months.
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
I-Flow Corporation:
We have audited the accompanying balance sheets of I-Flow Corporation as of
December 31, 1995 and 1994, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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, such financial statements present fairly, in all material
respects, the financial position of I-Flow Corporation as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE, LLP
Costa Mesa, California
January 26, 1996, except for Note 11
as to which the date is March 7, 1996
<PAGE> 6
BALANCE SHEETS I-Flow Corporation
<TABLE>
<CAPTION>
December 31, December 31,
(Amounts in thousands except share amounts) 1995 1994
=============================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,628 $ 1,834
Accounts receivable, less allowance for doubtful accounts of $509 and $247
at December 31, 1995 and 1994, respectively 1,567 2,627
Inventories (Note 1) 1,067 1,040
Prepaid expenses and other 75 91
- -------------------------------------------------------------------------------------------------------------
Total current assets 8,337 5,592
Property:
Furniture, fixtures and equipment 1,494 1,159
Rental and demonstration equipment 156 248
- -------------------------------------------------------------------------------------------------------------
Total property 1,650 1,407
Less accumulated depreciation (1,155) (1,013)
- -------------------------------------------------------------------------------------------------------------
Net property 495 394
Other assets 275 223
- -------------------------------------------------------------------------------------------------------------
Total assets $ 9,107 $ 6,209
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 260 $ 556
Accrued payroll and related expenses 553 514
Deferred revenue (Note 9) 516 711
Commissions payable to consultant 140
Other liabilities 50 107
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 1,379 2,028
Commitments and contingencies (Notes 3 and 8)
Shareholders' equity (Notes 4 and 5)
Preferred stock, no par value; 5,000,000 shares authorized, 656,250 series B
shares issued and outstanding at December 31, 1995 and 1994 (aggregate
preference on liquidation of $1,575,000) 1,494 1,494
Common stock, no par value; 40,000,000 shares authorized, 9,259,225 and
8,201,834 shares issued and outstanding at December 31, 1995 and 1994,
respectively 24,278 21,721
Accumulated deficit (18,044) (19,034)
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 7,728 4,181
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 9,107 $ 6,209
=============================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
STATEMENTS OF OPERATIONS I-Flow Corporation
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
(Amounts in thousands except per share amounts) 1995 1994 1993
================================================================================
<S> <C> <C> <C>
Revenues:
Net sales $ 9,737 $ 6,321 $ 5,436
Rental income 60 72 212
Other fees 250 500
Interest and other income 96 208 60
- --------------------------------------------------------------------------------
Total revenues 10,143 7,101 5,708
Costs and expenses (Notes 3, 6 and 8):
Cost of sales 4,422 4,062 3,623
Selling and marketing 1,483 1,948 1,356
General and administrative 2,329 2,044 2,119
Product development 840 720 1,246
- --------------------------------------------------------------------------------
Total costs and expenses 9,074 8,774 8,344
- --------------------------------------------------------------------------------
Net income (loss) $ 1,069 $(1,673) $(2,636)
================================================================================
Net income (loss) per share $ 0.12 $ (0.20) $ (0.44)
================================================================================
Weighted average number of common and
common equivalent shares 9,247 8,177 5,990
================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
STATEMENTS OF SHAREHOLDERS' EQUITY I-Flow Corporation
<TABLE>
<CAPTION>
For the years ended December 31, Preferred Stock Common Stock
1993, 1994 AND 1995 ----------------- ------------------ Accumulated
(Amounts in thousands) Shares Amount Shares Amount Deficit Total
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993......... 656 $1,494 5,895 $17,313 $ (14,567) $ 4,240
Common stock issued for cash (net
of offering costs of $327)..... 2,240 4,152 4,152
Common stock issued for payment
of preferred stock dividends... 33 79 (79)
Stock options granted with
exercise prices below market
value.......................... 54 54
Common stock issued upon option
exercises...................... 1 2 2
Net loss.................... (2,636) (2,636)
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1993....... 656 1,494 8,169 21,600 (17,282) 5,812
Common stock issued for payment
of preferred stock dividends... 33 79 (79)
Stock options granted with
exercise prices below market
value.......................... 42 42
Net loss.................... (1,673) (1,673)
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1994....... 656 1,494 8,202 21,721 (19,034) 4,181
Exercise of common stock warrants
and options (net of costs of
$29)........................... 1,026 2,434 2,434
Common stock issued for payment
of preferred stock dividends... 31 79 (79)
Stock options granted with
exercise prices below market
value.......................... 44 44
Net income.................. 1,069 1,069
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1995....... 656 $1,494 9,259 $24,278 $ (18,044) $ 7,728
=======================================================================================================
</TABLE>
<PAGE> 9
STATEMENTS OF CASH FLOWS I-Flow Corporation
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
(Amounts in thousands) 1995 1994 1993
=================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $1,069 $(1,673) $(2,636)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 188 251 337
Compensation expense for stock options granted with
exercise price below market............................. 44 42 54
Increase (decrease) in inventory obsolescence reserve..... (296) 221 240
Increase in allowance for doubtful accounts............... 262 205 50
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.............. 798 (2,536) 306
(Increase) decrease in inventories...................... 269 170 (140)
(Increase) decrease in prepaid and other expenses....... 16 26 (90)
Increase (decrease) in accounts payable and accrued
liabilities.......................................... (649) 103 817
- -------------------------------------------------------------------------------------------------
Total adjustments.................................... 632 (1,518) 1,574
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities......................................... 1,701 (3,191) (1,062)
Cash flows from investing activities:
Property acquisitions..................................... (243) (202) (197)
Increase in other assets.................................. (98) (124) (83)
- -------------------------------------------------------------------------------------------------
Net cash used by investing activities................ (341) (326) (280)
Cash flows from financing activities:
Proceeds from sale of common stock, net................... 4,152
Proceeds from exercise of stock options and warrants...... 2,434 2
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities............ 2,434 4,154
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents........... 3,794 (3,517) 2,812
Cash and cash equivalents at beginning of year................. 1,834 5,351 2,539
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year....................... $5,628 $ 1,834 $ 5,351
=================================================================================================
</TABLE>
There was no cash paid for interest income taxes during the years presented.
See Notes 4 and 5 for other non-cash transactions.
See accompanying notes to financial statements.
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL I-Flow Corporation ("the Company") was incorporated on July 17, 1985 and
is engaged in the manufacturing and marketing of ambulatory infusion systems for
use in the intravenous administration of drugs, nutrients and similar medical
treatments. The Company sells its products primarily to customers in the home
health care industry.
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash in the bank,
money-market funds and U.S. Treasury bills with an original maturity date of 90
days or less.
INVENTORIES Inventories are stated at the lower of first-in, first-out cost or
market. Inventories consisted of the following as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 928,000 $ 1,078,000
Work in process 63,000 213,000
Finished goods 241,000 210,000
Reserve for obsolescence (165,000) (461,000)
----------- -----------
$ 1,067,000 $ 1,040,000
</TABLE>
PATENTS Patents of $257,000 and $175,000 (net of accumulated amortization),
included in other assets as of December 31, 1995 and 1994, respectively, are
amortized over periods ranging from two to seven years.
PROPERTY Property (including rental and demonstration equipment) is stated at
cost and depreciated using the straight-line method over the estimated useful
lives of the related assets, ranging from two to seven years. Rental and
demonstration equipment consist of products held by customers under
month-to-month rental agreements or on loan to customers for evaluation.
REVENUES Revenue from sales is recognized when products are shipped to
customers. Rental income is recorded monthly when earned.
In April 1994, the Company signed a non-exclusive distribution agreement for the
SideKick, Paragon and elite products with SoloPak Pharmaceuticals Inc. In
November 1994, this agreement was superseded with a new agreement allowing
SoloPak exclusive rights to distribute these products in the United States.
Under the terms of the November 1994 agreement, during the year ended December
31, 1994, the Company received a $500,000 non-refundable fee in consideration
for the option. The November 1994 agreement was superseded by a new agreement in
March 1996 (See Note 11).
NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the
weighted average number of common and common equivalent shares outstanding
during the period. Certain Common Stock equivalents were not considered in the
net income (loss) per share calculation because the effect would be
anti-dilutive.
<PAGE> 11
NEW ACCOUNTING PRONOUNCEMENT In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation," which requires adoption of the disclosure
provisions no later than years beginning after December 15, 1995 and adoption of
the recognition and measurement provisions for non-employee transactions no
later than December 15, 1995. The new standard defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period which is usually the
vesting period.
Pursuant to the new accounting standard, companies are encouraged, but are not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting. The Company has
determined that it will not change to the fair market value method and will
continue to use Accounting Principles Board Opinion No. 25 for measurement and
recognition of employee stock based transactions.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles necessarily 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 revenues and expenses
during the reporting period. Actual results could differ from these estimates.
CUSTOMER CONCENTRATIONS The Company sells primarily on credit terms to customers
in the home health care industry. During the years ended December 31, 1995, 1994
and 1993, one customer accounted for 64%, 55% and 65% of total revenues from
operations, respectively. Export sales accounted for 21% and 18% for the years
ended December 31, 1995 and 1994, respectively, and were not significant during
the year ended December 31, 1993. Export sales were primarily to certain
European and Far Eastern countries. The loss of, or reduction in sales to any
such customers would have a material adverse effect on the Company's business,
operating results and financial condition.
SUPPLIER CONCENTRATIONS Certain of the Company's products utilize components
that are available in the short term only from a single or a limited number of
sources. Any inability to obtain components in the amounts needed on a timely
basis or at commercially reasonable prices could result in delays in product
introductions or interruption in product shipments or increases in product
costs, which could have a material adverse effect on the Company's business,
operating results and financial condition until alternative sources could be
developed or designed and manufacturing changes could be completed. Any such
design or manufacturing changes or increased costs could result in significant
expenses in a particular quarter and therefore could adversely affect operating
results for any quarter or other period.
<PAGE> 12
2. INCOME TAXES
The Company accounts for income taxes under the provisions of FAS 109 -
Accounting for Income Taxes. As of December 31, 1995 and 1994, the Company
had a net deferred tax asset of approximately $6,191,000 and $6,633,000
respectively with a valuation allowance of $6,191,000 and $6,633,000,
respectively, comprised of the following:
<TABLE>
<CAPTION>
Deferred Tax Assets 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforwards $ 5,760,000 $ 6,215,000
Reserves not currently deductible 348,000 359,000
Accrued compensation and related costs 40,000 24,000
Excess depreciation 39,000 24,000
Other 4,000 11,000
----------- -----------
6,191,000 6,633,000
Less valuation allowance (6,191,000) (6,633,000)
----------- -----------
$ 0 $ 0
</TABLE>
Primarily all of the above temporary differences will reverse in 1996, except
for the net operating loss carryforwards which expire beginning 2000 through
2009. Due to certain tax regulations, future use of the loss carryforwards is
restricted. The impact of the restricted amount has not been calculated as of
December 31, 1995.
A reconciliation between the provision for income taxes as required by
applying the federal statutory rate of 35% to that included in the financial
statements is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes at federal statutory rate $ 374,000 ($ 586,000) ($ 923,000)
State income taxes, net of federal benefit 65,000 (51,000) (80,000)
Other permanent differences 3,000 4,000 2,000
Change in valuation allowance (442,000) 633,000 1,001,000
----------- ----------- -----------
$ 0 $ 0 $ 0
</TABLE>
3. LEASES
The Company leases its primary facilities under noncancelable operating
leases. The lease agreements contain certain scheduled rent increases (which
have been accounted for on a straight-line basis) and expire in June 1997.
Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
1996 213,000
1997 99,000
--------
Total $312,000
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$201,000, $175,000 and $110,000, respectively.
<PAGE> 13
4. SHAREHOLDERS' EQUITY
In December 1993, the Company completed a private placement offering
consisting of a special warrant cancellation financing and a Regulation S
offering to foreign investors whereby it sold an aggregate of 2,239,622 units
at $2.00 per unit. Each unit consisted of one share of the Company's Common
Stock and one warrant to purchase an additional share of the Company's Common
Stock at an exercise price of $3.00, expiring in December 1996. In the
warrant cancellation financing, 739,622 warrants, which entitled the holders
to purchase an equal number of shares of the Company's Common Stock, were
canceled in exchange for the right to purchase a unit in the offering at
$2.00 per unit. In the Regulation S offering, the Company sold 1,500,000
units to foreign investors. Net proceeds from the offering were $4,152,000,
after deducting costs of the offering of $327,000. Costs of the offering
included $36,000 paid to directors and affiliated entities for their
assistance in the financing.
5. COMMON STOCK WARRANTS AND OPTIONS
The Company has issued various warrants for the purchase of shares of its
Common Stock in conjunction with its equity financings. Activity relating to
warrants during the year ended December 31, 1993 is described in Note 4.
During 1994, the Company issued Series H warrants for the purchase of 150,000
shares of the Company's Common Stock in conjunction with a consulting
agreement. The exercise price for these warrants was equal to the fair market
value of the Common Stock at the date of grant.
During the year ended December 31, 1995, the Company authorized a reduction
in the exercise price of certain warrants from $3.81 and $4.00, to $2.25
(which approximated the fair market value on the date of the reduction).
Additionally, the expiration dates of these warrants were extended from June
30, 1995 to July 31, 1995. In July 1995, an aggregate of 758,681 shares of
the Company's Common Stock were issued upon exercise of the warrants for net
proceeds of $1,707,032. Outstanding warrants as of December 31, 1995 are
summarized below.
<TABLE>
<CAPTION>
Description Shares Subject to Warrants Exercise Price Per Share Expiration Date
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Underwriter Warrants 46,051 $6.79 February 1997
Series F Warrants 607,032 $2.40 to $4.80 October 1997
Series G Warrants 2,009,955 $3.00 December 1996
Series H Warrants 150,000 $2.75 to $3.25 March 1997
</TABLE>
In January and February of 1996, Series G Warrants to purchase 489,997 shares
of the Company's Common Stock were exercised raising net proceeds of
$1,469,991.
The Company has an employee stock option plan (the 1987 - 1988 Plan) which
currently provides for granting options to employees, officers and
consultants to purchase up to 2,000,000 shares of the Company's Common Stock
at exercise prices not less than 100% of the fair market value of the
Company's Common Stock at the date of grant (110% for incentive options
granted to holders of greater than 10% of the Company's outstanding voting
stock). Options granted become exercisable at such times as determined by the
Compensation Committee of the Board of Directors and expire on various dates
up to ten years from the date of grant.
In December 1995, the Company granted additional options to certain employees
for the purchase of 530,000 shares of its Common Stock at $4.36 per share.
These options were issued under a new stock option plan (the 1996 Plan),
subject to obtaining shareholder approval of the plan. The 1996 Plan, if
approved, will provide for the granting of options to employees, officers and
consultants to purchase up to 2,500,000 shares of the Company's Common Stock
at a price equal to 85% of the quoted market price on
<PAGE> 14
the date of grant. Also in December 1995, the Company granted 53,899 options
to certain key employees under the 1996 Plan as deferred compensation (see
Note 8).
The Company has a stock option plan which provides for the granting of
options to non-employee directors to purchase up to 400,000 shares of the
Company's Common Stock at exercise prices not less than the fair market value
of the Company's Common Stock at the date of grant. Under the terms of the
plan, options to purchase 10,000 shares of the Company's Common Stock are to
be granted to each non-employee director serving in such capacity as of the
first business day of January of each year as long as the plan remains in
existence. Options granted become exercisable in four equal installments,
with one installment occurring at the end of each calendar quarter subsequent
to the date of grant. The options expire at the earlier of five years from
the date of grant or two years after termination of the options holder's
status as a director. As of December 31, 1995, 111,715 of these options, with
exercise prices ranging from $1.63 to $3.60, were outstanding and
exercisable. On January 2, 1996, options to purchase an additional 60,000
shares of the Company's Common Stock at an exercise price of $5.38 per share
were issued under the plan.
Activity under all of the plans is summarized as follows:
<TABLE>
<CAPTION>
Number of Shares Price per Share
- ---------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1993 787,678 $0.25 - $5.15
Granted 513,240 0.25 - 3.15
Canceled (71,426) 1.70 - 5.00
Exercised (938) 2.20
- ---------------------------------------------------------------------------------
Balance, December 31, 1993 1,228,554 0.25 - 5.15
Granted 757,309 0.25 - 2.38
Canceled (136,000) 0.25 - 4.85
Expired (47,772) 1.70 - 5.00
- ---------------------------------------------------------------------------------
Balance, December 31, 1994 1,802,091 0.25 - 5.15
Granted 773,677 1.88 - 4.36
Canceled (58,602) 1.25 - 5.00
Exercised (38,278) 1.31 - 2.38
- ---------------------------------------------------------------------------------
Balance, December 31, 1995 2,478,888 $0.25 - $5.15
</TABLE>
Certain of these options were issued under an employment agreement between
the Company and its president (Note 8). As of December 31, 1995, there were
options for 806,476 shares available for grant under the 1987 - 1988 Plan.
Options to purchase 1,462,687 shares were exercisable as of December 31, 1995
in aggregate.
The Company has issued options outside of the option plans to purchase an
aggregate of 589,750 shares of its Common Stock to certain key employees at
exercise prices below fair market value for services rendered. Compensation
expense related to these options aggregating $44,000 has been recorded for
the years ended December 31, 1995 and 1994. As of December 31, 1995, 328,562
of these options are exercisable. All other terms of the options are the same
as those issued under the 1987 - 1988 Plan (described above).
6. EMPLOYEE BENEFIT PLAN
During 1991, the Company adopted a 401(k) retirement plan in which any full
time employee may participate. Employer contributions to the plan are
discretionary. No employer contributions were authorized during the years
ended December 31, 1995, 1994 or 1993. The Company does not provide
post-retirement benefits to its employees.
<PAGE> 15
7. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, 1994 and 1993, the Company paid
$38,000, $31,000 and $24,000, respectively, in consulting fees to members of
the Board of Directors and affiliated entities. See Note 4 for additional
information on related party transactions.
8. COMMITMENTS AND CONTINGENCIES
In June 1990, the Company entered into an employment agreement with the
President of the Company that expires on June 4, 1998. Under the terms of the
agreement, the President will receive a minimum base salary of $200,000 per
year for the term of this contract, with salary reviews conducted annually by
the Board of Directors.
In 1996, the Board of Directors approved a deferred compensation plan under
which certain key employees may be granted options under the 1996 Plan (Note
5) for which the Company will pay 100% of the total exercise price upon
exercise of the options by the employee. These options will vest one-third
upon the expiration of one year following the date of grant, an additional
one-third upon the expiration of two years following the date of grant and
all remaining options upon the expiration of three years following the date
of grant. Compensation expense of $65,000 relating to the plan will be
recorded in each of the years ending December 31, 1996, 1997 and 1998 based
on the vesting period.
9. DEFERRED REVENUE
In November 1993, the Company entered into a distribution agreement with a
Japanese company, which entitled it to exclusive distribution rights for
certain of the Company's products in Japan. Under the terms of the agreement,
the Company received $300,000 which will be applied to future sales to the
distributor as a discount of $2.00 per unit until such time as the $300,000
credit is fully utilized. As of December 31, 1995, $216,000 remained in
deferred revenues.
During the year ended December 31, 1995, the Company received deposits
aggregating $300,000 under the terms of distribution agreements with certain
foreign companies which entitled them to exclusive distribution rights for
certain of the Company's products in those countries. Such funds will be
applied to future sales to these distributors. As of December 31, 1995, no
amounts had yet been sold under these agreements and the entire amount was
included in deferred revenues.
10. BANK FINANCING
During the year ended December 31, 1995, the Company entered into a financing
agreement with a bank which provides for a working capital line of credit
expiring in August 1996. Under the line of credit, the Company may borrow up
to the lesser of $1,500,000 or 75% of eligible accounts receivable, as
defined, at a banks prime rate plus 1% (9.75% at December 31, 1995). There
were no borrowings under the line during the year ended December 31, 1995.
The bank line of credit agreement contains certain restrictive financial
covenants. At December 31, 1995, the Company was in compliance with all such
financial covenants.
11. SUBSEQUENT EVENT
In March 1996, SoloPak purchased the exclusive rights and license to
manufacture and sell the SideKick, Paragon and elite products in the U.S. and
Puerto Rico. Pursuant to the new agreement, SoloPak paid the Company $1.3
million in consideration of the license in March 1996 and will pay the
Company guaranteed royalties of $1.0 million during each of the three
succeeding quarters in 1996. Additionally, SoloPak will pay I-Flow a royalty
equal to two percent of their net sales of the products for the 1997 and 1998
calendar years. Per the terms of the agreement, I-Flow has the right of first
refusal to supply
<PAGE> 16
SoloPak with services and assistance in assembling completed products until
February 1998. The Company retained the rights to sell the products outside
the United States.
<PAGE> 17
PRINCIPAL SHAREHOLDERS AND
STOCK OWNERSHIP OF MANAGEMENT
The table below sets forth information regarding the beneficial
ownership of the outstanding Voting Shares as of February 26, 1996, of (i) each
of the Company's directors and nominees and each of the executive officers named
in the summary compensation table found elsewhere in the Proxy Statement, (ii)
each person known by the Company to be the beneficial owner of five percent or
more of its outstanding Voting Shares and (iii) all of the Company's directors
and executive officers as a group. Unless otherwise indicated, and except for
voting and investment powers held jointly with a person's spouse, the Company
believes that the beneficial owner has sole voting and investment power over
such shares. As of February 26, 1996 there were 10,660,162 Voting Shares
outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
NAME AND ADDRESS OF NUMBER OF VOTING SHARES SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------- ----------------------- --------------------
<S> <C> <C>
Proactive Partners (1) 1,403,425 (2) 12.46%
50 Osgood Place,
San Francisco, CA 94133
Donald M. Earhart 1,081,847 (3) 9.26%
2532 White Road
Irvine, CA 92714
Charles C. McGettigan 919,425 (4) 8.33%
50 Osgood Place
San Francisco, CA 94133
Caisse Nationale de Credit Agricole 686,215 (5) 6.33%
90 Boulevard Pasteur
25015 Paris France
AXA Banque ("Axa Mutuelles") 686,400 (6) 6.32%
5/7 rue de Milan
75439 Paris Cedex 09
Henry T. Tai, Ph.D., M.D. 484,567 (7) 4.51%
P.O. Box 335
Pacific Palisades, CA 90272
Joel S. Kanter 393,412 (8) 3.68%
Windy City, Inc.
8000 Towers Crescent Dr., Suite 1070
Vienna, VA 22182
John H. Abeles, M.D. 351,604 (9) 3.29%
2365 N.W. 41st Street
Boca Raton, FL 33431
James J. Dal Porto 107,605 (10) 1.00%
2532 White Road
Irvine, CA 92714
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
NAME AND ADDRESS OF NUMBER OF VOTING SHARES SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------- ----------------------- --------------------
<S> <C> <C>
Erik H. Loudon 28,000 (11) 0.26%
22 Hans Place
London SW1X 0EP, England
Jack H. Halperin 21,950 (12) 0.21%
361 Silver Court
Woodmere, NY 11598
All Directors and Executive 3,388,410 (13) 27.42%
Officers as a group (8 Persons)
</TABLE>
(1) "Proactive Partners" consists of three San Francisco based merchant
banking funds, Proactive Partners L.P., Lagunitas Partners, L.P., and Fremont
Proactive Partners, L.P. Charles C. McGettigan, a director of I-Flow, is a
general partner of Proactive Partners, L.P. and Fremont Proactive Partners,
L.P.; an affiliate of Mr. McGettigan is a general partner of Lagunitas Partners,
L.P.
(2) Includes (i) 96,393 shares of the Company's Common Stock held by
"Proactive Partners", (ii) 656,250 shares of Series B Preferred Stock held by
"Proactive Partners" which is convertible at any time to 700,000 shares of the
Company's Common Stock, and (iii) 607,032 shares of Common Stock issuable upon
exercise of warrants held by "Proactive Partners". 65,792 shares of Common
Stock, 477,780 shares of Series B Preferred Stock and 335,938 shares of Common
Stock issuable upon exercise of warrants owned by Proactive Partners, L.P. and
Fremont Proactive Partners, L.P. are also included below in the beneficial
ownership of Charles C. McGettigan.
(3) Includes (i) 48,300 shares of Common Stock held of record by Mr.
Earhart, (ii) 4,778 shares of Common Stock held of record by Mr. Earhart's
immediate family, (iii) 1,022,656 shares of Common Stock issuable upon the
exercise of stock options held by Mr. Earhart, (iv) 6,000 shares of Common Stock
issuable upon exercise of warrants held by Mr. Earhart, and (v) 113 shares of
Common Stock issuable upon exercise of warrants held by Mr. Earhart's immediate
family. Does not include 63,654 shares issuable upon exercise of options granted
to Mr. Earhart, but not exercisable within 60 days.
(4) Includes (i) 65,792 shares of Common Stock held by Proactive
Partners, L.P. and Fremont Proactive Partners, L.P., (ii) 447,917 shares of
Series B Preferred Stock which is convertible at any time to 477,780 shares of
Common Stock and 355,938 shares of Common Stock issuable upon exercise of
warrants held by Proactive Partners, L.P. and Fremont Proactive Partners, L.P.,
two funds in which Mr. McGettigan is a general partner and which are also
included above in the beneficial ownership of "Proactive Partners", and (iii)
19,915 shares of Common Stock issuable upon exercise of stock options held by
Mr. McGettigan. Does not include 7,500 shares issuable upon exercise of stock
options granted to Mr. McGettigan, but not exercisable within 60 days.
(5) Includes (i) 505,715 shares of Common Stock held of record by
Caisse Nationale de Credit Agricole, and (ii) 180,500 shares of Common Stock
issuable upon exercise of warrants held by Caisse Nationale de Credit Agricole.
(6) Includes (i) 488,400 shares of Common Stock held of record by Axa
Mutuelles, and (ii) 198,000 shares of Common Stock issuable upon exercise of
warrants held by Axa Mutuelles.
<PAGE> 19
(7) Includes (i) 409,817 shares of Common Stock held of record by Dr.
Tai, (ii) 44,750 shares of Common Stock issuable upon exercise of stock options
held by Dr. Tai., and (iii) 30,000 shares of Common Stock issuable upon exercise
of warrants held by Dr. Tai. Does not include 7,500 shares issuable upon
exercise of stock options granted to Dr. Tai, but not exercisable within 60
days. The shares, options and warrants listed include shares held by: (i) Bea
Adair - Lilian Byers Cancer Research Fund, of which Dr. Tai is trustee; (ii)
Henry T. Tai, M.D., Pension Plan, of which Dr. Tai is beneficiary; (iii) Dr.
Tai's wholly owned corporation, Henry T. Tai, M.D., Inc., and (iv) Dr. Tai
individually. Dr. Tai has sole voting and dispositive power with respect to all
shares.
(8) Includes (i) 300,000 shares of Common Stock held of record by
Walnut Capital Corporation, a corporation having Mr. Kanter as its President,
(ii) 51,543 shares of Common Stock held of record by Windy City, Inc., a
corporation having Mr. Kanter as its President, (iii) 1,050 shares of Common
Stock held of record by Mr. Kanter's immediate family, (iv) 18,869 shares of
Common Stock issuable upon exercise of warrants held by Windy City, Inc., (v)
450 shares of Common Stock issuable upon exercise of options held by Joel S.
Kanter, and (vi) 21,500 shares of Common Stock issuable upon exercise of options
held by Windy City, Inc. Does not include 7,500 shares issuable upon exercise of
stock options granted to Windy City, Inc., but not exercisable within 60 days.
Mr. Kanter does not own any of the voting securities of Windy City, Inc. or
Walnut Capital Corporation.
(9) Includes (i) 329,404 shares of Common Stock held of record by
Northlea Partners Ltd., a limited partnership, of which Dr. Abeles is the
general partner (as to which Dr. Abeles disclaims beneficial ownership except to
the extent of his pecuniary interest), and (ii) 22,200 shares of Common Stock
issuable upon exercise of stock options held by Northlea Partners. Does not
include 7,500 shares issuable upon exercise of options granted to Northlea
Partners, but not exercisable within 60 days.
(10) Includes 107,605 shares of Common Stock issuable upon exercise of
stock options held by Mr. Dal Porto. Does not include 220,863 shares issuable
upon exercise of stock options granted to Mr. Dal Porto, but not exercisable
within 60 days.
(11) Includes (i) 4,200 shares of Common Stock held of record by Mr.
Loudon, and (ii) 23,800 shares of Common Stock issuable upon exercise of stock
options held by Mr. Loudon. Does not include 7,500 shares issuable upon exercise
of stock options granted to Mr. Loudon, but not exercisable within 60 days.
(12) Includes 21,950 shares of Common Stock issuable upon exercise of
stock options held by Mr. Halperin. Does not include 7,500 shares issuable upon
exercise of stock options granted to Mr. Halperin, but not exercisable within 60
days.
(13) Includes (i) 65,792 shares of Common Stock, 447,917 shares of
Series B Preferred Stock, convertible into 477,780 shares of Common Stock, and
355,938 shares of Common Stock issuable upon exercise of warrants held by
Proactive Partners, L.P. and Fremont Proactive Partners, L.P., two funds in
which Mr. McGettigan is a general partner and which are also included above in
the beneficial ownership of "Proactive Partners" and Mr. McGettigan and (ii)
300,000 shares of Common Stock held by Walnut Capital which are also included
above in the beneficial ownership of Mr. Kanter. Does not include 329,517 shares
of Common Stock issuable upon exercise of stock options held by certain officers
and directors, which are not exercisable within 60 days.
<PAGE> 20
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation for services
rendered in all capacities during the calendar years ended December 31, 1995,
1994 and 1993 of the present Chief Executive Officer and all other executive
officers whose salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long term
compensation
Annual Compensation Awards
-----------------------------------------------
($) ($) ($) Options
Name and Principal Position Year Salary Bonus Other (#)
(a)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Donald M. Earhart (c) 1995 200,000 80,000 6,827 (b) 150,000
- ------------------------------------------------------------------------------
President & Chief Executive 1994 200,000 40,000 9,330 (b) 254,000
- ------------------------------------------------------------------------------
1993 200,000 40,000 0 145,000
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
James J. Dal Porto 1995 115,320 35,000 7,540 (b) 50,000
- ------------------------------------------------------------------------------
Executive Vice President, COO 1994 104,830 20,000 12,600 (b) 73,000
- ------------------------------------------------------------------------------
1993 94,288 20,000 0 39,000
- ------------------------------------------------------------------------------
</TABLE>
- ---------
(a) Bonuses awarded for each year were paid in February of the following
year. The 1995 bonus for Mr. Earhart included $40,000 in cash and
$40,000 in deferred compensation to be paid by the Company only upon
the exercise of stock options to purchase 9,174 shares of the Company's
Common Stock. The 1994 bonus for Mr. Earhart consisted of $40,000 in
deferred compensation to be paid by the Company only upon the exercise
of stock options to purchase 17,778 shares of the Company's Common
Stock. The 1993 bonus for Mr. Earhart included $20,000 in cash and
$20,000 in deferred compensation to be paid by the Company only upon
the exercise of stock options to purchase 9,709 shares of the Company's
Common Stock.
(b) Accrued vacation paid in the 1995 and 1994 calendar years.
(c) Terms and conditions of employment of the Chief Executive Officer are
outlined in an Employment Agreement he has with the Company which is
described elsewhere herein under the caption "Certain Other
Transactions".
<PAGE> 21
The following table shows information regarding stock options granted
to the named executive officers during calendar year 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------
% of total Exercise
options granted or base Market price
Options to employees price per share on Expiration
Name Granted in 1995 ($/Share) date of grant Date
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Donald M. Earhart 150,000(a) 44.1% 1.54 $1.81 12/30/2004
- ----------------------------------------------------------------------------------------
James J. Dal Porto 50,000(b) 14.7% 1.54 $1.81 12/30/1999
- ----------------------------------------------------------------------------------------
</TABLE>
- ---------
(a) All options are immediately vested and exercisable upon the date of
grant.
(b) These options vest 20% after one year from the date of grant, and the
remainder on a pro rata daily basis over the next four years. All
options become immediately exercisable upon the disposition of all or
substantially all of the Company's assets or capital stock.
The following table shows certain information concerning stock option
exercises by named executive officers during 1995 and the value of options held
by such executives at 1995 year end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of unexercised options Value of unexercised in-the-
at year end money options at year end
------------------------------------------------------------------------------------
Shares
acquired on $ Value (a) (a)
exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) (#) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald M. Earhart 0 0 778,482 63,333 $2,365,634 $309,067
- --------------------------------------------------------------------------------------------------------
James J. Dal Porto 0 0 91,994 115,006 $ 276,404 $402,486
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(a) Value of unexercised options is based on the closing NASDAQ bid price
on December 31, 1995 ($5.13 per share).
There is no table provided for Long Term Incentive Plan Awards as there are no
such Long Term Incentive Plans in place at the Company.
<PAGE> 22
CERTAIN OTHER TRANSACTIONS
Donald Earhart joined the Company in June 1990 as the President and
Chief Operating Officer. Mr. Earhart became the Chief Executive Officer of the
Company in July 1990 and Chairman of the Board in March 1991. Upon the
commencement of his employment, Mr. Earhart entered into a written Employment
Agreement with the Company for a four (4) year term pursuant to which he will
serve as a Chief Executive Officer of the Company for a minimum base salary of
$200,000 per annum, subject to adjustment upward by the Board of Directors, plus
a bonus to be determined annually by the Board based upon attainment of goals
set by the Board. Under the Employment Agreement, Mr. Earhart is entitled to a
severance payment equal to two (2) times his annual salary plus the previous
year's bonus if the Agreement is terminated by the Company without cause, or if
the Agreement is terminated by the employee for good reason after a change of
control with respect to the Company. Mr. Earhart was granted fully vested
options to purchase 120,000 shares of the Company's Common Stock at an exercise
price $2.20 per share, expiring October 24, 2001, at the time his employment
commenced. All option grants to Mr. Earhart from the commencement of his
employment to the end of the 1995 fiscal year are included in the Summary
Compensation Table and Aggregated Option Exercise Table above. The specific
options granted in the 1995 fiscal year are indicated in the above Option Grant
Table. Mr. Earhart is entitled to register shares of the Company's Common Stock
which he owns under the Securities Act of 1933, at the expense of the Company.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Numbers
33-63500 on Form S-8 and 33-80384 on Form S-3 of our reports dated January 26,
1996, except for Note 11 which the date is March 7, 1996, appearing, and
incorporated by reference, in the Annual Report on Form 10-K of I-Flow
Corporation for the fiscal year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,628
<SECURITIES> 0
<RECEIVABLES> 1,567
<ALLOWANCES> 509
<INVENTORY> 1,067
<CURRENT-ASSETS> 8,337
<PP&E> 1,650
<DEPRECIATION> (1,155)
<TOTAL-ASSETS> 9,107
<CURRENT-LIABILITIES> 1,379
<BONDS> 0
0
1,494
<COMMON> 24,278
<OTHER-SE> (18,044)
<TOTAL-LIABILITY-AND-EQUITY> 9,107
<SALES> 9,737
<TOTAL-REVENUES> 10,143
<CGS> 4,422
<TOTAL-COSTS> 9,074
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,069
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,069
<EPS-PRIMARY> .12
<EPS-DILUTED> 0
</TABLE>
