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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-19974
ICU MEDICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0022692
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
951 CALLE AMANECER
SAN CLEMENTE, CALIFORNIA 92673
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (714) 366-2183
Securities registered pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether 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 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. [_]
The aggregate market value of the voting stock held by non-affiliates of
Registrant as of February 28, 1997 was $63,081,000. *
The number of shares outstanding of Registrant's Common Stock, $.10 par
value, as of February 28, 1997 was 8,169,861.
Portions of the Proxy Statement for Registrant's 1997 Annual Meeting
of Stockholders, filed or to be filed pursuant to Regulation 14A within 120 days
following Registrant's fiscal year ended December 31, 1996, are incorporated by
reference into Part III of this Report.
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* Without acknowledging that any persons other than Dr. George A. Lopez and
Jesus Mejia are affiliates, all directors and executive officers have been
included as affiliates solely for purposes of this computation.
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PART I
ITEM 1. BUSINESS.
ICU Medical, Inc., together with its wholly-owned subsidiary Budget Medical
Products, Inc. ("BMP") (collectively, the "Company") is a leader in the
development, manufacture and sale of proprietary, disposable medical connection
systems for use in intravenous ("IV") therapy applications. The Company's IV
connectors are designed to prevent accidental disconnection's of IV lines and to
protect healthcare workers and their patients from the spread of infectious
diseases such as Hepatitis B and Human Immunodeficiency Virus ("HIV") by
significantly reducing the risk of accidental needlesticks. In 1993, the
Company launched the CLAVE(R), an innovative one-piece, needleless IV connection
device which has become the Company's fastest growing, and largest selling
product. The Company believes that the CLAVE offers healthcare providers a
combination of safety, ease of use, reliability and cost effectiveness that is
superior to any other protective IV connection system on the market.
Heightened awareness of the risk of infection from needlesticks and the
substantial expense to healthcare providers of complying with regulatory
protocols when needlesticks occur have led to growing demand for safe medical
devices such as the Company's protective IV connectors. In addition, healthcare
regulations promulgated by OSHA mandate that "universal precautions" be observed
to minimize exposure to blood and other body fluids.
BACKGROUND
The Company's first products, the Click Lock and Piggy Lock, feature
protected needles to prevent accidental contact with needles and include locking
mechanisms to prevent accidental disconnections. These products were designed
to replace conventional products and methods, such as IV connectors with exposed
needles that are secured by tape or open luer lock connections. Such
conventional products typically do not provide the protection from needlesticks,
accidental disconnection and contamination that are provided by the Company's
products. Although protected needle products manufactured by the Company and by
others significantly reduce the risk of needlesticks, they nevertheless employ
steel needles which require special disposal procedures.
Recognizing the inherent risks associated with needle handling and
disposal, even with protected needle systems, the Company developed the CLAVE, a
needleless IV connection system which was introduced in 1993. The CLAVE IV
connection system allows protected, secure and sterile IV connections without
needles and without failure prone mechanical valves used in the IV connection
systems of some competitors. The CLAVE was designed to eliminate needles from
certain applications by acute care hospitals, home healthcare providers,
ambulatory surgical centers, nursing homes, convalescent hospitals, physicians'
offices, medical clinics, and emergency services. Reduction in the use of
needles will not only decrease needlesticks but will also reduce the number of
needles to be disposed of and certain safety risks inherent in needle handling
and disposal. While the Company continues to manufacture and sell protected
needle products, sales of those products are declining as the market penetration
of needleless systems such as the CLAVE and other competitive needleless
products increases.
IV USAGE AND INFECTION CONTROL
Primary IV therapy lines, used in hospitals, nursing homes, emergency units
and in home healthcare, consist of a tube running from a bottle or plastic bag
containing an IV solution to a catheter inserted in a patient's vein. The tube
typically has several injection ports or Y sites (conventionally, entry tubes
covered by latex caps) to which a secondary IV line can be connected to permit
constant intravenous administration of medications, fluids and nutrients, and to
allow instantaneous intravenous administration of emergency medication.
In conventional practice, primary IV system connections are made by
inserting an exposed steel needle attached to the primary IV line into an
injection port connected to the catheter. Conventional secondary IV connections,
so called piggyback connections, are made by inserting an exposed steel needle
attached to a secondary IV line into an injection port or other IV connector.
In a conventional IV connection the needle, which typically is secured only with
tape, can detach from the catheter or injection port resulting in disconnection
and a serious and sometimes fatal interruption of the flow of the IV solution to
the patient. The exposed needles can easily be contaminated by contact with
unsterile objects or through contact with fluid in the IV lines. A contaminated
needle can result in infection to healthcare workers and, less frequently,
patients, as a result of accidental needlesticks.
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Increasing awareness of the risk of infection from needlesticks and the
substantial and increasing expense to healthcare providers of complying with
regulatory protocols when needlesticks occur have led to a growing demand for
safe medical devices such as the Company's protective IV connectors.
Hepatitis B and HIV are transmitted through blood and other body fluids,
and workers who come in contact with such infectious materials are at risk of
contracting these diseases. Transmissions may occur from needlesticks by
contaminated needles or exposure of mucous membranes to infectious body fluids
containing blood traces. Following each needlestick, the healthcare provider is
required to perform a series of tests on the healthcare worker for both
Hepatitis B and HIV as well as track and record each needlestick incident.
Thus, needlesticks result in time lost from work and substantial expense
regardless of whether an infectious disease is transmitted. The Company's
protective IV connectors are designed to prevent accidental needlesticks from
needles originating from primary and secondary IV connections.
PRODUCTS
CLAVE Products
A conventional IV line terminates with a male luer connector to which a
needle would be attached to penetrate a latex-covered injection port to make a
primary or secondary IV connection. With the CLAVE system, instead of attaching
a needle to the male luer, a CLAVE is used in place of the injection port and
the male luer, without a needle, is simply threaded into the CLAVE with a half
turn. The CLAVE consists of a cylindrical housing which contains a silicone
compression seal and a recessed plastic piercing element. As the luer tip enters
the CLAVE housing, it depresses the silicone seal back into the housing and
slides over the piercing element which penetrates through the compressed
silicone. Fluid channels in the piercing element create a continuous fluid
pathway from the IV line, through the CLAVE into the primary IV line and into
the catheter. The luer tip creates a tight seal against the top of the silicone
thereby preventing contaminants from entering the fluid pathway. When the IV
line is disconnected from the CLAVE, the silicone compression seal expands to
again fill the housing and reseal the opening. When the CLAVE is not in use,
the silicone compression seal fills the opening in the housing and covers the
plastic piercing element, thus completely sealing the connector and presenting a
flush surface which can be cleansed with an alcohol swab.
Emergency medications can be administered through the CLAVE by using a
standard syringe without a hypodermic needle attached. The CLAVE can be used
with any conventional primary IV system, acute and chronic central venous IV
system, acute care catheter, multi-lumen catheter, peripheral catheter and a
variety of other standard devices. The resilience of the silicone compression
seal permits repeated connections and disconnections without replacing the
CLAVE.
The CLAVE Y site is designed to be integrated directly into primary and
secondary IV sets, thus eliminating the need for special adapters, pre-slit
injection ports, or metal needles when making piggyback IV connections.
Currently, all popular IV connection systems that compete with the Company's
systems require either a metal needle, a pre-slit injection port or a special
adapter to make piggyback connections. The original CLAVE can be used to make a
piggyback connection, but it also requires a special adapter when used in
piggyback applications. The Company believes the integrated CLAVE Y site offers
a lower cost alternative to existing systems by eliminating the need for
multiple parts. The healthcare professional simply inserts the male luer of any
secondary IV set, without a needle, into the CLAVE Y site and twists to make the
connection. The CLAVE Y site will not replace CLAVE products used in non-
piggyback connections. Unlike the original CLAVE site, the CLAVE Y site is
marketed exclusively to IV set manufacturers, such as McGaw Inc. ("McGaw") and
Abbott Laboratories ("Abbott"). These manufacturers plan to build the CLAVE Y
site directly into their IV sets. Sales of the CLAVE Y site to date have only
been to Abbott and accounted for approximately 4% of the Company's net sales in
1996.
The CLAVE is the Company's fastest growing and largest selling product
line, and accounted for 68% of the Company's net sales in 1996.
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Click Lock and Piggy Lock Products
The Company's first products, the Click Lock and Piggy Lock, were designed
to overcome the limitations of conventional IV connections which use exposed
needles. The needles in the Click Lock and Piggy Lock systems are completely
recessed into a clear plastic cylindrical housing to reduce the risk of
needlesticks and contamination by preventing contact between the needle and
other objects. Locking devices which snap closed with an audible click are
designed to prevent accidental disconnection but permit immediate and easy
disconnection when desired. The cylindrical housing also acts as a guide to
direct the needle accurately into the matching port, thus allowing an easy,
quick connection while preventing the needle point from scratching the insides
of the injection port on insertion and scraping off particles of plastic which
could enter the patient's vascular system. The clear plastic housing and the
audible click permit visual and aural confirmation that the connection has been
made.
The Click Lock housing locks onto the Company's matching injection port
located on either piggyback IV sets or extension IV sets manufactured by the
Company. Matching injection ports are also sold separately for use on other
manufacturers' extension sets and catheters. Using the appropriate IV set or
separate matching injection port, the Click Lock can be used with any
conventional primary IV system, acute or chronic central venous IV system, acute
care catheter, multi-lumen catheter, implantable medication port, peripheral
catheter and a variety of other standard devices. The Piggy Lock was developed
as a less expensive, more convenient alternative to using a Click Lock and
related IV set combination to make a secondary or piggyback IV connection. The
Piggy Lock does not however replace Click Lock components used in non-piggyback
or conventional catheter connections.
With the availability of the CLAVE and other needleless products sold by
competitors, the market is shifting rapidly away from protected needle products
to needleless connection systems. Sales of Click Lock and Piggy Lock products
are declining both absolutely and as a percentage of net sales.
McGaw Protected Needle and Safeline Products
The Company has a Manufacture and Supply Agreement with McGaw (the "McGaw
Agreement") extending to July 2000, which grants the Company exclusive rights to
perform certain assembly of the McGaw Protected Needle which is marketed and
distributed by McGaw. See Marketing and Distribution, below. The McGaw Protected
Needle is similar to the Click Lock, and competes with the Company's IV
connection systems. The McGaw Agreement provides that the Company release McGaw
from any claims for patent infringement resulting from the sale of McGaw
Protected Needles prior to the effective date of the McGaw Agreement, so long as
the McGaw Agreement is in effect, and permanently once McGaw purchases a
specified quantity of McGaw Protected Needles. The Company began assembly of the
McGaw Protected Needle during 1994. Sales of the McGaw Protected Needle to McGaw
under the McGaw Agreement accounted for approximately 9%, 14%, and 9% of the
Company's net sales in 1994, 1995 and 1996, respectively. With the continuing
shift in demand from protected needle to needleless products, the Company
expects sales of McGaw Protected Needles will eventually decline. Pursuant to a
May 1995 amendment to the McGaw Agreement, McGaw also agreed to pay the Company
a share of McGaw's revenues on Safeline, a new needleless IV connector designed
and manufactured by McGaw for use with pre-slit injection ports. Such payments
commenced in 1996 and accounted for approximately 3% of the Company's net sales.
Lopez Valve
The Company's Lopez Valve is a small "T" valve designed to be connected
into nasogastric tube systems. The valve permits intermittent injection of
medications or fluids through nasal passages without having to disconnect the
nasogastric tube. By eliminating the need to disconnect the nasogastric tube,
the Lopez Valve helps prevent the splashing of and risk of contact with
potentially infectious stomach fluids and also saves valuable time.
RF100 and RF150
The Company has developed a family of inexpensive single-use needleless
connectors for use in both piggyback and non-piggyback applications. The RF100,
designed for use in piggyback applications, is a one-piece, needleless IV
connector comprised of a small plastic piercing element that is recessed into a
plastic housing. The
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RF100 locks onto any standard Y site reducing the potential for accidental
disconnection. The RF150 is similar to the RF100 in that it is comprised of a
small plastic piercing element that is recessed into a plastic housing. The
RF150 was developed specifically for Abbott for use with pre-slit injection
ports in piggyback and non-piggyback applications. Once the injection port is
pierced, the protective housing opens much like a clothes pin, and locks over
the pre-slit injection port thus reducing the potential for accidental
disconnections. Although the Company believes that the CLAVE has significant
functional advantages over the RF100 and RF150, these products could compete
with the CLAVE as less expensive needleless IV connectors.
Budget Medical Products, Inc.
During late 1995, the Company created BMP as a wholly owned subsidiary.
BMP was established to service the low end of the safe medical connector market
by distributing custom IV sets manufactured by the Company which incorporate
lower priced safe medical connectors, and custom IV sets incorporating the
CLAVE. During 1995, BMP had no revenue and nominal expenses. During 1996, BMP's
revenues were approximately $400,000. The Company expects to continue to expand
the operations of BMP in 1997.
New Products
The Company is developing a number of new products and enhancements to the
CLAVE that it intends to introduce in 1997. The Company believes innovative
products continue to be important to maintaining and increasing its sales
levels.
MARKETING AND DISTRIBUTION
The influence of managed care and the growing trend toward consolidation
among healthcare providers are the driving forces behind the Company's sales and
marketing strategies. Many healthcare providers are consolidating to create
economies of scale and to increase negotiating power with suppliers. In an
effort to further control costs, many of these consolidated groups are entering
into long-term contracts with medical suppliers at fixed pricing. In this
changing market place, the Company believes it is becoming increasingly
important to secure contracts with major buying organizations in addition to
targeting specific hospital and homecare providers.
The Company has entered into strategic supply and distribution
relationships with McGaw and Abbott, two major IV product suppliers, each of
whom has a significant share of the IV set market under contract. The McGaw
Agreement, which extends to July 2000, gives McGaw exclusive and nonexclusive
rights to distribute certain CLAVE products to certain categories of customers.
Under the Abbott Agreement which extends to April 2002, Abbott also has rights
to market certain CLAVE products together with its own products. The McGaw
Agreement and the Abbott Agreement establish the minimum prices that McGaw and
Abbott will pay for the Company's products, which are lower than the Company's
current average selling prices and which the Company negotiated in anticipation
of significant sales to McGaw and Abbott. The McGaw Agreement provides for
automatic reductions in minimum prices based on volume increases, and the Abbott
Agreement provides for annual renegotiation of minimum prices. The Company could
receive more than the minimum prices under formulae in the agreements based on
incremental increases in selling prices of McGaw and Abbott IV sets
incorporating the Company's products. Although the Company could experience
declines in gross margins at the minimum price levels, the Company believes that
any such declines would be offset in part by improved absorption of
manufacturing overhead as a result of increased production volumes anticipated
from sales to McGaw and Abbott.
McGaw and Abbott purchase CLAVE products packaged separately and in bulk
for distribution in the hospital market and certain homecare providers. CLAVE
products purchased in bulk are assembled into McGaw and Abbott's primary and
secondary IV sets. Both McGaw and Abbott purchase other CLAVE products which
are sold as accessories.
The Company currently has approximately 23 independent distributors in the
United States who employ approximately 150 salespeople in the aggregate. In
addition, the Company employs 25 product specialists who support the Company's
distributors' salespeople, calling on prospective customers, demonstrating
products and
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supporting programs to train distributors' and customers' staffs in the use of
the Company's products. Distributors purchase and stock the Company's products
for resale to hospitals and home healthcare providers.
Sales to McGaw of McGaw Protected Needles and CLAVE products accounted for
approximately 20%, 30% and 28% of the Company's net sales in 1994, 1995 and
1996, respectively. Sales to Abbott accounted for approximately 7% of net sales
in 1996. Two independent distributors, Professional Hospital Supply and New
England Medical Specialties accounted for 13% and 9%, respectively, of 1996 net
sales. All other customers account for smaller percentages of net sales.
Although the loss of one or more of the distributors named above could have an
adverse affect on the Company's business, the Company believes it could readily
locate other distributors in the same territories who could continue to
distribute the Company's products to the same customers. The loss of McGaw or
Abbott as a customer would be more significant because these customers have
full-line contracts with numerous hospitals and homecare providers to supply all
IV products and solutions to those customers.
The Company's products are distributed in several European countries,
Canada, the Middle East, Australia, Japan and other parts of Asia. During 1996,
1995 and 1994, foreign sales accounted for approximately 3%, 2% and 2%,
respectively, of the Company's net sales. During the second quarter of 1996,
the Company entered into a distribution agreement with BOC OHMEDA AB ("Ohmeda"),
a major distributor of medical products, for distribution of CLAVE in Europe.
Full launch of exclusive distribution in the United Kingdom, France and the
Benelux countries commenced in the fourth quarter of 1996, and distribution in
most other countries in Europe will be added in phases. In late 1996, the
Company employed a product specialist and a clinical specialist resident in
Europe. Management expects that its sales to foreign distributors will continue
to increase in the future.
MANUFACTURING
Manufacturing of the Company's products involves injection molding of
plastic parts, manual and automated assembly of the molded plastic parts,
needles and other components, quality control inspection, packaging and
sterilization. The Company molds the majority of its requirements for
components, performed all assembly, quality control, inspection, packaging,
labeling and shipping of its products. Sterilization and sterility testing are
performed under contract by independent companies.
The Company has a fully-integrated medical device manufacturing facility in
two adjacent buildings totaling 78,000 square feet in San Clemente, California,
run by a team of experienced manufacturing management personnel. A mold
maintenance shop supports the repair and maintenance needs of the Company's
molding operation. In addition, the mold maintenance shop serves as a research
and development prototype shop, and utilizes advanced computer assisted design
systems and automated machining equipment. The state-of-the-art medical device
molding facility includes an 8,000 square foot class 100,000 clean room in which
all molding of the Company's proprietary medical components is performed. The
clean room is equipped with 22 injection molding machines and ancillary
equipment including robots designed to minimize human intervention. The Company
uses sophisticated, highly automated assembly systems to assemble the CLAVE,
Click Lock, RF150 and the McGaw Protected Needle products. The assembly systems
are custom designed and manufactured for the Company. The Company's new CLAVE Y
site was initially assembled in a semi-automated mode until automated assembly
equipment was completed and installed in early 1997. The Piggy Lock, Lopez Valve
and IV sets are assembled manually.
The Company's state-of-the-art injection molding technology and highly
automated assembly systems are designed to maintain a high level of product
quality and achieve high volume production at low unit manufacturing costs. To
achieve these advantages and to gain greater control over raw material and
finished product delivery times, the Company now molds its entire requirements
of proprietary molded components. Generic, "off-the-shelf" items are purchased
from outside vendors unless significant cost savings can be achieved by molding
in-house. The Company is not dependent on any individual vendor for purchased
parts and has no contracts with its suppliers beyond the terms of purchase
orders issued.
The Company's products are currently sterilized in processes which use
either gamma radiation or ethylene oxide gas ("ETO"). Most of the Company's
sterilization is by gamma radiation. Sterilization is performed by independent
companies who have extensive equipment and procedures to prevent the release of
ETO and radiation into the environment. Use of ETO in California is subject to
hazardous material labeling requirements. The
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Company believes that it can continue to have its products sterilized by firms
in California. The Company is also investigating other methods of sterilization
that would be more cost effective and less time-consuming.
GOVERNMENT REGULATION
Government regulation is a significant factor in the development, marketing
and manufacturing of the Company's products. The Company and its products are
regulated by the FDA under a number of statutes including the Federal Food, Drug
and Cosmetics Act ("FDC Act"). The FDC Act provides two basic review procedures
for medical devices. Certain products may qualify for a submission authorized
by Section 510(k) of the FDC Act, under which the manufacturer gives the FDA a
premarket notification of the manufacturer's intention to commence marketing the
product. The manufacturer must, among other things, establish that the product
to be marketed is substantially equivalent to another legally marketed product.
Marketing may commence when the FDA issues a letter finding substantial
equivalence. If a medical device does not qualify for the Section 510(k)
procedure, the manufacturer must file a premarket approval ("PMA") application.
This requires substantially more extensive pre-filing testing than the Section
510(k) procedure and involves a significantly longer FDA review process. FDA
approval of a PMA application occurs only after the applicant has established
safety and efficacy to the satisfaction of the FDA. Each of the Company's
current products has qualified, and the Company anticipates that any new
products that it is likely to market will qualify, for the expedited Section
510(k) clearance procedure. There is no assurance, however, that new products
developed by the Company or any manufacturers that the Company might acquire, or
claims that the Company may make concerning those products, will qualify for
expedited clearance rather than the more time consuming PMA procedure or that,
in any case, they will receive clearance from the FDA. FDA regulatory processes
are time consuming and expensive. Uncertainties as to time required to obtain
FDA clearances or approvals could adversely affect the timing and expense of new
product introductions. All of the regulated products currently manufactured by
the Company are classified as Class II medical devices by the FDA. Class II
medical devices are subject to performance standards relating to one or more
aspects of the design, manufacturing, testing and performance or other
characteristics of the product in addition to general controls involving
compliance with labeling and record keeping requirements.
The Company must comply with FDA regulations governing medical device
manufacturing practices. The FDA and the California Department of Health
Services ("DHS") require manufacturers to register and subject them to periodic
FDA and DHS inspections of their manufacturing facilities. The Company is an
FDA registered medical device manufacturer, and must demonstrate that the
Company and its contract manufacturers comply with the FDA's current Good
Manufacturing Practices ("GMP") regulations. Under these regulations, the
manufacturing process must be regulated and controlled by the use of written
procedures and the ability to produce devices which meet the manufacturer's
specifications must be validated by extensive and detailed testing of every
critical aspect of the process. They also require investigation of any
deficiencies in the manufacturing process or in the products produced and
detailed record keeping. Further, the FDA's interpretation and enforcement of
these requirements has been increasingly strict in recent years and seems likely
to be even more stringent in the future. Failure to adhere to GMP requirements
would cause the products produced to be considered in violation of the
applicable law and subject to enforcement action. The FDA monitors compliance
with these requirements by requiring manufacturers to register with the FDA, and
by subjecting them to periodic FDA inspections of manufacturing facilities. If
the inspector observes conditions that might be violative, the manufacturer must
correct those conditions or explain them satisfactorily, or face potential
regulatory action that might include physical removal of the product from the
marketplace.
The Company believes that its products and procedures are in compliance
with all applicable FDA and DHS regulations. There can be no assurance,
however, that other products under development by the Company or products
developed by the Company in the future will be cleared by the FDA and classified
as Class II products, or that additional regulations restricting the sale of its
present or proposed products will not be promulgated by the FDA or DHS. In
addition, changes in FDA, DHS or other federal or state health, environmental or
safety regulations or their applications could adversely affect the Company's
business.
To market its products in the European Community ("EC"), the Company must
conform to additional requirements of the EC and demonstrate conformance to
established quality standards and applicable Directives. As a manufacturer that
designs, manufactures and markets its own devices, the Company must comply with
the quality
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management standards of EN ISO 9001(08/94)/EN 46001 (10/93). Those quality
standards are similar to the GMP regulations but incorporate the quality
requirements for product design and development.
Manufacturers of medical devices must also be in conformance with EC
Directives such as Council Directive 93/42/EEC ("Medical Device Directive") and
their applicable annexes. Those are regulations that assure that medical
devices are both safe and effective and meet all applicable established
standards prior to being marketed in the EC. Once a manufacturer and its
devices are in conformance with the Medical Device Directive, the "CE" Mark may
be affixed to its devices. The CE Mark gives devices an unobstructed entry to
all the member countries of the EC.
The Company has demonstrated conformity to the regulations of both EN ISO
9001 (08/94)/EN 46001 (10/93) and the Medical Device Directive. Upon
identifying an EC representative and developing the associated technical files
for its products, the Company can affix the CE Mark to its device labeling.
The Company believes its products and systems are in compliance with all EC
requirements. There can be no assurance, however, that other products under
development by the Company or products developed by the Company in the future
will be in conformance or that additional regulations restricting the sale of
its present or proposed products will not be promulgated by the EC.
COMPETITION
The market for IV products is intensely competitive. The Company believes
that its ability to compete depends upon its continued product innovation, the
quality, convenience and reliability of its products, access to distribution
channels, patent protection, and pricing. The Company encounters significant
competition in this market both from large established medical device
manufacturers and from smaller companies. The Company's ability to compete
effectively with its high-end products like the CLAVE depends on its ability to
differentiate them based on safety features, product quality, cost
effectiveness, ease of use and convenience, as well as the Company's ability to
perceive and respond to changing customer needs. In the long term, the Company's
ability to compete may be affected by its ability to reduce unit manufacturing
costs of the CLAVE through higher volume production. In October 1996, in
response to competitive pressure, the Company announced a price reduction to
independent distributors with the objective of protecting and expanding its
market.
In addition to competing with conventional IV connection systems and
protected needle locking IV connection systems marketed by companies such as
Baxter Healthcare Corporation ("Baxter") and Abbott, the Company's present and
future products will compete with needleless IV connection systems like those
marketed by Baxter, Burron Medical, Inc., IVAC Corporation and others .
Although the Company believes that its needleless CLAVE has distinct advantages
over competing systems, there is no assurance that it will be able to compete
successfully with these products.
Manufacturers of products with which the Company currently competes, or
might compete in the future, include large companies with an established
presence in the healthcare products market and substantially greater financial,
marketing and distribution, managerial and other resources. In particular,
Baxter, Abbott and McGaw are leading distributors of IV therapy systems, while
Becton-Dickinson and Company and Sherwood Medical Company dominate the
hypodermic needle market. Several of these competitors have broad product lines
and have been successful in obtaining full-line contracts with a significant
number of hospitals to supply all of their IV product requirements. In order to
penetrate more of these hospitals, the Company has established strategic supply
and distribution relationships with McGaw and Abbott.
The Company believes the success of CLAVE has, and will continue to
motivate others to develop one piece needleless connectors which may incorporate
many of the same functional and physical characteristics as the CLAVE. The
Company is aware of at least five such products. The Company believes these
products were developed primarily by companies who currently do not have the
distribution or financial capabilities of the Company. The Company believes
these products have had a modest impact on its CLAVE business to date, and there
is no assurance that the Company's current or future products will be able to
successfully compete with these or future products developed by others.
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PATENTS
The Company has United States and certain foreign patents on the Click Lock
and Piggy Lock IV connectors and has United States patents on the Lopez Valve
connector. The Company has applications pending for United States and foreign
patents on the CLAVE, Click Lock and Piggy Lock IV connectors. The expiration
dates of the Company's patents range from 2005 to 2011.
The Company's success may depend in part on its ability to obtain patent
protection for its products and to operate without infringing the proprietary
rights of third parties. While the Company has obtained certain patents and
applied for additional United States and foreign patents covering certain of its
products, there is no assurance that any additional patents will be issued
either on the CLAVE or on other products, that the scope of any patent
protection will prevent competitors from introducing similar devices or that any
of the Company's patents will be held valid if subsequently challenged. The
Company also believes that patents on the Click Lock and the Lopez Valve
products may have been, and that patent protection on the CLAVE may be,
important in preventing others from introducing competing products which are as
effective as the Company's products. The loss of patent protection on Click
Lock and Lopez Valve products or the inability to obtain patent protection on
the CLAVE could adversely affect the Company's ability to exclude other
manufacturers from producing effective competitive products and could have an
adverse impact on the Company's financial results.
The fact that a patent is issued to the Company does not eliminate the
possibility that patents owned by others may contain claims which are infringed
by the Company's products.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical device industry. Litigation, which
would result in substantial cost to and diversion of resources by the Company,
may be necessary to defend the Company against claimed infringement of the
rights of others and to determine the scope and validity of the proprietary
rights of others. In addition, enforcement of the Company's intellectual
property rights through litigation could result in substantial cost and
diversion of resources. Adverse determinations in litigation could subject the
Company to significant liabilities to third parties or could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using its products, any of which could have a material
adverse effect on the Company's business.
In 1995, the Company initiated legal proceedings against Tri-State Hospital
Supply Corporation alleging patent infringement; the cost of the litigation has
been significant. See Item 3. Legal Proceedings, Item 7. Management's Discussion
and Analysis of Financial Conduction and Results of Operations, and Item 8.
Financial Statements.
EMPLOYEES
At February 28, 1997, the Company had 121 full-time employees, consisting
of 55 engaged in sales, marketing and administration, and 66 in manufacturing,
molding, product development and quality control. The Company contracts with
two independent temporary agencies to provide its production personnel; none of
the personnel provided through those agencies are employed by the Company. At
February 28, 1997, the number of temporary production personnel was
approximately 114.
ITEM 2. PROPERTIES.
The Company owns two adjacent 39,000 square foot buildings in San Clemente,
California. The Company believes that its current facilities are of sufficient
size for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
In an action entitled ICU Medical, Inc. v. Tri-State Hospital Supply
----------------------------------------------
Corporation, pending in the United States District Court for the Northern
- -----------
District of California, the Company alleges patent infringement by defendant's
protected needle connector. The Company is seeking an injunction, and monetary
damages in an amount to be determined. On February 8, 1996, the Court denied
Tri-State's motion for summary judgment of non-infringement
9
<PAGE>
of one of the Company's patents. On February 28, 1997, the Court ruled on a
number of motions filed by the parties, denying summary judgment on most of the
motions and issuing rulings on matters of enforceability of the Company's
patents that were generally favorable to the Company. The case remains pending
and a number of motions remain to be determined by the Court. There is currently
no scheduled trial date.
In an action entitled Allen E. Petty dba Carmel Development International
---------------------------------------------------
v. ICU Medical, Inc. pending in Superior Court for Orange County, State of
- -------------------
California, Plaintiff alleges breach of contract and seeks at least $500,000 in
commissions allegedly related to sales of the CLAVE to various O.E.M.
manufacturers. The Company believes the claim is without merit and intends to
defend the action vigorously.
In an action entitled Hinck Medical, Inc. v. ICU Medical, Inc,. pending in
---------------------------------------
the United States District Court for the District of Oregon, the plaintiff
alleges that the Company breached a distribution agreement by imposing different
payment terms on the plaintiff, Hinck Medical, Inc. ("Hinck") than were required
of other distributors, and makes several other allegations. The Company has
denied the allegations of the complaint and has asserted counterclaims against
Hinck for breach of the distribution agreement and is seeking damages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable
EXECUTIVE OFFICERS OF REGISTRANT.
The following table lists the names, ages, positions and offices with the
Company held by the executive officers and certain key employees of the Company.
Officers are elected annually by and serve at the pleasure of the Board of
Directors.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS: Age Office Held
--- ----------------------------------------
<S> <C> <C>
George A. Lopez, M.D. 49 Chairman of the Board, President and
Chief Executive Officer
Evelyn Foss 41 Vice President of Marketing
Francis J. O'Brien 54 Chief Financial Officer, Secretary
and Treasurer
KEY EMPLOYEES:
Robert Brown 39 President, Budget Medical Products, Inc.
Richard Costello 33 National Sales Manager
</TABLE>
Dr. Lopez is the founder of the Company and has served as Chairman of the
Board, President and Chief Executive Officer since August 1989. He also served
as Secretary, Treasurer and Chief Financial Officer from January 1994 to October
1994.
Ms. Foss became Vice President of Marketing in January 1992, after having
been the Manager of Sales and Marketing since October 1988.
Mr. O'Brien became Chief Financial Officer in November, 1996 and was
elected as Secretary in December, 1996. From October 1994 to November 1996, he
was an independent consultant and prior to 1994 he was a partner with Ernst &
Young LLP.
Mr. Brown became President of Budget Medical Products, Inc. in 1997 after
having been a product specialist since February 1992.
Mr. Costello became National Sales Manager in August, 1996, after having
been a product specialist since February 1992.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been traded on the Nasdaq National Market
tier of The Nasdaq Stock Market under the symbol "ICUI" since its initial public
offering on March 31, 1992. The following table sets forth, for the quarters
indicated, the high and low closing prices for the Company's Common Stock quoted
by the Nasdaq:
<TABLE>
<CAPTION>
1996 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter $17 5/8 $ 14
Second Quarter 23 1/2 13
Third Quarter 13 5/8 8 1/4
Fourth Quarter 9 6 5/8
1995
- ----
First Quarter $16 3/8 $14 1/4
Second Quarter 17 12 3/4
Third Quarter 16 1/2 13
Fourth Quarter 17 10 3/4
</TABLE>
The Company has never paid dividends and does not anticipate paying
dividends in the foreseeable future as the Board of Directors intends to retain
future earnings for use in the Company's business. Any future determination as
to payment of dividends will depend upon the Company's financial condition,
results of operations and such other factors as the Board of Directors deems
relevant.
As of February 28, 1997 the Company had 202 stockholders of record and
believes it has approximately 4,000 beneficial stockholders.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
ICU MEDICAL, INC.
-----------------
SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
(In thousands, except per share data)
1996 1995 1994 1993 1992
------- ------- ------- -------- -------
INCOME DATA:
<S> <C> <C> <C> <C> <C>
Net sales.............................. $24,599 $21,282 $16,542 $11,381 $10,153
Cost of goods sold..................... 10,443 10,286 8,818 4,407 3,219
------- ------- ------- ------- -------
Gross profit........................... 14,156 10,996 7,724 6,974 6,934
Operating expenses..................... 8,236 5,600 3,877 2,784 2,301
------- ------- ------- ------- -------
Income from operations................. 5,920 5,396 3,847 4,190 4,633
Other income (expense)................. 1,294 723 516 (12) 166
Provision for income taxes............. 2,475 1,958 1,456 1,146 848
------- ------- ------- ------- -------
Income from continuing operations........... $ 4,739 $ 4,161 $ 2,907 $ 3,032 $ 3,951
====== ====== ====== ====== ======
Income from continuing operations...........
-- per share........................... $0.54 $0.50 $0.39 $0.41 $0.57
====== ====== ====== ====== ======
Weighted average number of common
and common equivalent shares
outstanding................................ 8,842 8,270 7,494 7,431 6,965
====== ====== ====== ====== ======
CASH FLOW DATA:
Cash flows from operations............. $ 6,513 $ 6,997 $ 938 $ 3,263 $ 3,048
BALANCE SHEET DATA
Cash and liquid investments............ $31,760 $29,665 $ 3,569 $12,968 $ 2,787
Working capital....................... 35,587 33,762 12,712 17,892 16,308
Total assets........................... 49,639 47,850 26,321 23,594 18,964
Long-term debt......................... - - - - -
Stockholders' equity................... 46,749 45,658 24,659 21,494 17,529
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Following the Company's launch of CLAVE products in 1993, the Company's net
sales have increased and the Company has experienced a significant shift in
demand towards the needleless CLAVE system and away from its Click Lock and
Piggy Lock protected needle products. The Company believes that the shift to
needleless IV connection systems is taking place throughout the safe connector
market, and will continue for the foreseeable future. The Company believes that
its ability to increase its revenues and profits will depend, in large part, on
the success of its marketing and distribution strategies for CLAVE products, its
ability to reduce unit manufacturing costs for CLAVE, and its ability to
develop, produce and sell new, innovative products.
The following table sets forth, for the periods indicated, net sales by product
as a percentage of total net sales:
<TABLE>
<CAPTION>
Product Line 1996 1995 1994
- -------------------------------------------------
<S> <C> <C> <C>
CLAVE 68% 61% 45%
Click Lock 12% 20% 41%
McGaw Protected Needle 8% 13% 9%
Lopez Valve 4% 4% 5%
RF100-RF150 ("Rhino") 3% 2% -
Budget Medical Products 2% - -
McGaw SafeLine revenue
sharing 3% - -
- -------------------------------------------------
Total 100% 100% 100%
=================================================
</TABLE>
The Company believes that as the healthcare provider market continues to
consolidate, the Company's success in marketing and distributing CLAVE products
will depend, in part, on the Company's ability, either independently or through
strategic supply and distribution arrangements, to secure long-term CLAVE
contracts with major buying organizations. To gain additional access to large
hospitals and major buying organizations, the Company negotiated the McGaw
Agreement and the Abbott Agreement. Those agreements establish minimum prices
that McGaw and Abbott will pay for the Company's products, which are lower than
the Company's current average selling prices and which the Company negotiated in
anticipation of significant sales to McGaw and Abbott. The McGaw Agreement,
provides for automatic reductions in minimum prices based on volume increases,
and the Abbott Agreement provides for annual re-negotiation of minimum prices.
Although the Company could experience declines in gross margins at the minimum
price levels, the Company believes that any such declines would be offset in
part by improved absorption of manufacturing overhead as a result of increased
production volumes anticipated from sales to McGaw and Abbott.
The Company's marketing and distribution strategy may result in a
significant share of the Company's revenues being concentrated among a small
number of customers. The loss of a strategic supply and distribution agreement
with a customer or the loss of a large contract by such a customer, could have a
material adverse effect on operating results.
COMPARISON OF 1996 TO 1995
In 1996, the Company reported net sales of $24,599,000, which was
$3,317,000, or 16%, higher than the net sales of $21,282,000 reported in 1995.
The increase was primarily attributable to a $3,648,000, or 28%, increase in
CLAVE sales, including revenue sharing from McGaw on sales of CLAVE products,
and $829,000 of revenue sharing on McGaw's sales of its SafeLine products, which
payments were initiated 1996. Also contributing to the increase were sales by
the Company's Budget Medical Products subsidiary formed in late 1995, sales of
the low-priced Rhino and a modest increase in Lopez valve sales. Those
increases were partially offset by a 32% decrease in
13
<PAGE>
Click Lock and Piggy Lock sales and a 25% decrease in McGaw Protected Needle
sales. The Company's independent distributors accounted for 65% of the Company's
net sales in 1996, with McGaw accounting for 28% and Abbott the remaining 7%. In
1995, the comparable percentages were 68%, 30% and 2%, respectively.
Total CLAVE net sales increased approximately 28% from $13,075,000 in 1995
to $16,723,000 in 1996. Unit shipments of CLAVE products in 1996 increased
approximately 43% over 1995, with independent distributors, McGaw and Abbott
accounting for approximately 47%, 8% and 45%, respectively, of this unit growth.
The aggregate average net selling price of CLAVE products in 1996 decreased
approximately 10% as compared with 1995. That decrease reflects equally lower
prices from independent distributors and lower prices on bulk, non sterile CLAVE
products sold to McGaw and Abbott.
Net sales to McGaw, including revenue sharing, amounted to $6,875,000 in
1996, as compared to $6,301,000 in 1995. CLAVE sales to McGaw increased
approximately 14%, principally because of an increase in unit shipments. Net
sales of the McGaw Protected Needle declined 25% and management expects those to
continue to decline as the market for safe connectors continues its shift to
needleless technology. Under a non-exclusive strategic supply and distribution
agreement with McGaw, the Company is entitled to share in certain incremental
increases in McGaw's CLAVE selling prices. The Company recorded approximately
$377,000 of revenue sharing on CLAVE products in 1996, but at McGaw's current
price levels, Management does not expect to receive significantly greater
amounts of revenue sharing on CLAVE products sold to McGaw, and there is no
assurance that McGaw's pricing in the future will result in any revenue sharing
in the future. Based on McGaw's forecasts, Management expects increases in unit
shipments to McGaw in 1997, although there is no assurance that this expectation
will be realized. Under that same agreement, the Company receives revenue
sharing payments on McGaw's sales of its SafeLine products; such payments
commenced in 1996, and the Company recorded estimated revenue sharing of
approximately $829,000. Although Management anticipates that such revenue
sharing will continue, the actual amount will depend on the volume and selling
prices of McGaw's SafeLine products, which Management has no means of
forecasting accurately.
Net sales to Abbott amounted to $1,755,000 in 1996, as compared to $406,000
in 1995. CLAVE sales were $1,156,000, as compared with none in 1995, with the
balance of the sales in the low-priced Rhino. Under its non-exclusive supply
and distribution agreement with Abbott, Abbott pays minimum prices for CLAVE and
Rhino products and the Company is entitled to receive revenue sharing under a
formula based on Abbott's selling prices. The minimum prices were negotiated in
anticipation of significant sales to Abbott; however, the agreement with Abbott
neither requires the purchase of minimum quantities nor prevents Abbott from
marketing competitive products, and there is no assurance that Abbott will be
successful in promoting and selling the Company's products against its other
products or against other competitors' current or future products. Net sales in
1996 include $124,000 of revenue sharing recorded in the fourth quarter of 1996
related to sales through the third quarter of 1996, principally related to the
Rhino product; Abbott had not reported the fourth quarter revenue share in time
to be recorded in the 1996 financial statements, and Management did not believe
that it has adequate history under the Abbott Agreement to estimate the amount.
Management expects only a moderate increase in sales volume with Abbott in 1997,
although the amount and timing will depend on Abbott's sell-through of products
sold to it by the Company and Abbott's ability to expand its market for those
products, and there is no assurance that such increases will be realized.
Management believes the success of CLAVE has, and will continue to motivate
others to develop one piece needleless connectors which may incorporate many of
the same functional and physical characteristics as the CLAVE. The Company is
aware of at least five such products. In response to competitive pressure felt
in the third quarter of 1996, the Company in mid-October announced to its
distributors a new aggressive pricing strategy to protect and expand its market.
Prices to independent distributors will eventually be reduced up to
approximately 40%. The average price reduction in the fourth quarter of 1996
was far less than the maximum 40%, although Management expects that the average
price of its CLAVE products will decline over the next several quarters.
Management expects that the price decline will be more than offset by increased
volume. However, there is no assurance that such increased volume will be
achieved, or that the Company's current or future products will be able to
successfully compete with products developed by others.
Management expects that unit sales of CLAVE to its independent distributors
will increase in 1997, although the size of such increase may be impacted by
competition from existing and new competitive products or acquisition of CLAVE
14
<PAGE>
market share by Abbott and McGaw. Management expects to encounter continued
pricing pressure from individual end users, but believes that its new pricing
strategy will improve its competitive position.
Net sales of Click Lock and Piggy Lock decreased 32% in 1996 as compared to
1995, again because of the safe connector market's continued shift to needleless
technology, and Management expects that decline to continue.
The Lopez Valve and Swiss System showed a 23% growth in 1996 revenue
as compared to 1995 because of increased unit shipments. Management expects
continued modest increases in Lopez Valve sales in 1997.
During the second quarter of 1996, the Company entered into a distribution
agreement with BOC OHMEDA AB ("Ohmeda"), a major distributor of medical
products, for distribution of CLAVE in Europe. Full launch of exclusive
distribution in the United Kingdom, France and the Benelux countries commenced
in the fourth quarter of 1996, and distribution in most other countries in
Europe will be added in phases. Total sales to foreign distributors were
$693,000 in 1996. Management expects that its sales to foreign distributors
will continue to increase in the future.
Gross margin for 1996 improved to 58% from the 52% registered in 1995. The
shift in sales mix toward a higher percentage of the relatively higher-margin
CLAVE products, continued increases in the benefits of the Company's extensive
production automation, and the McGaw SafeLine revenue sharing first recorded in
1996 more than offset the effect of lower average unit selling prices.
The Company's Budget Medical Products subsidiary ("BMP") recorded
approximately $400,000 net sales in 1996, its first year of operations. BMP
markets custom I.V. sets, production of which is relatively labor-intensive,
resulting in a generally lower gross profit margin than for the Company's other
products. BMP had a small negative gross profit margin in 1996. It expects to
achieve a small positive gross profit margin in 1997, as volume increases and
improvements in production efficiency are achieved, although there can be no
assurance that such increases and improvements will be achieved. Management
expects that gross profit margins in BMP will be lower than those historically
recorded by the Company because production of its products is relatively labor
intensive.
The Company expects that its unit production costs will continue to
decrease in 1997 as unit volumes increase, but that the gross margin percentage
will stay at or slightly lower than that achieved in 1996 as average unit sales
prices decrease.
Selling, general and administrative costs ("SG&A") increased by
approximately $2,009,000 to $7,446,000 in 1996, as compared to $5,437,000 in
1995. As a percentage of sales, SG&A costs were 30% in 1996 and 26% in 1995.
The increase was primarily due to the continuing costs of patent litigation in
which the Company is the plaintiff; such costs were $1,615,000 in 1996 and
$168,000 in 1995 (see Item 3, "Legal Proceedings"). Other SG&A expenses
increased at a somewhat lower rate than the increases in sales except for those
related to BMP, which were not incurred in 1995. Management expects SG&A costs,
exclusive of the patent litigation costs, to increase in 1997, both in absolute
terms and also slightly as a percentage of sales, because of growth in the
Company and marketing and promotional costs of new products expected to be
introduced in 1997.
Management expects the patent litigation costs to decrease somewhat from
the level experienced in 1996, but the amount and timing of the costs will
depend on the progress of the litigation, and no assurances can be given in this
regard.
Research and development ("R&D") costs increased in 1996 by approximately
$626,000 to $790,000, or 3% of net sales, as compared with approximately
$164,000, or less than 1% of sales, in 1995. The increase accelerated during
the year as the Company increased efforts to complete development on a number of
new products. Those efforts will continue into 1997, and Management expects R&D
costs to continue at or higher than the level in the second half of 1996 until
the principal product development efforts are completed in mid-1997. However,
no assurance can be given that such costs will not differ from those estimates
or that the R&D will be completed as expected.
The operating margin decreased slightly in 1996 compared with 1995, from
25% to 24%. The effects of the improved gross profit was more than offset by
the patent litigation costs and higher R&D costs.
15
<PAGE>
Investment income increased in 1996 to $1,289,000 from $713,000 in 1995
because of increased funds invested. Funds increased because of the net proceeds
of approximately $16,000,000 from the Company's July 1995 public offering of
Common Stock and cash provided by operations. Management expects that there may
be a decrease in investment income in 1997 because of the use of funds to
acquire treasury stock, but the amount of decrease, if any, will depend on the
amount of stock acquired. Investment income would also be affected by any
change in short-term interest rate levels.
The Company's effective income tax rate in 1996 was 34% as compared with
32% in 1995. A state manufacturing tax credit, recorded in the fourth quarter
of both years, was lower in 1996 than in 1995, and that effect was partially
offset by a higher portion of income being tax-exempt investment income in 1996.
Management expects its effective tax rate in 1997 to be equal to or slightly
higher than the 1996 rate.
Net income increased 14% because of higher sales and gross profit margins
offset by higher rates of SG&A and R&D in relation to sales. Net income per
share increased 8% due to the increase in net income, offset by the effect of
additional shares issued in the public offering in July 1995.
COMPARISON OF 1995 TO 1994
Net sales increased 29% to $21,282,000 compared to $16,542,000 in 1994.
The primary reason for this increase was higher CLAVE unit sales. Total CLAVE
unit sales increased approximately 100% compared to 1994. The Company's
independent distributors and McGaw accounted for approximately 39% and 61% of
this unit growth, respectively. The aggregate average sales price on CLAVE
products decreased approximately 10% in 1995 compared to 1994. This decrease
was due to shifts in both customer and product mixes. McGaw purchases primarily
lower cost bulk non-sterile product versus higher priced packaged and sterilized
products purchased by independent distributors. CLAVE unit shipments to McGaw
represented approximately 42% of total CLAVE unit shipments in 1995 compared to
only 23% in 1994. In addition, a larger percentage of CLAVE units purchased by
McGaw in 1995 were lower cost bulk CLAVEs compared to 1994 resulting in lower
average selling prices to McGaw. Total CLAVE sales dollars increased
approximately 76% to approximately $13,075,000 in 1995 compared to $7,411,000 in
1994.
Click Lock sales continued to decrease at a steady rate. Click Lock sales
decreased from approximately $6,843,000 in 1994 to approximately $4,236,000 in
1995.
McGaw Protected Needle sales increased from approximately $1,529,000 in
1994 to approximately $2,833,000 in 1995. Demand for McGaw's Protected Needle
in 1995 was essentially the same as that in 1994. The dollar increase realized
by the Company in 1995 was due to the fact that the Company increased its
production of this product mid-way through 1994 and throughout 1995 to supply
all of McGaw's requirements.
Lopez Valve and Swiss System sales increased approximately 5% to
approximately $778,000 in 1995 compared to approximately $743,000 in 1994.
The Company designed and manufactured the RF150 during 1995 at the request
of Abbott. RF150 sales to Abbott in 1995 were approximately $363,000.
Gross margins improved in 1995 to 52% compared to 47% in 1994. The Company
dramatically increased its production capacity in 1994. The increased capacity
was not fully utilized in 1994. Higher production volumes in 1995 resulted in a
greater absorption of overhead. In addition, certain start-up costs associated
with CLAVE in 1994 did not recur in 1995. Due to higher production volumes and
various cost cutting measures employed in 1995, manufacturing overhead as a
percentage of sales decreased from 31% in 1994 to 27% in 1995. By the fourth
quarter of 1995 manufacturing overhead as a percentage of sales decreased to 24%
of net sales and the gross margin was 60%.
SG&A expenses increased approximately $1,761,000 to approximately
$5,437,000 in 1995 from approximately $3,676,000 in 1994. As a percentage of
net sales, SG&A expenses increased to 26% compared to 22% in 1994. The primary
reason for the increase related to significantly higher advertising and
promotion of CLAVE in
16
<PAGE>
1995 compared to 1994. Sales and marketing expenses increased approximately
$1,426,000 in 1995 compared to 1994.
Legal fees related the Company's is patent litigation (see above and Item
3, "Legal Proceedings") decreased to approximately $168,000 in 1995 from
approximately $347,000 in 1994.
Research and development expenses decreased somewhat in 1995 compared to
1994.
Operating margin increased in 1995 to 25% from 23% in 1994 due to higher
gross margins offset slightly by higher sales and marketing expenses as noted
above. During the fourth quarter of 1995, operating margins reached 33% due to
higher gross margins.
The Company's effective tax rate in 1995 was 32% compared to 33% in 1994.
The effective tax rate in 1995 was lower than statutory rates due to a state
manufacturing tax credit recorded in the fourth quarter. In 1994, the Company
also received a tax benefit related to a reduction in the valuation allowance
established against the Company's deferred tax asset.
Net income increased 43% primarily due to higher sales and higher operating
margins.
Net income per share increased 28% due to the factors noted above, offset
somewhat by the issuance of 1,460,000 shares in the secondary public offering
completed in July 1995.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, working capital increased approximately $1,825,000 to
$35,587,000 from $33,762,000. The Company's cash and cash equivalents and
investment securities, including liquid investments, increased to $31,759,000
from $30,172,000. Those increases were due primarily to $6,513,000 of cash flows
from operating activities and $1,460,000 from stock options exercised
(principally tax benefits), offset by $5,108,000 used to acquire treasury stock.
During 1995, working capital increased approximately $21,050,000 to
$33,762,000 from $12,712,000. The Company's cash and cash equivalents and
investment securities position increased to $30,172,000 from $8,073,000. Those
increases were due primarily to approximately $6,997,000 cash flow from
operating activities and $16,000,000 in net proceeds raised in a Common Stock
offering which closed July 5, 1995 in which 1,460,000 new shares were issued.
Capital expenditures were reduced significantly in 1996 and 1995 compared
to 1994. During 1994, the Company made significant investments to increase
production capacity to facilitate the agreements with McGaw and Abbott.
Management believes it now has adequate production capacity to meet demand for
the foreseeable future, although it expects to add some machinery and equipment
and molds in 1997 for production of new products.
Management expects that sales of the Company's products will continue to
grow in 1997. If sales continue to increase, accounts receivable and
inventories are expected to increase as well. In addition, the Company intends
to continue to expand its sales force by adding more product specialists and
marketing support personnel. As a result of these and other factors, the
Company expects the use of working capital to fund its operations to continue to
increase.
Management has announced that it expects to spend $1 million to $3 million
beyond amounts spent through December 31, 1996 to repurchase its Common Stock.
Through February 28, 1997, the Company has spent an additional $1,275,000 to
acquire 138,000 shares. Future acquisitions, if any, will depend on market
conditions and other factors and their amount could change significantly from
the announced expectation.
The Company believes, however, that its existing working capital,
supplemented by income from operations, will be sufficient for the foreseeable
future.
17
<PAGE>
FORWARD LOOKING STATEMENTS
The foregoing statements in this Management's Discussion and Analysis and
elsewhere in this Report concerning beliefs or expectations for the future with
respect to market shifts, competitive conditions, timing and success of new
product offerings, trends, production capacity, improvement in production
efficiency, sales growth, gross sales to particular customers, product pricing,
revenue sharing, factors affecting gross margins, overhead absorption, product
mix, product sales and demand, selling, general and administrative expenses
generally and specific expenses, research and development progress and expenses,
investment income, income tax rates, capital expenditures, working capital,
expenditures to repurchase Common Stock, and other financial factors are forward
looking statements that involve a number of risks and uncertainties. The
Company cautions that, in addition to the factors described in such statements,
actual future results of operations are subject to other important factors,
including among others the following: general economic and business conditions;
the effect of price and safety considerations on the healthcare industry, such
as product innovation, new technologies, marketing and distribution strength and
price erosion; unanticipated market shifts and trends; production problems;
changes in product mix; changes in marketing strategy; the availability of
patent protection and the cost of enforcing of defending patent claims; and
other risks described from time to time in the Company's registration statements
and reports filed with the Securities and Exchange Commission, including those
described under "Risk Factors" in the Company's Current Report on Form 8-K dated
November 14, 1996. Results of operations actually achieved in the future may
thus differ materially from Management's current expectations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The remainder of this page intentionally left blank. Item 8 continued on
following page.
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Stockholders
of ICU Medical, Inc.:
We have audited the accompanying consolidated balance sheets of ICU MEDICAL,
INC. (a Delaware corporation) as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ICU
Medical, Inc. as of December 31, 1996 and 1995, and the consolidated results of
its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14(a)2 of this Form 10-K is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Orange County, California
January 29, 1997
19
<PAGE>
ICU MEDICAL, INC.
-----------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,059,663 $ 2,013,770
Liquid investments 29,700,000 27,650,844
----------- -----------
Cash and liquid investments 31,759,663 29,664,614
Investment securities held-to-maturity - 507,580
Accounts receivable, net of
allowance for doubtful accounts
of $293,032 in 1996 and $254,987 in 1995 3,043,149 2,733,329
Inventories 2,233,619 1,503,822
Prepaid expenses and other 763,146 888,425
Deferred income taxes 450,000 451,000
----------- -----------
Total current assets 38,249,577 35,748,770
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment 6,761,568 6,222,556
Furniture and fixtures 1,319,920 899,953
Molds 2,679,014 3,128,740
Construction in process 417,327 502,638
Land, building and building improvements 4,993,228 4,988,036
----------- -----------
16,171,057 15,741,923
Less--Accumulated depreciation (5,242,487) (4,092,855)
----------- -----------
10,928,570 11,649,068
----------- -----------
OTHER ASSETS 460,490 452,535
----------- -----------
$49,638,637 $47,850,373
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
ICU MEDICAL, INC.
-----------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,902,217 $1,048,412
Accrued liabilities 760,516 937,920
---------- ----------
Total current liabilities 2,662,733 1,986,332
---------- ----------
DEFERRED INCOME TAXES 227,000 206,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $1.00 par value
Authorized--500,000 shares;
Issued and outstanding--none - -
Common stock, $0.10 par value-
Authorized--20,000,000 shares;
Issued -- 8,867,162 shares at 1996 and
8,662,837 shares at 1995, respectively 886,716 866,284
Additional paid-in capital 39,447,125 38,016,465
Treasury stock -- 566,711 shares at 1996 (4,848,465) -
Retained earnings 11,263,528 6,775,292
----------- -----------
Total stockholders' equity 46,748,904 45,658,041
----------- -----------
$49,638,637 $47,850,373
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
ICU MEDICAL, INC.
-----------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $24,599,005 $21,281,995 $16,542,293
COST OF GOODS SOLD 10,442,986 10,286,052 8,818,286
----------- ----------- -----------
Gross profit 14,156,019 10,995,943 7,724,007
OPERATING EXPENSES:
Selling, general and administrative 7,445,694 5,436,628 3,676,122
Research and development 790,353 163,844 200,742
----------- ----------- -----------
Income from operations 5,919,972 5,395,471 3,847,143
----------- ----------- -----------
OTHER INCOME:
Investment income 1,289,298 712,651 362,462
Other 4,920 10,438 153,797
----------- ----------- -----------
1,294,218 723,089 516,259
----------- ----------- -----------
Income before income taxes 7,214,190 6,118,560 4,363,402
PROVISION FOR INCOME TAXES 2,475,000 1,958,000 1,456,000
----------- ----------- -----------
NET INCOME $ 4,739,190 $ 4,160,560 $ 2,907,402
=========== =========== ===========
NET INCOME PER SHARE $0.54 $0.50 $0.39
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,841,562 8,269,523 7,494,179
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
ICU MEDICAL, INC.
-----------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Retained
Number Common Additional Earnings
of Shares Stock Paid-In Treasury (Accumulated
Outstanding Amount Capital Stock Deficit) Total
------------ -------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 7,003,637 $700,364 $21,086,135 $ - $ (292,670) $21,493,829
Exercise of stock options and
related income tax benefits 62,100 6,210 252,055 - - 258,265
Net Income - - - - 2,907,402 2,907,402
---------- ------- ---------- ---------- ----------- ----------
BALANCE, December 31, 1994 7,065,737 706,574 21,338,190 - 2,614,732 24,659,496
Issuance of common stock 1,460,000 146,000 15,861,697 - - 16,007,697
Exercise of stock options and
related income tax benefits 137,100 13,710 816,578 - - 830,288
Net Income - - - 4,160,560 4,160,560
---------- ------- ---------- ---------- ----------- ----------
BALANCE, December 31, 1995 8,662,837 866,284 38,016,465 - 6,775,292 45,658,041
Acquire shares for treasury (596,711) - - (5,108,168) (5,108,168)
Exercise of stock options and
related income tax benefits 234,325 20,432 1,430,660 259,703 (250,954) 1,459,841
Net Income - - - 4,739,190 4,739,190
---------- -------- ---------- ----------- ------------ -----------
BALANCE, December 31, 1996 8,300,451 $886,716 $39,447,125 $(4,848,465) $11,263,528 $46,748,904
=========== ======== =========== =========== ============ ===========
</TABLE>
The accompanying notes are in integral part of these consolidated financial
statements.
23
<PAGE>
ICU MEDICAL, INC.
-----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 4,739,190 $ 4,160,560 $ 2,907,402
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization 1,969,310 1,798,700 1,123,776
Deferred income taxes, non-current 21,000 288,300 (36,000)
(Increase) decrease in:
Accounts receivable (289,821) (578,972) (588,480)
Inventories (729,797) 1,366,342 (1,673,136)
Prepaid expenses and other assets 125,279 (568,426) (356,007)
Increase(decrease) in:
Accounts payable 853,805 290,878 37,102
Accrued liabilities (177,404) 134,920 (577,211)
----------- ------------ -----------
Deferred income taxes, current 1,000 105,000 101,000
----------- ------------ -----------
Net cash provided by operating activities 6,512,562 6,997,302 938,446
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,276,766) (1,739,877) (9,414,309)
Purchases of investment securities - - (5,181,110)
Proceeds from sales of investment securities 507,580 4,000,000 4,000,000
Net change in liquid investments (2,049,156) (24,775,844) 8,175,116
----------- ------------ -----------
Net cash (used in) investing activities (2,818,342) (22,515,721) (2,420,303)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock
options and related income tax benefits 1,459,841 830,288 258,263
Proceeds from sale of common stock - 16,007,697 -
Purchase of treasury stock (5,108,168) - -
----------- ------------ -----------
Net cash provided by (used in) financing
activities (3,648,327) 16,837,985 258,263
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 45,893 1,319,566 (1,223,594)
CASH AND CASH EQUIVALENTS, beginning of year 2,013,770 694,204 1,917,798
----------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,059,663 $ 2,013,770 $ 694,204
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for income taxes $ 1,406,620 $ 1,304,677 $ 1,969,500
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
ICU MEDICAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. General
-------
ICU Medical, Inc. (the Company - a Delaware Corporation) operates in one
business segment engaged in the development and marketing of proprietary
disposable medical devices designed to protect healthcare workers and patients
from the spread of infectious diseases. The Company's devices are sold
principally to distributors and medical product manufacturers throughout the
United States. A wholly owned subsidiary, Budget Medical Products, Inc., formed
late in 1995 is included in the Consolidated Financial Statements.
b. Inventories
-----------
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out method. Inventory costs include material, labor
and overhead related to the manufacturing of medical devices.
Inventories, net of reserves, at December 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Raw materials $1,179,126 $684,438
Work in process 457,885 531,638
Finished goods 596,608 287,746
---------- ----------
$2,233,619 $1,503,822
========== ==========
</TABLE>
c. Property and Equipment
----------------------
The Company uses the straight-line method for depreciating property and
equipment over their estimated useful lives. Estimated useful lives are:
Buildings 30 years
Building improvements 15 years
Machinery and equipment 5 - 10 years
Furniture, fixtures and molds 3 - 5 years
The Company follows the policy of capitalizing expenditures that materially
increase the life of the related assets; maintenance and repairs are charged
directly to expense as incurred. The costs and related accumulated depreciation
applicable to property and equipment sold or retired are removed from the
accounts and any gain or loss is reflected in the statements of income.
25
<PAGE>
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." The statement
requires that impairment losses for long-lived assets and identifiable
intangibles to be held and used be based on the fair value of the asset. The
statement also requires that these assets be reported at the lower of carrying
amount or fair value less cost to sell. Adoption of SFAS No. 121 did not have a
material effect on the Company's financial position or results of operations.
d. Patents and Licenses
--------------------
Patents and licenses, which are shown in other assets in the accompanying
consolidated balance sheets, are stated at cost and are amortized using the
straight-line method over 10 years which is the estimated useful life of the
patent or license. At December 31, 1996 and 1995, the net book value of patents
and licenses was $371,131 and $343,176, respectively; net of accumulated
amortization of $166,214 and $111,214, respectively.
e. Research and Development
------------------------
The Company expenses research and development costs as incurred.
f. Cash Equivalents
-----------------
Cash equivalents include certificates of deposit and money market funds
with initial maturities of three months or less.
g. Net Income Per Share
--------------------
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the years. Common stock equivalents consist of the number of
shares issuable on exercise of the outstanding common stock options (excluding
any options which are antidilutive), less the number of shares that could have
been purchased with the proceeds from the exercise of the options, using the
treasury stock method.
h. Investment Securities
---------------------
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. This statement requires that securities classified as
available for sale be carried at their market values and changes in the
securities market values be recorded, net of income tax effect, as a separate
component of stockholders' equity. Debt securities that the Company intends to
hold to maturity can be carried at amortized cost with no accounting for market
value fluctuations. The Company adopted SFAS No. 115 on January 1, 1994.
Adoption of SFAS No. 115 did not have a material impact on the Company's
consolidated financial position or results of operations.
i. Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach in
accounting for income taxes payable or refundable at the date of the financial
statements as a result of all events that have been recognized in the financial
statements as measured by enacted tax laws. Additionally, SFAS No. 109 requires
that deferred tax assets be evaluated and a valuation allowance be established
if it is "more likely than not" that all or a portion of the deferred tax asset
will not be realized.
26
<PAGE>
j. Revenue Recognition
-------------------
Sales and related costs are recorded by the Company upon shipment of
products to non-related distributors and end-users. Distributors and end-users
do not retain any right of return or price protection with respect to unsold
product. The Company warrants products against defects and has a policy
permitting the return of products under such circumstances. The Company
provides a reserve for future returns and price adjustments based on historical
experience. Revenue sharing payments are estimated and recorded in the period
earned, and adjusted to actual amounts when reports are received from payers;
if there is insufficient data to make such estimates, the revenue sharing is not
recorded until reported by the payers.
k. Post-retirement and Post-employment Benefits
--------------------------------------------
The Company does not provide post-retirement or post-employment benefits to
employees.
l. Stock Options
-------------
The Company accounts for its stock options under Accounting Principles
Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees" and
related interpretations as permitted by SFAS No. 123 "Accounting for Stock-Based
Compensation".
m. Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
n. Reclassifications
-----------------
Certain reclassifications have been made to the 1995 financial statements
in order to conform with the 1996 presentation.
2. INVESTMENTS
The Company's liquid investments, which are considered "available for
sale," consist principally of corporate preferred stocks and federal-tax-exempt
state and municipal government debt securities that reset dividend or interest
rates at auction from between seven and forty-nine day intervals. They are
carried at cost, which closely approximates both fair value and par value
throughout the period they are held. Balances consist of:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Corporate preferred stocks $17,500,000 $ -
Federal tax-exempt debt securities 12,200,000 27,650,844
----------- -----------
$29,700,000 $27,650,844
=========== ===========
</TABLE>
Investment securities held-to-maturity securities at December 31, 1995
consisted of municipal bonds that are stated at amortized cost, which
approximated market and which the Company intended to hold until maturity in
1996.
27
<PAGE>
Investment income, including interest on certificates of deposit and money
market funds, consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Corporate dividends $ 71,176 $ 58,465 $ -
Tax-exempt interest 1,072,711 524,431 340,726
Other interest 145,411 129,755 21,736
---------- -------- --------
$1,289,298 $712,651 $362,462
========== ======== ========
</TABLE>
3. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities consists of the following:
1996 1995
-------- --------
<S> <C> <C>
Accrued legal expenses $ 24,728 $ 49,609
Accrued incentive compensation 210,849 261,225
Accrued vacation 152,407 118,906
Taxes payable 229,776 300,000
Other accruals 142,756 208,180
-------- --------
Total accrued liabilities $760,516 $937,920
======== ========
</TABLE>
4. COMMON STOCK AND COMMON STOCK OPTIONS GRANTED
In July 1995, the Company completed a public offering of 1,460,000 new
common shares, raising proceeds of $16,007,697, net of expenses of
approximately $505,000.
In 1993, the Company terminated a previous stock option plan and adopted
the 1993 Stock Incentive Plan and Directors' Stock Option Plan (the Plans). In
1996, the Plans were amended to increase from 1,500,000 to 3,500,000 the number
of shares reserved for issuance to employees and directors. Options granted
under the 1993 Stock Incentive Plan expire eleven years from issuance and are
time-accelerated options which vest upon the earlier of the Company attaining
specific operating performance levels or ten years from the date of grant. The
1993 Directors' Stock Option Plan calls for options to be granted to non-
employee Directors every three years; fifty percent of each Director's options
vest on the date of the first annual shareholders meeting following the grant
and the other fifty percent on the date of the second such meeting. The Plans
include a condition whereby options not vested are cancelled if employment or
directorship is terminated. All options have been granted at the fair market
value of the Company's stock on the date of grant. Upon exercise of options,
the Company is generally entitled to a tax deduction for an amount equal to the
excess over the exercise price of the fair market value of the shares at the
date of exercise.
28
<PAGE>
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Exercise Price
--------------
Weighted
Shares Range Average
--------- ---------------- --------
<S> <C> <C> <C>
Outstanding at January 1, 1994 634,875 $ 0.29 -$14.63 $ 4.25
Granted 729,000 10.63 - 16.25 15.14
Exercised 62,100 0.29 - 7.17 1.12
Forfeited 6,000 9.50 - 14.63 11.35
------------------------------------------
Outstanding at December 31, 1994 1,295,775 0.29 - 16.25 10.49
Granted 36,000 11.44 - 16.63 13.74
Exercised 137,100 0.29 - 6.96 0.37
Forfeited 19,450 9.50 - 15.13 11.12
------------------------------------------
Outstanding at December 31, 1995 1,175,225 0.29 - 16.63 11.76
Granted 958,300 7.19 - 23.00 13.73
Canceled 105,000 15.35 - 16.25 16.13
Exercised 234,325 0.29 - 14.63 2.00
Forfeited 55,050 9.50 - 18.81 14.01
------------------------------------------
Outstanding at December 31, 1996 1,739,150 $ 5.75 - $23.00 $13.82
==========================================
Exercisable at December 31:
1994 375,675 0.29 - 14.00 $ 1.31
1995 255,825 0.29 - 14.00 2.75
1996 26,500 5.75 - 14.00 10.98
Available for grant at December 31, 1996 1,756,900
============
</TABLE>
Options canceled in 1996 were replaced with options granted at exercise
prices ranging from $7.69 to $8.19 per share (weighted average $7.76 per share).
Of the options outstanding at December 31, 1996, 1,682,650 are time-
accelerated options, almost all of which were issued under the 1993 Stock
Incentive Plan. Of those options, 136,350 issued in 1993 at an average
exercise price of $9.56 expire in 2004; 609,000 issued in 1994 at an average
exercise price of $15.13 expire in 2005; 31,000 issued in 1995 at an average
exercise price of $13.77 expire in 2006; and, 906,300 issued in 1996 at an
average exercise price of $13.60 expire in 2007. Of the remaining 56,500
options that are not time-accelerated, 11,500 at an average exercise price of
$7.05 expire in 1997, 15,000 at an exercise price of $14.00 expire in 1998 and
30,000 at an exercise price of $16.13 expire in 2001. In January 1997, an
additional 750,000 options with exercise prices ranging from $15.38 to $16.25
per share (weighted average $15.92) were canceled and replaced with options with
an average exercise price of $8.23 per share. The exercise prices on options for
an additional 80,000 shares with exercise prices ranging from $9.19 to $23.00
per share (weighted average $13.22 per share ) were reduced to $ 8.31 per share,
equal to the fair market value of the Company's stock at the date of the
reduction. These January 1997 actions narrowed the price range of options
outstanding at December 31, 1996, from $5.75 to $16.13 per share, and reduced
the weighted average to $10.28 per share.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock options, and does not recognize compensation expense
because the exercise price of the options equals the fair market value of the
underlying shares at the date of grant. Directors' stock options are treated in
the same manner as employee stock options for accounting purposes.
29
<PAGE>
Under SFAS No. 123, the Company is required to present certain pro forma
earnings information determined as if employee stock options were accounted for
under the fair value method of that Statement. The fair value for options
granted in 1995 and 1996 was estimated as of the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions in
the respective years: risk-free interest rate of 6.0 and 6.4 percent,
respectively; expected option life of 2.5 and 3.4 years, respectively;
expected volatility of 44 and 49 percent, respectively; and, no dividends. The
Black-Scholes option valuation model was developed for use in estimating fair
value of fully transferable traded options with no vesting restrictions, and,
similar to other option valuation models, requires use of highly subjective
assumptions, including expected stock price volatility. The characteristics of
the Company's stock options differ substantially from those of traded stock
options, and changes in the subjective assumptions can materially affect
estimated fair values; therefore, in Management's opinion, existing option
valuation models do not necessarily provide a reliable single measure of the
fair value of the Company's stock options.
For purposes of the following required pro forma information, the weighted
average fair value of stock options granted in 1995 and 1996 was $4.50 and
$5.84, respectively. The total estimated fair value is amortized to expense
over the vesting period.
<TABLE>
<CAPTION>
1996 1995
------------- ----------
<S> <C> <C>
Proforma:
Net income............................................... $3,968,000 $4,147,000
Net income per share..................................... $0.47 $0.50
Weighted average number of shares outstanding............ 8,378,000 8,254,244
</TABLE>
5. INCOME TAXES
The provision for income taxes for the years ended December 31, 1996, 1995
and 1994, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $1,992,000 $1,110,700 $1,064,000
State 461,000 454,000 327,000
---------- ---------- ----------
2,453,000 1,564,700 1,391,000
---------- ---------- ----------
Deferred:
Federal (3,000) 279,300 47,000
State 25,000 114,000 18,000
---------- ---------- ----------
22,000 393,300 65,000
---------- ---------- ----------
$2,475,000 $1,958,000 $1,456,000
========== ========== ==========
</TABLE>
The current tax provision includes the tax expense that results from
allocating to stockholders' equity the tax benefit that the Company receives
upon exercise of stock options by employees and directors. Because of that
benefit, current income taxes payable were reduced from the amounts in the above
table by $1,032,000, $780,000 and $188,000 in 1996, 1995 and 1994, respectively.
30
<PAGE>
A reconciliation of the provision for income taxes at the statutory rate to the
Company's effective rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal tax at
the expected
statutory rate $2,453,000 34.0% $2,080,000 34.0% $1,483,000 34.0%
State income tax 443,000 6.1 373,000 6.1 266,000 6.1
Tax-exempt interest
and dividends (382,000) (5.3) (145,000) (2.4) (110,500) (2.5)
Change in valuation
allowance - - - - (182,500) (4.2)
Tax credits (39,000) (0.5) (350,000) (5.7) - -
---------- ---- ---------- ---- ---------- ----
Provision $2,475,000 34.3% $1,958,000 32.0% $1,456,000 33.4%
========== ==== ========== ==== ========== ====
</TABLE>
The components of the Company's deferred income tax provision for the years
ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Allowance for doubtful accounts $(25,000) $(24,000) $ 1,500
Inventory reserves (23,000) 37,800 47,200
Accruals 122,000 159,500 (3,000)
State income taxes (73,000) 115,000 (46,000)
Depreciation 21,000 105,000 247,800
Valuation allowance - - (182,500)
-------- -------- ---------
$ 22,000 $393,300 65,000
======== ======== =========
</TABLE>
The components of the Company's deferred income tax benefit (liability) are
as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current deferred tax benefit:
Allowance for doubtful accounts $ 127,000 $ 102,000
Inventory reserves 195,000 172,000
Accruals 70,000 192,000
State income taxes 58,000 (15,000)
--------- ---------
$ 450,000 $ 451,000
========= =========
Long-term deferred tax liability:
Depreciation $(227,000) $(206,000)
========= =========
</TABLE>
31
<PAGE>
6. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISKS
The Company manufactures disposable medical devices which are sold on
credit terms principally throughout the United States to wholesale medical
supply distributors, and in selected cases to hospitals and homecare providers.
The distributors, in turn, sell the Company's products to hospitals and homecare
providers. For the years ended December 31, 1996, 1995 and 1994, the Company
had sales of 10 percent or greater to three distributors as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Distributor A * 12 11
Distributor B * * 13
Distributor C 13 12 12
</TABLE>
* less than 10 percent
The Company has entered into a sales and supply agreement with a medical
supply manufacturer which accounted for 28 percent, 30 percent and 20 percent of
sales for the years ended 1996, 1995 and 1994, respectively.
7. EMPLOYMENT CONTRACTS
The Company has employment contracts with certain key employees which
include an incentive compensation agreement. Under contracts that expired on
December 20, 1996, a cash bonus pool was provided equal to 10 percent of after-
tax profits through 1995. Fifty percent of each period's incentive compensation
was payable on December 20 of that period and the remaining 50 percent was paid
on December 20 of the subsequent period. Incentive compensation expense for the
years ended December 31, 1995 and 1994, was approximately $465,000 and $324,000,
respectively. Under new contracts effective January 1, 1997, incentive
compensation will be awarded if certain operating performance goals are met.
8. COMMITMENTS AND CONTINGENCIES
The Company is from time to time involved in various legal proceedings,
most of which are routine litigation, in the normal course of business. In the
opinion of management, after consultation with legal counsel, the resolution of
these matters will not have a material adverse impact on the Company's financial
position or results of operations.
9. RELATED PARTY TRANSACTION
In 1996, the Company purchased 167,850 shares of its common stock from the
Company's President for $1,458,197, equal to its fair market value on the date
of purchase.
32
<PAGE>
10. QUARTERLY FINANCIAL DATA -- UNAUDITED -- (DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended
-------------
<S> <C> <C> <C> <C>
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
1996
- ----
Net Sales $6,008 $6,147 $5,972 $6,472
Gross Profit 3,704 3,472 3,200 3,780
Net Income 1,591 1,267 964 917
Net Income Per Share $ 0.18 $ 0.14 $ 0.11 $ 0.11
1995
- ----
Net Sales $5,427 $5,966 $4,617 $5,272
Gross Profit 2,411 3,118 2,310 3,157
Net Income 731 890 891 1,649
Net Income Per Share $ 0.10 $ 0.12 $ 0.10 $ 0.18
</TABLE>
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The information about Registrant's directors and disclosure of Form 3, 4 or
5 delinquent filers called for by Item 10, Part III of Form 10-K is set forth in
Registrant's definitive Proxy Statement filed or to be filed pursuant to
Regulation 14A within 120 days of Registrant's fiscal year ended December 31,
1996, and such information is incorporated herein by this reference. Pursuant
to Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation
S-K, information about Registrant's executive officers called for by Item 10,
Part III of Form 10-K is set forth in Part I of this Report in a separate item
captioned "Executive Officers of Registrant."
ITEMS 11 THOUGH 13.
The information called for by Part III of Form 10-K (Item 11 - Executive
Compensation, Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Item 13 - Certain Relationships and Related Transactions) is set
forth in Registrant's definitive Proxy Statement filed or to be filed pursuant
to Regulation 14A within 120 days of Registrant's fiscal year ended December 31,
1996, and such information is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements
<TABLE>
<CAPTION>
The financial statements listed below are set forth in Item 8 of this Annual Report.
FORM 10-K
PAGE NO.
---------
<S> <C>
Report of Independent Public Accountants........................................................ 19
Consolidated Balance Sheets at December 31, 1996 and 1995....................................... 20-21
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994.................................................................................. 22
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994................................................... 23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994.................................................................................. 24
Notes to Consolidated Financial Statements..................................................... 25-33
</TABLE>
2. Financial Statement Schedules
The Financial Statement Schedules required to be filed as a part of this
Report are:
<TABLE>
<CAPTION>
FORM 10-K
PAGE NO.
---------
<S> <C>
Schedule II - Valuation and Qualifying Accounts................................................ 38
</TABLE>
34
<PAGE>
Schedules other than those listed above are omitted since they are not
applicable, not required or the information required to be set forth therein is
included in Consolidated Financial Statements or Notes thereto included in this
Report.
3. Exhibits
Exhibits required to be filed as part of this report are:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Registrant's Certificate of Incorporation, as amended(1)
3.2 Registrant's Bylaws, as amended(1)
10.1 Form of Indemnity Agreement with Executive Officers(1)
10.2 Registrant's Amended 1985 Stock Option Plan(1)
10.3 Form of Stock Option Agreement(1)
10.4 Registrant's Amended and Restated 1993 Incentive Stock Plan
10.5 Registrant's Directors' Stock Option Plan(2)
10.6 Manufacture and Supply Agreement dated September 13, 1993 between
Registrant and McGaw, Inc. relating to the CLAVE product(3)
10.7 Manufacture and Supply Agreement dated September 13, 1993 between
Registrant and McGaw, Inc. relating to the Protected Needle product(3)
10.8 Supply agreement dated January 1, 1995 between MAGNET, Inc. and
Registrant.(5)
10.9 Supply and Distribution Agreement dated April 3, 1995 between
Registrant and Abbott Laboratories, Inc. relating to the CLAVE
product.(6)
10.10 Second Amendment to Manufacture and Supply Agreement dated May 31,
1995 between Registrant and McGaw, Inc.(7)
10.11 Distribution Agreement dated June 1, 1996 between Registrant and BOC
OHMEDA AB
10.12 Underwriting Agreement dated June 28, 1995 among Registrant, Rodman &
Renshaw, Inc. and Pacific Growth Equities.(8)
10.13 Amendment to Underwriting Agreement dated July 5, 1995 among
Registrant, Rodman & Renshaw, Inc. and Pacific Growth Equities.(7)
</TABLE>
35
<PAGE>
<TABLE>
<S> <C>
21.1 Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule
</TABLE>
(1) Filed as an exhibit to Registrant's Registration Statement Form S-1
(Registration No. 33-45734) filed on February 14, 1992, and incorporated
herein by reference.
(2) Filed as an exhibit to Registrant's definitive Proxy Statement filed
pursuant to Regulation 14A on March 22, 1993 and incorporated herein by
reference.
(3) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1993, and incorporated herein by reference.
(4) Reference not used.
(5) Filed as an Exhibit to Registrant's Annual Report on Form 10K for the Year
ended December 31, 1994, and incorporated herein by reference.
(6) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1995, and incorporated herein by reference.
(7) Filed as an Exhibit to Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1995, and incorporated herein by reference.
(8) Filed as an exhibit to Registrant's Registration Statement (Registration
No. 33-92482) filed on June 23, 1995.
(b) Reports on Form 8-K.
Registrant filed the following Report on Form 8-K during the last quarter
of the period covered by this Report:
Item 5 - November 14, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ICU MEDICAL, INC.
By: /s/ George A. Lopez, M.D.
---------------------------
George A. Lopez, M.D.
Chairman of the Board
Dated: March 25, 1997
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George A. Lopez, M.D. Chairman of the Board, President, March 25, 1997
- ----------------------------- and Chief Executive Officer, (Principal
George A. Lopez, M.D.
Executive Officer)
/s/ Francis J. O'Brien Chief Financial Officer March 25, 1997
- ----------------------------- and Principal Accounting Officer
Francis J. O'Brien
/s/ Jack W. Brown Director March 20, 1997
- -----------------------------
Jack W. Brown
/s/ John J. Connors Director March 24, 1997
- -----------------------------
John J. Connors
/s/ Michael T. Kovalchik, III Director March 21, 1997
- -----------------------------
Michael T. Kovalchik, III
/s/ Richard H. Sherman Director March 24, 1997
- ----------------------
Richard H. Sherman
</TABLE>
37
<PAGE>
ICU MEDICAL, INC.
-----------------
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
<TABLE>
<CAPTION>
Additions
---------
Charged
Balance at to Costs Charged Balance
Beginning and to Other Write-offs/ at End of
Description of Period Expenses Accounts Disposals Period
- -------------------------- ---------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1994:
Allowance for
doubtful
accounts $198,262 $ 4,628 $ - $ 7,842 $195,048
========== ========= ========= =========== ========
Inventory
reserves 202,658 $730,187 $264,340 $876,774 $320,411
========== ========= ========= =========== =========
For the year ended
December 31, 1995:
Allowance for
doubtful
accounts $195,048 $ 82,000 $ - $ 22,061 $ 254,987
========== ========= ========= =========== =========
Inventory
reserves $320,411 $254,700 $ 83,901 $357,574 $301,438
========== ========= ========= =========== =========
For the year ended
December 31, 1996:
Allowance for
doubtful
accounts $254,987 $ 40,000 $ - $ 1,955 $ 293,032
========== ========= ========= =========== =========
Inventory
reserves $301,438 $ 50,000 $ - $ 77,371 $ 274,067
========== ========= ========= =========== =========
</TABLE>
38
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Sequentially Numbered Page
- -------------- -----------------------------------------------------------------------------------------------
<C> <S> <C>
3.1 Registrant's Certificate of Incorporation, as amended(1)
3.2 Registrant's Bylaws, as amended(1)
10.1 Form of Indemnity Agreement with Executive Officers(1)
10.2 Registrant's Amended 1985 Stock Option Plan(1)
10.3 Form of Stock Option Agreement(1)
10.4 Registrant's Amended and Restated 1993 Incentive Stock Plan(2)
10.5 Registrant's Directors' Stock Option Plan(2)
10.6 Manufacture and Supply Agreement dated September 13, 1993
between Registrant and McGaw, Inc. relating to the CLAVE product(3)
10.7 Manufacture and Supply Agreement dated September 13, 1993 between
Registrant and McGaw, Inc. relating to the Protected Needle product(3)
10.8 Supply agreement dated January 1, 1995 between MAGNET, Inc. and
Registrant.(5)
10.9 Supply and Distribution Agreement dated April 3, 1995 between
Registrant and Abbott Laboratories, Inc. relating to the CLAVE product.(6)
10.10 Second Amendment to Manufacture and Supply Agreement dated
May 31, 1995 between Registrant and McGaw, Inc.(7)
10.11 Distribution Agreement dated June 1, 1996 between Registrant
and BOC OHMEDA AB
10.12 Underwriting Agreement dated June 28, 1995 among Registrant,
Rodman & Renshaw, Inc. and Pacific Growth Equities.(8)
10.13 Amendment to Underwriting Agreement dated July 5, 1995 among
Registrant, Rodman & Renshaw, Inc. and Pacific Growth Equities.(7)
21.1 Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
39
<PAGE>
EXHIBIT 10.11
DATED: JUNE, 1ST, 1996
----------------------
ICU MEDICAL, INC.
AND
BOC OHMEDA AB
--------------------------
DISTRIBUTION AGREEMENT
--------------------------
BOC Group Legal Department
Chertsey Road
Windlesham
Surrey GU20 6HJ
Tel: 01276 477222
Fax: 01276 471333
Page 1: Printed May 28, 1996
<PAGE>
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
Clause Page
------ ----
<S> <C>
1. DEFINITIONS 3
2. APPOINTMENT OF DISTRIBUTOR 4
3. EFFECTIVE DATE AND TERM 5
4. OHMEDA's RESPONSIBILITIES AND UNDERTAKINGS 7
5. ICU's RESPONSIBILITIES AND UNDERTAKINGS 11
6. PRICE 13
7. REGULATORY APPROVALS AND RECALL 13
8. INDEMNITY 15
9. INSURANCE 17
10. LIMITED PRODUCT WARRANTY 17
11. SPECIFICATION AND DESIGN VARIATIONS 18
12. QUALITY CONTROL AND PRODUCT IMPROVEMENTS 19
13. TRADEMARKS 20
14. INSPECTION AND ACCEPTANCE 20
15. MUTUAL UNDERTAKINGS 20
16. CONFIDENTIALITY 21
17. FORCE MAJEURE AND EXCESSIVE DEMAND 22
18. TERMINATION 23
19. MISCELLANEOUS 24
</TABLE>
Page 2: Printed May 28, 1996
<PAGE>
THIS AGREEMENT DATED THE 1ST DAY OF JUNE, 1996 BETWEEN
1) ICU Medical, Inc., a Delaware corporation with an office and place of
business at 951 Calle Amanecer, San Clemente, CA 92673, USA (referred to
below as "ICU" ) and,
2) BOC OHMEDA AB, a Swedish company with registered office located at P O Box
631, S-251 06, Helsingborg, Sweden (referred to as "OHMEDA").
IT IS AGREED AS FOLLOWS:
1. DEFINITIONS
1.1 In this Agreement:
"Affiliate" shall mean any person, firm, company or other legal
entity which controls, is controlled by or which is
under common control with ICU or OHMEDA.
"Contract Year" shall mean each sequential twelve (12) month
period during the term of this Agreement
commencing with the Effective Date.
"Effective Date" shall mean the date of execution of this Agreement
by both parties.
"Improvements" shall mean changes to or developments in needleless
connectors together with accessories and components
disclosed by either party to the other and developed by
ICU during the term of this Agreement which technically
or functionally improve upon Products and which ICU
offers to the public to replace one or more of the
existing Products.
"Product' or shall mean ICU's CLAVE needleless injection
"Products" valves, to be sold under the Connecta CLAVE trademark,
and any similar medical devices in the field of
needleless infusion connection (the "Field") which meet
the specifications set forth in Appendix 1.1 below as
amended by mutual written agreement of the parties and
any Improvements.
"Territory" shall mean one or more of the nations listed in Appendix
1.2.
Page 3: Printed May 28, 1996
<PAGE>
2. APPOINTMENT OF DISTRIBUTOR
2.1 As the Products are newly developed and have not previously been marketed
in Europe, OHMEDA's representation rights UNDER THIS AGREEMENT ARE TO BE
staggered as follows:
2.1.1 TEST LAUNCH PHASE
As from the Effective Date, OHMEDA is appointed
ICU's exclusive distributor for the Products in each of Great
Britain, France, Belgium and Holland for a fixed period of six (6)
calendar months. During this Test Launch Phase the terms of this
Agreement shall apply to the extent applicable, together with the
arrangements comprised in the Test Launch Program set out in Appendix
2.1.1.
2.1.2 FULL LAUNCH PHASE - DIRECT COUNTRIES
Not less than 30 days prior to the expiration of the Test Launch
Phase, OHMEDA shall have the right to submit to ICU written Business
Plans for each of the Territories listed in Part A of Appendix 1,
such Business Plans to include the information listed in Appendix
4.5. ICU shall accept or reject each of the Business Plans in writing
within 30 days of receipt, unless otherwise agreed. The power to
reject is subject to Clause 5.9 below. On the expiration of the Test
Launch Phase, OHMEDA shall become the exclusive distributor for the
Products with immediate effect, for those Territories listed in Part
A of Appendix 1, as to which OHMEDA has received ICU's written
acceptance of the Business Plan and subject to the terms of this
Agreement.
2.1.3 FULL LAUNCH PHASE - DISTRIBUTOR COUNTRIES
At any time on or after the expiration of the Test Launch Phase,
OHMEDA shall have the right to submit to ICU a Business Plan for any
-------
one or more of the Territories listed in Part B of Appendix 1 (and in
-----------
the terms provided for in clause 4.5) for which it then wishes to act
as distributor of the Products. ICU shall review and accept or
reject, in writing, all Business Plans within 60 days of receipt
unless otherwise agreed. The power to reject is subject to Clause 5.9
below. Upon written acceptance by ICU of a Business Plan for a
particular Territory, (with or without amendment as applicable),
OHMEDA shall become exclusive distributor for the Products in such
Territory with immediate effect and subject to the terms of this
Agreement.
In the event that any such Business Plans are rejected, the
applicable nations shall be removed from the definition of Territory
for the purposes of OHMEDA's distribution rights.
2.1.4 At any time after the expiration of the Test Launch Phase, ICU shall
have the right, on not less than 60 days written notice, to demand
from
Page 4: Printed May 28, 1996
<PAGE>
OHMEDA, a Business Plan for any Territory for which OHMEDA has not then
exercised its rights pursuant to clauses 2.1.2 and 2.1.3. The terms of
clause 2.1.2 or as applicable 2.1.3 shall apply to any Business Plan then
supplied. If OHMEDA fails or elects not to submit any such Business Plans
it shall immediately forfeit any distribution rights for the Products in
the applicable Territory.
2.2 OHMEDA may appoint sub-distributors to sell the Products in any Territory
for which OHMEDA is the exclusive distributor for the Products after
written notification to ICU subject to ICU's written approval of the sub-
distributor. OHMEDA shall include in each agreement appointing a sub-
distributor, provisions to the effect that (i) New York law shall govern
with respect to any dispute or litigation between ICU and sub-distributor,
(ii) the prevailing party in any such litigation shall be entitled to
attorneys fees reasonably incurred, (iii) exclusive jurisdiction and venue
shall be the state courts of the State of Illinois located in Cook County,
Illinois, USA or United States District Court located in Cook County,
Illinois, USA., (iv) service of process may be effected by telecopier,
telex, facsimile, mail or courier such provisions to be substantially the
same in substance as set forth in clause 19.
2.3 Notwithstanding OHMEDA's above appointments as exclusive distributor, ICU
shall have the right to sell the Products direct to a customer without
obligation to pay OHMEDA commission, when such customer is an original
equipment manufacturer or pharmaceutical company who will sell the Products
only as a component part of another product.
2.4 Nothing in this Agreement shall preclude ICU from the direct sale or sale
through third parties of individual components comprised in the Products
without obligation to pay OHMEDA commission.
2.5 In the event that ICU sells the Products or individual components as
described in Clauses 2.3 and 2.4, ICU will use reasonable efforts to
facilitate a liaison between OHMEDA and such other parties for the limited
purpose of ensuring that product performance claims and other regulatory
matters are dealt with consistently.
3. EFFECTIVE DATE AND TERM
3.1 The initial term of this Agreement shall be five (5) years commencing on
the Effective Date. This Agreement shall be automatically extended after
the five years, unless and until either party elects to terminate it, upon
not less than 12 months prior written notice to the other party to expire
on or at any time after the fifth anniversary. Notwithstanding the above
termination arrangements, this Agreement may be terminated at any time:
Page 5: Printed May 28, 1996
<PAGE>
3.1.1 By mutual consent in writing.
3.1.2 By either party sixty (60) days after the giving of written notice to
the other that the other is in material breach of any of its
obligations under this Agreement and has failed to cure such breach
during such sixty (60) day period except that material breach of
payment obligations must be cured within thirty (30) days of such
written notice.
3.1.3 By either party immediately if any proceeding in bankruptcy, or for
reorganization or arrangement, or for the appointment of a receiver
or trustee, or any other proceeding under any law for the relief of
creditors, shall be instituted by or against the other, or the other
shall make an assignment for the benefit of its creditors.
3.1.4 By ICU where in its reasonable opinion, OHMEDA conducts itself in
such a manner as to be detrimental or harmful to the good name,
goodwill or reputation of ICU and/or the Products.
3.1.5 By ICU if in its reasonable opinion it is unable to comply with
clause 8.1 on a commercially reasonable basis.
3.1.6 By ICU if OHMEDA, any Affiliate of OHMEDA to which this Agreement has
been assigned, or any entity of which OHMEDA or such an Affiliate is
a direct or indirect subsidiary or which directly or indirectly
controls OHMEDA or such an Affiliate is acquired by means of a
merger, consolidation, purchase of assets, purchase of stock or
otherwise.
3.2 In addition to the rights of complete termination provided for above,
either party shall have the right, again on not less than 12 months notice
to expire on or at any time after the fifth anniversary, to terminate any
one or more of the nations of the Territory, whereupon the provisions of
clause 18 shall apply to that Territory only and the rights of any sub-
distributor appointed by OHMEDA shall terminate as to such Territory.
3.3 ICU shall have the right on not less than 90 days written notice to either
terminate OHMEDA's distributorship or convert OHMEDA to a non-exclusive
distributor in a Territory (a) in which OHMEDA has not substantially
achieved the material objectives of its Business Plan for the preceding 12
months or (b) as to which ICU has rejected OHMEDA's annual Business Plan
giving reasonable grounds as provided in clause 5.9, whereupon the
provisions of clause 18 shall apply to that Territory only and the rights
of any sub-distributor appointed by OHMEDA shall terminate as to that
Territory. In the event that OHMEDA's status in a Territory changes to that
of a non-exclusive distributor this Agreement shall be equitably adjusted
to reflect the change of status.
Page 6: Printed May 28, 1996
<PAGE>
3.4 Either party may terminate this Agreement in respect of a Territory, in the
event of the commencement of litigation against either party for
infringement of a third party's intellectual property rights in consequence
of the sale of the Products in such Territory.
4. OHMEDA'S RESPONSIBILITIES AND UNDERTAKINGS
4.1 FORECASTS. OHMEDA shall provide ICU each month with a six (6) month rolling
forecast of anticipated Product orders, beginning with the first month for
which ICU is expected to supply OHMEDA with Products, in the form attached
as Appendix 4.1. OHMEDA shall be free from month to month to modify its
forecasts of Product orders.
4.2 ORDERS. OHMEDA shall place irrevocable purchase orders for Products with ICU
for each month 60 days in advance of the desired delivery date. Purchase
orders shall be in writing, and consistent with this Agreement and may be
sent by telex or facsimile machine.
4.3 PROMOTION. OHMEDA shall develop energetically and satisfactorily the
potential for Product sales. OHMEDA shall keep available at all times for
demonstration and evaluation purposes, minimum amounts of each Product as
specified in Appendix 4.3 which shall be in a condition appropriate for
sales promotion. ICU shall review and approve all advertising and marketing
materials prepared by OHMEDA, in advance of their use.
4.4 TRAINING. At its expense, OHMEDA shall train the employees of its customers
to use the Products. OHMEDA sales, customer service and technical service
representatives must be fully trained in the use of the Products and must
have the specific qualifications specified by ICU at the commencement of
this Agreement.
4.5 BUSINESS PLANS. OHMEDA shall prepare a written Business Plan for each nation
in the Territory annually. All Business Plans shall contain the material
listed in Appendix 4.5 and shall be submitted to ICU not less than 90 days
prior to the commencement of such Contract Year.
4.6 CUSTOMER SERVICE. OHMEDA shall render prompt and willing service with
respect to the Products and shall use its best efforts to handle
satisfactorily all matters relating to the sale and servicing of the
Products in the Territory. To facilitate timely customer service,
manufacturer's support may be requested by OHMEDA. If such support is
provided by ICU at ICU's sole direction, it shall be free of charge. If it
is supplied at OHMEDA's request, ICU may bill OHMEDA at ICU's then current
rates for time and/or travel expenses.
4.7 PAYMENT. The purchase price for all Product orders and service orders and
all expenses incurred by ICU in the shipment and delivery of ordered
Products and
Page 7: Printed May 28, 1996
<PAGE>
the performance of service orders, including without limitation freight
charges, taxes, export and import duties and insurance premiums, shall be
payable by OHMEDA to ICU 60 days after delivery of the Products by ICU to a
carrier (in case of Product orders) or the date of invoice for services
performed. Al1 payments by OHMEDA to ICU shall be made in the currency of
the United States of America.
4.8 TITLE AND RISK OF LOSS. Risk of loss in the Products shall pass to OHMEDA
upon delivery of the Products to the carrier at ICU's manufacturing
facility. ICU shall co-operate with OHMEDA in processing all claims for loss
or damage to the Products. Ownership of the Products shall pass to OHMEDA
upon their acceptance by OHMEDA following receipt.
4.9 DELAY AND STORAGE. OHMEDA shall be responsible for and shall pay for any
delay in accepting delivery, storage and other charges accruing after the
arrival of any shipment at OHMEDA's designated destination where such
shipment conforms in all respects with OHMEDA's order. If OHMEDA shall fail
or refuse to accept delivery of any of the Products ordered by it, and
without good reason, OHMEDA shall pay ICU the amount of all expenses
incurred by ICU in returning the Products to the original shipping point.
4.10 RESTRICTIVE COVENANT.
4.10.1 OHMEDA acknowledges that (i) ICU will provide OHMEDA valuable
Confidential Information (as defined in clause 16 of this Agreement)
and/or trade secrets of ICU, (ii) that the conduct of any
Competitive Activity by OHMEDA while OHMEDA is in possession of such
information and privy to ICU's product development and marketing
strategies could result in the disclosure or use of such
Confidential Information and trade secrets and put ICU at a severe
competitive disadvantage, and (iii) that ICU would not knowingly
disclose such information to any person engaged in any Competitive
Activity.
It is the intention and obligation of the parties to comply with the
limitations on the use and disclosure of Confidential Information
set forth in clause 16 of this Agreement. In order to avoid the
intentional or inadvertent use or disclosure of Confidential
Information and trade secrets and to ensure that OHMEDA can
effectively and credibly promote and represent the Products, OHMEDA
agrees that, during the term of this Agreement and for a period
ending six months after the termination of this Agreement (such
period to be extended to include any period of violation of this
clause 4.10.1) by OHMEDA or period which is required for litigation
to enforce this Agreement and during which OHMEDA is in violation of
this clause 4.10. 1, OHMEDA shall not, without prior written consent
of ICU, engage, directly or indirectly, in any Competitive Activity
in any Territory, or in any country in Europe in which any aspect of
the research,
Page 8: Printed May 28, 1996
<PAGE>
design, development, manufacture, clinical testing, marketing,
market research (other than general surveys and analysis),
demonstration or sale of Products has been carried on by or on
behalf of ICU. As used herein the term "Competitive Activity" shall
mean engaging in any business, directly or indirectly, whether as a
manufacturer, DISTRIBUTOR, manufacturer's representative, dealer,
proprietor, partner, joint venturer, employer, agent, employee,
consultant, officer, director, or beneficial or record owner (other
than as a passive investor owning a minority interest in any entity
in which OHMEDA is not involved, directly or indirectly through
representation on the board of directors or otherwise, in running
the business, and which involves the manufacture, clinical testing,
distribution, marketing, demonstration, promotion or sale of
Competitive Products. As used herein, the term "Competitive
Products" means medical connectors which have all of the following
design and performance characteristics: activated by advancing a
male Luer into the valve; closed unless activated by a Luer
advancing in the valve; easily disinfected by swabbing in the same
way as a stretch latex injection site: but expressly excluding
those current OHMEDA products listed in Appendix 4.10 hereto and
Improvements thereto which do not duplicate all of the foregoing
design and performance characteristics. It shall not be a breach of
this restriction for OHMEDA or any OHMEDA Affiliate to acquire a
business which has as incidental activity a Competitive Product
provided OHMEDA demonstrates to ICU that it is taking all reasonable
steps to divest it and does divest it within a reasonable time.
4.10.2 In the event OHMEDA proposes to engage in any Competitive Activity
in any of the geographic areas specified in clause 4.10.1, OHMEDA
shall give ICU 90 days written notice of its intention to do so.
Such notice shall constitute the termination by OHMEDA of this
Agreement, effective when given, unless ICU, in its sole and
absolute discretion, consents to the Competitive Activity. Strict
compliance with this clause 4.10.2 shall relieve OHMEDA of the
obligation under clause 4.10.1 to refrain from Competitive Activity
for six months after any termination of this Agreement and permit
OHMEDA to engage in Competitive Activity 90 days after giving such
written notice. Notwithstanding the foregoing, if during the
aforesaid 90-day period, OHMEDA engages in any Competitive Activity
whatsoever, including any promotion of Competitive Products or any
communication to any customers or prospective customers of OHMEDA of
its intention to engage in Competitive Activity, (except as a
permitted incidental activity of an acquisition) (i) the provisions
of this clause 4.10.2 shall immediately cease to be of any force and
effect, (ii) OHMEDA shall be subject to and deemed to be in
violation of the provisions of clause 4.10.1, and (iii) ICU may take
action to enforce this Agreement and/or recover damages.
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Notwithstanding any provision of this Agreement, ICU is not waiving
its patent rights in any jurisdiction and is not waiving the
obligations of OHMEDA under clause 16 of this Agreement.
4.10.3 The conduct by OHMEDA of any Competitive Activity in any Territory,
or in any country in Europe shall be a material breach of this
Agreement, giving ICU the right to terminate this Agreement under
clause 3.1
4.10.4 OHMEDA acknowledges and agrees that it would be difficult to
compensate ICU fully for damages resulting from the breach or
threatened breach of the foregoing provisions and, accordingly, that
ICU shall be entitled to temporary and injunctive relief (including
temporary restraining orders, preliminary injunctions and permanent
injunctions) and specific performance, to enforce such provisions
upon proving that ICU suffered or that there is a substantial
probability that ICU will suffer irreparable harm and without the
necessity of posting any bond or other undertaking in connection
therewith. This provision with respect to injunctive relief and
specific performance shall not, however, diminish ICU's right to
claim and recover damages.
4.10.5 The provisions of this clause 4.10 are severable and if any one or
more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions, and
any partially unenforceable provisions to the extent enforceable,
shall nevertheless be binding and enforceable. For the purpose of
determining the geographic scope of the covenant such that if the
geographic scope shall be determined by a court of competent
jurisdiction to be excessive and invalid, such area shall be severed
and the covenant relating to the remaining areas shall be deemed
enforceable and remain in full force and effect. In addition, if
this clause 4.10 or any portion hereof shall be determined by a
court of competent jurisdiction to be excessive and invalid by
reason of its extending for too great a period of time or over too
great a range of activities, it shall be interpreted to extend only
over the maximum period of time or range of activities as to which
it may be enforceable.
4.11 COMPLIANCE WITH US EXPORT REGULATIONS. OHMEDA understands that the Products
and Improvements may require a validated export license to be obtained by
ICU from the United States Department of Commerce. OHMEDA agrees to assist
ICU to obtain any such required license by supplying appropriate
documentation requested by ICU. OHMEDA agrees to comply with US Export
Administration Regulations as in effect from time to time and will not re-
export any Products outside the Territory without first gaining approval
from ICU. Until approval is obtained from the United States Department of
Commerce, OHMEDA agrees to obtain similar assurances from its customers.
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OHMEDA will also maintain the necessary records to comply with United
States Export Administration Regulations.
4.12 TERMS OF PURCHASE OF PRODUCTS BY OHMEDA. All purchases of Products by
OHMEDA FROM ICU during the term of this Agreement shall be subject to the
terms and conditions of this Agreement. No other terms including standard
ICU conditions of sale or standard OHMEDA conditions of purchase shall
apply unless expressly agreed in writing by authorized representatives of
both parties.
4.13 TERRITORIAL RESPONSIBILITY. OHMEDA shall refrain from establishing or
maintaining any branch, warehouse or distribution depot for the Products,
or services outside the Territory and shall not engage in any advertising
or promotional activities relating to the Products or services directed
primarily to customers located outside the Territory.
4.14 SALES TRACKING. OHMEDA shall supply to ICU at its request at reasonable
intervals sales tracking information for each Territory in a timely
fashion. Such information shall include, but is not limited to, catalog
number quantities and prices of Products shipped during the period
requested; where possible the facility name and location will also be
provided.
5. ICU'S RESPONSIBILITIES AND UNDERTAKINGS
5.1 CAPACITY. ICU shall maintain manufacturing capacity at the level required to
fulfill OHMEDA's forecasted demand for the Products. ICU will maintain
reasonable raw material inventory consistent with OHMEDA forecasts and
delivery schedules.
5.2 LATEST VERSIONS. ICU shall ensure that Products supplied to OHMEDA are its
most up to date versions unless otherwise requested by OHMEDA, provided
that ICU shall not be required to replace OHMEDA's inventory of earlier
versions of Products.
5.3 ORDERS AND SPECIFICATIONS. ICU shall use all reasonable efforts to fulfill
OHMEDA orders for sterilized Products during the term of this Agreement. ICU
undertakes that the processing of OHMEDA orders shall be handled no less
favorably than any other customer orders. ICU shall manufacture, assemble,
package and label the Products in accordance with the specifications as
described in Appendix 1 below. The content of all labeling of Products shall
be created by OHMEDA and jointly approved by OHMEDA and ICU.
5.4 DELIVERY. ICU shall fulfill all Product orders from OHMEDA so that delivery
of the Products to OHMEDA shall be made FOB ICU's Californian facility
within 45 days of the placement of the order for that Product with ICU,
unless otherwise agreed. If an order cannot be shipped within such time
limits after order acceptance, ICU will notify OHMEDA of the anticipated
shipping date. ICU will
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take all necessary actions to minimize down-time of any affected major
equipment. OHMEDA shall be notified by fax, telephone or similar method of
communication promptly as to the date of delivery. In the event that any of
the Products are not shipped as of the scheduled date specified, OHMEDA
shall be given prompt notice by fax, telephone or similar method of
communication. When Products become available, ICU shall ship such delayed
Products by the fastest method of delivery, and the excess of the expedited
delivery charges over normal delivery charges shall be at ICU's expense when
events causing such delay were under ICU control.
ICU shall be responsible for:
5.4.1 putting the Products in possession of Ohmeda's designated carrier and
contracting for their transit,
5.4.2 obtaining any documents necessary to export them from the United
States of America and, so far as it can reasonably do so, to enable
OHMEDA to take possession upon arrival, and
5.4.3 promptly notifying OHMEDA of shipment and delivery to them of any
necessary documents of title.
5.5 INVOICES. ICU shall send all invoices for Products to OHMEDA at BOC OHMEDA
AB, PO Box 631, S-251 06, Helsingborg, Sweden.
5.6 SALES LITERATURE. ICU shall provide initial quantities of such technical
data, drawings, graphic illustrations, artwork and photography as requested
by OHMEDA to enable OHMEDA to prepare adequate selling materials and to
service the Products. Shipping charges incurred on delivery of sales
literature shall be borne by OHMEDA. Large quantities can be ordered from
ICU at ICU's standard prices in effect at the time.
5.7 TRAINING. ICU shall undertake a reasonable number of "train the trainers"
training courses in Europe free of charge for OHMEDA designated personnel.
Such courses shall be in English, shall be of reasonable extent and duration
and shall cover the specifications, uses, selling, marketing and operation
of the Products including any successor and substitute Products launched
from time to time. Both parties shall meet their own travel and
accommodation expenses connected with attendance. ICU shall co-operate with
the provision of such additional and refresher training as OHMEDA may
reasonably require and on terms to be agreed.
5.8 TERRITORIAL RESPONSIBILITY. In the event that OHMEDA does not establish a
branch, warehouse or distribution depot for the Products in one of the
Territories and ICU appoints another distributor in that Territory, ICU
shall impose the same
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territorial responsibility on that distributor as described in Clause 4.13
imposed on OHMEDA.
5.9 BUSINESS PLANS. ICU shall not have the power to reject any Business Plan
which conforms to the Appendix 4.5 requirements. Business Plans shall be
approved or rejected by ICU not more than 60 days after receipt. The first
Business Plan for a Territory shall cover the period up to the next 30th
September or such longer period, ending on a 30th September, as agreed
between the parties. All subsequent Business Plans shall cover an annual
period commencing 1st October.
6. PRICE
6.1 For the Test Launch Phase of this Agreement, the unit price for each Product
shall be as in Appendix 6 attached to this Agreement.
On commencement of the Full Launch Phase and on an annual basis after that
date, the parties shall negotiate in good faith as to the need for a price
change (increase or decrease) for Products. Any price increase shall be
based upon documented total material and direct labor cost increases during
the immediately preceding Contract Year, but capped at the percentage
increase in the US Consumer Price Index for All Urban Consumers (CPI-U") for
Los Angeles-Anaheim-Riverside Average All Items published by the US Bureau
of Labor Statistics for the immediately preceding Contract Year.
6.2 Prices shall be inclusive of the costs of preparing the Products for
shipment FOB California. OHMEDA shall pay for any additional packing and
handling charges for other means of shipment and shall also pay all taxes on
the export, import, use or sale of the Products and all related insurance.
6.3 If the parties fail to agree upon pricing for a following period, they shall
request an independent auditor to be agreed between the parties (such
auditor acting as an expert and not as an arbitrator) to establish an
equitable adjustment to the Purchase Price within thirty (30) days after
such request and the auditor's determination, absent bad faith, shall be
final and binding. The auditor's fees shall be borne in such proportions as
the auditor shall determine. The auditor so appointed shall be entitled to
call for and inspect the working papers of each of the parties insofar as
they affect the pricing dispute only.
7. REGULATORY APPROVALS AND RECALL
7.1 ICU shall be responsible for regulatory approval of the Products and any
applicable sterilization process. ICU shall inform OHMEDA of any Product
data required from the Territory to facilitate any regulatory approvals.
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7.2 The Products shall conform to CE marking requirements of European
legislation as and when in force in the Territory of Product destination.
7.3 ICU may at its sole discretion, institute and fund any recall or field
corrective action. In such circumstances, the actual retrieval of Product
used in the field will be undertaken by the OHMEDA service organization and
reimbursed by ICU. OHMEDA shall maintain adequate records concerning
traceability of Product and in the event that recall, field correction, or
the like procedures are required, OHMEDA shall co-operate fully with ICU for
expeditious completion of the procedure.
7.4 ICU agrees that Products supplied under this Agreement are and will be
manufactured and/or assembled pursuant to the then current US Food and Drug
Administration ("FDA") Good Manufacturing Practices ("GMP") regulations
(i.e. GMP's, 121 U.S.C. 360 et seq.), and all OHMEDA current internal
------
regulatory requirements furnished to ICU in writing by OHMEDA as modified
from time to time with ICU's consent. ICU shall be responsible for filing
all Medical Devices Reports ("MDR's") with the FDA and any other applicable
regulatory authority with respect to the Products and handling all follow-
ups.
7.5 ICU shall maintain all records and files required by the FDA regulations and
any other applicable regulatory authority in respect to the Products and
agrees to provide copies of such records and files to OHMEDA as reasonably
requested.
7.6 Both ICU and OHMEDA shall be responsible for complying with all federal,
state and local laws, rules, regulations, guidelines and the like in the
United States and in the Territories as they may apply to the Products and
to the parties respective obligations to perform under this Agreement. This
shall include without limitation, requirements in the United States with
respect to registration of establishments, listing of medical devices,
reporting of deaths, serious injuries and certain malfunctions under 21 CFR
803 and the potential for any such events, tracking of medical devices,
recalls, safety alerts and process controls. In no event shall either party
assume any risk arising out of the other party's failure to comply with such
laws, rules, regulations, guidelines and the like, and each party shall co-
operate with the other in all respects to facilitate and promote strict
compliance with the provisions of this clause.
7.7 Upon ten (10) days prior notice to ICU, OHMEDA shall have the right to
conduct vendor qualification audits and quality audits from time to time at
reasonable intervals at ICU's manufacturing and engineering facilities to
verify, insofar as feasible, ICU's compliance with the above regulatory
requirements. Quality audits will start at the supply phase and be based on
and limited to Products. ICU will not be required to disclose trade secrets
or proprietary processing know-how. If the review of an area of activity
considered proprietary by ICU is regarded as essential by OHMEDA for the
performance of an effective audit, a non-disclosure agreement satisfactory
to ICU will be signed by OHMEDA. ICU
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shall, in good faith, promptly correct any deficiencies discovered during
such audits.
7.8 In the event of any recall of the Products initiated by ICU and conducted by
OHMEDA for safety or efficacy reasons which are directly caused by failure
of the Products to:
7.8.1 conform in all respects to their specifications, or
7.8.2 be free from defects in design, workmanship or materials,
ICU agrees to accept them for repair or replacement at ICU's sole cost and
expense except as provided below.
Except as ordered by a governmental agency or as specified in the above
sentence, no recall or field modification action shall be initiated without
the mutual agreement of the parties unless the initiating party is prepared
to bear the charges on its own. Each party shall notify the other if any
recall or field modification action is contemplated and both parties shall
co-operate in reaching a consistent response. Neither party shall
unreasonably withhold any information involving patient safety or efficacy
or required recall or field modification action.
8. INDEMNITY
8.1 ICU hereby promises to indemnify and hold OHMEDA harmless from and against
any 3rd party claims, liabilities, damages and costs arising from any sale
or use of the Products and Improvements as and when supplied by ICU to
OHMEDA, arising through patent, trademark, (other than OHMEDA trademarks),
or copyright infringements or misappropriation of trade secrets, provided
that ICU is notified promptly in writing and given the necessary authority,
information and assistance to defend such action. Any action taken by ICU
shall not relieve it of a duty to provide to OHMEDA, at substantially
equivalent prices, and otherwise on the same terms as the Products, single
use disposable needleless injection valve products which operate in
functionally the same way as current Products subject to Clause 3.1.5 above.
The above provisions shall not apply to claims based on Products used in a
manner for which they were not designed or which were modified by or for
OHMEDA, its Affiliates or customers in a manner to become infringing.
8.2 If either party becomes aware of any infringement or threatened infringement
in any Territory of any intellectual property rights in the Products, then
such party shall immediately inform the other party. In such event the
parties shall at their joint expense refer the matter to legal counsel
familiar with the law of the
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Territory concerned, for the purpose of obtaining his/her advice on the
chances of success in prosecuting such action. Each party shall make
available to the other all information in its possession concerning the
subject. ICU may, in its sole discretion (unless the parties agree in
writing to the contrary), institute and prosecute such proceedings at its
expense. Should ICU elect not to institute and prosecute such proceedings,
it shall nevertheless do so if OHMEDA agrees to bear the expense of such
proceedings and tenders in advance of each month the estimated cost of
prosecuting such proceedings for such month, provided that ICU shall be
entitled to withdraw from such prosecution if OHMEDA fails to make all such
monthly advances and pay any excess of actual expenses for a month over the
amount advanced promptly after receipt of invoice. Nothing in this clause
shall affect the other rights and obligations of the parties resulting from
such alleged infringement.
8.3 ICU shall indemnify and hold OHMEDA or its affiliates harmless from and
against any and all loss, damage or cost, including reasonable legal
expenses and counsel fees, for which OHMEDA or its affiliates become liable
by reason of third party claims relating to defects in Products including
design or manufacture thereof except to the extent that such liability
arises from conduct described in clauses 8.4.1, 8.4.2, and 8.4.3.
8.4 OHMEDA agrees to indemnify and hold ICU and its Affiliates and its officers,
directors, and employees free and harmless from any loss, damage or cost,
including reasonable legal expenses and counsel fees, incurred by reason of
claims of 3rd parties, for which ICU becomes liable by reason of:
8.4.1 acts of OHMEDA or its Affiliates in marketing the Products including,
but not limited to (a) misrepresenting the terms of any ICU warranty,
(b) misstatements or misrepresentations by OHMEDA's, its Affiliates or
their employees or agents concerning the capabilities or performance
of the Products or availability, delivery dates or any other related
term or condition,
8.4.2 breach of warranties made by OHMEDA, its Affiliates or their
employees or agents regarding the Products or their use or
performance,
8.4.3 personal injury claims or property damages arising out of the actions
of OHMEDA, its Affiliates or their employees or agents in connection
with the Products and which is inconsistent with ICU's advice.
8.5 A party shall have no liability or responsibility of any kind to the other
party or its Affiliates under this clause 8 for any claims, demands, suits,
costs or actions unless the indemnifying party shall have been notified
within a reasonable time of any such claims, demands, suits, costs or
actions and shall have had an adequate opportunity to defend. Should the
indemnified party desire to have its own counsel participate in any such
action or suit, the costs of such counsel
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shall be borne exclusively by the indemnified party. The obligation of the
parties set out in this clause shall continue notwithstanding the
cancellation or termination of this Agreement.
9. INSURANCE
9.1 Each of ICU and OHMEDA shall maintain, at its own expense, general and
product liability policies of not less than $3,000,000. Each party shall
provide certificates of insurance to the other party (and in the case of
ICU, it shall note OHMEDA's and its Affiliates' interest as a named
insured) for information only and such other party shall have no
responsibility to review such policies or to determine their adequacy.
Each party shall promptly advise the other party of any and all such
actions or suits brought against the advising party or its Affiliates
relating to products liability or warranty claims for products sold in the
Territories. This clause shall survive the cancellation or termination of
this Agreement
10. LIMITED PRODUCT WARRANTY
10.1 Limited Product Warranty. Within the expiration date of the Product ICU
warrants all Products sold under the Agreement (i) to be free from defects
of design, material and workmanship when delivered, (ii) to conform
strictly to the applicable published specifications for such Products, as
in effect from time to time, and (iii) to be manufactured and packaged in
accordance with the FDA's then current GMP's and any other laws and
regulations for the time being in force in the United States of America.
These warranties shall survive any inspection delivery, acceptance of
payment for Products but no later than 60 days after OHMEDA becomes aware
of any defect. If any Products sold and delivered by ICU to OHMEDA breach
any of these warranties, ICU in its sole discretion will either replace
the same including if requested by OHMEDA, carriage CIF (Incoterms 1990)
to the end user delivery point of the order being replaced or credit
OHMEDA, within 30 days, the invoice price of the same together with
OHMEDA's incurred transport expenses in delivering the defective Product
to end user if applicable. The design warranty given above shall not apply
in respect of Products manufactured to designs provided by or on behalf of
OHMEDA.
10.2 Disclaimer and Limitation. WITH THE EXCEPTION OF THE WARRANTIES PROVIDED
UNDER CALIFORNIA COMMERCIAL CODE SECTION 2312, WHICH ICU AND OHMEDA AGREE
IS APPLICABLE TO THE PRODUCTS SOLD BY ICU TO OHMEDA, THE FOREGOING
WARRANTIES ARE GIVEN IN LIEU OF ALL OTHER PRODUCT WARRANTIES OR
GUARANTIES, EXPRESSED OR IMPLIED, RESPECTING PRODUCTS DELIVERED AND SOLD
BY ICU TO OHMEDA, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY FITNESS FOR A PARTICULAR PURPOSE OR COMPLIANCE WITH THE
LAWS AND REGULATIONS OF ANY
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JURISDICTION OTHER THAN THE UNITED STATES OF AMERICA. EXCEPT AS PROVIDED
IN CLAUSE 10.1 ABOVE, ICU SHALL NOT BE LIABLE FOR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES. THE PRECEDING SENTENCE SHALL NOT RELIEVE ICU FOR
TORT LIABILITY FOR PRODUCTS DEFECTS UNDER GOVERNING LAW.
10.3 Subject to the limitations in clause 10.2 above, the representations and
warranties in clause 10.1 shall survive inspection, testing and acceptance
of Products.
10.4 ICU agrees that sub-distributors appointed by OHMEDA with ICU's written
approval shall be entitled to rely upon the representations, warranties
and covenants in clause 10.1 above, subject to the disclaimers and
limitations in clause 10.2 above, to the same extent as if made directly
to sub-distributors.
10.5 ICU shall maintain test records, drawings and serialization lot numbers
and a traceability file of Products sold to OHMEDA. ICU shall provide
OHMEDA with serialization lot numbers and a Certificate of Release for the
Products at shipment as specified in the Vendor Specification shown at
Appendix 1.
10.6 The parties shall co-operate in the exchange of data on all product
complaints in accordance with such complaint handling procedures as
agreed. ICU shall co-operate fully with OHMEDA in performing complaint
investigations and failure analyses as required by FDA GMP regulations or
any regulations applied by regulatory authorities in the countries of the
Territory as applicable.
10.7 All of the provisions of this clause 10 shall survive the cancellation or
termination of this Agreement.
11. SPECIFICATION AND DESIGN VARIATIONS
11.1 Specifications for Products and accessories are listed in Appendix 1
attached. It is recognized that from time to time ICU may, consistent with
such specifications and with quality performance of Products in their
present form, make changes which are deemed Improvements or substitute
components of the Products. OHMEDA shall be notified in writing by means
of a validation package submitted in accordance with ICU's standard
practices prior to the institution of Improvements or substitution of
components unless otherwise agreed and OHMEDA reserves the right to reject
the Improvements if they fail to meet Product specification or if they
adversely affect fit, form, or function or regulatory approvals of the
Products. In such case, OHMEDA may elect to continue to receive Products
meeting the specifications prior to such Improvements or substitution of
components. Should such Improvements or substitution of components or
OHMEDA's election to continue to receive Products meeting the
specifications prior to such Improvements result in either an increase or
decrease in ICU's costs of production of the Products, then the parties
shall
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immediately negotiate in good faith equitable adjustments to the pricing
of the Products.
11.2 OHMEDA may, during the term of this Agreement, request that ICU make such
changes to Products as OHMEDA in its good faith judgment considers are
required, inter alia, by market conditions, customer requirements, or
----------
changes in OHMEDA products. If ICU agrees to make such changes, the
parties shall negotiate an equitable reimbursement for implementing them,
including any adjustment in prices for Products.
11.3 If the parties believe any such revision may require regulatory approval
of the FDA or other regulatory agency, any such submission shall be made
by ICU after consultation with OHMEDA. If the revision is at the request
of OHMEDA, it will bear all costs associated with resubmission to the FDA
and other regulatory agencies.
11.4 ICU shall maintain design responsibility and shall be responsible for
complaint investigation. OHMEDA shall inform ICU of any adverse customer
feedback or complaints in a timely manner.
12. QUALITY CONTROL AND PRODUCT IMPROVEMENTS
12.1 ICU shall maintain a quality assurance program which, without limitation,
shall include incoming component and raw material inspection, inspection
of work in progress and final kit inspection. All criteria for inspection
at each inspection point shall be in writing and kept current with the
requirements provided by OHMEDA and the requirements of the FDA GMP
regulations. Inspection results shall be documented in writing, dated and
maintained as permanent records and subject to audit by OHMEDA.
12.2 The parties recognize that as the Products are innovative and have not
previously been tried and tested in the Territory, there may be scope for
Improvements.
12.3 The parties shall share with each other under conditions of
confidentiality as provided in Section 16 hereof, ideas they generate
during the term hereof that could be used to improve one or more of the
Products. With regard to any Improvements generated by OHMEDA which
improve both the Products and one of OHMEDA's existing products as set
forth in Appendix 4.10 hereto, OHMEDA shall grant to ICU an irrevocable,
worldwide, royalty free, exclusive (except as to OHMEDA, its Affiliates
and customers) right to use such OHMEDA-generated idea, whether patentable
or not, to improve the Products. With regard to OHMEDA-generated ideas
which improve the Products, but do not improve at least one of OHMEDA's
existing products, as set forth in Appendix 4.10 hereto, OHMEDA shall
assign any such OHMEDA-generated idea as well as any intellectual property
rights in the idea to ICU. With regard to any intellectual
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property rights so assigned to ICU, ICU shall grant to OHMEDA an
irrevocable, worldwide, royalty free, non-exclusive right to use such
OHMEDA-generated ideas in future OHMEDA products. In addition, OHMEDA will
execute all documents reasonably necessary to perfect such assignment or
prosecute any patent application filed to protect the idea at ICU's
expense. Any Improvement assigned from OHMEDA to ICU shall be deemed to be
included in the definition of "Products" set forth herein.
13. TRADEMARKS
13.1 Products shall be sold under the "Connecta CLAVE" name. "Connecta" is a
registered trademark of BOC OHMEDA AB. This name shall appear in a clearly
visible place on packaging using the OHMEDA supplied sample labels,
packaging and instructions. Supporting materials and manuals shall bear
the same marking. Such marking is approved by both parties, provided that
no ancillary trademark or service mark rights or licenses are conveyed.
Other than the rights specified, and those provided in accordance with
commercial codes or other local laws regarding the sale of goods, this
Agreement provides no separate rights or licenses for either party to use
the trademarks, copyrights, or patents of the other.
13.2 ICU will provide OHMEDA with materials for inclusion into OHMEDA's manuals
for the Product supplied to OHMEDA, provided that ICU shall have a right
to inspect and approve (which approval shall not be unreasonably withheld
or delayed) before publication, that portion of such manuals that relate
to the Products.
13.3 The labels, packaging and instructions for Products shall be incorporated
by ICU into its documentation system and included as official ICU
documents in all government filings required by this Agreement.
14. INSPECTION AND ACCEPTANCE
14.1 OHMEDA shall have the right to inspect Products at the time of their
actual receipt. In the event that no notice of defects is provided to ICU
within five (5) working days of actual receipt, the associated Products
shall be deemed accepted. This acceptance shall not affect the warranty or
indemnity provisions of this Agreement. Upon acceptance, ownership of the
Products shall pass from ICU to OHMEDA. In the event of rejection, risk of
loss shall revert to ICU.
14.2 ICU shall conduct analysis of rejected or returned Products. ICU shall
provide OHMEDA with a written failure analysis report on any rejected or
returned Products within thirty (30) days of return.
15. MUTUAL UNDERTAKINGS
15.1 OHMEDA and ICU represent and warrant one to the other that:
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15.1.1 it is a company duly organized, validly existing, and in good
standing under the laws of the state of its incorporation;
15.1.2 it has the corporate power to own its assets and to carry on the
businesses now being conducted;
15.1.3 execution and delivery of this Agreement have been duly authorized
in accordance with the applicable laws of its state of
incorporation, and its own certificate of incorporation and bye-
laws; and
15.1.4 it is under no legal or equitable restriction or obligation
preventing undertaking or discharging its obligations under this
Agreement.
16. CONFIDENTIALITY
16.1 The parties recognize the necessity of disclosing to one another not only
the basic proprietary technology and information existing at the time of
execution of this Agreement, but further, from time to time, additional
proprietary developments, improvements and business information. For the
purposes of this clause, the term "Confidential Information" shall apply
to data suitably identified and not otherwise excluded from the definition
pursuant to this section concerning research, design, development,
manufacture, use, clinical testing, marketing strategies, market research,
pricing information, production capacity and Improvements of or relating
to Products. The parties agree to the following obligations of
confidentiality, which shall survive expiration of this Agreement.
16.2 For the period of this Agreement and for a period of five (5) years
following the end of this Agreement, neither party shall use nor permit
its Affiliates to use the disclosed Confidential Information except as
necessary for the purposes of this Agreement. Each party shall maintain
confidential to itself and applicable Affiliates with a need to know, and
shall not disclose to third parties, Confidential Information disclosed by
the other party, treating it with the same degree of care as that party
would treat its own Confidential Information. Both parties shall cause
theirs and their Affiliates directors, officers, employees, agents and
representatives to observe the terms of this confidentiality provision.
16.2.1 The confidentiality obligations under this clause shall not apply
to:
a) information which is or becomes part of the public domain
through no fault or act of the party receiving the
information; or
b) information which the receiving party can establish by
written documents was in his possession prior to disclosure;
or
c) information received from a third party which is lawfully in
possession thereof not in breach of any obligation of
confidentiality to the disclosing party; or
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d) information any receiving party (the "Recipient") is
required to disclose by law, order or regulation of a
governmental agency or a court of competent jurisdiction;
provided, that the Recipient uses its reasonable efforts,
which shall include timely notice to the other party and
cooperative joint efforts, to obtain protective orders or
other available assurances of confidentiality, and provided
further that except to the extent of such disclosure
contemplated by this sub-paragraph (d) the confidential
obligations of this clause 16 shall continue to apply; or
e) information the Recipient is required to disclose to any
governmental agency for purposes of obtaining approval to
test or market the Products to the extent that such
information thereby becomes part of the public domain. In
such event the Recipient shall provide notice to the other
party of such disclosure.
16.3 In order to implement these confidentiality obligations, both parties
submitting information to the other party which it considers confidential
shall mark such information with a proprietary, confidential or similar
notice. If such Confidential Information is disclosed orally by a party it
shall be followed by a writing, within ten (10) days of such oral
disclosure, summarizing details of the disclosure and indicating said
information was confidential.
16.4 ICU and OHMEDA represent and warrant that each has or will have contracts
of secrecy and non-use with any employees, consultants and agents who
shall have access to any of the Confidential Information and in terms
which at least comply with the requirements of this clause. OHMEDA gives
the same warranty on behalf of its Affiliates.
16.5 Upon the termination of this Agreement for any reason, ICU and OHMEDA
shall each deliver to the other (without retaining copies), any and all
documents or other written information containing any Confidential
Information of the other party.
17. FORCE MAJEURE AND EXCESSIVE DEMAND
17.1 In the event that ICU is unable to carry out its obligations under
this Agreement due to acts of God or of the public enemy, war,
insurrection, mob violence, civil commotion or riots, strike, lockouts,
labor disputes, fires, floods, earthquakes, epidemics, quarantine
restrictions, freight embargoes, unusual delays in transportation, lack of
shipping facilities, unavoidable casualty, accidents, abnormal amounts of
inclement weather or unusually severe weather, changes in governmental
policy, laws or regulations (including but not limited to impositions or
quotas of limitations of shipments), or any other cause or causes beyond
the control of ICU or its suppliers, whether herein above specified or
not, ICU shall be permitted to extend the time of performance of its
obligations to
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<PAGE>
such extent as may be necessary to enable ICU and its suppliers to complete
performance in the exercise of reasonable diligence after the cause or
causes of delay have been removed. In the event any such delay continues
for a period of more than six months, either party may terminate this
Agreement by so notifying the other party in writing.
17.2 If Force Majeure affects ICU's manufacturing capability for the Products,
ICU shall, at OHMEDA's request, sub-contract manufacture of the Products to
OHMEDA or an OHMEDA Affiliate for the period of the Force Majeure. In such
circumstances, ICU shall co-operate fully with OHMEDA and at ICU's expense,
in the provision of all necessary technology, technical and regulatory
support together with any tooling recoverable from ICU's facility, as may
be required.
17.3 In the event that world-wide demand for the Products exceeds ICU's
manufacturing capacity, ICU shall be excused from supplying OHMEDA's total
requirements for the Products, subject to OHMEDA having entitlement to its
proportionate share of the Products produced. Such share shall be equal to
the ratio that the number of each type of Product purchased by OHMEDA in
the previous Contract Year bears to the total number of that type of
Product produced at ICU's manufacturing facility during the same period.
18. TERMINATION
18.1 OHMEDA'S DUTIES UPON TERMINATION. Upon termination of this Agreement for
any reason whatsoever, OHMEDA shall:
18.1.1 cease immediately from acting as a distributor for ICU and abstain
from making further sales of Products except with the written
approval of ICU except that Ohmeda may continue to sell existing
inventory to then current customers;
18.1.2 immediately cease making use of any sign, printed material,
trademarks or trade name identified with ICU and refrain from
holding itself out as having been formerly connected in any way with
ICU; and
18.1.3 not dispose of any Products purchased from ICU except to ICU or to a
company appointed by ICU, or in a manner approved by ICU.
18.2 ICU'S DUTIES UPON TERMINATION SHALL BE AS FOLLOWS:
18.2.1 ICU may accept at its discretion in accordance with ICU's then
current published Returned Goods Policy the return of certain
Products then held unsold by OHMEDA, in original packaging. The
repurchase price shall be the net ex-works price as invoiced by ICU
for the goods in question. OHMEDA shall meet the costs of their
return CIF ICU facility in California.
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<PAGE>
18.2.2 ICU shall cease making use of any packaging, printed materials,
trademarks or trade names identified with OHMEDA.
18.2.3 ICU shall ensure that arrangements are put in place to supply any
outstanding customer orders as notified by OHMEDA and in the case of
the Territories listed in Appendix 1, List A, future customer demand
for the Products, for not less than 12 months after termination. ICU
shall indemnify OHMEDA against all damages, costs and expenses
payable by OHMEDA to customers for non fulfillment of customer
orders outstanding at termination, through breach of this term.
18.3 OHMEDA and ICU acknowledge and agree that upon termination of this
Agreement with due notice, except as provided above, neither party shall be
liable to the other for any damages (whether direct, consequential or
incidental, and including expenditures, loss of profits or prospective
profits of any kind) sustained or arising out of or alleged to have been
sustained or to have arisen out of termination with due notice. However,
such termination shall not excuse either party from any breach of this
Agreement, from amounts owing from one party to the other or from any other
obligations surviving termination of this Agreement, and full legal and
equitable remedies shall remain available for any breach of this Agreement
or any obligation arising from it. This clause 18.3 shall survive the
termination of this Agreement.
19. MISCELLANEOUS
19.1 Any payments, notices, requests, instructions, or other documents to be
given under this Agreement, shall be in writing, and delivered personally
or sent by certified or registered mail, prepaid, unless otherwise
directed, as follows:
If to ICU: President
ICU Medical Inc.
951 Calle Amanecer,
San Clemente, CA 92673 USA
If to OHMEDA: Managing Director
BOC OHMEDA AB
P O Box 631
S-251 06 Helsingborg
Sweden
Page 24: Printed May 28, 1996
<PAGE>
WITH COPY TO: The BOC Group pic
Chertsey Road
Windlesham
Surrey GU20 6HJ
Great Britain
Attention: Legal Department
Either party may change the person or address to which such notices are
being sent by giving written notice to the other in the manner provided in
this Agreement. Any such payments, notices, requests, instructions or other
documents provided for in this Agreement, shall be deemed delivered when
hand delivered or posted prepaid airmail or when sent and received by telex
or telecopy. In the case of posting, delivery shall be deemed effective 5
business days after the date of posting and in the case of telex and
telecopy, 1 business day after the date of transmission.
19.2 Neither party may assign this Agreement, or their rights or obligations,
without prior consent of the other; provided that upon written notice,
OHMEDA shall have the right to assign this Agreement to any of its
Affiliates who agrees in writing to be bound by each and all of OHMEDA's
obligations.
19.3 This Agreement constitutes the entire Agreement between the parties
regarding its subject matter and supersedes all prior understandings of the
parties. There are no promises, terms conditions or obligations of the
parties pertaining to that subject matter other than as contained in this
Agreement. No interpretation, change, termination or waiver of any of the
provisions shall be binding upon either party unless in writing and signed
by its authorized officer. The terms of this clause shall supersede the
Confidence Agreement entered into between ICU and OHMEDA Inc., dated 18
October 1995 which shall have no further force and effect.
19.4 The relationship of the parties is strictly contractual, and is not that of
a joint venture, partnership, agency or employment. Neither party, nor
their agents or Affiliates is authorized to bind the other. No agent of
either party is authorized to make any representations, promise, or
warranty not contained in this Agreement.
19.5 No waiver of any provisions of, or default under this Agreement shall
affect the right of either party to enforce that provision or any other
provision or to exercise any right or remedy in the event of other default,
whether similar or dissimilar.
19.6 All disputes between the parties arising out of this Agreement or as to any
matters related to but not covered by this Agreement shall be governed by
the laws, without regard to the laws as to choice of laws, of the State of
New York. Each party hereto on behalf of themselves and their respective
Affiliates
Page 25: Printed May 28, 1996
<PAGE>
consents to the exclusive jurisdiction and venue of State courts of the
State of Illinois located in Cook County, Illinois, USA and/or the United
States District Court located in Cook County, Illinois, USA with respect
to all disputes arising out of, or related to but not covered by, this
Agreement and consents to service of process by written notice given as
provided in clause 19.1 of this Agreement.
19.7 This Agreement is binding on the successors and assignees of the parties.
19.8 In the event this Agreement is required to be registered with any
governmental authority, OHMEDA shall cause such registration to be made
and bear any expense or tax payable in respect of such registration.
19.9 Notwithstanding anything to the contrary contained in this Agreement,
neither this Agreement, a modification of any provision of this Agreement,
nor a new provision of this Agreement shall be effected by an order,
acknowledgment or other form submitted by either party containing
different or additional provisions.
19.10 This Agreement may be executed in counterparts, each of which will be an
original, but both of which together shall constitute one instrument.
19.11 The clause and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19.12 Nothing in this Agreement, expressed or implied, is intended to confer on
any person or entity other than the parties any right or remedy under or
by reason of this Agreement.
19.13 The prevailing party shall be entitled to recover all costs and expenses
reasonably and properly incurred, including attorneys' fees at the hourly
rates usually charged by that party's attorneys, expert witness fees,
court costs and all other costs and expenses incurred in any action or
proceeding arising out of this Agreement or as to any matters related to
but not covered by this Agreement.
19.14 The terms of this Agreement are severable and if for any reason any terms
should be unenforceable or invalid, the rest of the Agreement shall remain
in full force and effect.
19.15 This Agreement has been negotiated by the parties and is to be interpreted
according to its fair meaning as if the parties had prepared it together
and not strictly for or against any party. All reference in this Agreement
to "parties" refer to parties to this Agreement unless expressly indicated
otherwise. References in this Agreement to Articles and Sections are to
Articles and Sections of this Agreement unless expressly indicated
otherwise. References in this Agreement to "provisions" of this Agreement
refer to the terms, conditions and promises contained in this Agreement.
At each place in this Agreement where the context so requires, the
masculine, feminine or neuter gender includes the others and
Page 26: Printed May 28, 1996
<PAGE>
the singular or plural number includes the other. "Including" means
"including without limitation." "Or" is inclusive and includes "and."
IN WITNESS the parties have caused this Agreement to be executed by their
respective duly authorized officers, the day and year written below.
ICU Medical, Inc.
By: /s/ George A. Lopez, M.D.
---------------------------------
George A. Lopez, M.D., President
---------------------------------
Name Title
Name Title
BOC OHMEDA AB
By: /s/ Joseph W. Pepper
---------------------------------
JW PEPPER, President
---------------------------------
Name Title
Page 27: Printed May 28, 1996
<PAGE>
APPENDIX 1.2
TERRITORY
Territories shall mean the geographic boundaries of the following nations,
existing as of the date of this Agreement and as they may be from time to time
altered or modified, whether by treaty, conquest, purchase or otherwise, and all
of the political territorial subdivisions within such territories (including any
independent nation, republic or other political or legal jurisdiction, which was
at the date of this Agreement within any such nations):
PART A - Direct Countries:
Andorra, Belgium, Denmark, Finland, France, Germany, Gibraltar, Great Britain,
Ireland, Luxembourg, Monaco, Netherlands, San Marino, Spain, Sweden
PART B - Distributor Countries:
Albania, Austria, Bulgaria, Czech Republic, Greece, Hungary, Iceland, Italy,
Liechtenstein, Malta, Norway, Poland, Portugal, Romania, Slovakia, Switzerland,
Turkey, the former Union of Soviet Socialist Republics ("USSR") (consisting of
Armenia, Azerbaydyhan, Belarus, Estonia, Georgia, Kazakhstan, Kirghizstan,
Latvia, Lithuania, Moldavia, Russia, Tajikistan, Turkmenistan, Ukraine and
Uzbekistan), and the former Yugoslavia (consisting of Bosnia Herzegovina,
Serbia, Montenegro, Kosovo, Macadonia, Vojvodina, Croatia and Slovenia).
Page 29: Printed May 28, 1996
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
--------------------------
NAME STATE OF INCORPORATION
---- ----------------------
Budget Medical Products, Inc. California
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report dated January 29, 1997 included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement File No. 33-49822. It should
be noted that we have not audited any financial statements of the Company
subsequent to December 31, 1996 or performed any audit procedures subsequent to
the date of our report.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Orange County, California
January 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,059,663
<SECURITIES> 29,700,000
<RECEIVABLES> 3,336,181
<ALLOWANCES> 293,032
<INVENTORY> 2,233,619
<CURRENT-ASSETS> 38,249,577
<PP&E> 16,171,057
<DEPRECIATION> 5,242,487
<TOTAL-ASSETS> 49,638,637
<CURRENT-LIABILITIES> 2,662,733
<BONDS> 0
0
0
<COMMON> 886,716
<OTHER-SE> 45,862,188
<TOTAL-LIABILITY-AND-EQUITY> 49,638,637
<SALES> 24,599,005
<TOTAL-REVENUES> 24,599,005
<CGS> 10,442,986
<TOTAL-COSTS> 10,442,986
<OTHER-EXPENSES> 8,236,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,289,298)
<INCOME-PRETAX> 7,214,190
<INCOME-TAX> 2,475,000
<INCOME-CONTINUING> 4,739,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,739,190
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
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