UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-20212
ARROW INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1969991
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
3000 BERNVILLE ROAD
READING, PENNSYLVANIA 19605
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (610) 378-0131
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS: ON WHICH REGISTERED:
-------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
(Title of Class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.[ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AS OF NOVEMBER 1, 1996 WAS APPROXIMATELY $295,832,189.
THE NUMBER OF SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING ON
NOVEMBER 1, 1996 WAS 23,228,899.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR ITS ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 15, 1997, WHICH WILL BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER AUGUST 31, 1996,
ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT.
ITEM 1. BUSINESS:
Certain of the information contained in this Form 10-K, including
the discussion which follows in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" found in Item 7 of this
Report, contain forward-looking statements. For a discussion of
important factors that could cause actual results to differ materially from
such forward-looking statements, carefully review this Report, including
Exhibit 99.1 hereto, as well as other information contained in Arrow
International, Inc.'s periodic reports filed with the Securities and
Exchange Commission (the "SEC" or "Commission").
Arrow International, Inc. (together with its subsidiaries, "Arrow" or
the "Company") was incorporated as a Pennsylvania corporation in 1975.
Arrow develops, manufactures and markets a broad range of clinically
advanced, disposable catheters and related products for critical care
medicine and interventional cardiology and radiology. The Company's
critical care products are used principally for central vascular access for
administration of fluids, drugs, and blood products, patient monitoring
and diagnostic purposes, as well as for pain management. These
products are used by anesthesiologists, critical care specialists,
surgeons, cardiologists, nephrologists and emergency and trauma
physicians and other health care providers. Arrow's interventional
procedure products are used by interventional cardiologists,
interventional radiologists and electrophysiologists for such purposes as
the diagnosis and treatment of heart and vascular disease and to provide
short-term cardiac assist following cardiac surgery, serious heart attack
or balloon angioplasty.
Arrow's critical care products, which were originally introduced in
1977, accounted for 82.2%, 82.2% and 84.2% of net sales in fiscal 1996,
1995 and 1994, respectively. The majority of these products are
vascular access catheters and related devices which consist principally
of the following: the Arrow-Howes trademark Multi-Lumen Catheter, a catheter
equipped with three or four channels that enables the simultaneous
administration of multiple critical care therapies through a single puncture
site; double-and single-lumen catheters which are designed for use in a
variety of clinical procedures; the ARROWg+ard trademark antiseptic surface
treatment that is applied to many of the Company's vascular access
catheters to reduce the risk of catheter-related infection; percutaneous
sheath introducers, which are used as a means for inserting
cardiovascular and other catheterization devices into the vascular system
during critical care procedures; and FlexTip Plus trademark epidural catheters,
which are designed to minimize indwelling complications associated with
conventional epidural catheters.
In April 1995, the Company expanded its critical care product line
by acquiring Therex Limited Partnership, a developmental stage
company ("Therex"), engaged in the development, manufacture and
marketing of implantable constant flow drug delivery pumps and a broad
line of implantable vascular access ports used for the infusion of certain
drugs over an extended period of time in connection with the treatment of
cancer, other chronic diseases and chronic pain. The Company received
FDA marketing clearance in March 1996 for its Model 3000 Constant
Flow Implantable Pump for the administration of the chemotherapy drug,
2-Deoxy 5-Flourouridine (FUDR), for the treatment of liver cancer.
Broader application of the pump for use with the drug, morphine, to
relieve pain is anticipated following FDA marketing clearance, which the
Company expects to receive in fiscal 1997. The pump is currently used
with morphine in certain international markets.
Arrow's interventional procedure products accounted for 17.5%,
17.6% and 15.2% of net sales in fiscal 1996, 1995 and 1994,
respectively. These products include cardiac assist products, such as
intra-aortic balloon pumps and catheters, which are used primarily to
augment temporarily the pumping capability of the heart following cardiac
surgery, serious heart attack or balloon angioplasty; electrophysiology
products, such as pacing and mapping catheters, which are used
primarily to provide temporary pacing of the heart and to map the
electrical signals which activate the heart; the Berman trademark Angiographic
Catheter, which is used for pediatric cardiac angiographic procedures;
and other interventional procedure products, such as the Super Arrow-
Flex trademark sheath, which provides a kink-resistant passageway for the
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ITEM 1. BUSINESS (CONTINUED):
introduction of cardiac and other catheters into the vascular system. The
Company entered the interventional procedure market in 1987 through
the purchase of certain assets from Critikon, Inc. and, in February 1994,
expanded into the field of cardiac assist by acquiring the intra-aortic
balloon pump and catheter business of Kontron Instruments, Inc.
("Kontron Instruments").
In March 1995, the Company extended its line of electrophysiology
products by entering into agreements with Cardiac Pathways Corporation
("Cardiac Pathways") for certain distribution and manufacturing rights to
Cardiac Pathways' Trio/Ensemble trademark mapping catheter system and
Radii trademark radio frequency ablation catheters used for the diagnosis and
treatment of certain cardiac tachyarrhythmias (conditions involving
abnormal, potentially life-threatening electrical signals in the heart). For
the Trio/Ensemble trademark mapping catheter, the Company's distribution rights
are worldwide, with the exception of Japan and certain countries in
Europe, where Cardiac Pathways had distribution arrangements already
in place. For the Radii trademark radio frequency ablation catheter, the
Company has distribution rights in Germany. The Company received FDA
marketing clearance in December 1995 for the Trio/Ensemble trademark mapping
catheter system and currently sells this product in the U.S. In connection
with these agreements, the Company entered into an agreement with
Cardiac Pathways to purchase for $9.0 million preferred stock convertible
into approximately 9.5% of the then outstanding common stock of
Cardiac Pathways, which was paid in two equal installments in June and
December 1995. In connection with the initial public offering of Cardiac
Pathways' common stock in June 1996, the Company converted its
preferred stock into common stock of Cardiac Pathways representing
approximately 9.2% of the outstanding common stock of Cardiac
Pathways.
The Company received FDA marketing clearance in May 1996 for
its Narrow-Flex trademark reduced diameter (8 Fr.) intra-aortic balloon
catheter based on new, patented construction technology. The Company
believes this catheter is the smallest available with full 40cc balloon
augmentation capability, the same degree of heart pumping
augmentation that previously had been available only through the use of
larger diameter catheters. This smaller diameter catheter takes up less
space in the femoral artery than previously available catheters and,
therefore, is designed to improve blood circulation to the lower
extremities. Reduced blood flow to the leg is a major complication of
intra-aortic balloon pumping.
SALES AND MARKETING
Arrow markets its products to physicians and hospitals through a
combination of direct selling and independent distributors. Within each
hospital, marketing efforts are targeted to those physicians, including
critical care specialists, cardiologists, anesthesiologists, interventional
radiologists, electrophysiologists and surgeons, most likely to use the
Company's products. Arrow's products are generally sold in the form of
pre-sterilized procedure kits containing the catheters and virtually all of
the related medical components and accessories needed by the clinician
to prepare for and perform the intended medical procedure. Additional
sales revenue is derived from equipment provided for use in connection
with certain of the Company's disposable products.
In fiscal 1996, 1995 and 1994, 61.8%, 64.3% and 69.1%,
respectively, of the Company's net sales were to U.S. customers. In this
market, approximately 78% of the Company's fiscal 1996 revenue was
generated by its direct sales force. The remainder resulted from
shipments to independent distributors. For the majority of such
distributors, the Company's products represent a principal product line.
Direct selling generally generates higher gross profit margins than sales
made through independent distributors.
Internationally, the Company sells its products through ten direct
sales subsidiaries serving markets in Japan, Germany, the Netherlands,
France, Spain, Greece, Africa, Canada, Mexico and the Czech Republic. As of
November 1, 1996, independent distributors in 58 additional countries service
the remainder of the world.
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ITEM 1. BUSINESS (CONTINUED):
To further promote growth in international sales, in August 1993,
the Company opened a 40,000 square foot manufacturing facility in
Chihuahua, Mexico to support marketing initiatives in Latin America and
other markets and, in January 1996, completed construction of a 65,000
square foot manufacturing and research facility in the Czech Republic,
which began shipments in the fourth quarter of fiscal 1996 to support the
growing European market.
Revenues, profitability and identifiable assets attributable to
significant geographic areas are presented in Note 16 to the Company's
Consolidated Financial Statements, included herein.
In general, Arrow does not produce against a backlog of customer
orders; production is based primarily on the level of inventories of
finished products and projections of future customer demand with the
objective of shipping from stock upon receipt of orders. No single
customer accounts for a material part of the Company's sales. Usage of
the Company's products by hospitals and physicians has not been
materially influenced by seasonal factors.
Rapid growth in U.S. health care costs, coupled with a lack of
access by some U.S. citizens to adequate health care, has resulted in
numerous legislative initiatives in the U.S. Congress during the last
several years. While none of these initiatives have to date resulted in
substantive legislation, the intent of these initiatives was, generally, to
expand health care coverage for the uninsured and reduce the rate of
growth of total health care expenditures. In addition, certain states have
made significant changes to their Medicaid programs and have adopted
various measures to expand coverage and limit costs. Implementation of
government health care reform and other efforts to control costs may
limit the price of, or the level at which reimbursement is provided for, the
Company's products. The increased emphasis in the U.S. on health care
cost containment has resulted in reduced growth in demand for certain of
the Company's products in markets where Arrow has 80% or greater
market shares, and protecting that market share has affected the
Company's pricing in some instances. The Company presently believes
that this emphasis is increasing the importance of competitive prices and
may continue to reduce the U.S. growth rate for certain of the Company's
products. The Company anticipates that Congress, state legislatures,
foreign governments and the private sector will continue to review and
assess alternative health care delivery and payment systems. The
Company cannot predict what additional legislation or regulation, if any,
relating to the health care industry may be enacted in the future or what
impact the adoption of any federal, state or foreign health care reform,
private sector reform or market forces may have on its business. No
assurance can be given that any such reforms will not have a material
adverse effect on the medical device industry in general, or the Company
in particular.
RESEARCH AND PRODUCT DEVELOPMENT
Arrow is engaged in ongoing research and development to
introduce clinically advanced new products, to enhance the
effectiveness, ease of use, safety and reliability of its existing products
and to expand the clinical applications for which use of its products is
appropriate. The principal focus of the Company's research and
development effort is to identify and analyze the needs of physicians in
critical care medicine and interventional cardiology and radiology, and to
develop products that address these needs. The Company views ideas
submitted by physicians and other health care professionals as an
important source of potential research and development projects. The
Company believes that these end-users are often in the best position to
conceive of new products and to recommend ways to improve the
performance of existing products. Most of the Company's principal
products and product improvements have resulted from collaborative
efforts with physicians, other health care professionals or other affiliated
entities. For certain proprietary ideas, the Company pays royalties to
such persons, and in many instances, incorporates such person's name
in the
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ITEM 1. BUSINESS (CONTINUED):
tradename or trademark for the specific product. The Company also
utilizes other outside consultants, inventors and medical researchers to
carry on its research and development effort and sponsors research
through medical associations and at various universities and teaching
hospitals.
In addition, in recent years, the Company has pursued research
and development of certain specialized products in collaboration with
other medical device manufacturers. Certain of the Company's strategic
acquisitions and investments have provided the basis for its introduction
of significant new products. For example, the Company's acquisition of
the intra-aortic balloon pump and catheter business of Kontron
Instruments significantly expanded its business in the field of
interventional cardiology. The Company anticipates that its alliance with
Cardiac Pathways will enhance its strategic presence in the field of
electrophysiology, and the Company's acquisition of Therex provides it
with a new product offering of implantable drug delivery devices that the
Company believes represents an important addition to its critical care
product line. Where appropriate, the Company plans to continue to
complement its internal research and development efforts with similar
acquisitions and collaborative arrangements.
Research and development expenses totaled $14.1 million (6.1%
of net sales), $11.3 million (5.3% of net sales) and $10.5 million (5.9% of
net sales) in fiscal 1996, 1995 and 1994, respectively. Such amounts
were used to develop new products, improve existing products and
implement new technology to produce these products.
Since 1988, the Company has been developing the Arrow (registered trademark) -
Fischell Pullback Atherectomy Catheter (the "PAC") for the removal of
atherosclerotic plaque. The Company acquired certain patents relating
to the technology underlying the PAC in 1990. In conjunction with the
acquisition, the Company entered into a research and development
agreement under which the Company was required to make certain
payments upon the PAC's achievement of specified development
milestones. In July 1995, the Company amended this agreement to
modify the terms of payment of, and recognize as pre-paid royalties,
such milestone payments thereunder. Since December 1994, the
Company has been conducting human clinical trials outside the U.S.
using the PAC in coronary arteries, and in March 1995, the Company
received FDA approval under an Investigational Device Exemption
("IDE") to conduct Phase I human clinical trials in the U.S. for use of the
PAC in treating atherosclerosis of coronary arteries. The Company
believes that use of the device for removing plaque at arterial junctions
(bifurcations) and for debulking vessels prior to stenting is attracting
increasing interest from cardiologists. The device has been used
successfully in 93 cases internationally and in 48 U.S. Phase I clinical
trials, and a Phase II study prior to a FDA Premarket Approval
application ("P.M.A.") is expected to begin in fiscal 1997. Additional
study sites in both the U.S. and abroad are currently being identified.
Although the Company is focusing primarily on development of the PAC
for treatment of atherosclerosis in coronary arteries, the Company also
has conducted Phase II clinical trials of the device under an IDE for use
in treating atherosclerosis of leg arteries.
The Company has been developing a more compact intra-aortic
balloon pump to augment temporarily the pumping capability of the heart
following cardiac surgery, serious heart attack or balloon angioplasty. In
fiscal 1997, the Company expects to introduce this pump in certain
international markets and, later in fiscal 1997, to submit a 510(k)
application for FDA marketing clearance for sale of this pump in the U.S.
The Company began conducting clinical trials under an IDE in
August 1996 for a catheter device which uses microwave energy for the
ablation of cardiac tissue responsible for ventricular tachycardia.
Currently marketed radio frequency ablation catheters rely on resistive
heating to ablate tissue and, consequently, their effectiveness is highly
dependent on physical contact with the targeted tissue and the resistive
nature of the adjacent tissue. The Company's
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ITEM 1. BUSINESS (CONTINUED):
microwave energy ablation catheter uses radiative heating to ablate
tissue and, therefore, is not as dependent on precise contact with the
targeted tissue and the resiliency of the adjacent tissue. The microwave
ablation catheter's radiative heating mechanism is also capable of
creating deeper, wider lesions which electrophysiologists indicate are
necessary for the effective treatment of ventricular tachycardia using
ablation therapy. This microwave ablation catheter also incorporates
several advanced features that are designed to permit continuous
monitoring of catheter/tissue interface temperature, reduce the risk of
tissue overheating and enhance maneuverability of the catheter to
facilitate proper placement in the heart. In June 1996, the Company
acquired additional exclusive, worldwide rights with respect to the
technology underlying its microwave ablation catheter program from
Microwave Medical Systems, Inc., the owner of the patents relating
thereto, for $3.2 million.
The Company also began conducting U.S. clinical trials in April
1996 in advance of a 510(k) Premarket Notification for its new
Percutaneous Thrombolytic Device ("PTD") for use in clearing
thrombosed synthetic hemodialysis grafts. This mechanical rotating
device, patented by Johns Hopkins University and exclusively licensed by
the Company, has shown superior graft de-clotting results in animal
studies when compared with presently used methods. The IDE is
designed to compare this new device with the leading currently used
device in a 122 patient human clinical trial. Product introduction and
physician training for the PTD is underway in selected international
markets.
In January 1994, the Company formed a cooperative relationship
with Pennsylvania State University's Hershey Medical School for the
commercial development of a fully implantable long-term Left Ventricular
Assist Device ("LVAD"). Although LVADs are currently used to provide
short-term cardiac assist to patients awaiting heart transplants, the
Company's efforts are aimed at developing a fully implantable device to
provide long-term cardiac assist for patients having insufficient
ventricular heart function. In contrast to currently marketed LVADs, the
LVAD currently under development by the Company is not intended
merely as a bridge to heart transplant, but is designed, upon receipt of
necessary regulatory approvals, to serve as a long-term cardiac assist
device for certain patients. The Hershey Medical School LVAD has been
in development for over fifteen years and has undergone extensive
preclinical studies and testing. The product being developed for clinical
trials will be electrically driven by a wearable battery pack transmitting
power non-invasively through the skin to an implanted receiving coil that
maintains a charge in batteries incorporated into the LVAD. These
implanted batteries are capable of maintaining LVAD function for
approximately 45 minutes without the aid of any external power source.
In fiscal 1997, the Company expects to commence long-term durability
testing of its LVAD, which must be satisfactorily completed before Phase
I human clinical trials under an IDE can be commenced in the U.S. In
addition, the Company currently anticipates conducting human clinical
trials in Europe in fiscal 1998.
There can be no assurance that the FDA or any foreign
government regulatory authority will grant the Company authorization to
market products under development or, if such authorization is obtained,
that such products will prove competitive when measured against other
available products.
ENGINEERING AND MANUFACTURING
Arrow has developed the core technologies that it believes are
necessary for it to design, develop and manufacture complex, high
quality catheter-related medical devices. This technological capability
has enabled the Company to develop internally many of the major
components of its products and reduce its unit manufacturing costs. To
further help reduce manufacturing costs and improve efficiency, the
Company has increasingly automated the production of its high-volume
products and plans to continue to make significant capital expenditures
to promote efficiency and reduce operating costs.
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ITEM 1. BUSINESS (CONTINUED):
Raw materials and purchased components essential to Arrow's
business have typically been available within the lead times required by
the Company and, consequently, procurement has not historically posed
any significant problems in the operation of the Company's business.
Although the Company currently maintains only one supplier for certain
of its out-sourced components, it has identified alternative vendors for
most of these items and, therefore, does not believe that it is dependent
on any single supplier for major raw materials or components.
PATENTS, TRADEMARKS, PROPRIETARY RIGHTS AND LICENSES
Arrow believes that patents and other proprietary rights are
important to its business. The Company also relies upon trade secrets,
know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. Arrow
currently holds numerous U.S. patents and patent applications, as well
as several foreign patents and patent applications which relate to
aspects of the technology used in certain of the Company's products,
including its radial artery catheter, percutaneous sheath introducer and
interventional diagnostic catheter products. There can be no assurance
that patent applications filed by the Company will result in the issuance of
patents or that any patents owned by or licensed to the Company will
provide competitive advantages for the Company's products or will not be
challenged or circumvented by others.
In addition, Arrow is a party to several license agreements with
unrelated third parties pursuant to which it has obtained, for varying
terms, the exclusive rights to certain patents held by such third parties in
consideration for royalty payments. Many of the Company's major
products, including its Arrow-Howes trademark Multi-Lumen Catheters and
antiseptic surface treatment for catheters, have been developed pursuant
to such license agreements. The Company has in the past also granted
rights in certain patents relating to its Arrow-Howes trademark Multi-Lumen
Catheters to others in consideration for royalty payments. The Company
also has certain proprietary rights to aspects of the technology, including
certain U.S. patents, used in the PAC. See "Research and Product
Development." All of the existing patents owned by or licensed to the
Company expire after November 1998. The U.S. patent licensed to the
Company relating to its Arrow-Howes trademark Multi-Lumen Catheter expired in
February 1995. Since the expiration of this patent, the Company has not
experienced significant new competition in this market and the Company
does not presently believe that such competition will have a material
adverse effect on the Company's business, financial condition or results
of operations for the foreseeable future.
From time to time, the Company is subject to legal actions
involving patent and other intellectual property claims. Based upon
information presently available to the Company, the Company knows of
no legal actions involving patent claims that are currently pending or
threatened against the Company. Arrow owns a number of registered
trademarks in the United States and, in addition, has obtained
registration in many of its major foreign markets for the trademark
ARROW registered trademark and certain other trademarks. Arrow Electronics,
Inc., a publicly traded manufacturer of electronic and computer-related
products ("Arrow Electronics"), has filed notices of opposition to the
Company's applications for the trademark ARROW in the United States, South
Africa, Israel, Korea, Portugal, Taiwan and Thailand and sought to cancel
the Company's registration in Poland. The basis for Arrow Electronics'
objection is the use of such trademark for catheter systems with
electronic controls or displays (e.g., the Company's KAAT II PLUS trademark
intra-aortic balloon pump). Subsequent to the opposition in the United
States, on December 1, 1995 the Company filed a civil action against
Arrow Electronics in the United States District Court in Philadelphia ("the
Action") alleging trademark infringement and unfair competition arising
out of Arrow Electronics' sales in the medical field. By declaratory
judgment, the Company also seeks to have its rights in such trademark
confirmed. In the Action, Arrow Electronics has asserted counterclaims
of trademark and trade name infringement and unfair competition against
the Company and is seeking a declaratory judgment that the Company is
not entitled to registration for the same reasons raised in its U.S.
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ITEM 1. BUSINESS (CONTINUED):
opposition. Decisions have been rendered in favor of the Company in
the oppositions to the Korean and Taiwan applications and in the
cancellation action in Poland; appeals have been filed by Arrow
Electronics to both such decisions. A decision adverse to the Company
has been received in Thailand. Trademark counsel in Thailand has
recommended refiling the Company's trademark application. Decisions
have not been rendered to date in the other jurisdictions. The outcome
of the Action and the oppositions is not expected to have a material
adverse effect on the Company's business, financial condition or results
of operations.
GOVERNMENT REGULATION
As a manufacturer of medical devices, the Company is subject to extensive
regulation by, among other governmental entities, the FDA and the corresponding
agencies of states and foreign countries in which the Company sells its
products. These regulations govern the introduction of new medical devices,
the observance of certain standards with respect to the manufacture, testing
and labeling of such devices, the maintenance of certain records, the
tracking of such devices and other matters. Failure to comply with
applicable federal, state or foreign laws or regulations could subject the
Company to enforcement action, including product seizures, recalls,
withdrawal of clearances or approvals, and civil and criminal penalties,
any one or more of which could have a material adverse effect on the
Company. In recent years, the FDA has pursued a more rigorous
enforcement program to ensure that regulated businesses, like the
Company's, comply with applicable laws and regulations. The Company
believes that it is in substantial compliance with such governmental
regulations. However, federal, state and foreign laws and regulations
regarding the manufacture and sale of medical devices are subject to
future changes. No assurance can be given that such changes will not
have a material adverse effect on the Company.
On occasion, the Company has received notifications, including
warning letters, from the FDA of alleged deficiencies in the Company's
compliance with FDA requirements. The Company believes that it has
been able to address or correct such deficiencies. In addition, from time
to time the Company has recalled, or issued safety alerts on, certain of
its products. No such warning letter, recall or safety alert has had a
material adverse effect on the Company, but there can be no assurance
that a warning letter, recall or safety alert would not have such an effect
in the future.
Like other medical device manufacturers, the Company in recent
years has experienced extended delays in obtaining FDA clearance or
approval to market new products in the U.S. The FDA review process
may continue to delay the Company's new product introductions in the
future. It is possible that delays in receipt of, or failure to receive, any
necessary clearance or approval could have a material adverse effect on
the Company.
COMPETITION
Arrow faces substantial competition from a number of other
companies in the market for catheters and related medical devices and
equipment, including companies with greater financial and other
resources. In response to increased concern about the rising costs of
health care, U.S. hospitals and physicians are placing increasing
emphasis on cost-effectiveness in the selection of products to perform
medical procedures. The Company believes that its products compete
primarily on the basis of product differentiation and quality and that its
comprehensive manufacturing capability enables it to expedite the
development and market introduction of new products and to reduce
manufacturing costs, thereby permitting more effective responses to
competitive pricing in an environment where the Company's ability to
increase prices is limited.
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ITEM 1. BUSINESS (CONTINUED):
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state and local laws
and regulations relating to the protection of the environment. In the
course of its business, Arrow is involved in the handling, storing and
disposal of materials which are classified as hazardous. In June 1989,
the Company was notified that it was among the potentially responsible
parties under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), for
the costs of investigating or remediating contamination at a waste
recycling, treatment and disposal facility. The Company was notified by
the U.S. Environmental Protection Agency ("EPA") in September 1995 of
the means by which it may resolve its alleged liability with respect to the
conduct of a remedial investigational feasibility study at this facility and of
the opportunity to participate with other small waste contributors to this
facility in a de minimis settlement which the EPA believes is likely to be
appropriate for this facility. In December 1995, the Company indicated
its interest in entering into such a de minimis settlement. In November
1991, the EPA made a formal request for information regarding the
nature of the Company's waste that was transported to a municipal
landfill which is included on the National Priority List under CERCLA. In
June 1994, the Company, together with 16 other parties, was named in a
complaint filed by a group of five companies seeking to recover costs
incurred as a result of an EPA order directing such companies to take
certain response actions in connection with environmental contamination
of this landfill. The Company has been informed that further
investigation as to the identification of additional potentially responsible
parties is ongoing and, therefore, no determination has yet been made
as to allocation of responsibility for such actions. CERCLA imposes strict
joint and several liability for the costs of investigating and remediating
certain contaminated properties. Although the costs of investigation,
study and remediation at the sites referred to above may be substantial,
the Company, based on present information, does not believe that its
share of the liability for such matters will have a material adverse effect
on its business, financial condition or results of operations. Therefore,
the Company has not accrued any amounts toward such liability.
The Company believes that its operations comply in all material
respects with applicable environmental laws and regulations. While the
Company continues to make capital and operational expenditures for
protection of the environment, it does not anticipate that those
expenditures will have a material adverse effect on its business, financial
condition or results of operations.
PRODUCT LIABILITY AND INSURANCE
The design, manufacture and marketing of medical devices of the
types produced by the Company entail an inherent risk of product liability.
The Company's products are often used in intensive care settings with
seriously ill patients. While the Company believes that, based on claims
made against the Company in the past, the amount of product liability
insurance maintained by the Company has been adequate, there can be
no assurance that the amount of such insurance will be sufficient to
satisfy claims made against the Company in the future or
that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts.
EMPLOYEES
As of November 1, 1996, Arrow had 1,668 full-time employees. All
of the Company's hourly-paid manufacturing employees at the
Company's Reading and Wyomissing, Pennsylvania facilities are
represented by the United Steelworkers of America AFL-CIO, Local 8467
(the "Union"). The Company and the Union are currently operating under
a three-year agreement that expires in September 1997. The Company
has never experienced an organized work stoppage or strike and
considers its relations with its employees to be good.
(9)
ITEM 1. BUSINESS (CONTINUED):
EXECUTIVE OFFICERS
The executive officers of the Company and their ages and
positions as of November 1, 1996 are listed below. All executive officers
are elected or appointed annually and serve at the discretion of the
Board of Directors. There are no family relationships among the
executive officers of the Company.
Name Age Current Position
---- --- ----------------
Marlin Miller, Jr. 64 President
Raymond Neag 65 Executive Vice President
John H. Broadbent, Jr. 58 Vice President-Finance
and Treasurer
T. Jerome Holleran 60 Vice President
and Secretary
Philip B. Fleck 52 Vice President-Research
and Manufacturing
Paul L. Frankhouser 51 Vice President-Marketing
Thomas D. Nickel 57 Vice President-Regulatory Affairs
and Quality Assurance
Keith S. Bair 40 Controller
Mr. Miller has served as President and Chief Executive Officer and a
director of the Company since it was founded in 1975. Mr. Miller is also
President and a director of Arrow Precision Products, Inc. a corporation
controlled by principal shareholders of the Company ("Precision"), and
devotes approximately 10% of his business time to Precision. He is a
director of Carpenter Technology Corporation, a manufacturer of
specialty steel, and CoreStates Financial Corp., a financial institution.
Mr. Neag has served as Executive Vice President since April 1992
and prior thereto served as Senior Vice President of the Company. Mr.
Neag has been an officer and a director of the Company since it was
founded in 1975. Mr. Neag also serves as Secretary and a director of
Precision.
Mr. Broadbent has served as Vice President - Finance, Treasurer
and a director of the Company since it was founded in 1975. Mr.
Broadbent also serves as Vice President-Finance, Treasurer and a
director of Precision, and devotes approximately 10% of his business
time to Precision.
Mr. Holleran has served as Vice President, Secretary and a director
of the Company since it was founded in 1975. Since February 1986, Mr.
Holleran has also been Vice President, Chief Operating Officer and a
director of Precision. Mr. Holleran devotes approximately 90% of his
business time to Precision and approximately 10% of his business time
to Arrow. Since 1991, Mr. Holleran has served as President of
Endovations, Inc., a subsidiary of Precision that manufactured and
marketed certain gastroenterological medical products until the sale in
June 1996 of a portion of its business to the Company and the remainder
to an unrelated third party.
(10)
ITEM 1. BUSINESS (CONTINUED):
Mr. Fleck has served as Vice President - Research and
Manufacturing of the Company since June 1994. From 1986 to June
1994, Mr. Fleck served as Vice President - Research and Engineering of
the Company. From 1975 to 1986, Mr. Fleck served as Engineering
Manager of the Company.
Mr. Frankhouser has served as Vice President-Marketing of the
Company since 1986. From 1980 to 1986, Mr. Frankhouser served as
Manager of Marketing of the Company.
Mr. Nickel has served as Vice President-Regulatory Affairs and
Quality Assurance of the Company since 1991. From 1986 to 1991, Mr.
Nickel served as Director of Regulatory Affairs and Quality Assurance of
the Company.
Mr. Bair has served as Controller of the Company since 1991. From
1984 to 1991, Mr. Bair served as General Accounting Manager of the
Company.
ITEM 2. PROPERTIES:
The Company's corporate headquarters and principal research
center are located in Reading, Pennsylvania in a 165,000 square foot
facility completed in January 1992. This facility, which also includes
manufacturing space, is located on 126 acres, a portion of which is
subject to mortgage and related arrangements entered into in connection
with a financing in the outstanding principal amount of $2.1 million as of
August 31, 1996.
Other major properties owned by the Company include a 130,000
square foot manufacturing and warehousing facility in Asheboro, North
Carolina; a 145,000 square foot manufacturing facility in Wyomissing,
Pennsylvania (of which approximately 34,000 square feet is leased to
Precision); a 40,000 square foot manufacturing facility in Chihuahua,
Mexico; a 49,000 square foot manufacturing and warehouse facility in
Mount Holly, New Jersey, which became operational in December 1993;
and a 65,000 square foot manufacturing and research facility in the
Czech Republic, which became operational in January 1996.
In addition, the Company leases a 55,000 square foot
manufacturing facility in Everrett, Massachusetts and a 12,000 square
foot manufacturing facility in Walpole, Massachusetts. The Company
also leases sales offices and warehouse space in Canada, France,
Germany, Japan, South Africa, the Netherlands, Spain and Greece,
sales office space in Mexico and warehouse space in California.
The Company considers all of its facilities to be in good condition
and adequate to meet the present and reasonably foreseeable needs of
the Company.
ITEM 3. LEGAL PROCEEDINGS:
The Company is a party to certain legal actions arising in the
ordinary course of its business. Based upon information presently
available to the Company, the Company believes that it has adequate
legal defenses or insurance coverage for these actions and that the
ultimate outcome of these actions will not materially adversely affect the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of security holders during the
fourth quarter of fiscal 1996, through the solicitations of proxies or
otherwise.
(11)
PART II
ITEM 5. MARKETS FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS:
The Company's common stock has traded publicly on the Nasdaq
National Market System under the symbol "ARRO" since June 9, 1992, the
date that its common stock was initially offered to the public. The table
below sets forth the high and low sale prices of the Company's common
stock as reported by the Nasdaq National Market System and the quarterly
dividends per share declared by the Company during the last eight fiscal
quarters:
Quarter Ended High Low Dividends
============= ======================================
August 31, 1996 40 3/8 21 $.040
May 31, 1996 45 38 1/2 .040
February 29, 1996 46 3/4 35 .040
November 30, 1995 48 3/4 38 3/4 .035
August 31, 1995 45 1/4 37 $.035
May 31, 1995 39 3/4 29 3/4 .035
February 28, 1995 37 1/4 27 .035
November 30, 1994 28 3/4 22 3/4 .030
As of November 1, 1996, there were approximately 985 registered
shareholders of the Company's common stock.
(12)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years
ended August 31, 1996, 1995, 1994, 1993 and 1992 have been derived
from the Company's audited consolidated financial statements. The
consolidated financial statements of the Company as of August 31, 1996
and 1995 and for each of the three years in the period ended August 31,
1996 together with the notes thereto and the related report of Coopers &
Lybrand L.L.P., independent accountants, are included elsewhere herein.
The following data should be read in conjunction with the Company's
audited consolidated financial statements, the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results
of Operations, which are included elsewhere herein.
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales $229,945 $213,014 $178,777 $150,157 $133,353
Cost of goods sold(1) 107,272 100,343 86,586 73,640 68,707
Gross profit 122,673 112,671 92,191 76,517 64,646
Operating expenses(1)
Research, development
and engineering 14,106 11,305 10,462 9,578 8,179
Selling, general,
and administrative 54,154 48,119 37,453 30,555 26,169
Total operating expenses 68,260 59,424 47,915 40,133 34,348
Operating income 54,413 53,247 44,276 36,384 30,298
Patent litigation
settlement (income) (2) - - - - (7,000)
Other expenses (income), net 2,300 (569) (812) (879) (1,154)
Income before income taxes and
cumulative effect of change in
accounting principle 52,113 53,816 45,088 37,263 38,452
Provision for income taxes 19,282 19,374 16,232 13,564 14,381
-------- -------- -------- -------- --------
Income before cumulative effect of
change in accounting principle 32,831 34,442 28,856 23,699 24,071
Cumulative effect of change in accounting
principle, net of tax (3) - - - - (3,380)
-------- -------- -------- -------- --------
Net income $ 32,831 $ 34,442 $ 28,856 $ 23,699 $ 20,691
======== ======== ======== ======== ========
Income per common share before
cumulative effect of change in
accounting principle (4) $ 1.41 $ 1.52 $ 1.29 $ 1.06 $ 4.74
Cumulative effect of change in
accounting principle (4) - - - - (.81)
-------- -------- -------- -------- --------
Net income per common share (4) $ 1.41 $ 1.52 $ 1.29 $ 1.06 $ 3.93
======== ======== ======== ======== ========
Cash dividends declared per
common share (4) $ .155 $ .135 $ .115 $ .095 $ .30
Weighted average shares
outstanding (4) 23,230 22,684 22,394 22,355 5,186
(13)
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED):
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA:
Working capital $ 55,086 $ 52,863 $ 32,437 $ 29,730 $ 32,237
Total assets 299,421 262,510 209,720 141,003 119,706
Notes payable and current
maturities of long-term debt 34,001 23,508 18,580 4,554 2,213
Long-term debt, excluding
current maturities 15,988 20,463 32,003 2,794 9,614
Shareholders' equity 219,774 190,937 132,803 106,362 84,787
(1) Cost of sales and operating expenses include non-recurring charges
for vesting of restricted stock as of the Company's initial public offering
on June 9, 1992. For the year ended August 31, 1992, these charges
were $202 to cost of goods sold and $789 to operating expenses.
(2) This patent litigation settlement had the effect of increasing net
income and net income per common share by $4,382 and $.20 (after
giving effect to the recapitalization of the Company effected on June 9,
1992 in connection with the Company's initial public offering pursuant
to which each previously outstanding share of the Company's Class A
common stock and Class B common stock was converted into 5.0 and
5.25 shares of the Company's common stock, respectively (the
"Recapitalization").
(3) In conjunction with the adoption of SFAS 106, the Company elected to
recognize immediately the accumulated postretirement benefit
obligation for current and future retirees. This had the effect of
decreasing net income per common share in fiscal 1992 by $0.15
(after giving effect to the Recapitalization).
(4) Historical basis before giving effect to the Recapitalization for the
year ended August 31, 1992. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for Earnings per
Common Share adjusted for the Recapitalization.
(14)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following discussion includes certain forward-looking statements. Such
forward-looking statements are subject to a number of factors, including
material risks, uncertainties and contingencies, which could cause actual
results to differ materially from the forward-looking statements. For a
discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see Exhibit 99.1 to this
Report and the Company's periodic reports and other documents filed with
the Commission.
RESULTS OF OPERATIONS
The following table presents for the three years ended August 31, 1996
statements of income expressed as a percentage of net sales and the
period-to-period changes in the dollar amounts of the respective line items.
Period-to-Period
Percentage of Net Sales Percentage Increase
----------------------- -------------------
1996 1995 1994
Year ended August 31, vs vs vs
-----------------------
1996 1995 1994 1995 1994 1993
----- ----- ----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 7.9% 19.2% 19.1%
Gross profit 53.3 52.9 51.6 8.9 22.2 20.5
Operating expenses:
Research, development
and engineering 6.1 5.3 5.9 24.8 8.1 9.2
Selling, general and
administrative 23.5 22.6 20.9 12.5 28.5 22.6
----- ----- ----- ----- ----- -----
Operating income 23.7 25.0 24.8 2.2 20.3 21.7
Other expenses (income), net 1.0 (0.3) (0.4) * * *
Income before income taxes and
cumulative effect of change
in accounting principle 22.7 25.3 25.2 (3.2) 19.4 21.0
Provision for income taxes 8.4 9.1 9.1 (0.5) 19.4 19.7
Income before cumulative
effect of change in
accounting principle 14.3 16.2 16.1 (4.7) 19.4 21.8
Cumulative effect of change
in accounting principle - - - - - -
----- ----- ----- ----- ----- -----
Net income 14.3 16.2 16.1 (4.7) 19.4 21.8
* Not a meaningful comparison
(15)
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased by $16.9 million, or 7.9%, to $229.9 million in fiscal
1996 from $213.0 million in fiscal 1995. Net sales represent gross sales
invoiced to customers, plus royalty income, less certain related charges,
including freight costs, discounts, returns and other allowances. This
increase was due primarily to an increase in unit volume in the Company's
major product lines, including increased shipments of ARROWg+ard trademark
Blue registered trademark antiseptic surface treated catheter products. Sales
of critical care products increased 8.1% to $189.1 million from $175.0 million
in fiscal 1995. Sales of interventional procedure products increased 7.4% to
$40.3 million from $37.5 million in the previous year. International sales
increased by $11.8 million, or 15.5%, to 38.2% of net sales, excluding royalty
income, in fiscal 1996, compared to 35.7% in the prior year, principally as a
result of growth in shipments of multi-lumen catheters and intra-aortic balloon
catheters. The percentage of net sales attributable to the Company's direct
sales force increased in fiscal 1996 to approximately 75% from
approximately 72% in fiscal 1995, principally as a result of the Company's
gradual conversion of dealer-based sales to direct sales.
This increase in net sales was lower than the Company anticipated due to
an unforeseen reduction in the rate of growth in the U.S. market for certain
high volume products, the strength of the U.S. dollar, particularly against the
Japanese yen, and slower than anticipated new product introductions.
Health care cost containment initiatives in the U.S. have reduced growth in
demand in markets where Arrow has 80% or greater market shares, and
protecting that market share has affected the Company's pricing in some
instances. The Company anticipates that new sales and marketing
strategies will result in increased U.S. sales of several products in fiscal
1997; however, U.S. demand for certain of the Company's core products is
expected to remain sluggish. The Company also anticipates that demand in
fiscal 1997 in international markets will continue to grow more rapidly than
U.S. sales as the Company increases supply from its Mexico and new
Czech Republic production facilities and expands international marketing
activity. A return to the Company's traditionally higher rates of sales growth
is dependent on its new products now in various stages of development or
market introduction, as well as timely receipt of required regulatory
approvals and timely completion of late stage research and development
programs.
Gross profit increased 8.9% to $122.7 million in fiscal 1996 from $112.7
million in fiscal 1995. As a percentage of net sales, gross profit improved to
53.3% in fiscal 1996 from 52.9% in the prior year, due primarily to the
reduction in manufacturing costs resulting from the Company's new
sterilization facility which does not require the use of freon gas, operating
efficiencies created by increased production at the Company's
manufacturing facility in Mexico and increased sales of higher margin
ARROWg+ard trademark Blue registered trademark antiseptic surface treated
catheter products. This increase was lower than the Company anticipated due
principally to the unfavorable impact of currency translations of foreign sales.
Research, development and engineering expenses in fiscal 1996 increased
by 24.8% to $14.1 million from $11.3 million in fiscal 1995. As a percentage
of net sales, these expenses increased to 6.1% in fiscal 1996 compared to
5.3% in fiscal 1995. These expenses increased primarily as a result of
development expenses related to certain products of Therex, which was
acquired in April 1995, and certain cardiac assist products.
Selling, general and administrative expenses increased by 12.5% to $54.1
million during fiscal 1996 from $48.1 million in the previous year, and
increased as a percentage of net sales to 23.5% in fiscal 1996 compared to
22.6% in fiscal 1995. This percentage increase was due primarily to
additions to the domestic direct sales force to replace a distributor in the
New England area, the expansion of the Company's Japanese and
European sales subsidiaries and the addition of expenses related to Therex.
(16)
FISCAL 1996 COMPARED TO FISCAL 1995 (CONTINUED):
Principally due to the above factors, operating income increased 2.2% to
$54.4 million in fiscal 1996 from $53.2 million in fiscal 1995.
Other expenses (income), net, increased to $2.3 million in fiscal 1996
from $(0.6) million in fiscal 1995. Other expenses (income), net, consists
principally of interest expense and foreign exchange gains and losses
associated with the Company's direct sales subsidiaries, which
resulted in a net loss in fiscal 1996, compared to a net gain in the prior
fiscal year, due to the increased strength of the U.S. dollar.
As a result of the factors discussed above, income before income taxes
decreased in fiscal 1996 by 3.2% to $52.1 million from $53.8 million in
fiscal 1995. The effective income tax rate increased to 37.0% in fiscal
1996 from 36.0% in fiscal 1995, principally as a result of generating a
larger proportion of earnings in higher tax jurisdictions and the reduction in
the benefit of the research and development tax credit prior to its
reinstatement on July 1, 1996.
Net income in fiscal 1996 decreased by 4.7% to $32.8 million from $34.4
million in fiscal 1995. As a percentage of net sales, net income
represented 14.3% in fiscal 1996 compared to 16.2% in the previous
year.
Net income per common share decreased to $1.41 for fiscal 1996, a
decrease of $.11, or 6.9% per share, from $1.52 per share in fiscal 1995.
Weighted average common shares outstanding increased to 23,229,687
in fiscal 1996 from 22,684,480 in fiscal 1995 as a result of the issuance
on April 7, 1995 of 325,000 shares of Common Stock in connection with
the acquisition of Therex and the issuance on May 8, 1995 of 500,000
shares of Common Stock in an underwritten public offering by the
Company.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased by $34.2 million, or 19.2%, to $213.0 million in fiscal
1995 from $178.8 million in fiscal 1994. This increase was due primarily
to an increase in unit volume in the Company's major product lines, the
favorable impact of currency translations of foreign sales, increased
shipments of ARROWg+ard trademark Blue registered trademark antiseptic surface
treated catheter products and sales of intra-aortic balloon pumps and catheters.
Sales of critical care products increased 16.2% to $175.0 million from $150.6
million in fiscal 1994. Sales of interventional procedure products
increased 37.8% to $37.5 million from $27.2 million in the previous year.
International sales increased by $20.9 million, or 37.9%, to 35.7% of net
sales, excluding royalty income, in fiscal 1995, compared to 30.9% in the
prior year, principally as a result of growth in shipments of multi-lumen
catheters, the favorable impact of currency translations of foreign sales
and sales of intra-aortic balloon pumps and catheters. The increase in
international sales as a percentage of net sales was attributable
principally to sales of intra-aortic balloon pumps and catheters and faster
growth in international sales, as compared to U.S. sales, of the
Company's principal product lines. The percentage of net sales
attributable to the Company's direct sales force increased in fiscal 1995
to approximately 72% from approximately 70% in fiscal 1994, principally
as a result of the Company's gradual conversion of dealer-based sales to
direct sales.
Gross profit increased 22.2% to $112.7 million in fiscal 1995 from $92.2
million in fiscal 1994. As a percentage of net sales, gross profit improved
to 52.9% in fiscal 1995 from 51.6% in the prior year, due primarily to the
favorable impact of currency translations of foreign sales and a more
profitable product and distribution mix. This impact was partially offset by
higher sterilization costs resulting from the rising price of, and increasing
excise tax imposed on, freon gas, which the Company used in its
ethylene oxide sterilization process. The Company's new sterilization
facility that does not require the use of freon gas became operational in
May 1995. Because the Company uses the first-in, first-out (FIFO)
method of inventory accounting, the Company did not realize lower costs
through the use of this facility until late in the fourth quarter of fiscal
1995.
(17)
FISCAL 1995 COMPARED TO FISCAL 1994 (CONTINUED):
Research, development and engineering expenses in fiscal 1995
increased by 8.1% to $11.3 million from $10.5 million in fiscal 1994. As a
percentage of net sales, these expenses decreased to 5.3% in fiscal
1995 compared to 5.9% in fiscal 1994. In July 1995, the Company
amended its Arrow-Fischell trademark Pullback Atherectomy Catheter research
and development and license agreements to modify the terms of
payment of, and recognize as pre-paid royalties, certain milestone
payments thereunder. These amendments have eliminated the need to
make additional accruals toward these milestone payments under the
research and development agreement.
Selling, general and administrative expenses increased by 28.5% to
$48.1 million during fiscal 1995 from $37.5 million in the previous year,
and increased as a percentage of net sales to 22.6% in fiscal 1995
compared to 20.9% in fiscal 1994. This percentage increase was due
primarily to the relocation and expansion of the Company's sales offices
and warehouse in Japan; the unfavorable impact of currency translations
of foreign subsidiary operating expenses; the addition of sales and
marketing expenses related to the Company's intra-aortic balloon pump
and catheter business; operating expenses related to Arrow Iberia, the
Company's direct sales subsidiary in Spain; and the amortization of
goodwill resulting from the Company's acquisition of the intra-aortic
balloon pump and catheter business of Kontron Instruments.
Principally due to the above factors, operating income increased 20.3%
to $53.2 million in fiscal 1995 from $44.3 million in fiscal 1994.
Other expenses (income), net, decreased to $(0.6) million in fiscal 1995
from $(0.8) million in fiscal 1994. Other expenses (income), net, consists
principally of gains on foreign exchange transactions associated with the
Company's direct sales subsidiaries, which resulted in net gains in both
periods, but were offset in fiscal 1995 and 1994 by interest expense of
approximately $2.0 million and $1.0 million, respectively, on debt incurred
primarily in connection with the acquisition of the Company's intra-aortic
balloon pump and catheter business.
As a result of the factors discussed above, income before income taxes
increased in fiscal 1995 by 19.4% to $53.8 million from $45.1 million in
fiscal 1994. The effective income tax rate was 36.0% in both fiscal 1995
and fiscal 1994.
Net income in fiscal 1995 increased by 19.4% to $34.4 million from $28.9
million in fiscal 1994. As a percentage of net sales, net income
represented 16.2% in fiscal 1995 compared to 16.1% in the previous
year.
Net income per common share increased to $1.52 for fiscal 1995, an
increase of $.23, or 17.8% per share, from $1.29 per share in fiscal
1994. Weighted average common shares outstanding increased to
22,684,480 in fiscal 1995 from 22,393,517 in fiscal 1994 as a result of
the issuance on April 7, 1995 of 325,000 shares of Common Stock in
connection with the acquisition of Therex and the issuance on May 8,
1995 of 500,000 shares of Common Stock in an underwritten public
offering by the Company.
(18)
The following table compares Historical Earnings per Common Share
with Earnings per Common Share adjusted for the Recapitalization,
retroactive to the earliest year presented:
HISTORICAL DATA: 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Income per common share
before cumulative effect of
change in accounting principle $ 1.41 $ 1.52 $ 1.29 $ 1.06 $ 4.74
Cumulative effect of change in
accounting principle - - - - (.81)
------ ------ ------ ------ ------
Net income per common share $ 1.41 $ 1.52 $ 1.29 $ 1.06 $ 3.93
------ ------ ------ ------ ------
Weighted average shares
outstanding (000 omitted) 23,230 22,684 22,394 22,355 5,186
------ ------ ------ ------ ------
RECAPITALIZED DATA:
Income per common share
before cumulative effect of
change in accounting principle $ 1.10
Cumulative effect of change in
accounting principle (.15)
------
Net income per common share $ . 95
------
Weighted average shares
outstanding (000 omitted) 21,831
------
LIQUIDITY AND CAPITAL RESOURCES
For the year ended August 31, 1996, net cash provided by operations
was $31.5 million, an increase of $2.6 million from the prior year. This
increase was due primarily to changes in operating assets and liabilities.
Accounts receivable increased by $6.8 million for the year ended August
31, 1996, compared to an $8.2 million increase in the prior year.
Accounts receivable, measured in days sales outstanding, increased to
76 days at August 31, 1996, from 67 days at August 31, 1995, due
principally to an increase in the collection period for the Company's
international sales.
Net cash used in the Company's investing activities increased to $38.5
million in fiscal 1996 from $29.0 million in the prior year, principally as a
result of an increase of $5.7 million in capital expenditures related to the
construction and equipping of the Company's new manufacturing and
research facility in the Czech Republic, payment in December 1995 of
the remaining $4.5 million to Cardiac Pathways pursuant to an
agreement to purchase for $9.0 million preferred stock convertible into
approximately 9.5% of the then outstanding common stock of Cardiac
Pathways, payment of a $3.0 million pre-paid royalty to Cardiac
Pathways in December 1995 in exchange for certain distribution and
manufacturing rights acquired by the Company upon receipt of FDA
510(k) marketing clearance in December 1995 for Cardiac Pathways'
Trio/Ensemble trademark mapping catheter system and payment of $3.2 million
to Microwave Medical Systems, Inc. in May 1996 for the purchase of
certain technology related to the Company's microwave ablation catheter
program.
Net cash provided by financing activities decreased to $2.4 million in
fiscal 1996 compared to $5.6 million in fiscal 1995. This change resulted
principally from an increase in borrowings under the Company's revolving
credit facility, offset by repayments of long-term debt.
(19)
As of August 31, 1996, the Company had U.S. bank credit facilities
providing a total of $55.0 million in available revolving credit for general
business purposes, of which $31.0 million remained unused. In addition,
certain of the Company's foreign subsidiaries have revolving credit
facilities totaling the U.S. dollar equivalent of $8.9 million, of which $5.2
million remained unused as of August 31, 1996. Combined borrowing
under these credit facilities increased $13.2 million and $3.5 million
during the years ended August 31, 1996 and 1995, respectively.
During fiscal 1996, 1995 and 1994, the percentage of the Company's
sales invoiced in currencies other than the U.S. dollar was 27.0%, 25.1%
and 19.5%, respectively. In addition, a small part of the Company's cost
of goods sold is denominated in foreign currencies. As a partial hedge
against adverse fluctuations in exchange rates, the Company periodically
enters into foreign currency exchange contracts with certain major
financial institutions. By their nature, all such contracts involve risk,
including the risk of nonperformance by counterparties. Accordingly,
losses relating to these contracts could have a material adverse effect
upon the Company's business, financial condition and results of
operations. Based upon the Company's knowledge of the financial
condition of the counterparties to its existing forward contracts, the
Company believes that it does not have any material exposure to any
individual counterparty. The Company's policy prohibits the use of
derivative instruments for speculative purposes. As of November 1,
1996, outstanding foreign currency exchange contracts totaling the U.S.
dollar equivalent of $20.8 million mature at various dates through May
1997. The Company expects to continue to utilize foreign currency
exchange contracts to manage its exposure, although there can be no
assurance that the Company's efforts in this regard will be successful.
Based upon its present plans, the Company believes that its working
capital, operating cash flow and available credit sources will be adequate
to repay current portions of long-term debt, to finance currently planned
capital expenditures and to meet the currently foreseeable liquidity needs
of the Company.
During the periods discussed above, the overall effects of inflation and
seasonality on the Company's business were not significant.
(20)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 (a) (1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE:
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information regarding directors and nominees for directors of the
Company, as well as certain other information required by this item, will
be included in the Company's Proxy Statement to be issued in
connection with its 1997 Annual Meeting of Shareholders (the "Proxy
Statement"), and is incorporated herein by reference. The information
regarding executive officers required by this item is contained herein in
Part I under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION:
Information regarding executive compensation of Arrow's directors
and executive officers will be included in the Proxy Statement and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT:
Information regarding beneficial ownership of the Company's
common stock by certain beneficial owners and by management of the
Company will be included in the Proxy Statement and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Information regarding certain relationships and related transactions
with management of the Company will be included in the Proxy
Statement and is incorporated herein by reference.
(21)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K:
(a) (1) The following financial statements of the Company are filed as
part of this Form 10-K.
Page
----
1. Report of Independent Accountants 24
2. Consolidated Balance Sheets at
August 31, 1996 and 1995 25,26
3. Consolidated Statements of Income
for the years ended August 31, 1996,
1995 and 1994 27
4. Consolidated Statements of Cash Flows
for the years ended August 31, 1996,
1995 and 1994 28,29
5. Consolidated Statements of Changes in
Shareholders' Equity for the years ended
August 31, 1996, 1995 and 1994 30
6. Notes to Consolidated Financial Statements 31-45
(a) (2) The following financial statement schedules of the Company are
filed as part of this Form 10-K:
Page
----
1. Report of Independent Accountants on
Financial Statement Schedule 46
2. Schedule II - Valuation and Qualifying Accounts 47
Other statements and schedules are not presented because they are
either not required or the information required by statements or schedules is
presented elsewhere.
(a) (3) See Exhibit Index on pages 48 through 58 hereof for a list of the
Exhibits filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K:
None
(22)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARROW INTERNATIONAL, INC.
By: /s/ John H. Broadbent, Jr.
--------------------------
John H. Broadbent, Jr.
Vice President-Finance
and Treasurer
Dated: November 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ Marlin Miller, Jr. Director, President and November 27, 1996
- --------------------------
(Marlin Miller, Jr.) Chief Executive Officer
(Principal Executive
Officer)
/s/ Raymond Neag Director, Executive November 27, 1996
- --------------------------
(Raymond Neag) Vice President
/s/ John H. Broadbent, Jr. Director, Vice President- November 27, 1996
- --------------------------
(John H. Broadbent, Jr.) Finance and Treasurer
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ T. Jerome Holleran Director, Vice President, November 27, 1996
- --------------------------
(T. Jerome Holleran) Secretary
/s/ Robert L. McNeil, Jr. Director November 27, 1996
- --------------------------
(Robert L. McNeil, Jr.)
/s/ Richard T, Niner Director November 27, 1996
- --------------------------
(Richard T. Niner)
/s/ George W. Ebright Director November 27, 1996
- --------------------------
(George W. Ebright)
(23)
Coopers
& Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Arrow International, Inc.:
We have audited the accompanying consolidated balance sheets of Arrow
International, Inc. as of August 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arrow
International, Inc. as of August 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended August 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 27, 1996
(24)
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands, Except Share Amounts)
August 31,
------------------------
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,807 $ 9,453
Accounts receivable, less
allowance for doubtful accounts
of $774 and $650 in 1996 and
1995, respectively 50,093 43,399
Inventories 43,509 33,887
Prepaid expenses and other 9,575 8,806
Deferred income taxes 2,709 1,129
--------- ---------
Total current assets 110,693 96,674
--------- ---------
Property, plant and equipment:
Land and improvements 5,520 5,486
Buildings and improvements 71,674 61,381
Machinery and equipment 65,457 54,823
Construction-in-progress 15,900 14,419
--------- ---------
158,551 136,109
Less accumulated depreciation (49,552) (40,088)
--------- ---------
108,999 96,021
--------- ---------
Goodwill, net of accumulated
amortization of $6,730
and $4,185 in 1996 and
1995, respectively 51,754 54,533
Intangible and other assets,
net of accumulated amortization of
$6,894 and $5,802 in 1996 and
1995, respectively 27,975 13,007
Deferred income taxes - 2,275
--------- ---------
Total assets $ 299,421 $ 262,510
========= =========
See notes to consolidated financial statements
Continued
(25)
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, continued
(All Dollar Amounts in Thousands, Except Share Amounts)
August 31,
-------------------------
1996 1995
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 6,293 $ 8,969
Notes payable 27,708 14,539
Accounts payable 8,079 6,729
Accrued liabilities 6,297 5,715
Accrued compensation 5,493 6,264
Accrued income taxes 1,738 1,595
--------- ---------
Total current liabilities 55,607 43,811
Long-term debt 15,988 20,463
Accrued postretirement benefit obligation 7,577 7,299
Deferred income taxes 476 -
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred Stock, no par value;
5,000,000 shares authorized;
none issued - -
Common stock, no par value;
50,000,000 shares authorized;
issued 26,478,813
shares in 1996 and 1995 45,580 45,608
Retained earnings 183,502 154,272
Less cost of treasury stock:
3,249,914 and 3,247,805 shares
in 1996 and 1995, respectively (8,308) (8,240)
Cumulative translation adjustment (532) -
Unearned compensation (469) (703)
--------- ---------
Total shareholders' equity 219,773 190,937
--------- ---------
Total liabilities and
shareholders' equity $ 299,421 $ 262,510
========= =========
See notes to consolidated financial statements
(26)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(All Dollar Amounts in Thousands, Except per Share Amounts)
for the years ended August 31,
----------------------------------
1996 1995 1994
--------- --------- ---------
Net sales $ 229,945 $ 213,014 $ 178,777
Cost of goods sold 107,272 100,343 86,586
--------- --------- ---------
Gross profit 122,673 112,671 92,191
--------- --------- ---------
Operating expenses:
Research, development
and engineering 14,106 11,305 10,462
Selling, general
and administrative 54,154 48,119 37,453
--------- --------- ---------
68,260 59,424 47,915
--------- --------- ---------
Operating income 54,413 53,247 44,276
--------- --------- ---------
Other expenses (income):
Interest expense, net
of amounts capitalized 1,849 1,974 1,024
Interest income (611) (239) (130)
Other, net 1,062 (2,304) (1,706)
--------- --------- ---------
2,300 (569) (812)
--------- --------- ---------
Income before income taxes 52,113 53,816 45,088
Provision for income taxes 19,282 19,374 16,232
--------- --------- ---------
Net income $ 32,831 $ 34,442 $ 28,856
========= ========= =========
Net income per common share $ 1.41 $ 1.52 $ 1.29
========== ========== ==========
Cash dividends per common share $ .155 $ .135 $ .115
========== ========== ==========
Weighted average shares outstanding 23,229,867 22,684,480 22,393,517
========== ========== ==========
See notes to consolidated financial statements
(27)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollar Amounts in Thousands)
for the years ended August 31,
------------------------------
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income $ 32,831 $ 34,442 $ 28,856
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 9,746 8,087 6,985
Amortization of intangible assets 3,637 3,378 2,043
Amortization of unearned compensation 210 226 160
Deferred income taxes 1,171 2,113 (1,874)
Other (157) 304 352
Changes in operating assets and liabilities:
Accounts receivable (6,819) (8,178) (6,665)
Inventories (9,623) (7,225) (2,147)
Prepaid expenses and other (769) (3,325) (112)
Accounts payable and
accrued liabilities 1,931 (2,094) (1,031)
Accrued compensation (771) 1,115 546
Accrued income taxes 143 67 (2,065)
-------- -------- --------
Total adjustments (1,301) (5,532) (3,808)
-------- -------- --------
Net cash provided by
operating activities 31,530 28,910 25,048
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net (22,724) (17,275) (16,970)
Increase in intangible and other assets (15,826) (5,330) (6,079)
Cash paid for business acquired - (6,442) (41,417)
-------- -------- --------
Net cash used in
investing activities (38,550) (29,047) (64,466)
-------- -------- --------
Cash flows from financing activities:
Increase in notes payable 13,168 3,453 8,384
Proceeds from issuance of long-term debt 12,037 4,967 40,280
Principal payments of long-term debt (19,187) (15,033) (5,430)
Proceeds from issuance of common stock - 15,293 -
Dividends paid (3,601) (3,083) (2,575)
Purchase of treasury stock (43) (24) -
-------- -------- --------
Net cash provided by
financing activities 2,374 5,573 40,659
-------- -------- --------
Net change in cash and cash equivalents (4,646) 5,436 1,241
Cash and cash equivalents at
beginning of year 9,453 4,017 2,776
-------- -------- --------
Cash and cash equivalents at end of year $ 4,807 $ 9,453 $ 4,017
======== ======== ========
See notes to consolidated financial statements
Continued
(28)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(All Dollar Amounts in Thousands)
for the years ended August 31,
------------------------------
1996 1995 1994
-------- -------- --------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 1,849 $ 1,974 $ 1,024
Income taxes $ 17,305 $ 19,449 $ 16,481
Supplemental schedule of noncash investing and financing activities:
During 1996, 1995 and 1994, the Company assumed liabilities in conjunction with
the purchase of certain intangible assets as follows:
Fair value of assets acquired $ - $ 19,488 $ -
Fair value of common stock issued - 11,253 -
Cash paid for assets - 6,442 -
-------- -------- --------
Liabilities assumed $ - $ 1,793 $ -
======== ======== ========
Cash paid for business acquired:
Working capital, other than cash $ - $ (61) $ 4,010
Property, plant and equipment - 150 315
Goodwill - 6,353 37,092
-------- -------- --------
$ - $ 6,442 $ 41,417
======== ======== ========
See notes to consolidated financial statements
(29)
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended August 31, 1994, 1995 and 1996
(All Dollar Amounts in Thousands Except Share Amounts)
<TABLE>
<CAPTION>
Unearned
Common Stock Retained Treasury Stock Compen-
--------------------- -------------------
Shares Amount Earnings Shares Amount sation
---------- -------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1993 25,653,813 $ 17,914 $ 96,632 3,298,562 $(8,184) -
Cash dividends on common
stock, $.115 per share (2,575)
Issuance of treasury stock
to employees under the
1992 Stock Incentive Plan 1,121 (53,100) $ (1,121)
Amortization of unearned
compensation 160
Net income 28,856
---------- -------- -------- --------- ------- --------
Balance, August 31, 1994 25,653,813 19,035 122,913 3,245,462 (8,184) (961)
---------- -------- -------- --------- ------- --------
Cash dividends on common
stock, $.135 per share (3,083)
Issuance of common stock 825,000 26,546
Purchase of treasury stock 883 (24)
Forfeiture of restricted stock by
terminated employees 1,460 (32) 32
Amortization of unearned
compensation 226
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 27
Net income 34,442
---------- -------- -------- --------- ------- --------
Balance, August 31, 1995 26,478,813 45,608 154,272 3,247,805 (8,240) (703)
---------- -------- -------- --------- ------- --------
Cash dividends on common
stock, $.155 per share (3,601)
Registration costs (109)
Purchase of treasury stock 1,009 (44)
Forfeiture of restricted stock by
terminated employees 1,100 (24) 24
Amortization of unearned
compensation 210
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 81
Net income 32,831
---------- -------- -------- --------- ------- --------
Balance, August 31, 1996 26,478,813 $ 45,580 $183,502 3,249,914 $(8,308) $ (469)
========== ======== ======== ========= ======= ========
</TABLE>
See notes to consolidated financial statements
(30)
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies:
General:
Arrow International, Inc. develops, manufactures and markets a broad range of
clinically advanced, disposable catheters and related products for critical
care and interventional medical procedures.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
Arrow International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform
to the fiscal 1996 presentation.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents. The carrying amount of
cash and cash equivalents approximated fair value.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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.
Inventory Valuation:
Inventories are valued at lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets using the straight-line method. Upon
retirement, sale or other disposition, the cost and accumulated depreciation
are eliminated from the accounts and any gain or loss is included in
operations.
Goodwill:
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized using the straight-line method over 25 years.
The recoverability of goodwill is periodically reviewed by the Company. In
assessing recoverability, many factors are considered, including operating
results and cash flows. The Company believes that no impairment of goodwill
existed at August 31, 1996.
Intangible and Other Assets:
Intangible and other assets, net, include certain assets acquired resulting
from business acquisitions and investments and are being amortized using the
straight-line method over their estimated periods of benefits.
Revenue Recognition:
Revenue is recognized at the time products are shipped and title has passed to
the customer. Net sales represent gross sales invoiced to customers, plus
royalty income, less certain related charges, including freight costs,
discounts, returns and other allowances.
Continued
(31)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (Continued):
Income Taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns using current tax rates.
Undistributed earnings of the Company's foreign subsidiaries are indefinitely
reinvested and amounted to $6,588 and $5,527 at August 31, 1996 and 1995,
respectively. No deferred taxes have been provided on these earnings.
Foreign Currency Translation:
Most of the Company's foreign subsidiaries use the U.S. dollar as the
functional currency. Monetary assets and liabilities are translated at year-
end exchange rates and inventories, property and nonmonetary assets and
liabilities at historical rates. Income and expense accounts are translated at
the average rates in effect during the year, except that depreciation,
amortization and cost of sales are translated at historical rates. Adjustments
resulting from the translation of the entities are included in "Other expenses
(income)" of the consolidated statements of income. Foreign subsidiaries that
use the local currency as the functional currency translate all assets and
liabilities at year-end exchange rates, all income and expense accounts at
average rates and record adjustments from the translation in a separate
component of shareholders' equity. Gains and losses resulting from
transactions of the Company and its foreign subsidiaries are included in "Other
expenses (income)". Aggregate foreign exchange (gains) and losses were
$919, ($3,090) and ($2,105) for the years ended August 31, 1996, 1995 and
1994, respectively.
Concentration of Credit Risk:
Concentration of credit risk with respect to trade receivables is limited due
to both the large number of customers and their geographic dispersion. As of
August 31, 1996 and 1995, the Company had no significant concentrations of
credit risk.
Postretirement Benefits Other Than Pensions:
Postretirement health care and life insurance benefits are recorded using the
accrual method of accounting based on actuarially determined costs which are
recognized over the period from the date of hire to the full eligibility date
of employees who are expected to qualify for such benefits.
2. Business Acquisitions:
On April 7, 1995, the Company acquired Therex Limited Partnership, a
developmental stage company ("Therex"), for approximately $6,300 in cash
and 325,000 shares of Common Stock valued at $34 5/8 per share. Therex is
engaged in the development, manufacture and marketing of implantable,
constant flow delivery pumps and a broad line of implantable vascular access
ports. The acquisition has been accounted for using the purchase method of
accounting. The cost of the acquisition has been allocated on the basis of the
fair market value of the assets acquired and the liabilities assumed. The
excess of the purchase price over the estimated fair market value of the net
assets acquired of approximately $17,631 was recognized as goodwill and is
being amortized over a period of 25 years. Pro forma results of operations are
not significant.
On February 8, 1994, the Company purchased all of the outstanding common
stock of Kontron Instruments, Inc. ("Kontron Instruments") for approximately
$41,400, subject to certain adjustments. Kontron Instruments develops,
manufactures, markets and services intra-aortic balloon pumps and catheters
frequently used to temporarily augment the pumping capability of the heart
following heart
Continued
(32)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business Acquisitions (Continued):
surgery, balloon angioplasty or serious heart attack. The funds used to
acquire Kontron Instruments were provided by the proceeds from the
incurrence of $40,000 in long-term debt and approximately $1,400 in
borrowings under the Company's existing bank credit facilities.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the results of Kontron Instruments have been
included in the accompanying consolidated financial statements since the date
of acquisition. The cost of the acquisition has been allocated on the basis of
the estimated fair market values of the assets acquired and the liabilities
assumed. The excess of the aggregate purchase price over the estimated fair
market values of the net assets acquired of approximately $37,100 was
recognized as goodwill and is being amortized over a period of 25 years.
The following unaudited pro forma financial information combines the
consolidated results of operations as if Kontron Instruments had been acquired
as of the beginning of the period presented. Pro forma adjustments include
only the effects of events directly attributed to a transaction that are
factually supportable and expected to have a continuing impact. The pro forma
adjustments contained in the table below include amortization of intangibles,
interest expense on the acquisition debt and the related income tax effects.
For the Year
Ended,
August 31, 1994
---------------
Net sales $ 185,694
Net income $ 28,913
Net income per common share $ 1.29
The pro forma financial information does not necessarily reflect the operating
results that would have occurred had the acquisition been consummated as of
the above dates, nor is such information indicative of future operating
results. In addition, the pro forma financial results contain estimates since
Kontron Instruments did not maintain information on a period comparable with
the Company's fiscal year-end.
Continued
(33)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Employees' Stock Plans:
The 1992 Stock Incentive Plan authorizes the granting of stock options, stock
appreciation rights and restricted stock.
On December 1, 1993 and February 11, 1994, the Company issued 44,900
and 8,200 shares, respectively, of restricted Common Stock to certain
employees pursuant to its 1992 Stock Incentive Plan. The market value of the
shares awarded was $932 and $190, respectively. The transactions were
recorded as unearned compensation in a separate component of shareholders'
equity and are being amortized to expense over the five year vesting period.
On January 17, 1996, the Company granted 171,700 options to key employees
of the Company and its subsidiaries pursuant to the 1992 Stock Incentive Plan.
The option price per share was equal to the fair market value of the Common
Stock on the date the option was granted and shall expire ten years from the
date such option was granted. These options are exercisable upon the first
anniversary of the date of grant and each of the following four years at the
rate of 20% per year.
The Arrow International, Inc. Directors Stock Incentive Plan was approved by
shareholders on January 17, 1996. The plan provides for a maximum of
100,000 non-qualified stock options. The option price per share is equal to
the fair market value of the Common Stock on the date the option is granted.
The term of each option is ten years and an option becomes exercisable one year
after the date of grant. Under the plan, members of the Board of Directors of
the Company and its subsidiaries are eligible to participate in this plan if
they are not also employees or consultants of the Company and its subsidiaries,
were not shareholders at the time of the Company's initial public offering on
June 9, 1992, and do not serve on the Board as representatives of the interest
of shareholders who have made an investment in the Company. An initial
grant of 5,000 options shall be made upon each eligible director's initial
election to the Board and an additional 500 options on the date each year
when directors are elected to the Board.
Stock option activity is summarized below:
Number Option Price Expiration
of shares per share Date
--------- ---------- --------
Outstanding at beginning of year - - -
Granted 176,700 $38.00 2006
Exercised - - -
Canceled - - -
--------- ---------- --------
Outstanding at August 31, 1996 176,700 $38.00 2006
Exercisable at August 31, 1996 - - -
The Company follows the provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, which require compensation expense for options to be
recognized only if the market price of the underlying stock exceeds the
exercise price on the date of grant. Accordingly, the Company has not
recognized compensation expense for its options granted in fiscal 1996.
Continued
(34)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Related Party Transactions:
Certain of the Company's facilities, personnel and services are being utilized
by Arrow Precision Products, Inc. ("Precision"). Precision is related to the
Company through common ownership. The Company charged Precision
$478, $367 and $573 for the cost of such utilization during the years ended
August 31, 1996, 1995 and 1994, respectively. The Company made
purchases from Precision amounting to $1,222, $1,085 and $1,108 for the
years ended August 31, 1996, 1995 and 1994, respectively. In addition, the
Company made payments on behalf of Precision related to certain costs
incurred by Precision for which the Company was reimbursed, amounting to
$974, $1,025 and $1,170 during the years ended August 31, 1996, 1995 and
1994, respectively. The Company had a net receivable from Precision of $107
and $194 at August 31, 1996 and 1995, respectively.
In June 1996, the Company purchased for $1,135 certain assets from a
subsidiary of Precision that manufactured and marketed gastroenterological
medical products.
5. Rent Expense:
The Company leases certain warehouses and production facilities, office
equipment and vehicles under leases with varying terms.
Rent expense under operating leases totaled $3,094, $2,684 and $1,838 for
the years ended August 31, 1996, 1995 and 1994, respectively. Following is a
schedule by year showing future minimum rentals under operating leases.
Year Ending August 31, Total
--------------------- --------
1997 $ 2,761
1998 1,924
1999 715
2000 222
2001 30
Thereafter -
--------
$ 5,652
========
Continued
(35)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Inventories:
Inventories are summarized as follows:
1996 1995
-------- --------
Finished goods $ 16,878 $ 13,246
Semi-finished goods 10,010 7,133
Work-in-process 7,107 5,768
Raw materials 9,514 7,740
-------- --------
$ 43,509 $ 33,887
======== ========
7. Credit Facilities:
As of August 31, 1996 and 1995, the Company had U.S. bank credit facilities
providing a total of $55,000 and $25,000 in revolving credit for general
business purposes of which $30,978 and $10,763 remained unused. Interest,
based on either bids provided by the bank or the prime rate, London Interbank
Offered Rates (LIBOR) or Certificate of Deposit rates, plus applicable margins,
is payable monthly during the revolving credit period. At August 31, 1996 and
1995, the weighted average interest rates on short-term borrowings were 5.6%
and 6.3%, respectively. At August 31, 1996 and 1995, certain of the
Company's foreign subsidiaries had available revolving credit facilities, at
market rates of interest, totaling the U.S. dollar equivalent of $8,894 and
$1,787, under which $3,685 and $302 was outstanding, respectively. At
August 31, 1996, the Company is required to maintain tangible net worth (total
assets less total liabilities and intangible assets) of at least $50,000,
working capital of $10,000 and a working capital ratio of 1.25 to 1. At August
31, 1996 and 1995, the carrying amount of short-term borrowings approximated
fair value.
8. Accrued Compensation:
The components of accrued compensation at August 31, 1996 and 1995 are
as follows:
1996 1995
-------- -------
Accrued vacation pay $ 2,480 $ 2,232
Accrued payroll 1,149 2,334
Accrued productivity
plan compensation 1,772 1,626
Other 92 72
-------- -------
$ 5,493 $ 6,264
======== =======
Continued
(36)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Long-Term Debt:
Long-term debt consists of the following:
1996 1995
------- --------
Bank note payable in equal quarterly installments
of $1,250 through February 1997, plus interest at
a variable rate based upon the London Interbank
Offered Rate (LIBOR) plus 0.875%, currently 6.47%
at August 31, 1996 $ 2,500 $ 7,500
Bank note payable in equal quarterly installments
of $500 through May 1999, plus interest at a
variable rate based upon LIBOR plus 0.875%,
currently 6.486% at August 31, 1996 3,500 5,500
Bank note payable in February 1999, paid in July
1996, plus interest at a variable rate based upon
LIBOR plus 0.875%, previously 6.434% at
August 31, 1995 - 10,000
Bank note payable in July 2001, plus interest at
a variable rate based upon LIBOR plus 0.75%,
currently 4.31% at August 31, 1996 12,037 -
Bank note payable in quarterly installments of
$411 through October 1997, plus interest at 4.2% 2,019 3,904
Individual, $1,500 face amount,
noninterest bearing; due in semi-annual
installments of $62 through July 1997,
net of imputed interest of $81 at 8.72% 125 228
Industrial Development Authority Bonds, $3,500
face amount, subject to mandatory annual sinking
fund payments of $200 from December 1989
through December 1998; and $300 from
December 1999 through December 2003; plus
interest at a floating rate of 2.85% to 5.5% in 1996 2,100 2,300
------- -------
Total debt $22,281 $29,432
Less current maturities 6,293 8,969
------- -------
$15,988 $20,463
======= =======
Continued
(37)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Long-Term Debt (Continued):
The Industrial Development Authority Bonds are collateralized by a $2,147
letter of credit, and the Company's headquarters, research and development,
and manufacturing facility in Reading, PA.
Following is a schedule by year showing maturities of long-term debt for each
of the five years in the period ending August 31, 2001:
Year Ending August 31, Total
--------------------- -------
1997 $ 6,293
1998 2,251
1999 300
2000 300
2001 300
Thereafter 12,837
-------
$22,281
=======
Total interest costs for fiscal 1996, 1995 and 1994 were $3,170, $3,055 and
$1,953, respectively, of which $1,321, $1,081 and $929, respectively, were
capitalized.
At August 31, 1996 and 1995, the carrying amount of long term debt
approximated fair value.
10. Income Taxes:
The provision for income taxes consists of:
1996
----------------------------------------
Federal State Foreign Total
-------- -------- -------- --------
Current $ 15,459 $ 1,405 $ 1,247 $ 18,111
Deferred 1,030 141 - 1,171
-------- -------- -------- --------
$ 16,489 $ 1,546 $ 1,247 $ 19,282
======== ======== ======== ========
1995
----------------------------------------
Federal State Foreign Total
-------- -------- -------- --------
Current $ 13,714 $ 1,203 $ 2,344 $ 17,261
Deferred 1,855 258 - 2,113
-------- -------- -------- --------
$ 15,569 $ 1,461 $ 2,344 $ 19,374
======== ======== ======== ========
1994
----------------------------------------
Federal State Foreign Total
-------- -------- -------- --------
Current $ 12,769 $ 1,312 $ 970 $ 15,051
Deferred 1,127 54 - 1,181
-------- -------- -------- --------
$ 13,896 $ 1,366 $ 970 $ 16,232
======== ======== ======== ========
Continued
(38)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes (Continued):
Research and development tax credits were $88, $463 and $459 in fiscal 1996,
1995 and 1994, respectively.
Deferred taxes are recorded based upon differences between financial
statement and tax bases of assets and liabilities. The following deferred
taxes and balance sheet classifications are recorded as of August 31, 1996 and
1995:
1996 1995
Deferred tax assets (liabilities): ------- -------
Accounts receivable $ 266 $ 217
Inventories 1,578 (182)
Property, plant and equipment (3,530) (262)
Intangible assets 912 112
Accrued liabilities (903) (320)
Accrued compensation 730 809
Postretirement benefits other than pensions 3,180 3,030
------- -------
$ 2,233 $ 3,404
======= =======
Balance Sheet classification:
Current deferred tax assets $ 2,709 $ 1,129
Non current deferred tax assets - 2,275
Non current deferred tax liabilities (476) -
------- -------
$ 2,233 $ 3,404
======= =======
The sources of significant temporary differences which gave rise to deferred
taxes and their effects were as follows:
1996 1995 1994
------- ------- -------
Depreciation and amortization $ 1,731 $ 1,307 $ (39)
Common stock issued
to employees 94 26 (64)
Accrued vacation pay (15) (140) (75)
Inventories (1,759) (399) 527
Postretirement benefits
and other liabilities (150) (154) (121)
Intangible assets 735 1,365 955
Other 535 108 (2)
------- ------- -------
$ 1,171 $ 2,113 $ 1,181
======= ======= =======
The following is a reconciliation of the statutory federal income tax rate to
the Company's effective tax rate expressed as a percentage of income from
operations before income taxes:
1996 1995 1994
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 1.9 2.2 3.0
Foreign statutory tax rates differential 3.0 2.3 1.2
Foreign sales corporation (3.3) (2.5) (1.7)
Research and development tax credit - (1.0) (1.0)
Other .4 - (0.5)
---- ---- ----
Effective tax rate 37.0% 36.0% 36.0%
==== ==== ====
Continued
(39)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Retirement Benefits:
Pension Plans:
The Company has noncontributory pension plans that cover substantially all
employees. Benefits under the plans are based upon an employee's
compensation and years of service and, where applicable, the provisions of
negotiated labor contracts. It is the Company's policy to make contributions
to these plans sufficient to meet the minimum funding requirements of
applicable laws and regulations plus such additional amounts, if any, as the
Company's actuarial consultants advise to be appropriate. The projected unit
credit method is utilized for determination of actuarial amounts.
The following tables set forth the plan's funded status and amounts recognized
in the Company's balance sheet at August 31, 1996 and 1995:
1996 1995
--------- ---------
Actuarial present value
of benefit obligations:
Vested $ (18,131) $ (17,014)
Nonvested (623) (1,062)
--------- ---------
Accumulated benefit obligation (18,754) (18,076)
Effect of projected future
salary increases (5,321) (4,637)
--------- ---------
Projected benefit obligation (24,075) (22,713)
Less plan assets at fair value 29,807 26,270
--------- ---------
Plan assets in excess of
projected benefit obligation 5,732 3,557
Unrecognized net (gain) (4,876) (2,836)
Unrecognized net obligation 963 968
--------- ----------
Prepaid pension asset $ 1,819 $ 1,689
========= ==========
Net periodic pension cost includes the following components:
1996 1995 1994
------- ------- --------
Service cost $ 1,577 $ 1,278 $ 1,212
Interest cost 1,701 1,501 1,312
Actual return on plan assets (3,455) (2,686) (512)
Net amortization and deferral 924 482 (1,719)
------- ------- --------
Net periodic pension cost $ 747 $ 575 $ 293
======= ======= ========
In 1996 and 1995, the discount rates and rates of increases of future
compensation levels used in determining the actuarial present value of
projected benefit obligations were 8.0% and 5.0% and 7.5% and 5.0%,
respectively. In 1996 and 1995, the expected long-term rates of return on
assets were 9.5% and 9.0%, respectively.
Plan assets consist principally of U.S. government securities, short-term
investments, other equity securities and cash equivalents.
Continued
(40)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Retirement Benefits (Continued):
Postretirement Benefits Other Than Pensions:
The Company provides limited amounts of postretirement health and life
insurance benefit plan coverage for substantially all of its employees. The
determination of postretirement benefit cost for postretirement health benefit
plans is based on comprehensive hospital, medical, surgical, and dental
benefit provisions. The determination of postretirement benefit cost for
postretirement life insurance benefits is based on stated policy amounts.
For the years ended August 31, 1996, 1995 and 1994, respectively, the
components of periodic expense for the postretirement benefits are as follows:
1996 1995 1994
------ ------ ------
Service cost - benefits earned during year $ 305 $ 297 $ 298
Interest cost on postretirement
benefit obligation 300 280 246
------ ------ ------
Total expense $ 605 $ 577 $ 544
====== ====== ======
At August 31, 1996 and 1995, respectively, the actuarial and recorded
liabilities for these postretirement benefits, none of which have been funded,
are as follows:
1996 1995
-------- --------
Accumulated postretirement
benefit obligation:
Retirees and dependents $ 1,645 $ 1,601
Fully eligible active plan participants 1,157 1,152
Other active participants 2,426 3,063
-------- -------
Excess of accumulated postretirement
benefit obligation over assets 5,228 5,816
Unrecognized prior service credit 963 989
Unrecognized gain 1,646 636
-------- -------
Liability included on the balance sheet 7,837 7,441
Less current portion 260 142
-------- -------
Noncurrent liability $ 7,577 $ 7,299
======== =======
The assumed discount rate at the beginning and end of the year used to
measure the accumulated postretirement benefit obligation was 7.5% and
8.0%, respectively. The annual rate of increase in the per capita cost of
covered health care benefits was assumed to be 8.0% in 1997; the rate was
assumed to decrease gradually to 5.0% over the next 12 years and remain
level thereafter. An increase of one percentage point in the assumed health
care cost trend rates for each future year would have increased the aggregate
of the service and interest cost components of 1996 net periodic
postretirement benefit cost by $92 and would have increased the accumulated
postretirement benefit obligation as of August 31, 1996 by $654.
Savings Plan:
The Company has a defined contribution savings plan that covers substantially
all of its eligible U.S. employees. The purpose of the plan is generally to
provide additional financial security to employees during retirement.
Participants in the savings plan may elect to contribute, on a before-tax
basis, a certain percent of their annual earnings with the Company matching a
portion of these contributions. Expense under the plan was $737, $657 and $602
for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
Continued
(41)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Foreign Operations:
The following tables present information about operations in different
geographic areas:
1996
United Foreign
States Operations Eliminations Consolidated
Sales to unaffiliated --------- --------- ---------- ---------
customers $ 167,914 $ 62,031 - $ 229,945
Transfers between
geographic areas 44,071 - $ (44,071) -
--------- --------- ---------- ---------
Total revenue $ 211,985 $ 62,031 $ (44,071) $ 229,945
========= ========= ========== =========
Operating income $ 51,534 $ 2,879 $ 54,413
========= =========
Other income, net (2,300)
---------
Income from operations
before income taxes $ 52,113
=========
Identifiable assets at
August 31 $ 305,726 $ 58,171 $ (64,476) $ 299,421
========= ========= ========== =========
1995
----------------------------------------------------
United Foreign
States Operations Eliminations Consolidated
Sales to unaffiliated --------- --------- ------------ ---------
customers $ 159,705 $ 53,309 - $ 213,014
Transfers between
geographic areas 31,513 - $ (31,513) -
--------- --------- ---------- ---------
Total revenue $ 191,218 $ 53,309 $ (31,513) $ 213,014
========= ========= ========== =========
Operating income $ 46,855 $ 6,392 $ 53,247
========= =========
Other income, net 569
---------
Income from operations
before income taxes $ 53,816
=========
Identifiable assets at
August 31 $ 275,064 $ 39,136 $ (51,690) $ 262,510
========= ========= ========== =========
1994
United Foreign
States Operations Eliminations Consolidated
Sales to unaffiliated --------- --------- ---------- ---------
customers $ 143,908 $ 34,869 - $ 178,777
Transfers between
geographic areas 20,430 - $ (20,430) -
--------- --------- ---------- ---------
Total revenue $ 164,338 $ 34,869 $ (20,430) $ 178,777
========= ========= ========== =========
Operating income $ 42,435 $ 1,841 $ 44,276
========= =========
Other income, net 812
Income from operations ---------
before income taxes $ 45,088
=========
Identifiable assets at
August 31 $ 214,188 $ 20,055 $ (24,523) $ 209,720
========= ========= ========== =========
Export sales for domestic operations to unaffiliated customers were $25,562,
$22,531 and $20,116 for the years ended August 31, 1996, 1995 and 1994,
respectively.
Continued
(42)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Foreign Exchange Contracts:
During fiscal 1996 and 1995, the percentage of the Company's sales invoiced
in currencies other than U.S. dollars was 27.0% and 25.1%, respectively. In
addition, a small part of the Company's cost of goods sold is denominated in
foreign currencies. As a partial hedge against adverse fluctuations in
exchange rates, the Company periodically enters into foreign currency
exchange contracts with certain major financial institutions. At August 31,
1996, the Company had forward exchange contracts to sell foreign currency
totaling $20,750, which mature at various dates through May 1997. The
Company expects to continue to utilize foreign currency exchange contracts to
manage its exposure, although there can be no assurance that the Company's
efforts in this regard will be successful.
14. Contingencies:
The Company is a party to certain legal actions arising in the ordinary course
of its business. Based upon information presently available, the Company
believes it has adequate legal defenses or insurance coverage for these
actions and that the ultimate outcome of these actions would not have a
material effect on the Company's financial position or results of operations.
15. Adoption of New Accounting Standards:
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of" (FAS 121) in its first quarter of
fiscal 1997. In accordance with FAS 121, the Company will evaluate the
carrying value of its long-lived assets and intangibles, including goodwill,
when events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. The Company does not anticipate the effect
of adopting this new standard to have a material effect on the Company's
consolidated financial position or results of operations.
The Company will adopt the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123) in
the first quarter of fiscal 1997. The Company will continue to measure
compensation cost using the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company does not anticipate the effect of
adopting this new standard to have a material effect on the Company's
consolidated financial position or results of operations.
Continued
(43)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Summary of Quarterly Results (unaudited):
Quarterly financial results for the year ended August 31, 1996 are as follows:
(Thousands of dollars, except per share amounts)
Quarter
---------------------------------------
11-30-95 2-29-96 5-31-96 8-31-96 FY 1996
-------- -------- -------- -------- --------
Net sales $ 54,511 $ 58,779 $ 57,548 $ 59,107 $229,945
Cost of goods sold 24,829 27,556 27,772 27,114 107,272
-------- -------- -------- -------- --------
Gross profit 29,682 31,223 29,776 31,993 122,673
Operating expenses
Research, development
and engineering 3,159 3,240 3,631 4,075 14,106
Selling, general and
administrative 13,169 12,729 13,660 14,596 54,154
Operating income 13,354 15,254 12,485 13,322 54,413
Other expenses (income) 215 671 844 572 2,300
Income before income
taxes 13,139 14,583 11,641 12,750 52,113
Provision for income taxes 4,861 5,396 4,307 4,717 19,282
Net income $ 8,278 $ 9,187 $ 7,334 $ 8,033 $ 32,831
Net income per common
share $ .36 $ .40 $ .32 $ .35 $ 1.41
Weighted average shares
outstanding (000's) 23,231 23,230 23,229 23,229 23,230
Continued
(44)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Summary of Quarterly Results (unaudited)(Continued):
Quarterly financial results for the year ended August 31, 1995 are as follows:
(Thousands of dollars, except per share amounts)
Quarter
----------------------------------------
11-30-94 2-28-95 5-31-95 8-31-95 FY 1995
--------
Net sales $ 47,712 $ 52,226 $ 55,464 $ 57,612 $213,014
Cost of goods sold 22,930 25,290 25,606 26,517 100,343
-------- -------- -------- -------- --------
Gross profit 24,782 26,936 29,858 31,095 112,671
Operating expenses
Research, development
and engineering 2,659 2,671 2,866 3,109 11,305
Selling, general and
administrative 11,051 11,119 12,827 13,122 48,119
Operating income 11,072 13,146 14,165 14,864 53,247
Other expenses (income) (188) 223 (157) (447) (569)
Income before income
taxes 11,260 12,923 14,322 15,311 53,816
Provision for income taxes 4,054 4,652 5,156 5,512 19,374
Net income $ 7,206 $ 8,271 $ 9,166 $ 9,799 $ 34,442
Net income per common
share $ .32 $ .37 $ .40 $ .42 $ 1.52
Weighted average shares
outstanding (000's) 22,408 22,407 22,683 23,231 22,684
(45)
Coopers
& Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Arrow International, Inc.:
Our report on the consolidated financial statements of Arrow International,
Inc. is included on page 24 of this Form 10-K. In connection with our audit of
such consolidated financial statements, we have also audited the related
consolidated financial statement schedule listed in the index on page 22 of
this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 27, 1996
(46)
SCHEDULE II
ARROW INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(Column A) (Column B) (Column C) (Column D) (Column E)
---------- ---------- --------------------------- ---------- ----------
Additions
---------------------------
Charges / Charged
Balance at (Credits) to to Other Balance at
Beginning Cost and Accounts Deductions End
Description of Period Expenses (Describe) (Describe)(1) of Period
----------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended August 31, 1994:
Accounts receivable:
Allowance for doubtful accounts $ 696 $ 93 - $ 29 $ 760
========== ============ ========== ========== ==========
Investment, at cost:
Valuation reserve $ 780 - - - $ 780
========== ============ ========== ========== ==========
For the year ended August 31, 1995:
Accounts receivable:
Allowance for doubtful accounts $ 760 $ (110) - $ - $ 650
========== ============ ========== ========== ==========
Investment, at cost:
Valuation reserve $ 780 - - - $ 780
========== ============ ========== ========== ==========
For the year ended August 31, 1996:
Accounts receivable:
Allowance for doubtful accounts $ 650 $ 150 $ 26 $ 774
========== ============ ========== ========== ==========
Investment, at cost:
Valuation reserve $ 780 - $ 780 $ -
========== ============ ========== ========== ==========
</TABLE>
(1) Deductions represent write-off of accounts receivable and investment.
(47)
EXHIBIT INDEX
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
3.1 Restated Articles of Incorporated by reference
Incorporation of from Exhibit 3.1 to the
the Company. Company's Annual Report
on Form 10-K for the fiscal
year ended August 31, 1992
3.2 By-laws of the Company, Incorporated by reference
as amended and from Exhibit 3.4 to the
restated. Company's Registration
Statement on Form S-1 File
No. 33-47163 ("Registration
Statement")
4.1 Form of Common Stock Incorporated by reference
certificate. from Exhibit 4.1 to the
Company's Registration
Statement
10.1 1992 Stock Incentive Plan. Incorporated by reference from
Exhibit 10.1 to the Company's
Registration Statement
10.2 Investment Plan - 401(k). Incorporated by reference from
Exhibit 10.2 to the Company's
Registration Statement
10.3.1 Amended and Restated Incorporated by reference
Retirement Plan for from Exhibit 10.3 to the
Salaried Employees of Company's Registration
the Company, effective Statement
September 1, 1989.
10.3.2 Amended and Restated Incorporated by reference
Retirement Plan for from Exhibit 10.3.2 to the
Salaried Employees of Company's Annual Report on
the Company, effective Form 10-K for the year ended
September 1, 1989, as August 31, 1993 (the "1993
amended. Form 10-K")
10.4 Amended and Restated Incorporated by reference from
Restricted Stock Bonus Exhibit 10.4 to the Company's
Plan. Registration Statement
10.5 Split Dollar Life Incorporated by reference from
Insurance Agreements, Exhibit 10.5 to the Company's
dated December 16, Registration Statement
1991, between the
Company and James H.
Miller, as Trustee
under the provisions
of a certain Irrevocable
Trust Agreement with
Marlin Miller, Jr. dated
December 13, 1991.
(48)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.6 Split Dollar Life Incorporated by reference from
Insurance Agreements, Exhibit 10.6 to the Company's
dated December 16, Registration Statement
1991, between the Company
and Raymond Neag
Irrevocable Trust, dated
October 11, 1991, Evelyn
Neag, Trustee.
10.7 Split Dollar Life Incorporated by reference from
Insurance Agreements, Exhibit 10.7 to the Company's
dated December 16, Registration Statement
1991, between the Company
and Robert E. Gedney, as
Trustee under the
provisions of a certain
Irrevocable Trust
Agreement with John H.
Broadbent, Jr. dated
December 13, 1991.
10.8 Split Dollar Life Incorporated by reference from
Insurance Agreements, Exhibit 10.8 to the Company's
dated December 16, 1991 Registration Statement
between the Company and
Donald M. Mewhort, as
Trustee under Agreement
of Trust dated October 8,
1991, created by T.
Jerome Holleran, Settlor
(the "Holleran Split
Dollar Life Insurance
Agreements").
10.8.1 Assignment, dated April 24, Incorporated by reference from
1992, of the rights and Exhibit 10.8.1 to the Company's
obligations under the Registration Statement
Holleran Split Dollar Life
Insurance Agreements from
the Company to Arrow
Precision Products, Inc.
10.9 License Agreement, dated Incorporated by reference from
October 23, 1981, between Exhibit 10.9 to the Company's
Dr. Ketan Shevde and the Registration Statement
Company.
10.10 License Agreement, dated Incorporated by reference from
January 18, 1992, between Exhibit 10.10 to the Company's
Innovation Associates, Registration Statement
Inc. and the Company.
10.11 License Agreement, dated Incorporated by reference from
March 28, 1991, between Exhibit 10.11 to the Company's
Daltex Medical Sciences, Registration Statement
Inc. and the Company.
10.12 Agreement and Compromise Incorporated by reference from
and Release, dated Exhibit 10.12 to the Company's
November 30, 1988, Registration Statement
between Michael A. Berman,
Critikon, Inc. and the
Company.
(49)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.13 License Agreement, dated Incorporated by reference from
April 15, 1982, between Exhibit 10.13 to the Company's
Dr. Randolph M. Howes and Registration Statement
the Company, as amended
pursuant to the Addendum
to License Agreement,
dated August 26, 1986,
among Dr. Randolph M.
Howes, Janice Kinchen
Howes and the Company,
and the Second Addendum
to License Agreement,
dated October 9, 1990,
among Dr. Randolph M.
Howes, Janice Kinchen
Howes, Baham & Anderson
and the Company.
10.14 License Agreement, dated Incorporated by reference from
September 16, 1988, Exhibit 10.14 to the Company's
between J. Daniel Registration Statement
Raulerson and the Company,
as amended pursuant to
Addendum to License
Agreement, dated November
27, 1989, between J.
Daniel Raulerson and the
Company.
10.15 License Agreement, dated Incorporated by reference from
February 24, 1984, between Exhibit 10.15 to the Company's
Blair Medical Products, Registration Statement
Inc. and the Company.
10.16 Stock Purchase Agreement, Incorporated by reference from
dated October 24, 1990, Exhibit 10.16 to the Company's
among Robert E. Fischell, Registration Statement
Standard Associates, Cymed
Ventures, Inc., Arrow
International Investment
Corp. and the Company.
10.17 License Agreement, dated Incorporated by reference from
October 24, 1990, between Exhibit 10.17 to the Company's
Medical Innovative Registration Statement
Technologies R&D Limited
Partnership and the
Company.
10.18 Research and Development Incorporated by reference from
Agreement, dated October Exhibit 10.18 to the Company's
24, 1990, between Medical Registration Statement
Innovative Technologies
R&D Limited Partnership
and the Company.
(50)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.19 License Agreement, dated Incorporated by reference from
February 24, 1992, Exhibit 10.19 to the Company's
between Cathco, Inc. and Registration Statement
the Company.
10.20 Settlement Agreement, Incorporated by reference from
dated September 30, 1991, Exhibit 10.20 to the Company's
among Dr. Randolph M. Registration Statement
Howes, Janice Kinchen
Howes, Baham & Anderson,
the Company and Baxter
Health care Corporation
and related License
Agreement, dated September
30, 1991, among Dr.
Randolph M. Howes, Janice
Kinchen Howes, Baham &
Anderson, the Company and
Baxter Health care
Corporation.
10.21 Agreement between the Incorporated by reference from
Company, Arrow Precision Exhibit 10.21 to the Company's
Products, Inc. and United Annual Report on Form 10-K for
Steelworkers of America the year ended August 31, 1994
AFL/CIO Local 8467. (the "1994 Form 10-K")
10.22 Extension of Lease Incorporated by reference from
Agreement between Indian Exhibit 10.22 to the Company's
Mills Associates and the Registration Statement
Company, dated December 4,
1991, extending the Lease,
dated February 5, 1988,
between Lyco Associates
and the Company.
10.23.1 Amended and Restated Incorporated by reference from
Retirement Plan for Exhibit 10.23 to the Company's
Hourly-Rated Employees Registration Statement
of the Wyomissing Plant
of the Company, effective
September 1, 1989.
10.23.2 Amended and Restated Incorporated by reference from
Retirement Plan for Exhibit 10.23.2 to the
Hourly-Rated Employees Company's 1993 Form 10-K
of the Wyomissing Plant
of the Company, effective
September 1,1989, as
amended.
10.24.1 Amended and Restated Incorporated by reference from
Retirement Plan for Exhibit 10.24 to the Company's
Hourly-Rated Employees Registration Statement
of the North Carolina
and New Jersey Plants of
the Company, effective
September 1, 1989.
(51)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.24.2 Amended and Restated Incorporated by reference from
Retirement Plan for Exhibit 10.24.2 to the
Hourly-Rated Employees Company's 1993 Form 10-K
of the North Carolina
and New Jersey Plants of
the Company, effective
September 1, 1989, as
amended.
10.25.1 Loan Agreement, dated Incorporated by reference from
January 3, 1986, among Exhibit 10.25.1 to the Company's
the Company, Arrow Medical Registration Statement
Products, Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.2 First Amendment to Loan Incorporated by reference from
Agreement, dated March 18, Exhibit 10.25.2 to the Company's
1987, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.3 Second Amendment to Loan Incorporated by reference from
Agreement, dated March 31, Exhibit 10.25.3 to the Company's
1988, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.4 Third Amendment to Loan Incorporated by reference from
Agreement, dated March 31, Exhibit 10.25.4 to the Company's
1989, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.5 Fourth Amendment to Loan Incorporated by reference from
Agreement, dated March 30, Exhibit 10.25.5 to the Company's
1990, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.6 Fifth Amendment to Loan Incorporated by reference from
Agreement, dated March 1, Exhibit 10.25.6 to the Company's
1991, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
(52)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.25.7 Sixth Amendment to Loan Incorporated by reference from
Agreement, dated July 15, Exhibit 10.25.7 to the Company's
1991, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.8 Seventh Amendment to Loan Incorporated by reference from
Agreement, dated September Exhibit 10.25.8 to the Company's
6, 1991, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.9 Eighth Amendment to Loan Incorporated by reference from
Agreement, dated February Exhibit 10.25.9 to the Company's
21, 1992, among the Registration Statement
Company, Arrow Medical
Products, Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.10 Letters of Amendment, dated Incorporated by reference from
April 10, 1992, and May 19, Exhibit 10.25.17 to the Company's
1992, to Loan Agreement Registration Statement
between the Company and
Hamilton Bank.
10.25.11 Ninth Amendment to Loan Incorporated by reference from
Agreement, dated May 27, Exhibit 10.25.18 to the Company's
1992, among the Company, Registration Statement
Arrow Medical Products,
Limited, Arrow
International Export
Corporation, and Hamilton
Bank.
10.25.12 Letter Agreement, dated Incorporated by reference from
February 25, 1993, among Exhibit 10.25.12 to the 1994
the Company, Arrow Form 10-K
Medical Products, Limited,
Arrow International Export
Corporation, and CoreStates
Hamilton Bank, and Note
relating thereto.
10.25.13 Letter Agreement, dated Incorporated by reference from
January 31, 1994, among Exhibit 10.25.13 to the 1995
the Company, Arrow Medical Form 10-K
Products, Limited, Arrow
International Export
Corporation, and CoreStates
Hamilton Bank, and Note
relating thereto.
(53)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.25.14 Letter Agreement, dated Incorporated by reference from
March 6, 1995, among the Exhibit 10.25.14 to the 1995
Company, Arrow Medical Form 10-K
Products, Limited, Arrow
International Export
Corporation, and CoreStates
Hamilton Bank, and Note
relating thereto.
10.25.15 Letter Agreement, dated Incorporated by reference from
November 14, 1995, among Exhibit 10.25.15 to the 1995
the Company, Arrow Form 10-K
Medical Products, Limited,
Arrow International
Export Corporation, and
CoreStates Hamilton Bank,
and Note relating thereto.
10.25.16 Letter Agreement, dated Incorporated by reference from
February 23, 1996, among Exhibit 10.25.16 to the
the Company, Arrow Medical Company's Form 10-Q for
Products, Limited, Arrow the second quarter period
International Export ended February 29, 1996
Corporation, and CoreStates
Hamilton Bank, and Note
relating thereto.
10.25.17 Letter Agreement, dated Incorporated by reference from
January 29, 1996 among the Exhibit 10.25.17 to the Company's
Company and First Union Form 10-Q for the second quarter
National Bank, and note period ended February 29, 1996
relating thereto.
10.25.18 Letter Agreement, dated Filed with this report
July 11, 1996, among the
Company, Arrow Medical
Products, Limited, Arrow
International Export
Corporation, and CoreStates
Hamilton Bank, and Note
relating thereto.
10.26.1 Installment Sale Agreement Incorporated by reference from
between Berks County Exhibit 10.25.10 to the Company's
Industrial Development Registration Statement
Authority and the Company,
dated as of December 1,
1988.
10.26.2 Indenture of Trust between Incorporated by reference from
Berks County Industrial Exhibit 10.25.11 to the Company's
Development Authority and Registration Statement
Bankers Trust Company, as
trustee, dated as of
December 1, 1988.
(54)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.26.3 Irrevocable Direct Pay Incorporated by reference from
Letter of Credit, dated Exhibit 10.25.12 to the Company's
December 28, 1988, issued Registration Statement
for the benefit of Bankers
Trust Company, as trustee
under the Indenture of
Trust, for the account of
the Company.
10.26.4 Letter of Credit Note from Incorporated by reference from
the Company payable to the Exhibit 10.25.13 to the Company's
order of Hamilton Bank, Registration Statement
dated December 28, 1988.
10.26.5 Letter of Credit Incorporated by reference from
Reimbursement Agreement Exhibit 10.25.14 to the Company's
between the Company and Registration Statement
Hamilton Bank, dated as
of December 1, 1988.
10.26.6 Accommodation Mortgage, Incorporated by reference from
Security Agreement and Exhibit 10.25.15 to the Company's
Second Assignment of Registration Statement
Installment Sale
Agreement, dated as of
December 15, 1988, by
and among Berks County
Industrial Development
Authority, the Company
and Hamilton Bank.
10.27 Variable Amount Grid Incorporated by reference from
Note Agreement, dated Exhibit 10.25.16 to the Company's
May 8, 1991, between Registration Statement
the Company and First
Union National Bank.
10.28 Purchase Agreement, dated Incorporated by reference from
January 20, 1984, between Exhibit 10.26 to the Company's
the Company and Arrow Registration Statement
Research Partners.
10.29 Form of Research and Incorporated by reference from
Development Agreement, Exhibit 10.27 to the Company's
dated August 2, 1982, Registration Statement
between the Company and
Arrow Research Partners.
10.30 Arrow International, Inc. Incorporated by reference from
Profit Sharing Plan Exhibit 10.30 to the Company's
Registration Statement
10.31 Agreement, dated May 19, Incorporated by reference from
1992, between the Company Exhibit 10.32 to the Company's
and Arrow Precision Registration Statement
Products, Inc.
(55)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.32 Agreement, dated September Incorporated by reference from
22, 1993, among Microwave Exhibit 10.32 to the Company's
Medical Systems, Inc., the 1993 Form 10-K
Company and Kenneth L.
Carr.
10.33 License and Exclusive Incorporated by reference from
Supply Agreement, dated Exhibit 10.33 to the Company's
September 22, 1993, 1993 Form 10-K
between Microwave Medical
Systems, Inc. and the
Company.
10.34 Stock Purchase Agreement, Incorporated by reference from
dated as of January 28, Exhibit 2 to the Company's
1994 between Kontron Current Report on Form 8-K
Instruments Holding N.V. filed with the Securities and
and the Company. Exchange Commission on
February 18, 1994
10.35 Loan Agreement, dated Incorporated by reference from
as of February 8, 1994, Exhibit 10.35 to the 1994
among the Company, Arrow Form 10-K
Medical Products, Limited,
Arrow International Export
Corporation, and CoreStates
Hamilton Bank, and Notes
relating thereto.
10.36 Loan Agreement, dated Incorporated by reference from
February 8, 1994, between Exhibit 10.36 to the 1994
the Company and First Form 10-K
Union National Bank of
North Carolina, and Note
relating thereto.
10.37 Loan Agreement between Incorporated by reference from
Arrow Japan KK and the Exhibit 10.37 to the Company's
Bank of Tokyo (with Current Report on Form 8-K filed
English translation). with the Securities and Exchange
Commission on April 10, 1995
("the 1995 Form 8-K")
10.38 Thoratec Laboratories Incorporated by reference from
Corporation International Exhibit 10.38 to the 1995
Medical Products Form 8-K
Distributor Agreement,
dated as of January 19,
1995, between Thoratec
Laboratories Corporation
and the Company.
(56)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.39 Series F Preferred Incorporated by reference from
Stock Purchase Agreement, Exhibit 10.39 to the 1995
dated as of March 8, Form 8-K
1995, between Cardiac
Pathways Corporation and
the Company.
10.40 Manufacturing and Supply Incorporated by reference from
Agreement, dated as of Exhibit 10.40 to the 1995
March 8, 1995, between Form 8-K
Cardiac Pathways
Corporation and the
Company.
10.41 International Distributor Incorporated by reference from
Agreement, dated as of Exhibit 10.41 to the 1995
March 8, 1995, between Form 8-K
Cardiac Pathways
Corporation and Arrow.
10.42 Purchase Agreement, dated Incorporated by reference from
as of April 7, 1995, among Exhibit 10.39 to the 1995
the Company, TLP Form 8-K
Acquisition Corp., Therex
Corporation, Therex
Limited Partnership
Holding Corporation and
each of the other persons
signatory thereto.
10.43 Amendment, dated July 27, Incorporated by reference from
1995, to License Exhibit 10.43 to the 1995
Agreement, dated October Form 10-K
24, 1990, between
Medical Innovative
Technologies R&D Limited
Partnership and the
Company.
10.44 Amendment, dated July 27, Incorporated by reference from
1995, to Research and Exhibit 10.44 to the 1995
Development Agreement, Form 10-K
dated October 24, 1990,
between Medical
Innovative Technologies
R&D Limited Partnership
and the Company.
10.45 Amended and Restated Incorporated by reference from
License Agreement dated Exhibit 10.45 to the Company's
May 24, 1996, between Form 10-Q for the third quarter
Microwave Medical period ended May 31, 1996
Systems, Inc. and the
Company.
10.46 Loan Agreement, dated Filed with this report
July 11,1996, between
AMH (Arrow Medical
Holdings) B.V. and
CoreStates Bank, N.A.,
and Note relating thereto.
(57)
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.47 Directors Stock Incentive Filed with this report
Plan
10.48 Purchase Agreement, dated Filed with this report
June 1, 1996, between
Arrow Tray Products, Inc.
(formerly known as
Endovations, Inc.) and
the Company.
18 Preferability Letter of Incorporated by reference from
Coopers & Lybrand L.L.P. Exhibit 18 to the 1994 Form 10-K
21 Subsidiaries of the Filed with this report
Company.
23 Consent of Coopers & Filed with this report
Lybrand L.L.P.
27 Financial Data Schedule EDGAR
99.1 Cautionary Statement for Page 59 of this report
Purposes of the Safe
Harbor Provisions of the
Private Securities
Litigation Reform Act
of 1995.
(58)
EXHIBIT 21
Subsidiaries of the Company
1. Arrow International Export Corporation, a U.S. Virgin Islands
corporation.
2. Arrow International Investment Corp., a Delaware corporation.
3. Arrow Medical Products, Ltd., a Pennsylvania corporation, qualified
to do business in Canada.
4. Kontron Instruments, Inc., a California corporation.
5. Arrow-Japan K.K. (Arrow-Japan, Ltd., English translation), a
company organized under the laws of Japan.
6. Arrow Deutschland, Gmbh., a limited liability corporation organized
under the laws of Germany.
7. Arrow France S.A., a corporation organized under the laws of
France.
8. Arrow Africa (Pty) Ltd., a corporation organized under the laws of
South Africa.
9. AMH (Arrow Medical Holdings) B.V., a corporation organized under
the laws of the Netherlands.
10. Arrow Holland Medical Products B.V., a corporation organized
under the laws of the Netherlands.
11. Arrow Iberia, S.A., a corporation organized under the laws of
Spain.
12. Arrow Hellas A.E.E., a corporation organized under the laws of
Greece.
13. Arrow Internacional de Mexico, S.A. de C.V., a corporation
organized under the laws of Mexico.
14. Arrow Internacional de Chihuahua, S.A. de C.V., a corporation
organized under the laws of Mexico.
15. Arrow International CR, a.s., a corporation organized under the
laws of the Czech Republic.
16. Therex Limited Partnership, a Delaware limited partnership.
17. Arrow Infusion, Inc., a Massachusetts corporation.
18. Arrow-Therex Corporation, a Delaware corporation.
19. Arrow Interventional, Inc., a Delaware corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on Form 10-
K of our reports dated September 27, 1996, on our audits of the consolidated
financial statements and financial statement schedule of Arrow International,
Inc. as of August 31, 1996 and 1995, and for the three years in the period
ended August 31, 1996, appearing in the registration statement on Forms S-8
(SEC File Nos. 333-15215 and 33-71568) of Arrow International, Inc. filed with
the Securities and Exchange Commission pursuant to the Securities Act of
1933.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 25, 1996
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
From time to time, in both written reports and in oral statements by the
Company's senior management, expectations and other statements are expressed
regarding future performance of the Company. These forward-looking
statements are inherently uncertain and investors must recognize that events
could turn out to be different than such expectations and statements. Key
factors impacting current and future performance are discussed in the
Company's Annual Report on Form 10-K with which this Exhibit is filed and
other filings with the Securities and Exchange Commission (the "Commission").
In addition to such information in the Company's Annual Report on Form 10-K
and its other filings with the Commission, the following risk factors should be
considered in evaluating the Company and its business, as well as in reviewing
forward-looking statements contained in the Company's periodic reports filed
with the Commission and in oral statements made by the Company's senior
management. The Company's actual results could differ materially from such
forward-looking statements due to material risks, uncertainties and
contingencies, including, without limitation, those set forth below.
STRINGENT GOVERNMENT REGULATION
The Company's products are subject to extensive regulation by the Food and
Drug Administration (the "FDA") and, in some jurisdictions, by state and
foreign governmental authorities. In particular, the Company must obtain
specific clearance or approval from the FDA before it can market new products
or certain modified products in the United States. With the exception of one
product, the Company has, to date, obtained FDA marketing clearance only
through the 510(k) premarket notification process. Certain products under
development and future product applications, however, will require approval
through the more rigorous Premarket Approval application ("PMA") process.
The process of obtaining such clearances or approvals can be time consuming
and expensive, and there can be no assurance that all clearances or approvals
sought by the Company will be granted or that FDA review will not involve
delays adversely affecting the marketing and sale of the Company's products.
The Company is required to adhere to applicable regulations setting forth
current Good Manufacturing Practices ("GMP") which require that the
Company manufacture its products and maintain its records in a prescribed
manner with respect to manufacturing, testing and control activities. In
addition, the Company is required to comply with FDA requirements for
labeling and promotion of its products. Failure to comply with applicable
federal, state or foreign laws or regulations could subject the Company to
enforcement action, including product seizures, recalls, withdrawal of
clearances or approvals, and civil and criminal penalties, any one or more of
which could have a material adverse effect on the Company. Medical device
laws and regulations with similar substantive and enforcement provisions are
also in effect in many of the foreign countries where the Company does
business. Federal, state and foreign laws and regulations regarding the
manufacture and sale of medical devices are subject to future changes. No
assurance can be given that such changes will not have a material adverse
effect on the Company.
SIGNIFICANT COMPETITION AND CONTINUAL TECHNOLOGICAL CHANGE
The markets for medical devices are highly competitive. The Company currently
competes with many companies in the development and marketing of
catheters and related medical devices. Some of the Company's competitors
have access to greater financial and other resources than the
(59)
Company. Furthermore, the markets for medical devices are characterized by
rapid product development and technological change. The present or future
products of the Company could be rendered obsolete or uneconomical by
technological advances by one or more of the Company's current or future
competitors. The Company's future success will depend upon its ability to
develop new products and technology to remain competitive with other
developers of catheters and related medical devices. The Company's
business strategy emphasizes the continued development and
commercialization of new products and the enhancement of existing products
for the critical care and interventional procedure markets. There can be no
assurance that the Company will be able to continue to successfully develop
new products and to enhance existing products, to manufacture these products
in a commercially viable manner, to obtain required regulatory approvals or to
gain satisfactory market acceptance for such products.
COST PRESSURES ON MEDICAL TECHNOLOGY AND PROPOSED HEALTH CARE REFORM
The Company's products are purchased principally by hospitals, hospital
networks and hospital buying groups. Although the Company's products are used
primarily for non-optional medical procedures, the Company believes that the
overall escalating cost of medical products and services has led and will
continue to lead to increased pressures upon the health care industry to
reduce the cost or usage of certain products and services, which has included
and will continue to include those of the Company. In the United States, these
cost pressures are leading to increased emphasis on the price and cost-
effectiveness of any treatment regimen and medical device. In addition, third
party payors, such as governmental programs, private insurance plans and
managed care plans, which are billed by hospitals for such health care
services, are increasingly negotiating the prices charged for medical products
and services and may deny reimbursement if they determine that a device was
not used in accordance with cost-effective treatment methods as determined
by the payor, was experimental, unnecessary or used for an unapproved
indication. In international markets, reimbursement systems vary significantly
by country. Many international markets have government managed health
care systems that control reimbursement for certain medical devices and
procedures and, in most such markets, there also are private insurance
systems which impose similar cost restraints. There can be no assurance that
hospital purchasing decisions or government or private third party
reimbursement policies in the United States or in international markets will
not adversely affect the profitability of the Company's products.
In recent years, several comprehensive health care reform proposals have been
introduced in the U.S. Congress. While none of these proposals have to date
been adopted, the intent of these proposals was, generally, to expand health
care coverage for the uninsured and reduce the rate of growth of total health
care expenditures. In addition, certain states have made significant changes
to their Medicaid programs and have adopted various measures to expand
coverage and limit costs. Implementation of government health care reform
and other efforts to control costs may limit the price of, or the level at
which reimbursement is provided for, the Company's products. Similar
initiatives to limit the growth of health care costs, including price
regulation, are also underway in several other countries in which the Company
does business. The Company anticipates that Congress, state legislatures,
foreign governments and the private sector will continue to review and assess
alternative health care delivery and payment systems. The Company cannot
predict what additional legislation or regulation, if any, relating to the
health care industry may be enacted in the future or what impact the adoption
of any federal, state or foreign health care reform, private sector reform or
market forces may have on its business. No assurance can be given that any
such reforms will not have a material adverse effect on the medical device
industry in general, or the Company in particular.
(60)
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The Company owns numerous U.S. and foreign patents and has several U.S. and
foreign patent applications pending. The Company also has exclusive license
rights to certain patents held by third parties. These patents relate to
aspects of the technology used in certain of the Company's products. From time
to time, the Company is subject to legal actions involving patent and other
intellectual property claims. Successful litigation against the Company
regarding its patents or infringement by the Company of the patent rights of
others could have a material adverse effect on the Company. In addition, there
can be no assurance that pending patent applications will result in issued
patents or that patents issued to or licensed-in by the Company will not be
challenged or circumvented by competitors or found to be valid or sufficiently
broad to protect the Company's technology or to provide it with any competitive
advantage. The Company also relies on trade secrets and proprietary
technology that it seeks to protect, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that these agreements will not be breached, that the Company will
have adequate remedies for any breach, that others will not independently
develop substantially equivalent proprietary information or that third parties
will not otherwise gain access to the Company's trade secrets.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical devices industry. Historically, litigation has
been necessary to enforce certain patent and trademark rights held by the
Company. Future litigation may be necessary to enforce patent and other
intellectual property rights belonging to the Company, to protect trade secrets
or know-how owned by the Company or to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of the proprietary rights of the Company and others. Any such
litigation could result in substantial cost to and diversion of effort by the
Company. Adverse determinations in any such litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using certain of its products, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company generates significant sales outside the United States and is
subject to risks generally associated with international operations, such as
unexpected changes in regulatory requirements, tariffs, customs, duties and
other trade barriers, difficulties in staffing and managing
foreign operations, longer payment cycles, problems in collecting accounts
receivable, political risks, fluctuations in currency exchange rates, foreign
exchange controls which restrict or prohibit repatriation of funds, technology
export and import restrictions or prohibitions, delays from customs brokers or
government agencies and potentially adverse tax consequences resulting from
operating in multiple jurisdictions with different tax laws, which could
materially adversely impact the success of the Company's international
operations. As its revenues from its international operations increase, an
increasing portion of the Company's revenues and expenses are denominated
in currencies other than U.S. dollars, and changes in exchange rates could have
a greater effect on the Company's results of operations. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future operations and, consequently, on the Company's business,
results of operations and financial condition. In addition, there can be no
assurance that laws or administrative practices relating to regulation of
medical devices, taxation, foreign exchange or other matters of
countries within which the Company operates will not change. Any such
change could have a material adverse effect on the Company's business,
financial condition and results of operations.
(61)
POTENTIAL PRODUCT LIABILITY
The Company's business exposes it to potential product liability risks which
are inherent in the testing and marketing of catheters and related medical
devices. The Company's products are often used in intensive care settings with
seriously ill patients. In addition, many of the medical devices manufactured
and sold by the Company are designed to be implanted in the human body for
long periods of time and component failures, manufacturing flaws, design
defects or inadequate disclosure of product-related risks with respect to these
or other products manufactured or sold by the Company could result in an
unsafe condition or injury to, or death of, the patient. The occurrence of
such a problem could result in product liability claims and/or a recall of, or
safety alert relating to, one or more of the Company's products. There can be
no assurance that the product liability insurance maintained by the Company
will be available or sufficient to satisfy all claims made against it or that
the Company will be able to obtain insurance in the future at satisfactory
rates or in adequate amounts. Product liability claims or product recalls in
the future, regardless of their ultimate outcome, could result in costly
litigation and could have a material adverse effect on the Company's business
or reputation or on its ability to attract and retain customers for its
products.
RISKS ASSOCIATED WITH DERIVATIVE FINANCIAL INSTRUMENTS
As a partial hedge against adverse fluctuations in exchange rates, the Company
periodically enters into foreign currency exchange contracts with certain major
financial institutions. By their nature, all such contracts involve risk,
including the risk of nonperformance by counterparties. Accordingly, losses
relating to these contracts could have a material adverse effect upon the
Company's business, financial condition and results of operations. The
Company's policy prohibits the use of derivative instruments for speculative
purposes.
DEPENDENCE ON KEY MANAGEMENT
The Company's success depends upon the continued contributions of key
members of its senior management team, certain of whom have been with the
Company since its inception in 1975. Accordingly, loss of the services of one
or more of these key members of management could have a material adverse
effect on the business of the Company. None of these individuals has an
employment agreement with the Company.
(62)
EXHIBIT 10.25.18
515 Penn Street
PO Box 141
Reading PA 19603
610 655 8109
Fax 610 655 8208
Philip B. Shober
Vice President
CORESTATES
HAMILTON BANK
Mr. John Broadbent, Jr.
Vice President - Finance
Arrow International, Inc.
P. 0. Box 12888
Reading, PA 19612
Dear John:
I am very pleased to inform you that CoreStates Bank, N.A. has approved an
increase to $45,000,000.00 to the Line of Credit available for use by the
Borrowers, as more fully described in the Letter Agreement dated February
25, 1993. This increase is subject to repayment in full of the
$10,000,000.00 bullet loan which was advanced on February 8, 1994. The
Line of Credit will continue to be subject to all of the terms and conditions
outlined in the February 25, 1993 Letter Agreement, and to the terms and
conditions as are outlined in the $45,000,000.00 "Master Demand Note" and
Addendum thereto, of approximately equal date herewith.
To the best of the Borrower's knowledge and subject to the proviso
pertaining to the Berks County Landfill as set forth in the Letter from the
Bank to the Borrowers, acknowledged and accepted by the Borrowers on
March 22, 1995, the Borrower has not breached and is not in violation of any
environmental protection law, rule, or regulation. Borrower will
immediately give notice in writing to the Bank of any condition or event
which constitutes or could constitute a material and substantial breach or
violation of any environmental protection law, rule or regulation. Borrower
agrees to hold the Bank and its employees harmless from any loss, liability or
expense arising from any such breach or violation.
Thank you very much for your continued banking business. Please
acknowledge your acceptance of the foregoing by signing, dating and
returning the enclosed copy of this letter to the undersigned.
Sincerely,
/s/ Philip B. Shober
Philip B. Shober
Vice President
July 11, 1996 ACKNOWLEDGMENT PAGE FOLLOWS.
Mr. John Broadbent, Jr.
Arrow International, Inc.
Page 2
ACKNOWLEDGMENT
The terms and conditions outlined in this letter are hereby accepted and
agreed to this 17th day of July, 1996.
-------- ----
ARROW INTERNATIONAL, INC.
By: /s/Marlin Miller, Jr.
-------------------------------------------
Marlin Miller, Jr., President
By: /s/John Broadbent, Jr.
-------------------------------------------
John Broadbent, Jr., Vice-President-Finance
ARROW MEDICAL PRODUCTS, LTD.
By: /s/Marlin Miller, Jr.
-------------------------------------------
Marlin Miller, Jr., President
By: /s/John Broadbent, Jr.
-------------------------------------------
John Broadbent, Jr., Vice-President
ARROW INTERNATIONAL EXPORT CORPORATION
By: /s/Marlin Miller, Jr.
-------------------------------------------
Marlin Miller, Jr., President
By: /s/John Broadbent, Jr.
-------------------------------------------
John Broadbent, Jr.
MASTER DEMAND NOTE
CORESTATES
$45,000,000.00 July 17, 1996
- -------------- ------- --
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if
more than one (hereinafter collectively referred to as "Borrower"), promises
to pay to the order of CoreStates Bank, N.A.*, a national banking association
(the "Bank"), at any of its banking offices in Pennsylvania, the principal
amount of Forty-Five Million and 00/100 DOLLARS
-------------------------------------
in lawful money of the United States, or, if less, the outstanding principal
balance on all loans and advances made by Bank evidenced by this Note
("Loans"), plus interest. Said principal and interest shall be payable ON
DEMAND
Interest shall accrue at a rate per annum which is at all times equal to
See attached Note Addendum of even date herewith
- ------------------------------------------------
Bank's Prime Rate, such rate to change each time the Prime Rate changes,
effective on and as of the date of the change.
INTEREST-Interest shall be calculated on the basis of a 360 day year and
shall be charged for the actual number of days elapsed. Accrued interest
shall be payable monthly. Accrued interest shall also be payable on demand
and when the entire principal balance of this Note is paid to Bank. The term
"Prime Rate" is defined as the rate of interest for loans established by Bank
from time to time as its prime rate. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank,
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof. Interest shall accrue on the unpaid balance
hereof at the rate provided for in this Note until the entire unpaid balance
has been paid in full, notwithstanding the entry of any judgment against
Borrower.
BANK'S LOAN RECORDS - The actual amount due and owing from time to
time under this Note shall be evidenced by Bank's books and records of
receipts and disbursements hereunder. Bank shall set up and establish an
account on the books of Bank in which will be recorded Loans evidenced
hereby, payments on such Loans and other appropriate debits and credits as
provided herein, including any Loans which represent reborrowings of
amounts previously repaid. Bank shall also record, in accordance with
customary accounting practice, all other interest, charges, expenses and other
items properly chargeable to Borrower hereunder, and other appropriate
debits and credits. Such books and records of Bank shall be presumed to be
complete and accurate and shall be deemed correct, except to the extent
shown by Borrower to be manifestly erroneous.
NOTE NOT A COMMITMENT TO LEND - Borrower acknowledges and
agrees that no provision hereof, and no course of dealing by Bank in
connection herewith, shall be deemed to create or shall imply the existence of
any commitment or obligation on the part of Bank to make Loans. Except as
otherwise provided in a currently effective written agreement by Bank to
make Loans, each Loan shall be made solely at Bank's discretion.
PREPAYMENT - Borrower may at its option prepay all or any portion of the
principal balance of any Loans at any time without premium or penalty.
COLLATERAL - As security for all indebtedness to Bank now or hereafter
incurred by Borrower, under this Note or otherwise, Borrower grants Bank a
lien upon and security interest in any securities, instruments or other
personal property of Borrower now or hereafter in Bank's possession and in any
deposit balances now or hereafter held by Bank for Borrower's account and
in all proceeds of any such personal property or deposit balances. Such liens
and security interests shall be independent of Bank's right of setoff. This
Note and the indebtedness evidenced hereby shall be additionally secured by
any lien or security interest evidenced by writing (whether now existing or
hereafter executed) which contains a provision to the effect that such lien or
security interest is intended to secure (a) this Note or indebtedness evidenced
hereby or (b) any category of liabilities, obligations or the indebtedness of
Borrower to Bank which includes this Note or the indebtedness evidenced
hereby, and all property subject to any such lien or security interest shall be
collateral for this Note.
CONFESSION OF JUDGMENT - Borrower irrevocably authorizes and
empowers any attorney or any clerk of any court of record to appear for and
confess judgment against Borrower for such sums as are due and owing on
this Note, with or without declaration, with costs of suit, without stay of
execution and with an amount not to exceed the greater of fifteen percent
(15%) of the principal amount of such judgment or $5,000 added for
collection fees. If a copy of this Note, verified by affidavit by or on behalf
of Bank, shall have been filed in such action, it shall not be necessary to
file the original of this Note. The authority granted hereby shall not be
exhausted by the initial exercise thereof and may be exercised by Bank from
time to time. There shall be excluded from the lien of any judgment obtained
solely pursuant to this paragraph all improved real estate in any area
identified under regulations promulgated under the Flood Disaster Protection
Act of 1973, as having special flood hazards if the community in which such
area is located is participating in the National Flood Insurance Program.
Any such exclusion shall not affect any lien upon property not so excluded.
DEMAND NOTE - This Note is and shall be construed as a "demand
instrument" under the Uniform Commercial Code. Bank may demand
payment of the indebtedness outstanding under this Note or any portion
thereof at any time.
BANK'S REMEDIES - In the event that any payment hereunder is not made
when due or demanded, Bank may, immediately or any time thereafter,
exercise any or all of its rights hereunder or under any agreement or
otherwise under applicable law against Borrower, against any person liable,
either absolutely or contingently, for payment of any indebtedness evidenced
hereby, and in any collateral and such rights may be exercised in any order
and shall not be prejudiced by any delay in Bank's exercise thereof. At any
time after such non-payment. Bank may, at its option and upon five days
written notice to Borrower, begin accruing interest on this Note at a rate not
to exceed five percent (5%) per annum in excess of the rate of interest
provided for above on the unpaid principal balance hereof: provided,
however, that no such interest shall accrue hereunder in excess of the
maximum rate permitted by law. All such additional interest shall be payable
upon demand.
NOTICE TO BORROWER - Any notice required to be given by Bank under
the provisions of this Note shall be effective as to each Borrower when
addressed to Borrower and deposited in the mail, postage prepaid, for
delivery by first class mail at Borrower's mailing address as it appears on
Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of any Loan may be
credited by Bank to the deposit account of Borrower or disbursed in any
other manner requested by Borrower and approved by Bank. All payments
due under this Note are to be made in immediately available funds. If Bank
accepts payment in any other form, such payment shall not be deemed to
have been made until the funds comprising such payment have actually been
received by or made available to Bank. If Borrower is not an individual,
Borrower authorizes Bank (but Bank shall have no obligation)
- ------------------------------------------------------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National
Bank, as CoreStates First Pennsylvania Bank and as CoreStates Hamilton
Bank
to charge any deposit account in Borrower's name at Bank for any and all
payments of principal, interest, or any other amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest and other
sums payable hereunder, Borrower agrees to pay Bank on demand, all costs
and expenses (including reasonable attorneys' fees and disbursements) which
may be incurred by Bank in the collection of this Note or the enforcement of
Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - In order to induce Bank to make
Loans, Borrower represents and warrants as follows: if Borrower is a
corporation or a general or limited partnership, Borrower represents and
warrants that it is validly existing and in good standing in the juristiction
under whose laws it was organized. If Borrower is a corporation, Borrower
represents and warrants that the execution, delivery and performance of this
Note are within Borrower's corporate powers, have been duly authorized by
all necessary action by Borrower's Board of Directors and are not in
contravention of the terms of Borrower's charter, by-laws, or any resolution
of its Board of Directors. If Borrower is a general or limited partnership,
Borrower represents and warrants that the execution, delivery and
performance of this Note have been duly authorized and are not in conflict
with any provision of Borrower's partnership agreement or certificate of
limited partnership. Borrower further represents and warrants that this Note
has been validly executed and is enforceable in accordance with its terms,
that the execution, delivery and performance by Borrower of this Note are
not in contravention of law and do not conflict with any indenture, agreement
or undertaking to which Borrower is a party or is otherwise bound, and that
no consent or approval of any governmental authority or any third party is
required in connection with the execution, delivery and performance of this
Note. If this Note is secured, by "margin stock" as defined in Regulation U
of the Board of Governors of the Federal Reserve System, Borrower
warrants that no Loan or portion thereof shall be used to purchase or carry
margin stock, and that each Loan shall be used for the purpose or purposes
indicated on the most recent Form FR U-1 executed by Borrower in
connection with Loans made by Bank.
WAIVERS, ETC - Borrower and each additional obligor on this Note waive
presentment, dishonor, notice of dishonor, protest and notice of protest.
Neither the failure nor any delay on the part of Bank to any right, remedy,
power or privilege hereunder shall operate as a waiver or modification
thereof. No consent, waiver or modification of the terms of this Note shall
be effective unless set forth in a writing signed by Bank. All rights and
remedies of Bank are cumulative and concurrent and no single or partial
exercise of any power or privilege shall preclude any other or further
exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of Borrower,
and Borrower agrees that Bank shall not be required to exercise any of its
rights or remedies against any collateral in which it holds a lien or security
interest, or against which it has right of setoff, or against any particular
obligor. All representations, warranties and agreements are made jointly and
severally by each Borrower. If any provision of Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence
of indebtedness, the indebtness represented by such pre-existing note or other
instrument shall not be deemed to have been extinguished hereby. This Note
has been delivered in and shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania without regard to the
law of conflicts. In the event any due date specified or otherwise provided
for in this Note shall fall on a day which Bank is not open for business, such
due date shall be postponed until the next banking day, and interest and any
fees or similar charges shall continue to accrue during such period of
postponement. This Note shall be binding upon each Borrower and each
additional Obligor and upon their personal representatives, heir, successors
and assigns, and shall benefit Bank and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED
PARTY HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN
ANY COUNTY IN THE COMMONWEALTH OF PENNSYLVANIA
WHERE BANK MAINTAINS AN OFFICE AND AGREES NOT TO
RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE
LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED PARTY
AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING
MAY BE DULY EFFECTED UPON IT BY MAILING A COPY
THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY
WAIVES AND BANK BY ITS ACCEPTANCE HEREOF THEREBY
WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR BANK TO ENTER INTO, ACCEPT OR
RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed
instrument and intending to be legally bound hereby, has executed and
delivered this Note as of the day and year first above written.
ARROW INTERNATIONAL, INC.
-------------------------
By: /s/Marlin Miller, Jr. By: /s/John H. Broadbent, Jr.
----------------------------- --------------------------------------
Marlin Miller, Jr., President John H. Broadbent, Jr., Vice-President
----------------------------- --------------------------------------
ARROW MEDICAL PRODUCTS, INC.
----------------------------
By: /s/Marlin Miller, Jr. By: /s/John H. Broadbent, Jr.
----------------------------- --------------------------------------
Marlin Miller, Jr., President John H. Broadbent, Jr., Vice-President
----------------------------- --------------------------------------
ARROW INTERNATIONAL EXPORT CORPORATION
--------------------------------------
By: /s/Marlin Miller, Jr. By: /s/John H. Broadbent, Jr.
----------------------------- --------------------------------------
Marlin Miller, Jr., President John H. Broadbent, Jr., Vice-President
----------------------------- --------------------------------------
Date: July 17, 1996
-------------
NOTE ADDENDUM
-------------
TO $45,000,000.00 MASTER DEMAND NOTE
------------------------------------
ARROW INTERNATIONAL, INC.
-------------------------
ARROW MEDICAL PRODUCTS, LTD.
----------------------------
ARROW INTERNATIONAL EXPORT CORPORATION
--------------------------------------
The Borrower promises to pay interest on the unpaid principal balance of this
Note at a floating annual rate equal to the Bank's Prime rate or at such
overnight rate or rates as the Bank quotes and the Borrower accepts from
time to time.
The Borrower shall have the option of choosing a fixed rate of interest from
time to time, as quoted by the Bank, which will apply for periods from 7 to
180 days, in 7 or 30 day increments, for any portion of the unpaid principal
balance of this Note, so long as such portion exceeds $1,000,000.00, on the
following basis:
A. For seven (7) day increments up to twenty-eight (28) days: as quoted
based on the Bank's Matched Funding Rate;
B. For thirty (30) day increments up to one hundred eighty (180) days:
as quoted based on the lower of Adjusted LIBOR or Adjusted CD
Rates; or
C. Any other pricing options that are available or may become available
to the Bank, and may be quoted by the Bank to the Borrower at the
Bank's option.
Any outstanding principal balance for which a fixed rate of interest option is
in effect will be subject to the "Prepayment Provisions" as outlined below:
PREPAYMENT PROVISIONS:
- ----------------------
If this Note bears interest at a floating or variable rate and no floor or
minimum rate is specified, Borrower may prepay all or any portion of the
principal balance of this Note at any time, without premium or penalty. If
not permitted under the preceding sentence, any prepayment of principal
(including any principal repayment as a result of acceleration by Bank of this
Note) shall require immediate payment to Bank of a prepayment fee equal to
the amount, if any, by which the aggregate present value of scheduled
principal and interest payments eliminated by the prepayment exceeds the
principal amount being prepaid. Said present value shall be calculated by
application of a discount rate determined by Bank in its reasonable judgment
to be the yield-to-maturity at the time of prepayment on U. S. Treasury
securities having a maturity which most closely approximates the final
maturity date of the principal balance then outstanding. Whether or not a
prepayment fee is required hereunder, prepayments shall be applied to
Note Addendum
Arrow International, Inc.
Arrow Medical Products, LTD.
Arrow International Export Corporation
Page Two
scheduled installments of principal in the inverse order of their maturity,
shall be accompanied by payment of accrued interest on the principal amount
being prepaid and, unless this Note has been accelerated by Bank, shall not
be permitted in an amount less than the scheduled principal installment
immediately prior to final maturity of the outstanding principal balance.
ARROW INTERNATIONAL, INC.
By: /s/Marlin Miller, Jr.
-----------------------------
Marlin Miller, Jr., President
By: /s/John H. Broadbent, Jr.
--------------------------------------
John H. Broadbent, Jr., Vice-President
ARROW MEDICAL PRODUCTS, LTD.
By: /s/Marlin Miller, Jr.
-----------------------------
Marlin Miller, Jr., President
By: /s/John H. Broadbent, Jr.
--------------------------------------
John H. Broadbent, Jr., Vice-President
ARROW INTERNATIONAL EXPORT CORPORATION
By: /s/Marlin Miller, Jr.
-----------------------------
Marlin Miller, Jr., President
By: /s/John H. Broadbent, Jr.
--------------------------------------
John H. Broadbent, Jr., Vice-President
EXPLANATION AND WAIVER OF RIGHTS
REGARDING CONFESSION OF JUDGMENT
1. On the date hereof, Arrow Medical Products, Inc., Arrow
International Export Corporation, Arrow International, Inc., a(an)
corporations (the "Obligor") is signing and delivering to CoreStates Bank,
N.A. (the "Bank") a
X Promissory note in the principal sum of Forty-Five Million-------
---
Dollars ($45, 000, 000.00)
Guaranty of Obligations of _________________________
---
Other ______________________________________________
---
(as the same may be renewed, modified, amended, extended, restated or
replaced, whether one or more, the "Obligation"). The Obligor has been
advised by the Bank (and by the Obligor's legal counsel, if applicable) that
the Obligation contains a clause that provides that the Bank may confess
judgment against the Obligor. The Obligor has read the Obligation and
clearly and specifically understands that by signing the Obligation which
contains such confession of judgment clause:
(a) The Obligor is authorizing the Bank to enter a
judgment against the Obligor and in favor of the Bank, which will give the
Bank a lien upon any real estate which the Obligor may own in any county
where the judgment is entered;
(b) The Obligor is giving up an important right to any
notice or opportunity for a hearing before the entry of this judgment on the
records of the Court;
(c) The Obligor is agreeing that the Bank may enter this
judgment and understands that the Obligor will be unable to contest the
validity of the judgment, should the Bank enter it, unless the Obligor
successfully challenges entry of the judgment through a petition to open or
strike the judgment, which will require the Obligor to retain counsel at the
Obligor's expense;
(d) The Obligor may be giving up an important right to
any notice or opportunity for a hearing before the Bank may request and use
the power of the state government to deprive the Obligor of its property
pursuant to the judgment by seizing or having the Sheriff or other official
seize the Obligor's bank accounts, inventory, equipment, furnishings, or any
other personal property that the Obligor may own, to satisfy the Obligation;
(e) The Obligor may be immediately deprived of the use of
any property that is seized by the Bank pursuant to the judgment without
notice or a hearing, and the procedural rules of Pennsylvania's court system
do not guarantee that the Obligor will receive a prompt hearing after the
Obligor's property is seized; and
(f) If the Obligation is the Bank's printed form of Master
Demand Note, Commercial Promissory Note or Security Agreement, or a
Master Note Agreement prepared by the Bank, the Obligor is agreeing that
the Bank may enter judgment whether or not there is a default under the
Obligation.
2. The Obligor knows and understands that it is the confession of
judgment clause in the Obligation which gives the Bank the rights described
in subparagraphs (a) through (f) of paragraph 1 above.
3. Fully and completely understanding the rights which are being
given up if the Obligor signs the Obligation containing the confession of
judgment, the Obligor nevertheless freely, knowingly and voluntarily waives
said rights and chooses to sign the Obligation.
4. The Obligor acknowledges that the proceeds of the Obligation
are to be used for business purposes.
5. If the Obligor is an individual, the Obligor certifies that
his/her annual income exceeds $10,000.00.
Dated this 17th day of July, 1996
-------- ---- --
THE OBLIGOR HAS READ THIS EXPLANATION AND WAIVER
PRIOR TO SIGNING THE OBLIGATION AND FULLY UNDERSTANDS
ITS CONTENTS.
ARROW MEDICAL PRODUCTS, INC., ARROW INTERNATIONAL
EXPORT CORPORATION, ARROW INTERNATIONAL, INC.
-------------------------------------------------
(Name of Corporation/Partnership)
By: /s/Marlin Miller, Jr. By: /s/John H. Broadbent, Jr.
----------------------------- --------------------------------------
Marlin Miller, Jr., President John H. Broadbent, Jr., Vice President
----------------------------- --------------------------------------
(Print Name and Title) (Print Name and Title)
INDIVIDUALS OR PROPRIETORS SIGN BELOW
------------------- ---------------------------------
(Witness Signature) (Signature of Individual Obligor)
------------------- ---------------------------------
(Witness Signature) (Signature of Individual Obligor)
CORPORATE ACKNOWLEDGMENT
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF
On the 17th day of July, 1996, before me, a notary public for said
Commonwealth and County, the undersigned officer, personally
appeared Marlin Miller, Jr. and John H. Broadbent, Jr. who
---------------------------------------------
acknowledged themselves to be the President and Vice-President of
----------------------------
* _______ and that they, as such officers, being authorized to
do so, executed the foregoing Explanation and Waiver of Rights
Regarding Confession of Judgment for the purposes therein contained
by signing the name of the corporation by themselves as such officers.
And said Marlin Miller, Jr. and John H. Broadbent, Jr. did further
---------------------------------------------
certify and acknowledge that they received a true, correct and complete
copy of the foregoing Explanation and Waiver of Rights Regarding
Confession of Judgment. * ARROW MEDICAL PRODUCTS, INC.,
ARROW INTERNATIONAL EXPORT CORPORATION, ARROW
INTERNATIONAL, INC.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Maureen C. Zielaskowski Notarial Seal
Notary Public Maureen C. Zielaskowski
Bern Twp., Berks County
My Commission Expires July 27, 1998
Seal
PARTNERSHIP ACKNOWLEDGMENT
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF
On the _______ day of _____, 19__, before me, a notary
public for said Commonwealth and County the undersigned officer, personally
appeared ________________ who acknowledged himself/herself/themselves
to be General Partner(s) of _________________, a partnership, and who, I
am satisfied is/are the person(s) names in and who executed the within
Explanation and Waiver of Rights Regarding Confession of Judgement
and he/she/they severally acknowledge that he/she/they signed, sealed
and delivered the same as the act and deed of the said partnership for
the uses and purposes therein expressed by signing the name of the
partnership by himself/herself/themselves as partner(s). And said
_______________ each did further certify and acknowledge that he/she/they
received a true, correct and complete copy of the within Explanation
and Waiver of Rights Regarding Confession of Judgment.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
Notary Public
My Commission Expires
Seal
INDIVIDUAL ACKNOWLEDGMENT
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF
On the ____________ day of _______, 19__, before me, a notary
public for said Commonwealth and County, the undersigned officer, personally
appeared _______________ who, I am satisfied is/are the person(s)
named in and who executed the within Explanation and Waiver of
Rights Regarding Confession of Judgment and he/she/they did severally
acknowledge that he/she/they signed, sealed and delivered the same as
his/her/their act and deed for the uses and purposes therein expressed.
And said _____________________ did further certify and acknowledge that
he/she/they received a true, correct and complete copy of the within
Explanation and Waiver of Rights Regarding Confession of Judgment.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
Notary Public
My Commission Expires
Seal
EXHIBIT 10.46
515 Penn Street
PO Box 141
Reading PA 19603
610 655 8109
Fax 610 655 8208
Philip B Shober
Vice President
CORESTATES
HAMILTON BANK
AMH (Arrow Medical Holdings) B.V.
c/o Arrow International, Inc.
P. 0. Box 12888
Reading, PA 19612
Attn.: Mr. John Broadbent, Jr.
Vice President - Finance
Dear John:
I am very pleased to advise you that CoreStates Bank, N.A. ("Bank") has
approved an unsecured bullet loan to AMH (Arrow Medical Holdings)
B.V. ("Borrower") as follows:
Principal Amount of Loan 20 Million Dutch Guilders
Interest Rate Adjusted LIBOR plus .75%, or
a fixed rate as quoted
Repayment Schedule Interest quarterly or at the
expiration of an interest
rate period (whichever is
sooner); principal due at
maturity on July 31, 2001
Use of Proceeds Refinance construction of
plant in Czech Republic
This loan shall have the corporate suretyship of Arrow International, Inc.
("Guarantor"). The Borrower is a wholly-owned subsidiary of the
Guarantor. The form of suretyship ("Guaranty") shall contain a
confession of judgment clause.
The conditions applicable to this credit facility are as follows:
A. The ratio of the Guarantor's "total liabilities" to "tangible
net worth" shall not exceed 1.50 to 1 (tested quarterly).
B. The ratio of the Guarantor's "cash flow" to "debt service"
shall meet or exceed 1.25 to 1, tested annually based on
the consolidated audited financial statement. ("Cash flow"
defined as Net Income plus Depreciation, plus
Amortization, minus Dividends, minus Capital
Expenditures not funded by Bank financing or equity
AMH (Arrow Medical Holdings) B.V.
c/o Arrow International, Inc.
Page Two
injection, plus interest. "Debt Service" defined as
scheduled principal payments on long term debt during the
year, plus interest.)
C. "All General Conditions" as described in the Letter
Agreement dated February 25, 1993 between the Bank and
the Guarantor shall also apply hereto. These General
Conditions are restated below.
a. Receipt of annual consolidated audited financial
statement of the Guarantor prepared by an
independent accounting firm acceptable to the
Bank, within 120 days after the close of the fiscal
year
b. Receipt of quarterly company-prepared financial
statements of the Guarantor.
c. All of the credit facilities now or hereafter
outstanding between the Bank, Borrower,
Guarantor, or any of the Guarantor's wholly-owned
subsidiaries shall be cross-defaulted, such that a
default under any of the credit facilities shall,
without more, constitute a default under all of the
credit facilities.
d. The Guarantor will not merge into, or consolidate
with, one or more corporations where the
Guarantor is not the surviving corporation, or be a
party to any transaction involving the transfer, or
pledging as collateral, of any material portion of its
assets, revenues, or properties to or with any lender
or other Creditor, or any other corporation or other
Person, or resulting in any material change of
control of the Guarantor, without the prior written
consent of the Bank.
e. Any change in the senior management personnel of
the Guarantor must be promptly disclosed in
writing to the Bank.
D. All other terms and conditions as outlined in the
Commercial Promissory Note and Addendum thereto of
even date herewith, the terms of which are incorporated
herein by reference.
All costs incurred by the Bank on connection with the extension and/or
establishment of the credit facilities as outlined above, including but not
limited to the reasonable fees of Bank's legal counsel shall be paid by the
Borrower.
The Borrower has not breached and is not in violation of any
environmental protection law, rule, or regulation. The Borrower further
agrees to notify the Bank in writing immediately of any such breach or
violation.
AMH (Arrow Medical Holdings) B.V.
c/o Arrow International, Inc.
Page Three
The availability of the foregoing is also contingent upon the execution and
delivery to the Bank of such other loan documentation, including
commercial loan notes, corporate borrowing resolutions, and other
documentation ("Related Documentation") as may be required by the
Bank. The terms and conditions of this Letter shall survive the execution
and/or delivery of any other documentation and shall remain in full force
and effect until all obligations of the Borrower to the Bank are performed
and paid in full. Any failure by the Borrower and/or the Guarantor to
fulfill and perform any of their obligations to the Bank hereunder or
under the credit facilities provided or extended herein shall be deemed a
default hereunder, under all other obligations of the Borrower and/or the
Guarantor, and under any related documentation. Any default under or
pursuant to any other obligations of the Borrower and/or the Guarantor or
under any related documentation shall be deemed a default hereunder and
under the credit facilities provided or extended herein.
Please acknowledge your concurrence with these terms and conditions by
signing, dating and returning the enclosed copy of this letter to the Bank.
Sincerely,
Philip B. Shober
Vice President
PBS/pl
July 11, 1996
Enclosures
ACKNOWLEDGMENT PAGE FOLLOWS.
AMH (Arrow Medical Holdings) B.V.
c/o Arrow International, Inc.
Page Four
ACKNOWLEDGMENT
--------------
The terms and conditions outlined in this letter
are hereby accepted and agreed to, intending to be
legally bound this 17th day of July, 1996.
AMH (ARROW MEDICAL HOLDINGS) B.V.
By: /s/Marlin Miller, Jr.
-------------------------------------
Marlin Miller, Jr., Managing Director
By: /s/John Broadbent, Jr.
--------------------------------------
John Broadbent, Jr., Managing Director
GUARANTOR:
ARROW INTERNATIONAL, INC.
By: /s/Marlin Miller, Jr.
-------------------------------------
Marlin Miller, Jr., Managing Director
By: /s/John Broadbent, Jr.
--------------------------------------
John Broadbent, Jr., Managing Director
For Bank Use Only
COMMERCIAL PROMISSORY NOTE
CORESTATES
$20,000,000 Guilder July 17, 1996
- ------------------- -------------
FOR VALUE RECEIVED, each of the undersigned, jointly and
severally if more than one (hereinafter collectively referred to as
"Borrower"), promises to pay to the order of CORESTATES BANK,
N.A.*, a national banking association (the "Bank"), organized under the
laws of the United States of America, through its offices in London and
in the manner and place set forth in the attached Addendum to
Commercial Promissory Note, the terms of which are incorporated herein
and shall be controlling, the principal sum of Twenty Million Guilder,
currently of The Netherlands, plus interest, as set forth in the Addendum.
ADDITIONAL TERMS OF THIS NOTE - EACH OF THE FOLLOWING
PROVISIONS SHALL APPLY TO THIS NOTE, TO ANY EXTENSION OR MODIFICATION
HEREOF AND TO THE INDEBTEDNESS EVIDENCED HEREBY, EXCEPT AS OTHERWISE
EXPRESSLY STATED ABOVE OR IN A SEPARATE WRITING SIGNED BY BANK AND
BORROWER.
INTEREST - Interest shall be calculated on the basis of a 360-day year
and shall be charged for the actual number of days elapsed. Accrued
interest shall be payable monthly. Accrued interest shall also be payable
when the entire principal balance of this Note becomes due and payable
(whether by demand, stated maturity or acceleration) or, if earlier, when
such principal balance is actually paid to Bank. If the rate at which
interest accrues is based on the "Prime Rate", that term is defined as the
rate of interest for loans established by Bank from time to time as its
prime rate. Said per annum rate of interest shall change each time Bank's
prime rate shall change, effective on and as of the date of the change.
Interest shall accrue on each disbursement hereunder from the date such
disbursement is made by Bank, provided, however, that to the extent this
Note represents a replacement, substitution, renewal or refinancing of
existing indebtedness, interest shall accrue from the date hereof. Interest
shall accrue on the unpaid balance hereof at the rate provided for in this
Note until the entire unpaid balance has been paid in full, notwithstanding
the entry of any judgment against Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate
and no floor or minimum rate is specified, Borrower may prepay all or
any portion of the principal balance of this Note at any time, without
premium or penalty. If not permitted under the preceding sentence. any
prepayment of principal (including any principal repayment as a result of
acceleration by Bank of this Note) shall require immediate payment to
Bank of a prepayment fee equal to the amount, if any, by which the
aggregate present value of scheduled principal and interest payments
eliminated by the prepayment exceeds the principal amount being
prepaid. Said present value shall be calculated by application of a
discount rate determined by Bank in its reasonable judgment to be the
yield-to-maturity at the time of prepayment on U.S. Treasury securities
having a maturity which most closely approximates the final maturity date
of the principal balance then outstanding. Whether or not a prepayment
fee is required hereunder, prepayments shall be applied to scheduled
installments of principal in the inverse order of their maturity, shall be
accompanied by payment of accrued interest on the principal amount
being prepaid and, unless this Note has been accelerated by Bank, shall
not be permitted in an amount less than the scheduled principal
installment immediately prior to final maturity of the outstanding
principal balance.
COLLATERAL - As security for all indebtedness to Bank now or
hereafter incurred by Borrower, under this Note or otherwise, Borrower
grants Bank a lien upon and security interest in any securities,
instruments or other personal property of Borrower now or hereafter in
Bank's possession and in any deposit balances now or hereafter held by
Bank for Borrower's account, and in all proceeds of any such personal
property or deposit balances. Such liens and security interest shall be
independent of Bank's right of setoff. This Note and the indebtedness
evidenced hereby shall be additionally secured by any lien or security
interest evidenced by a writing (whether now existing or hereafter
executed) which contains a provision to the effect that such lien or
security interest is intended to secure (a) this Note or indebtedness
evidenced hereby or (b) any category of liabilities, obligations or
indebtedness of Borrower to Bank which includes this Note or the
indebtedness evidenced hereby, and all property subject to any such lien
or security interest shall be collateral for this Note.
EVENTS OF DEFAULT - Each of the following shall be an Event of
Default hereunder: (a) the nonpayment when due of any amount payable
under this Note or under any obligation or indebtedness to Bank of
Borrower or any person liable, either absolutely or contingently, for
payment of any indebtedness evidenced hereby, including endorsers,
guarantors and sureties (each such person is referred to as an "Obligor");
(b) if Borrower or any Obligor has failed to observe or perform any other
existing or future agreement with Bank of any nature whatsoever; (c) if
any representation, warranty, certificate, financial statement or other
information made or given by Borrower or any Obligor to Bank is
materially incorrect or misleading; (d) if Borrower or any Obligor shall
become insolvent or make an assignment for the benefit of creditors or if
any petition shall be filed by or against Borrower or any Obligor under
any bankruptcy or insolvency law; (e) the entry of any judgment against
Borrower or any Obligor which remains unsatisfied for 15 days or the
issuance of any attachment, tax lien, levy or garnishment against any
property of material value in which Borrower or any Obligor has an
interest; (f) if any attachment, levy, garnishment or similar legal process
is served upon Bank as a result of any claim against Borrower or any
Obligor or against any property of Borrower or any Obligor; (g) the
dissolution, merger, consolidation or change in control (as control is
defined in Rule 12b-2 Under the Securities Exchange Act of 1934), of
any Borrower which is a corporation or partnership, or the sale or
transfer of any substantial portion of any of Borrower's assets, or if any
agreement for such dissolution, merger, or consolidation, change in
control, sale or transfer is entered into by Borrower, without the written
consent of Bank; (h) the death of any Borrower or Obligor who is a
natural person; (i) if Bank determines reasonably and in good faith that an
event has occurred or a condition exists which has had, or is likely to
have, a material adverse effect on the financial condition or
creditworthiness of Borrower or any Obligor, or on the ability of
Borrower or any Obligor to perform its obligation evidenced by this
Note; (j) if Borrower shall fail to remit promptly when due to the
appropriate government agency or authorized depository, any amount
collected or withheld from any employee of Borrower for payroll taxes,
Social Security payments or similar payroll deductions; (k) if any Obligor
shall attempt to terminate or disclaim such Obligor's liability for the
indebtedness evidenced by this Note; (l) if Bank shall reasonably and in
good faith determine and notify Borrower that any collateral for this Note
or for the indebtedness evidenced hereby is insufficient as to quality or
quantity; (m) if Borrower shall fail to pay when due any material
indebtedness for borrowed money other than to Bank; or (n) if Borrower
shall be notified of the failure of Borrower or any Obligor to provide
financial and other information promptly when reasonably requested by
Bank. IF THIS NOTE IS PAYABLE ON DEMAND, Bank's right to demand
payment hereof shall not be restricted or impaired by the absence,
non-occurrence or waiver of an Event of Default, and it is understood that
if this Note is payable on demand, Bank may demand payment at any
time.
- ------------------------------------------------------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National
Bank, as CoreStates First Pennsylvania Bank and as CoreStates Hamilton
Bank
8979-C 10/93
BANK'S REMEDIES - Upon the occurrence of one or more Events of
Default (including, if this Note is payable on demand, any Event of
Default resulting from Borrower's failure to make any payment hereunder
when demanded), unless Bank elects otherwise, the entire unpaid balance
of this Note and all accrued interest shall be immediately due and payable
without notice to Borrower or any Obligor, and Bank may, immediately
or at any time thereafter, exercise any or all of its rights and remedies
hereunder or under any agreement or otherwise under applicable law
against Borrower, any Obligor and any collateral. Bank may exercise its
rights and remedies in any order and may, at its option, delay in or
refrain from exercising some or all of its rights and remedies without
prejudice thereto. Upon the occurrence of any such Event of Default or
at any time thereafter, Bank may, at its option, and upon five days
written notice to Borrower, begin accruing interest on this Note, at a rate
not to exceed five percent (5%) per annum in excess of the greater of (a)
the rate of interest provided for above, or (b) the Prime Rate in effect
from time to time on the unpaid principal balance hereof; provided,
however, that no interest shall accrue hereunder in excess of the
maximum rate permitted by law. All such additional interest shall be
payable on demand.
NOTICE TO BORROWER - Any notice required to be given by Bank
under the provisions of this Note shall be effective as to each Borrower
and each Obligor when addressed to Borrower and deposited in the mail
postage prepaid, for delivery by first class mail at Borrower's mailing
address as it appears on Bank's record.
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or
any portion thereof, may be credited by Bank to the deposit account of
Borrower, or disbursed in any other manner requested by Borrower and
approved by Bank. If Borrower so requests, Bank may, at its option,
disburse the proceeds of this Note in more than one disbursement on the
same or different dates, but except as otherwise agreed by Bank in
writing, no action taken by Bank in response to any such request shall be
deemed to create or shall imply the existence of any commitment or
obligation to pay or credit the undisbursed portion of this Note. All
payments due under this Note are to be made in immediately available
funds. If Bank accepts payment in any other form, such payment shall
not be deemed to have been made until the funds comprising such
payment have actually been received by or made available to Bank. If
Borrower is not an individual, Borrower authorizes Bank (but Bank shall
have no obligation) to charge any deposit account in Borrower's name for
any and all payments of principal or any other amounts due under this
Note.
PAYMENT OF COSTS - In addition to the principal and interest payable
hereunder, Borrower agrees to pay Bank, on demand, all costs and
expenses (including reasonable attorneys' fees and disbursements) which
may be incurred by Bank in the collection of this Note or the enforcement
of Bank's rights and remedies hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation
or a general or limited partnership, Borrower represents and warrants that
it is validly existing and in good standing in the jurisdiction under whose
laws it was organized. If Borrower is a corporation, Borrower represents
and warrants that the execution, delivery and performance of this Note
are within Borrower's corporate powers, have been duly authorized by all
necessary action by Borrower's Board of Directors, and are not in
contravention of the terms of Borrower's charter, by-laws, or any
resolution of its Board of Directors. If Borrower is a general or limited
partnership, Borrower represents and warrants that the execution,
delivery and performance of this Note have been duly authorized and are
not in conflict with any provision of Borrower's partnership agreement or
certificate of limited partnership. Borrower further represents and
warrants that this Note has been validly executed and is enforceable in
accordance with its terms, that the execution, delivery and performance
by Borrower of this Note are not in contravention of law and do not
conflict with any indenture, agreement or undertaking to which Borrower
is a party or is otherwise bound, and that no consent or approval of any
governmental authority or any third party is required in connection with
the execution, delivery and performance of this Note.
WAIVER, ETC. - Borrower and each Obligor waive presentment,
dishonor, notice of dishonor, protest and notice of protest. Neither the
failure nor any delay on the part of Bank to exercise any right, remedy,
power or privilege hereunder shall operate as a waiver or modification
thereof. No consent, waiver or modification of the terms of this
Note shall be effective unless set forth in a writing signed by Bank.
All rights and remedies of Bank are cumulative and concurrent and no single
or partial exercise of any power or privilege shall preclude any other or
further exercise of any right, power or privilege.
MISCELLANEOUS - This Note is the unconditional obligation of
Borrower and Borrower agrees that Bank shall not be required to exercise
any of its rights or remedies against any collateral in which it holds a lien
or security interest or against which it has a right of setoff or against any
particular Obligor. All representations, warranties and agreements herein
are made jointly and severally by each Borrower. If any provision of this
Note shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof. To the extent
that this Note represents a replacement, substitution, renewal or
refinancing of a pre-existing note or other evidence of indebtedness, the
indebtedness represented by such pre-existing note or other instrument
shall not be deemed to have been extinguished hereby. In the event that
any due date specified or otherwise provided for in this Note shall fall on
a day on which Bank is not open for business, such due date shall be
postponed until the next banking day, and interest and any fees or similar
charges shall continue to accrue during period of postponement. This
Note has been delivered in and shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without
regard to the law of conflicts. This Note shall be binding upon each
Borrower and each Obligor and upon their personal representatives,
heirs, successors and assigns, and shall benefit Bank and its successors
and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. EACH UNDERSIGNED
PARTY HEREBY IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN ANY COUNTY OF THE COMMONWEALTH
OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE
AND AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF THE
VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH
UNDERSIGNED PARTY AGREES THAT SERVICE OF PROCESS IN
ANY SUCH PROCEEDING, MAY BE DULY EFFECTED UPON IT
BY MAILING A COPY THEREOF, BY REGISTERED MAIL,
POSTAGE PREPAID, TO EACH UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY
HEREBY WAIVES, AND BANK BY ITS ACCEPTANCE HEREOF
THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO
THIS NOTE OR THE RELATIONSHIP EVIDENCED HEREBY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK TO
ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed
instrument and intending to be legally bound hereby, has executed and
delivered this Note as of the day and year first above written.
- -------------------------------------------------------------------------
Name of Corporation
or Partnership AMH (Arrow Medical Holdings) B.V.
By: /s/Marlin Miller, Jr. By: /s/John Broadbent, Jr.
-------------------------------- --------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
Marlin Miller, Jr., Managing Director John Broadbent, Jr., Managing Director
(Print or Type Name and Title of Signer Above)
(Print or Type Name and Title of Signer Above)
INDIVIDUALS SIGN BELOW
- ---------------------- --------------------------- (Seal)
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- ------------------------------
(Print or Type Name of Above Witness)
(Print or Type Name of Borrower Signing Above)
- ---------------------- -------------------------- (Seal)
(Signature of Witness) (Signature of Individual Borrower)
- ------------------------------------- ------------------------------
(Print or Type Name of Above Witness)
(Print or Type Name of Borrower Signing Above)
GUARANTY
CORESTATES
This Guaranty is made and entered into by the undersigned, and
by each of them if more than one (the "Guarantor"), for the benefit of
CoreStates Bank, N.A.*, a national banking association (the "Bank").
1. OBLIGOR. the "Obligor" means the following person or entity, and
if more than one, any or all of the following persons or entities:
AMH (Arrow Medical Holdings) B.V.
---------------------------------
2. OBLIGATIONS. The "Obligations" means all existing and hereafter
incurred or arising indebtedness, obligations and liabilities of the Obligor
to the Bank, whether absolute or contingent, direct or indirect and out of
whatever transactions arising, and includes without limitation, all matured
and unmatured indebtedness, obligations and liabilities of the Obligor
under or in connection with existing and future loans and advances
evidenced by promissory notes or otherwise, letters of credit,
acceptances, all other extensions of credit, repurchase agreements,
security agreements, mortgages, overdrafts, foreign exchange contracts
and all other contracts for payment or performance, indemnities, and all
indebtedness, obligations and liabilities under any guaranty or surety
agreement, or as co-maker or co-obligor with any person for any of the
foregoing, including without limitation all interest, expenses, costs
(including collection costs) and fees (including reasonable attorney's fees
and prepayment fees) incurred, arising or accruing (whether prior or
subsequent to the filing of any bankruptcy petition by or against any
Obligor) under or in connection with any of the foregoing. If the term
"Obligor" includes more than one person or entity, the Obligations shall
include all Obligations of any one or more of such persons or entities,
whether such Obligations are individual, joint, several or joint and
several.
3. UNCONDITIONAL GUARANTY. In consideration of any existing
Obligations and any Obligations which may hereafter arise or be
incurred, each Guarantor, intending to be legally bound absolutely and
unconditionally (and jointly and severally if more than one) guaranties to
Bank the payment, performance and satisfaction when due (whether by
stated maturity, demand, acceleration or otherwise) of all Obligations.
The obligations of the Guarantor hereunder shall continue in full force
and effect irrespective of the validity, legality or enforceability of any
agreements, notes or documents pursuant to which any of the Obligations
arise, or the existence, value or condition of any collateral for any of the
Obligations, or of any other guaranty of the Obligations, or any other
circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor.
4. COST OF ENFORCEMENT. Each Guarantor agrees jointly and
severally if more than one) to pay Bank all costs and expenses (including
reasonable attorneys' fees) at any time incurred by Bank in the
enforcement of this Guaranty against any Guarantor.
5. PAYMENT BY GUARANTOR. Payment by each Guarantor is due upon
demand by Bank and is payable in immediately available funds in Dutch
Guilders at CoreStates Bank, London, England.
6. CONTINUING GUARANTY. This Guaranty shall continue in full force
and effect with respect to each Guarantor and may not be revoked until
all existing Obligations and all Obligations hereafter incurred or arising
have been paid, performed and satisfied in full. Notwithstanding the
foregoing, any Guarantor may, by written notice to Bank, terminate its
liability hereunder with respect to Obligations which are not Pre-
Termination Obligations as hereinafter defined. Such notice shall be
ineffective unless sent via certified mail to: Special Notices Section,
Commercial Loan Services, CoreStates Bank, N.A., P. 0. Box 3850, F.
C. 6-93-1-42, Lancaster, PA 17604
The burden of establishing (i) that Bank has received any termination
notice hereunder and (ii) the day on which such notice was received shall
be on Guarantor. In the event that Bank receives an effective termination
notice from Guarantor in accordance with the provisions of this
paragraph, such termination shall not affect Guarantor's liability (a) for
Obligations incurred or arising on or prior to the tenth day following
receipt by Bank of such termination notice, or any earlier day, on which
Bank determines in good faith that the appropriate Bank officers have
actual knowledge of Bank's receipt of such notice (the "Termination
Effective Date"), (b) for Obligations which are renewals, modifications,
amendments, extensions, substitutions, replacements or rollovers of, or
which consist of accrued interest on, Obligations incurred or arising on
or prior to the Termination Effective Date, or (c) for Obligations incurred
or arising pursuant to a commitment existing on the Termination
Effective Date under which Bank was obligated to extend credit or make
payments to Obligor or for Obligor's account, all Obligations referred to
in this sentence being hereinafter collectively called "Pre-Termination
Obligations". It is understood that for purposes of this Guaranty and
regardless of any conflicting agreement between Bank and any Obligor,
all payments on and other reductions of the Obligations subsequent to the
Termination Effective Date (other than payments made by Guarantor in
respect of the Guaranty itself) shall, unless Bank elects otherwise in
writing, be applied first to Obligations other than Pre-Termination
Obligations, and then to Pre-Termination Obligations. It is further
understood that the provisions of the preceding sentence shall be
applicable regardless of the amount of any new Obligations incurred or
arising subsequent to the Termination Effective Date.
7. WAIVERS AND CONSENTS BY GUARANTOR. Each Guarantor
unconditionally consents to, and waives as a defense to liability
hereunder, each of the following:
(a) any waiver, inaction, delay or lack of diligence by Bank in enforcing
its rights against any Obligor or in any property, or the unenforceability
of any such rights, including any failure to perfect, protect or preserve
any lien or security interest which may be intended directly or indirectly
to secure any of the Obligations, and the absence of notice thereof to any
Guarantor, (b) the absence of any notice of the incurrence or existence of
any Obligation, (c) any action, and the absence of notice thereof to any
Guarantor, taken by Bank or any Obligor with respect to any of the
Obligations, including any release, subordination or substitution of any
collateral or release, termination, compromise, modification or
amendment of any instrument executed by or applicable to any Obligor or
of any claim, right or remedy against any Obligor or any property, (d)
any impairment of Guarantor's right to reimbursement by way of
subrogation, indemnification or contribution, (e) any other action taken or
omitted by Bank in good faith with respect to the Obligations, (f) the
absence or inadequacy of any formalities of every kind in connection with
enforcement of the Obligations, including presentment, demand, notice
and protest, and (g) the waiver of any rights of Bank under or any action
taken or omitted by Bank with respect to any other guaranty of the
Obligations.
8. OTHER AGREEMENTS BY GUARANTOR. Each Guarantor agrees that
there shall be no requirement that Bank document its acceptance of this
Guaranty, evidence its reliance thereon, or that Bank take any action
against any person or any property prior to taking action against any
Guarantor. Each Guarantor further agrees that Bank's rights and
remedies hereunder shall not be impaired or subject to any stay,
suspension or other delay as a result of Obligor's insolvency or as a result
of any proceeding applicable to Obligor or Obligor's property under any
bankruptcy or insolvency law. Each Guarantor also agrees that payments
and other reductions on the Obligations may be applied to such of the
Obligations and in such order as Bank may elect.
9. SUBROGATION AND SIMILAR RIGHTS. No Guarantor will exercise
any rights with respect to Bank or any Obligor related to or acquired in
connection with or as a result of its making of this Guaranty which it may
acquire by way of subrogation, indemnification or contribution, by reason
of payment made by it hereunder or otherwise, until after the date on
which all of the Obligations shall have been satisfied in full. Until such
time, any such rights against the Obligor shall be fully subordinate in lien
and payment to any claim in connection with the Obligations which Bank
now or hereafter has against the Obligor. If any amount shall be paid to
any Guarantor on account of such subrogation, indemnification or
contribution at any time when all of the Obligations and all other
expenses guaranteed pursuant hereto shall not have been paid in full, such
amount shall be held in trust for the benefit of Bank, shall be segregated
from the other funds of Guarantor and shall forthwith be paid over to
Bank to be applied in whole or in part by Bank against the Obligations,
whether matured or unmatured, in such order as the Bank shall determine
in its sole discretion. If Guarantor shall make payment to the Bank of all
or any portion of the Obligations and all of the Obligations shall be paid
in full, Guarantor's right of subrogation shall be without recourse to and
without any implied warranties by Bank and shall remain fully subject
and subordinate to Bank's right to collect any other amounts which may
thereafter become due to the Bank by the Obligor in connection with the
Obligations.
- ------------------------------------------------------------------------
* CoreStates Bank, N.A. also conducts business as Philadelphia National
Bank, as CoreStates First Pennsylvania Bank and as CoreStates Hamilton
Bank
10. REINSTATEMENT OF LIABILITY. If any claim is made upon the Bank
for repayment or recovery of any amount or amounts received by Bank in
payment or on account of any Obligations and Bank repays all or part of
said amount by reason of (a) any judgment, decree or order of any court
or administrative body having jurisdiction over the Bank or any of its
property, or (b) any settlement or compromise in good faith with any
such claimant (including Obligor), then and in such event each Guarantor
agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon the Guarantor, notwithstanding any termination
hereof or the cancellation of any note or other instrument evidencing any
Obligation, and each Guarantor shall remain liable to the Bank hereunder
for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by Bank.
11. SECURITY INTEREST. Each Guarantor hereby assigns to the Bank
and grants to the Bank a security interest in any balance or assets in any
deposit or other account of such Guarantor in or with the Bank whenever
and so long as any of the Obligations shall be outstanding and unpaid and
agrees that the security interest hereby granted shall be independent of the
right of setoff.
12. FINANCIAL INFORMATION ON GUARANTOR. Each Guarantor hereby
agrees to provide the Bank with such information on the business affairs
and financial condition of such Guarantor as the Bank from time to time
may reasonably request and to notify the Bank of any change in the
address of such Guarantor. In the event that such Guarantor fails to
comply with a request for information as herein agreed, within ten (10)
days after receipt of the request, such Guarantor upon demand by the
Bank agrees to purchase from the Bank without representation, warranty
or recourse the Obligations and to pay therefor the unpaid principal
amount of all such Obligations, including interest thereon to the date of
purchase.
13. EFFECT OF OTHER AGREEMENTS. The provisions of this Guaranty
are cumulative and concurrent with Bank's rights and remedies against
Guarantor under any existing or future agreement pertaining or
evidencing any of the Obligations. No such additional agreement shall be
deemed a modification or waiver hereof unless expressly so agreed by
Bank in writing. If Bank holds any other guaranty or surety agreement
applicable to any of the Obligations, the liability of each Guarantor
hereunder shall be joint and several with each party obligated on such
other guaranty or surety agreement, unless otherwise agreed by Bank in
writing.
14. CONFESSION OF JUDGEMENT: WARRANT OF ATTORNEY - Each Guarantor
irrevocably authorizes and empowers any attorney or any clerk of court
of record, upon the occurrence of a default or an Event of Default under
or in connection with any of the Obligations, or at any time thereafter, to
appear for and confess judgment against such Guarantor for the full
amount of such Guarantor's liability under paragraph 3 hereof, with or
without declaration with costs of suit and release of errors, without stay
of execution and with an amount not to exceed the greater of five percent
(5%) of the principal amount of such judgment or $5,000 added for
collection fees. If a copy of this Guaranty, verified by affidavit by or on
behalf of Bank, shall have been filed in such action, it shall not be
necessary to file the original of this Guaranty. The authority granted
hereby shall not be exhausted by the initial exercise thereof and may be
exercised by Bank from time to time. There shall be excluded from the
lien of any judgment obtained solely pursuant to this paragraph all
improved real estate in any area identified by the Federal Emergency
Management Agency as having special flood hazards if the community in
which such area is located is participating in the National Flood Insurance
Program. Any such exclusion shall not affect any lien upon property not
so excluded.
15. GUARANTOR'S ADDRESS. Guarantor warrants and represents that
the address set forth below is Guarantor's correct mailing address and
agrees immediately to notify Bank in the event of any change therein.
16. MISCELLANEOUS. (a) No amendment of any provision of this
Guaranty shall be effective unless it is in writing and signed by each
Guarantor and Bank, and no waiver of any provisions of this Guaranty,
and no waiver or consent to any departure by the Guarantor therefrom,
shall be effective unless it is in writing and signed by Bank, and then
such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. (b) Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction. (c) The obligations of each Guarantor hereunder shall not be
subject to any counterclaim, setoff, deduction or defense based upon any
related or unrelated claim which such Guarantor may now or hereafter
have against Bank or any Obligor, except payment of the Obligations,
and shall not be affected by any change in Obligor's legal status or
ownership or by any change in corporate, partnership or other
organizational structure applicable to Obligor. (d) This Guaranty shall (i)
be binding on each Guarantor and its personal representatives, estate,
heirs, successors and assigns, and (ii) inure, together, with all rights and
remedies of Bank hereunder, to the benefit of the Bank and its successors,
transferees and assigns. Notwithstanding the foregoing clause (i), none
of the rights or obligations of any Guarantor hereunder may be assigned
or otherwise transferred without the prior written consent of the Bank. (e)
This Guaranty shall be governed by and construed in accordance with the
internal laws, and not the law of conflicts, of the Commonwealth of
Pennsylvania.
17. CONSENT TO JURISDICTION AND VENUE. IN ANY
LEGAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED
TO THIS GUARANTY OR THE RELATIONSHIP EVIDENCED
HEREBY, EACH UNDERSIGNED PARTY HEREBY
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN ANY COUNTY IN THE COMMONWEALTH OF
PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE AND
AGREES NOT TO RAISE ANY OBJECTION TO SUCH
JURISDICTION OR TO THE LAYING OR MAINTAINING OF
THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY.
EACH UNDERSIGNED PARTY AGREES THAT SERVICE OF
PROCESS IN ANY SUCH PROCEEDING MAY BE DULY
EFFECTED UPON IT BY MAILING A COPY THEREOF, BY
REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
18. WAIVER OF JURY TRIAL. EACH UNDERSIGNED PARTY
HEREBY WAIVES, AND BANK BY ITS ACCEPTANCE HEREOF
THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED
TO THIS GUARANTY OR THE RELATIONSHIP EVIDENCED
HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK TO ENTER INTO, ACCEPT OR RELY UPON THIS
GUARANTY.
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty as
of the 17th day of July 1996.
ARROW INTERNATIONAL, INC.
-------------------------
NAME OF CORPORATION OR PARTNERSHIP GUARANTOR
ADDRESS
By: /s/Marlin Miller, Jr. By: /s/John Broadbent, Jr.
--------------------- ----------------------
Marlin Miller, Jr., President John Broadbent, Jr., Vice President
INDIVIDUALS OR PROPRIETORS SIGN BELOW
--------- ---------------------- ------------------------
WITNESS ADDRESS OF GUARANTOR SIGNATURE OF GUARANTOR
--------- ---------------------- ------------------------
WITNESS ADDRESS OF GUARANTOR SIGNATURE OF GUARANTOR
ADDENDUM
TO
COMMERCIAL PROMISSORY NOTE ("Note")
Note Dated: July 17, 1996
Maker/Borrower: AMH (Arrow Medical Holdings) B.V.
Payee/Bank/Lender: CoreStates Bank, N.A.
Principal Amount: 20,000,000.00 Dutch Guilder
This Addendum is a part of and is hereby incorporated into the
Note. In the event of any inconsistency between the terms of the Note
and the terms of this Addendum, the terms of this Addendum shall
control.
1. Interest Rates and Due Date.
---------------------------
1.1 The entire principal balance outstanding hereunder shall
bear interest for each day during each Interest Period
hereafter established at a rate per annum to be selected by
the Borrower, subject to the conditions set forth herein,
from among the following interest rate options:
(a) "Interest Rate Option A": the LIBOR Rate plus
three-quarters of one percent (0.75%); or
(b) "Interest Rate Option B": a fixed rate of interest for
a specified Interest Period quoted by the Lender and
accepted by the Borrower quoted by the Lender and
accepted by the Borrower.
1.2 As used herein, the "LIBOR Rate" means the interest rate
per annum determined by averaging the respective rates at which
deposits in Dutch Guilder are offered to leading banks in the
London Interbank Market at the Lender's request at or about
11:00 a.m. prevailing London time two (2) Working Days before
the date that the LIBOR Rate shall become applicable hereto, for a
period of time comparable to the Interest Period to be made
applicable hereto and in an amount comparable to the principal
amount outstanding hereunder.
1.3 As used herein, "Interest Period" shall mean:
(a) with respect to Interest Rate Option B described hereinabove,
such period of time as the Lender shall specify in conjunction with
the quotation of the fixed rate; or
(b) with respect to Interest Rate Option A described hereinabove,
the following:
(i) initially, the period commencing on the
borrowing or conversion date, as the case may be,
with respect to such LIBOR Rate and ending one,
two, three, six or twelve months thereafter, as
selected by the Borrower in its notice of borrowing
or notice of conversion, as the case may be,
given with respect thereto; and
(ii) thereafter, each period commencing on the day
following the last day of the next preceding Interest
Period applicable to such LIBOR Rate and ending
one, two, three, six or twelve months thereafter, as
selected by the Borrower by irrevocable notice to
the Lender;
provided that, all of the foregoing provisions
relating to Interest Periods are subject to the
following:
(1) if any Interest Period pertaining to the
LIBOR Rate would otherwise end on a day that is
not a Working Day, such Interest Period shall be
extended to the next succeeding Working Day
unless the result of such extension would be to
carry such Interest Period into another calendar
month in which event such Interest Period shall end
on the immediately preceding Working Day;
(2) any LIBOR Rate Interest Period that would
otherwise extend beyond the Due Date of this Note
shall end on the Due Date of this Note; and
(3) any Interest Period pertaining to a LIBOR
Rate that begins on the last Working Day of a
calendar month (or on a day for which there is no
numerically corresponding day in the calendar
month at the end of such Interest Period) shall end
on the last Working Day of a calendar month.
1.4 The selection by Borrower of an interest rate permitted
pursuant to Section 1.1 hereinabove, as well as the acceptance by
Borrower of an interest rated quoted by the Lender pursuant to
Interest Rate Option B, shall be accomplished by the Borrower
delivering to Lender its irrevocable written notice at least two (2)
Business Days prior to the proposed starting date of an Interest
Period for Interest Rate Option B or at least two (2) Working
Days prior to the proposed starting date of an Interest Period for
Interest Rate Option A. Such written notices from Borrower to
Lender shall be deemed given when received by the Lender and
may be transmitted by regular mail, delivery service or telecopier
addressed to the "Attention of Loan Administration" at the
following address:
CoreStates Bank, N.A. - London
Centurion House
2
24 Monument Street
London EC 3R 8AJ
England
Telecopier: 071 623 5346
1.5 All outstanding and unpaid principal, accrued and unpaid
interest and any other sums remaining unpaid hereunder shall be
due and payable in full on July 31, 2001 (the "Due Date"). Prior
to the Due Date, Borrower shall pay interest quarterly, at the end
of each calendar quarter, or at the expiration of the applicable
Interest Period, if same occurs prior to the end of the then current
calendar quarter.
1.6 The Borrower may on the last day of any Interest Period
prepay this Note in whole or in part, without premium or penalty,
upon at least two (2) Working Days' irrevocable notice to the
Lender while Interest Rate Option A is in effect or upon two (2)
Business Days' irrevocable notice to the Lender while Interest
Rate Option B is in effect, specifying the date and the amount of
prepayment. Any prepayment prior to the conclusion of an
Interest Period shall be accompanied by the Breakage Costs.
Partial prepayments shall be in an aggregate principal amount of
$100,000.00 or a whole multiple of $50,000.00 in excess thereof.
Principal amounts prepaid prior to the Due Date hereunder may
not be reborrowed.
1.7 As used in this Addendum, the following terms shall have
the following meanings:
(a) "Breakage Costs" shall mean the aggregate amount of
such costs and fees as are determined by Lender in its sole
reasonable discretion to be applicable and payable upon the
prepayment, prior to the conclusion of the then applicable
Interest Period as to which Interest Option A is in effect, of
all or any portion of this Note, including but not limited to
any loss, including loss of interest income, costs or expenses
arising from the redeployment of funds and fees payable to
terminate the deposits from which such funds were obtained.
(b) "Business Day" or "Business Days" shall mean any day
or days other than a Saturday, Sunday, a public holiday
under the laws of the Commonwealth of Pennsylvania and/or
the United States of America, or other day on which banking
institutions are authorized or obligated to close in
Philadelphia, Pennsylvania.
(c) "Working Day" shall mean any Business Day on which
dealings in foreign currencies and exchange between banks
may be carried on in London, England.
3
1.8 Inability to Determine Interest Rate. If prior to the first
------------------------------------
day of any Interest Period:
(a) the Lender shall have determined (which determination
shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for
ascertaining the LIBOR Rate for such Interest Period, or
(b) the Lender shall have determined that the LIBOR Rate
determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to the Lender
(as conclusively certified by the Lender) of maintaining the
loan evidenced by the Note during such Interest Period,
the Lender shall give telecopy or telephonic notice thereof to the
Borrower as soon as practicable thereafter. If such notice is
given, and until the same is withdrawn by the Lender in writing,
Interest Rate Option A shall be unavailable and Interest Rate
Option B shall be applicable hereto.
2. Procedure for Borrowing. The full principal sum shall be
-----------------------
advanced by the Lender to the Borrower concurrently with the execution
of this Note and all related documentation executed in connection
herewith, and shall be paid to or on behalf of the Borrower in accordance
with the Borrower's written instructions.
3. Payments.
--------
3.1 Any payment to be made by the Borrower hereunder shall
be made in immediately available cleared funds in Dutch Guilder
before 2:00 o'clock p.m. London time on the date on which
payment thereof is due by Borrower's payment to Rabo Bank,
Utrecht The Netherlands (SWIFT address RABONL2U), for the
account of CoreStates Bank, N.A. - London (Account No.
390804959A00NLG).
3.2 All sums required to be paid under this Note shall be paid
in full without setoff or counterclaim.
4
3.3 Taxes. All payments made by the Borrower under this
-----
Note shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income,
stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any governmental authority,
excluding, in the case of the Lender, net income taxes and
franchise taxes (imposed in lieu of net income taxes) imposed on
the Lender, as the case may be, as a result of a present or former
connection between the jurisdiction of the government or taxing
authority imposing such tax and the Lender (excluding a
connection arising solely from the Lender having executed,
delivered or performed its obligations or received a payment
under, or enforced, this Note) or any political subdivision or
taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings
being hereinafter called ("Taxes"). If any Taxes are required to
be withheld from any amounts payable to the Lender hereunder,
the amounts so payable to the Lender shall be increased to the
extent necessary to yield to the Lender (after payment of all
Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Note. Whenever any
Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Lender a certified copy
of an original official receipt received by the Borrower showing
payment thereof. If the Borrower fails to pay any Taxes when due
to the appropriate taxing authority or fails to remit to the Lender
the required receipts or other required documentary evidence, the
Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a
result of any such failure. The agreements in this Subsection 3.3
shall survive the payment of this Note and all amounts payable
hereunder.
4. Requirements of Law. In the event that after the date hereof, any
-------------------
change in any law, regulation or treaty or in the interpretation or
application thereof or compliance by the Lender with any request or
directive (whether or not having the force of law) from any central bank
or other governmental authority, agency or instrumentality:
(i) subjects or shall subject the Lender to any tax of
any kind whatsoever with respect to this Note, the loan made
hereunder, or changes the basis of taxation of payments to the
Lender of principal, interest or any other amount payable
hereunder (except for changes in the rate of tax on the overall net
income of the Lender); or
(ii) imposes, modifies or holds or shall impose, modify
or hold applicable any reserve, special deposit, compulsory loan
or similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any
office of the Lender, which reserve, special deposit, compulsory
loan or similar requirement is not otherwise included in the
determination of the interest rate hereunder; or
(iii) imposes or shall impose on the Lender any other
condition;
and the result of any of the foregoing is to, directly or indirectly, increase
the cost to the Lender of making, renewing or maintaining advances or
extensions of credit or to reduce any account receivable thereunder then,
5
in any such case, the Borrower shall promptly pay the Lender, upon its
demand, any additional amounts necessary to compensate the Lender for
such additional cost or reduced account receivable. If the Lender
becomes entitled to claim any additional amounts pursuant to this section,
it shall promptly notify the Borrower of the event by reason of which it
has become so entitled. The good faith determination as to any additional
amounts payable pursuant to the foregoing sentence by the Lender shall
be conclusive in the absence of manifest error. This covenant shall
survive the payment of this Note and the payment of all amounts payable
hereunder.
(b) If the Lender shall have determined that the adoption of or
any change in any requirement of law regarding capital adequacy or in
the interpretation or application thereof or compliance by the Lender or
any corporation controlling the Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from
any governmental authority made subsequent to the date hereof does or
shall have the effect of reducing the rate of return on the Lender's or such
corporation's capital as a consequence of its obligations hereunder to a
level below that which the Lender or such corporation could have
achieved but for such change or compliance (taking into consideration the
Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by the Lender to be material then from time to
time, after submission by the Lender to the Borrower of a written request
therefor, the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such reduction.
(c) Notwithstanding any other provision herein, if the adoption
of or any change in any requirement of law or in the interpretation or
application thereof shall make it unlawful for the Lender to make or
maintain LIBOR Rate loans as contemplated herein, (a) the commitment
of the Lender hereunder to make the LIBOR Rate available, continue the
LIBOR Rate as such and convert this Note to the LIBOR Rate shall
forthwith be cancelled and (b) the sum then outstanding hereunder at the
LIBOR Rate, if any, shall be converted automatically to Interest Rate
Option B on the last day of the then current Interest Period with respect
thereto or within such earlier period as required by law. If any such
conversion occurs on a day which is not the last day of the then current
Interest Period, the Borrower shall pay to the Lender the Breakage Costs.
5. Currency Conversion. If any amount paid to or for the account of
-------------------
or recovered by the Lender in a currency ("Relevant Currency") other
than the currency in which it is expressed to be due or required to be paid
under this Note (the "Due Currency") and the amount paid or recovered
in the Relevant Currency when converted into the Due Currency (by the
Lender purchasing the Due Currency with the amounts so paid or
recovered in the London foreign exchange market at or about 10:00 a.m.
on the date of receipt after meeting all costs and expenses incurred in
effecting such purchase (save that if such date is not a Working Day, on
the next succeeding Working Day) is less than the relevant amount
6
originally due under this Note, the Borrower shall as a separate and
independent obligation immediately reimburse the Lender in the Due
Currency in respect of the amount of the shortfall and shall indemnify the
Lender against any direct loss or damage arising as a result of a failure to
make such reimbursement. If the payment made in the Relevant
Currency when converted at the applicable rate of exchange into the Due
Currency exceeds the relevant unpaid amount originally due under this
Note, then the Lender shall, after meeting all costs and expenses incurred
in effecting the purchase of the Due Currency with the Relevant Currency
and so long as no Event of Default shall then be subsisting, pay to the
Borrower an amount equal to the amount of such excess.
6. Indemnity. The Borrower agrees to indemnify the Lender and to
---------
hold the Lender harmless from any loss or expense which the Lender may
sustain or incur as a consequence of (a) default by the Borrower in
conversion into or continuation of a LIBOR Rate Interest Period after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Note, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance
with the provisions of this Note or (c) the making of a prepayment while
Interest Option A is in effect on a day which is not the last day of the
Interest Period with respect thereto, including, without limitation, the
Breakage Costs. This covenant shall survive the payment of this Note
and all amounts payable hereunder.
7. References in this Addendum and/or in the Note to either the
"Note" or the "Addendum" shall be deemed to be references to both the
Note and this Addendum, unless the context clearly requires otherwise.
IN WITNESS WHEREOF, the Borrower, intending this to be a
sealed instrument and intending to be legally bound hereby, has executed and
delivered this Addendum as of the day and year first above written.
BORROWER:
--------
AMH (ARROW MEDICAL HOLDINGS) B.V.
By: /s/Marlin Miller, Jr.
-------------------------------------
Marlin Miller, Jr., Managing Director
Attest: /s/John Broadbent, Jr.
-------------------------------------
John Broadbent, Jr. Managing Director
7
EXPLANATION AND WAIVER OF RIGHTS
REGARDING CONFESSION OF JUDGMENT
1. On the date hereof, Arrow International, Inc., a(an) corporation
(the "Obligor") is signing and delivering to CoreStates Bank, N.A. (the
"Bank") a:
___ Promissory note in the principal sum of Dollars ($_____________);
X Guaranty of Obligations of AMH (Arrow Medical Holdings) B.V.
--- ---------------------------------
Other_______________________________________________________
---
(as the same may be renewed, modified, amended, extended, restated or
replaced, whether one or more, the "Obligation"). The Obligor has been
advised by the Bank (and by the Obligor's legal counsel, if applicable)
that the Obligation contains a clause that provides that the Bank may
confess judgment against the Obligor. The Obligor has read the
Obligation and clearly and specifically understands that by signing the
Obligation which contains such confession of judgment clause:
(a) The Obligor is authorizing the Bank to enter a
judgment against the Obligor and in favor of the Bank, which will give
the Bank a lien upon any real estate which the Obligor may own in any
county where the judgment is entered;
(b) Obligor is giving up an important right to any
notice or opportunity for a hearing before the entry of this judgment on
the records of the Court;
(c) The Obligor is agreeing that the Bank may enter
this judgment and understands that the Obligor will be unable to contest
the validity of the judgment, should the Bank enter it, unless the Obligor
successfully challenges entry of the judgment through a petition to open
or strike the judgment, which will require the Obligor to retain counsel at
the Obligor's expense;
(d) The Obligor may be giving up an important right to
any notice or opportunity for a hearing before the Bank may request and
use the power of the state government to deprive the Obligor of its
property pursuant to the judgment by seizing or having the Sheriff or
other official seize the Obligor's bank accounts, inventory, equipment,
furnishings, or any other personal property that the Obligor may own, to
satisfy the Obligation;
(e) The Obligor may be immediately deprived of the
use of any property that is seized by the Bank pursuant to the judgment
without notice or a hearing, and the procedural rules of Pennsylvania's
court system do not guarantee that the Obligor will receive a prompt
hearing after the Obligor's property is seized; and
(f) If the Obligation is the Bank's printed form of
Master Demand Note, Commercial Promissory Note or Security
Agreement, or a Master Note Agreement prepared by the Bank, the
Obligor is agreeing that the Bank may enter judgment whether or not
there is a default under the Obligation.
2. The Obligor knows and understands that it is the confession of
judgment clause in the Obligation which gives the Bank the rights
described in subparagraphs (a) through (f) of paragraph 1 above.
3. Fully and completely understanding the rights which are being
given up if the Obligor signs the Obligation containing the confession of
judgment, the Obligor nevertheless freely, knowingly and voluntarily
waives said rights and chooses to sign the Obligation.
4. Obligor acknowledges that the proceeds of the Obligation are to
be used for business purposes.
5. If the Obligor is an individual, the Obligor certifies that his/her
annual income exceeds $10,000.00.
Dated this 17th day of July, 1996.
THE OBLIGOR HAS READ THIS EXPLANATION AND WAIVER
PRIOR TO SIGNING THE OBLIGATION AND FULLY
UNDERSTANDS ITS CONTENTS.
ARROW INTERNATIONAL, INC.
---------------------------------
[Name of Corporation/Partnership]
By: /s/Marlin Miller, Jr. By: /s/John Broadbent, Jr.
----------------------------- -----------------------------------
Marlin Miller, Jr., President John Broadbent, Jr., Vice President
----------------------------- -----------------------------------
(Print name and Title) (Print name and Title)
INDIVIDUALS OR PROPRIETORS SIGN BELOW
-------------------- ----------------------------------
(Witness Signature) (Signature of Individual Obligor)
-------------------- ----------------------------------
(Witness Signature) (Signature of Individual Obligor)
CORPORATE ACKNOWLEDGMENT
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF
On the 17th day of July, 1996, before me, a notary public for said
Commonwealth and County, the undersigned officer, personally appeared
Marlin Miller, Jr. and John H. Broadbent, Jr. who acknowledged
themselves to be the President and Vice-President of Arrow International,
Inc. and that they, as such officers, being authorized to do so, executed
the foregoing Explanation and Waiver of Rights Regarding Confession of
Judgment for the purposes therein contained by signing the name of the
corporation by themselves as such officers. And said Marlin Miller, Jr.
and John H. Broadbent, Jr. did further certify and acknowledge that they
received a true, correct and complete copy of the foregoing Explanation
and Waiver of Rights Regarding Confession of Judgment.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
/s/ Maureen C. Zielaskowski
--------------------------- Notarial Seal
Notary Public Maureen C. Zielaskowski, Notary Public
My Commission Expires July 27, 1998 Bern Twp., Berks County
Seal My Commission Expires July 27, 1998
PARTNERSHIP ACKNOWLEDGMENT
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF
On the ______ day of ______, 19__, before me, a notary public for
said Commonwealth and County, the undersigned officer, personally
appeared ______________ who acknowledged himself/herself/themselves
to be General Partner(s) of _________________, a partnership, and who, I am
satisfied is/are the person(s) named in and who executed the within
Explanation and Waiver of Rights Regarding Confession of Judgment and
he/she/they severally acknowledged that he/she/they signed, sealed and
delivered the same as the act and deed of the said partnership for the uses
and purposes therein expressed by signing the name of the partnership by
himself/herself/themselves as partner(s). And said __________ and that
they, each did further certify and acknowledge that he/she/they received a
true, correct and complete copy of the within Explanation and Waiver of
Rights Regarding Confession of Judgment.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
Notary Public
My Commission Expires
Seal
INDIVIDUAL ACKNOWLEDGMENT
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF
On the _________ day of _______, 19__, before me, a notary public
for said Commonwealth and County, the undersigned officer, personally
appeared ____________ who, I am satisfied is/are the person(s) named
in and who executed the within Explanation and Waiver of Rights
Regarding Confession of Judgment and he/she/they did severally
acknowledge that he/she/they signed, sealed and delivered the same as
his/her/their act and deed for the uses and purposes therein expressed.
And said __________________ did further certify and acknowledge that
he/she/they received a true, correct and complete copy of the within
Explanation and Waiver of Rights Regarding Confession of Judgment.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal.
Notary Public
My Commission Expires
Seal
EXHIBIT 10.47
ARROW INTERNATIONAL, INC.
DIRECTORS STOCK INCENTIVE PLAN
Arrow International, Inc. (the "Company") hereby
establishes the Arrow International, Inc. Directors Stock Incentive Plan
(the "Plan").
1. PURPOSE
The purpose of the Plan is to enable the Company and its
subsidiaries to attract and retain outside directors and provide them with
an incentive to maintain and enhance the Company's long-term
performance record. It is intended that this purpose will best be
achieved by granting eligible directors non-qualified stock options
("options") and, in connection with grants of options, certain stock
appreciation rights ("SARs" and, collectively with options, are
hereinafter referred to as "awards") under this Plan pursuant to the rules
set forth in Section 83 of the Internal Revenue Code, as amended from
time to time.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board
of Directors (the "Board"). Subject to the provisions of the Plan, the
Board shall possess the authority, in its discretion, (a) to prescribe the
form of the stock option and SAR agreements, including any appropriate
terms and conditions applicable to these awards, and to make any
amendments to such agreements or awards; (b) to interpret the Plan; (c)
to make and amend rules and regulations relating to the Plan; and (d) to
make all other determinations necessary or advisable for the
administration of the Plan. The Board's determinations shall be
conclusive and binding. No member of the Board shall be liable for any
action taken or decision made in good faith relating to the Plan or any
award granted hereunder.
3. ELIGIBLE DIRECTORS
Members of the Board of Directors of the Company and
its subsidiaries are eligible to participate in this Plan if they are not also
employees or consultants of the Company or its subsidiaries, were not
shareholders at the time of the Company's initial public offering on June
9, 1992, and do not serve on the Board as representatives of the interests
of shareholders who have made an investment in the Company.
4. SHARES AVAILABLE
The total number of shares of the Company's Common
Stock, no par value (the "Common Stock"), available in the aggregate
for options under this Plan shall not exceed 100,000 (subject to
substitution or adjustment as provided in Section 9). Such shares may
be authorized and unissued shares. If an option expires, terminates or is
canceled without being exercised, new options may thereafter be granted
covering such shares. No option may be granted more than ten years
after the effective date of the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Each option granted under the Plan shall be evidenced by
an option agreement in such form as the Board shall approve from time
to time, which agreement shall conform with this Plan and contain
the following terms and conditions:
(a) Number of Shares. On the date the Plan is first
----------------
adopted by the Company's shareholders or on the date on
which an eligible director is first elected to the Board,
whichever is later, such eligible director shall receive an
option to purchase 5,000 shares of the Common Stock
(each such option grant is hereinafter referred to as an
"Initial Option"). Subsequent to an eligible director's
initial election to the Board and provided that such eligible
director has served on the Board for at least twelve
months, each year when new members are elected to the
Board, each eligible director who will be serving on the
new Board shall receive an option to purchase 500 shares
of the Common Stock.
(b) Exercise Price. The exercise price under each
--------------
option shall equal the fair market value of the Common
Stock at the time such option is granted.
(c) Duration of Option. Each option by its terms
------------------
shall not be exercisable after the expiration of ten years
from the date such option is granted.
(d) Options Nontransferable. Each option by its
-----------------------
terms shall not be transferable by the participant otherwise
than by will or the laws of descent and distribution, and
shall be exercisable, during the participant's lifetime, only
by the participant, the participant's guardian or the
participant's legal representative.
(e) Exercise Terms. Each option granted under
--------------
the Plan shall become exercisable with respect to the
shares subject thereto on the first anniversary of the date
of grant. Options may be partially exercised from time to
time during the period extending from the time they
first become exercisable until the tenth anniversary of the
date of grant.
(f) Payment of Exercise Price. An option shall
-------------------------
be exercised upon written notice to the Company
accompanied by payment in full for the shares being
acquired. The payment shall be made in cash, by check
or, if the option agreement so permits, by delivery of
shares of Common Stock of the Company registered in the
name of the participant, duly assigned to the Company
with the assignment guaranteed by a bank, trust company
or member firm of the New York Stock Exchange, or by
a combination of the foregoing. Any such shares so
delivered shall be deemed to have a value per share equal
to the fair market value of the shares on such date. For
this purpose, fair market value shall equal the closing
price of the Common Stock on the Nasdaq National
Market System on the date the option is exercised, or, if
there was no trading in such stock on the date of such
exercise, the closing date on the last preceding day on
which there was such trading.
6. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
Each SAR granted under the Plan shall be granted to
eligible directors in conjunction with options then being granted to such
persons hereunder and shall be evidenced by an SAR agreement in such
form as the Board shall approve from time to time, which agreement
may be incorporated within and made part of an option agreement
referred to in Section 5 and shall conform with this Plan and contain the
following terms and conditions:
(a) Each SAR granted hereunder shall be made
part of an option at the time of grant of the
option.
(b) Such SAR shall entitle the holder to
receive, in lieu of exercising the option to
which it relates, an amount in cash equal to
100% of the excess of:
(1) the fair market value per share of the
Common Stock on the date of exercise
of such right, multiplied by the
number of shares with respect to which
the right is being exercised, over
(2) the aggregate option exercise price for
such number of shares.
-2-
(c) Such SAR shall be exercisable only upon
the occurrence of a change in control
of the Company (as defined in Section 13)
and only to the extent that it has a positive
value as of the date of any such change in
control, except that, notwithstanding the
foregoing, no SAR shall be exercisable
during the first six (6) months after the date
of its grant.
(d) Upon exercise of an SAR, the option (or
portion thereof) with respect to which
such right is exercised shall be surrendered
and shall not thereafter be exercisable.
(e) The exercise of an SAR will reduce the
number of shares purchasable pursuant to
the related option and available under the
Plan to the extent of the number of shares
with respect to which the right is exercised.
7. GENERAL RESTRICTION ON ISSUANCE OF STOCK CERTIFICATES
The Company shall not be required to deliver any
certificate upon the exercise of an option until it has been furnished with
such opinion, representation or other document as it may reasonably
deem necessary to insure compliance with any law or regulation of the
Securities and Exchange Commission or any other governmental
authority having jurisdiction under this Plan. Certificates delivered upon
such exercise may bear a legend restricting transfer absent such
compliance. Each option shall be subject to the requirement that, if at
any time the Board shall determine, in its discretion, that the listing,
registration or qualification of the shares subject to such option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable
as a condition of, or in connection with, the granting of such option or
the issue or purchase of shares thereunder, such option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board in the exercise of its
reasonable judgment.
8. TERMINATION OF DIRECTORSHIP
If a director's directorship terminates for any reason
(including, without limitation, resignation or removal), all nonvested
options (and the SARs which relate thereto) shall be forfeited. Vested
but unexercised options (and the SARs which relate thereto) may be
exercised by the director or, in the case of death, by his or her legal
representative or beneficiary in accordance with the terms of the Plan
and the option and SAR agreement.
9. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock by
reason of any stock dividend, stock split, recapitalization,
reorganization, merger, consolidation, split-up, combination, or
exchange of shares, or of any similar change affecting the Common
Stock, the number and kind of shares authorized under Section 4, the
number and kind of shares which thereafter are subject to an option
under the Plan and the number and kind of shares set forth in options
under outstanding agreements and the price per share shall be adjusted
automatically consistent with such change to prevent substantial dilution
or enlargement of the rights granted to, or available for, participants in
the Plan.
10. NO EMPLOYMENT RIGHTS
The Plan and any awards granted under the Plan shall not
confer upon any director any right with respect to continuance as a
director of the Company or any subsidiary, nor shall they interfere in
-3-
any way with any right the Company or its subsidiaries may have to
terminate the director's position as a director at any time.
11. RIGHTS AS A SHAREHOLDER
The recipient of any option under the Plan shall have no
rights as a shareholder with respect thereto unless and until certificates
for the underlying shares of Common Stock are issued to the recipient.
12. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or
terminated by the shareholders of the Company or by the Board,
provided that Plan provisions relating to the amount, price and timing of
awards may not be amended more than once every six months other than
to comport with changes in the Internal Revenue Code or the regulations
thereunder and provided further that the Board may not, without
approval of the shareholders, materially increase the benefits accruing to
participants under the Plan, increase the maximum number of shares as
to which options may be granted under the Plan, change the minimum
exercise price, change the class of eligible persons, extend the period for
which awards may be granted or exercised, change the consideration
payable upon exercise of an SAR, change the terms and conditions upon
which SARs become exercisable, or withdraw the authority to administer
the Plan from the Board. Notwithstanding the foregoing, to the extent
permitted by law, the Board may amend the Plan without the approval of
shareholders, to the extent it deems necessary to cause the Plan to
comply with Securities and Exchange Commission Rule 16b-3 or any
successor rule, as it may be amended from time to time. Except as
required by law, no amendment, modification or termination of the Plan
may, without the written consent of a director to whom any award shall
theretofore have been granted, adversely affect the rights of such
director under such award.
13. CHANGE IN CONTROL
For purposes of the Plan, a "change in control" shall be
deemed to have occurred upon the acquisition of thirty (30%) percent or
more of the Company's outstanding shares of capital stock having
general voting rights by an unaffiliated person, entity or group. The
Board shall promptly notify, in writing, each holder of an outstanding
option or SAR of the occurrence of any such change in control.
Notwithstanding any other provision of the Plan or any option or SAR
agreement, all options and SARs shall become fully exercisable on
receipt of such notice. All outstanding options and SARs shall expire if
not exercised within 30 days of receipt of the notice of a change of
control.
14. EFFECTIVE DATE
The effective date of this Plan is the date of adoption of
this Plan by the shareholders.
15. DEFINITIONS
Any terms or provisions used herein which are defined in
Section 83 of the Internal Revenue Code, as amended, or the regulations
thereunder or corresponding provisions of subsequent laws and
regulations in effect at the time awards are made hereunder, shall have
the meanings as therein defined.
-4-
16. GOVERNING LAW
To the extent not inconsistent with the provisions of the
Internal Revenue Code that relate to non-qualified stock options and
stock appreciation rights, this Plan and any award agreement adopted
pursuant to it shall be construed under the laws of the Commonwealth of
Pennsylvania.
Dated as of October 19, 1995 ARROW INTERNATIONAL, INC.
By: /s/ Marlin Miller, Jr.
----------------------
Marlin Miller, Jr.
Chairman, President and
Chief Executive Officer
Date of Shareholder Approval: 1/17/96
-------
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EXHIBIT 10.48
PURCHASE AGREEMENT
------------------
AGREEMENT (the "Agreement") made effective the 1st day of June, 1996 by
and between ARROW INTERNATIONAL, INC., a Pennsylvania corporation ("AI") and
ARROW TRAY PRODUCTS, INC., a Pennsylvania corporation formerly known as
Endovations, Inc. (the "Company").
RECITALS:
AI desires to purchase, and the Company desires to sell certain of the assets
of the Company pertaining to the Company's liver biopsy and paracentesis tray
product lines (the "Company's Tray Products Business").
NOW, THEREFORE, in consideration of the mutual promises, covenants and
representations contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINED TERMS
For all purposes of this Agreement, the following terms shall have the
meanings indicated:
1.1 "AI" shall mean Arrow International, Inc., a Pennsylvania
corporation.
1.2 "Arrow Precision" shall mean Arrow Precision Products, Inc., a
Pennsylvania corporation.
1.3 "Assets" shall mean the assets and product lines being sold
hereunder, as listed in Section 2.1 below.
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
1.4 "Closing" shall mean the consummation of the purchase and sale
transaction contemplated by this Agreement, which is occurring simultaneously
with the parties' execution of this Agreement.
1.5 "Closing Date" shall mean the date of the Closing, i.e., the
effective date of this Agreement first set forth above.
1.6 "Company" shall mean Arrow Tray Products, Inc., a Pennsylvania
corporation, formerly known as Endovations, Inc., a wholly owned subsidiary of
Arrow Precision.
1.7 "Contracts" shall have the definition set forth in Section 4.14
below.
1.8 "Disclosure Schedule" shall mean the Disclosure Schedule
(attached hereto and made a part of this Agreement) which identifies specific
sections to which each such disclosure relates.
1.9 "FDA" shall mean the United States Food and Drug Administration.
1.10 "Intangible Assets" shall mean the intangibles described in
Section 4.10 below.
1.11 "Inventory" shall mean the inventory described in Section 4.7(a)
below.
1.12 "Products" shall mean the following described products and
product lines of the Company, together with all product ideas, improvements,
and technology (as they are developed to the Closing Date) related thereto:
(a) EN-00370-001 Liver Biopsy Tray
(b) EN-00376-000 Paracentesis Tray
1.13 "Receivables" shall mean the receivables described in Section 4.6
below.
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ARTICLE II.
PURCHASE AND SALE OF ASSETS
2.1 Assets of the Company. The Company agrees to sell, transfer,
---------------------
and convey, and AI agrees to purchase and receive, upon the terms and
conditions set forth in this Agreement, the following business, assets,
properties, and rights of the Company wheresoever located and whether or
not carried or reflected on the books and records of the Company, together
with all associated goodwill (hereinafter sometimes collectively called the
"Assets"):
(a) The right to use the Company's former name of
"Endovations" to the extent permitted in Section 2.1(a) of a certain
agreement by and between the Company and Medical Innovations Corporation, a
California corporation, dated and effective April 19, 1996.
(b) The Products (as defined herein).
(c) All trade secrets, plans, formulas, engineering notes
and notebooks, shop rights, production data, customer lists, and
supplier/vendor lists necessary to manufacture, assemble, and sell the
Products.
(d) All of the Receivables (as defined herein) regardless
of age.
(e) The Inventory (as defined herein).
(f) The Intangible Assets (as defined herein).
The Company will also cause Arrow Precision to sell, transfer and convey
to AI all of Arrow Precision's right, title and interest in the Intangible
Assets.
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
Except for contractual obligations under the Contract, the Assets shall be
conveyed and transferred to AI free and clear of all liabilities, obligations,
liens, and encumbrances (except the Receivables which are subject only to the
customer credit balances, if any, disclosed pursuant to Section 4.6(a)(iii)
below).
2.2 Excluded Assets. No interest is being sold in any assets of the
---------------
Company not specifically provided in this Agreement to be sold to AI. By way
of example, no interest in the following assets is being sold by the Company
to AI under this Agreement (the "Excluded Assets"):
(a) The Company's franchise to be a corporation.
(b) The Company's stock transfer book and records, the
record books containing the minutes of meetings of directors and shareholders
of the Company and such other of the Company's records as have exclusively
to do with its organization, existence, or stock capitalization.
(c) The Company's financial records.
(d) Any contracts related to employment arrangements with
current employees.
(e) Any employment benefit, pension, profit sharing, or
similar plan established by the Company.
2.3 Purchase Price for the Assets.
-----------------------------
(a) The purchase price to be paid by AI to the Company for
the Assets (and the noncompete covenant under Section 6.2 below) shall be the
sum of the following:
(i) $1,050,000; plus
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
$ 17,479.00 representing the value of the
Company's Inventory valued at the
Company's standard cost as of May
31, 1996; plus
$ 67,699.27 representing the dollar amount of
the Company's total Receivables
which are less than ninety (90)
days old as of the date shown in
Section 4.6(a) below, reduced by
customer credit balances, if any.
$1,135,178.27 Total purchase price.
(b) A physical count of the Company's Inventory has been
taken during the several day period ending on the day immediately preceding
the Closing Date by representatives of AI and the Company, for purposes
of calculating the purchase price for the Inventory.
(c) All payments and checks received by the Company after
the Closing on account of any of the Assets (including, without limitation,
payments on the Receivables) shall be promptly endorsed and delivered
over to AI, or if only a portion of a payment or check received is on
account of any of the Assets, then that portion shall be promptly remitted
to AI.
2.4 Payment. The purchase price will be paid at Closing by AI in
-------
cash or certified funds to the Company.
2.5 Liabilities.
-----------
(a) Assumed Liabilities. In connection with the sale,
-------------------
transfer, conveyance, assignment and delivery of the Assets pursuant to this
Agreement, on the terms and subject to the
5
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
conditions set forth in this Agreement, at the Closing AI will assume and
agree to pay, perform and discharge when due the following obligations (the
"Assumed Liabilities") of the Company:
(i) the customer credits, if any, set forth in
Section 4.6(a)(iii) of the Disclosure Schedule, if any.
(b) Retained Liabilities. Except for the Assumed
--------------------
Liabilities, AI shall not assume by virtue of this Agreement or the
transactions contemplated hereby, and shall have no liability for, any
liabilities or indebtedness or other obligations of the Company or Arrow
Precision of any kind, character or description whatsoever (the "Retained
Liabilities"). The Company and Arrow Precision will retain sole
responsibility for the Retained Liabilities, and shall individually defend,
indemnify, and hold harmless AI from and against and in respect of their
respective Retained Liabilities.
2.6 Inventory.
---------
(a) The Inventory consists only of finished goods. The
Inventory will be transferred to AI at Closing.
ARTICLE III.
CLOSING
3.1 Date and Place. The Closing is occurring contemporaneously
--------------
with the parties' execution of this Agreement, at a place mutually agreed to
by the parties.
3.2 Deliveries by the Company. At this Closing, the Company
-------------------------
delivers herewith or makes available to AI:
(a) A bills of sale, in form mutually agreeable to the
parties (the "Company Bill of Sale"). transferring and conveying to AI good
and marketable title to the Inventory.
6
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(b) Such bulk or individual assignments, dated as of the
Closing Date, as may be necessary or desirable to transfer to AI all of the
Company's right, title, and interest in the Intangible Assets.
(c) Possession of and title to the Assets owned by the
Company, and AI shall be entitled to full use and possession of the Assets
as of the Closing Date. AI shall arrange for and pay for the transfer of
the Inventory, documents, and other Assets.
(d) A copy of the Articles of Incorporation and By-Laws of
the Company, with all amendments thereto and restatements thereof, and a
certificate of good standing from the State of Pennsylvania. The Articles of
Incorporation shall be certified as of a date within a reasonable time prior
to the Closing Date by the Pennsylvania Secretary of State, and the By-Laws
shall be certified within a reasonable period of time prior to the Closing
Date by the Company's secretary.
(e) All consents and approvals of governmental agencies, if
required, and third parties, if required, to the transactions contemplated by
this Agreement.
(f) A unanimous resolution of the Directors of the Company,
approving this Agreement and the related closing documents, and authorizing
the taking of such other action as shall be advisable or necessary on the
part of the Company to complete the transactions contemplated by this
Agreement.
(g) A UCC-1 financing statement search from a reputable
private search firm, dated within ten (10) days prior to the effective date
of this Agreement, showing all financing statements filed against any of the
Assets with the Secretary of the Commonwealth of Pennsylvania
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
and the Prothonotary of Berks County, plus copies of all such financing
statements, plus a lien certificate.
(h) A copy of the ten (10) day notice filed by the Company
with the Pennsylvania Department of Revenue, as required by 69 P.S.
Section 529, 72 P.S. Section 7240, Pennsylvania Statutes.
(i) A copy of the ten (10) day notice filed by the Company
with the Pennsylvania Department of Labor and Industry, as required by
43 P.S. Section 788.3 Pennsylvania Statutes.
(j) The following documents and files pertaining to the
Assets:
- All 510(k) applications and files.
- Bills of material for Products
- The drug and device master record for all of
the Products.
- All listing forms for all Products.
- All complaint files and logs for all Products.
- All label approval forms associated with the
Products.
(k) A certified list of the Company's creditors pertaining
to the Products (names, addresses and balances owed) as of the end of the
calendar month immediately preceding the Closing Date (an updated list of
the Company's creditors pertaining to the Products, as of the Closing Date,
will be provided to AI within thirty (30) days after the Closing Date).
(l) The form of notices sent or intended to be sent to the
Company's independent representatives and dealers in form and substance
satisfactory to the Company and AI.
8
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(m) Marketing materials of the Company related to the
Products, including, without limitation, photographs, catalogues, videos,
brochures and other sales literature, graphics, and artwork.
3.3 Deliveries by Arrow Precision. At this Closing, the Company
-----------------------------
will also cause Arrow Precision to deliver or make available to AI:
(a) Such bulk or individual assignments, dated as of
the Closing Date, as may be necessary or desirable to transfer to AI all of
Arrow Precision's right, title and interest in the Intangible Assets.
(b) A copy of the Articles of Incorporation and By-Laws of
Arrow Precision with all amendments thereto and restatements thereof, and a
certificate of good standing from the State of Pennsylvania, each of which
shall be certified as of a date within a reasonable time prior to the Closing
Date by the Pennsylvania Secretary of State.
(c) A unanimous resolution of the Directors of Arrow
Precision approving this Agreement and the related closing documents, and
authorizing the taking of such other action as shall be advisable or
necessary on the part of Arrow Precision to complete the transactions
contemplated by this Agreement, both with respect to Assets owned by
Arrow Precision and as sole shareholder of the Company.
(d) All documents and files pertaining to the Intellectual
Properties (consisting of 510(k) applications and files).
(e) A consent to this transaction from CoreStates Bank, N.A.
9
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(f) A termination of any lien and security interest
of CoreStates Bank, N.A. (f/k/a Hamilton Bank) of Lancaster, Pennsylvania,
in form and substance satisfactory to AI in all of the Assets being
transferred hereunder by Arrow Precision to AI.
3.4 Deliveries by AI. At the Closing, AI herewith makes the
----------------
following deliveries:
(a) AI delivers to the Company a check in the amount of the
total purchase price.
(b) A copy of the Articles of Incorporation and By-Laws
of AI.
(c) A copy of the unanimous resolution (or a
certification thereof) of the Board of Directors of AI approving this
Agreement and the related closing documents and authorizing the taking
of such other action as shall be advisable or necessary on the part of AI
to complete the transactions contemplated by this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
As a material inducement to AI's willingness to enter into and perform
this Agreement, the Company represents and warrants to AI as follows:
4.1 Organization. The Company is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of
Pennsylvania.
4.2 Subsidiaries/Affiliates. The Company has no subsidiaries or
-----------------------
affiliated companies. The Company has no interest, direct or indirect, and
has no commitment to purchase any interest, direct or indirect, in any other
corporation or in any partnership, joint venture or other business enterprise
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
or entity. The business carried on by the Company has not been conducted
through any direct or indirect subsidiary or affiliate.
4.3 Capitalization. The authorized capital stock of the Company
--------------
consists solely of 1,000 common shares, of which 1,000 shares are issued
and outstanding. There are no voting trusts, and there are no other
agreements or understandings to which the Company or Arrow is a party,
with respect to any of the capital stock of the Company.
4.4 Ownership of Shares. Arrow Precision is the sole record and
-------------------
beneficial owner of all of the outstanding shares of Company stock.
4.5 Authority. The Company and Arrow Precision have full power
---------
and authority to enter into this Agreement. All shareholder and director
actions and authorizations required for the approval of this Agreement and
the consummation of the transactions contemplated hereby have been taken.
This Agreement has been duly executed and delivered by the Company. This
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as may be affected by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by rules of law governing specific
performance, injunctive relief or by other equitable principles (regardless
of whether such principles are considered in a proceeding at law or in
equity). Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) violate, or
conflict with, or require any consent under, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien, security interest, charge or encumbrance
11
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
upon any of the Assets or violate any of the conditions or provisions of the
Articles of Incorporation or By-Laws of the Company or Arrow Precision or of
any note, bond, mortgage, indenture, deed of trust, license, agreement or
other instrument or obligation to which the Company or Arrow Precision is a
party, or by which the Company or Arrow Precision or any of the Assets
may be bound or affected, or (ii) to the knowledge of the Company violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
the Company or Arrow Precision. To the knowledge of the Company, no
consent or approval by, notice to or registration with any governmental or
administrative authority or board or third party (other than Arrow Precision
and CoreStates Bank, N.A.) is required in connection with the execution and
delivery by the Company of this Agreement or the performance by the Company
and Arrow Precision of any of the transactions contemplated hereby.
4.6 Receivables.
-----------
(a) The Disclosure Schedule lists all receivables of
the Company related to the Products (the "Receivables") as of close of
business on May 31, 1996, including, without limitation, the following:
(i) All trade accounts receivable (including dealer
accounts receivable).
(ii) All known claims of every description owned and
receivable by the Company, including, without limitation, claims for refunds,
rebates, and credits.
(iii) All customer credit balances, if any.
(b) All of the Receivables have arisen from and represent
arms length, bona fide transactions made in the ordinary course of business.
The Receivables are good and collectible to the extent of the full amount
thereof, except as set forth in the Disclosure Schedule.
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
4.7 Plant, Facilities and Manufacturing.
-----------------------------------
(a) Inventory. The Disclosure Schedule lists all of the
---------
Company's Inventory being sold to AI. All of the Inventory is in good,
usable condition, except as otherwise disclosed in the Disclosure Schedule.
(b) Suppliers. The Disclosure Schedule lists the vendors
---------
currently used by the Company for all components and parts of the Products.
(c) Substantially All Assets. In connection with this
------------------------
Agreement, the Company is transferring and selling substantially all of its
remaining assets (other than cash) to AI.
4.8 Title to Assets and Properties.
------------------------------
(a) Except as set forth in the Disclosure Schedule, the
Company and Arrow Precision own all of the Assets. Except as set forth in
the Disclosure Schedule, all of the Assets are located in the Company's
offices at Hill and George Avenues, Wyomissing, Pennsylvania.
(b) The Company has good, marketable title to all of the
Assets being sold by the Company hereunder, free and clear of all mortgages,
liens, pledges, charges, security interests, claims, encumbrances or
restrictions of any kind whatsoever (whether accrued, absolute, or
otherwise).
(c) Arrow Precision has good title to all of the
Intellectual Properties, free and clear of all mortgages, liens, pledges,
charges, security interests, claims, encumbrances, or restrictions of any
kind whatsoever (whether accrued, absolute, contingent or otherwise).
4.09 Liabilities.
-----------
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(a) The Company has fully complied with the provisions of
69 P.S. Section 529, 72 P.S. Section 7240, and 43 P.S. Section 788.3(a),
Pennsylvania Statutes, by giving the notices of this bulk sale, as required
therein.
(b) Except for the statutes referenced in paragraph (a)
above, Pennsylvania has no other statute or regulation governing the sale by
an entity of substantially all of its assets.
4.10 Intangible Assets.
-----------------
(a) The Disclosure Schedule contains a list and complete
description of all PMAs, 510(k)s, permits, franchises, approvals,
authorizations, consents, licenses, accreditations and registrations
("Licenses"), if any, issued or granted to, or held by, the Company or
Arrow Precision related to the Products, and indicating the person or entity
to which any such License was issued or by which it is held. All such
Licenses are valid and in full force and effect, no proceedings or actions
with respect to the suspension, cancellation or any other aspect of any of
them is pending or threatened, and no basis exists therefor, and the
transactions contemplated hereby will not affect such Licenses.
(b) The Disclosure Schedule also (i) contains a list and
brief description of all domestic and foreign patents, patent and know-how
licenses, trade names, trademark and service mark registrations, common law
trademarks, copyright registrations, copy rights, and applications for any
of the foregoing, if any ("Intellectual Properties"), owned by the Company
or Arrow Precision and used in the manufacture, marketing and distribution
of the Products, and (ii) specifies the jurisdiction in or by which such
Intellectual Properties have been registered, filed or issued. All such
Intellectual Properties are valid and in full force and effect, or pending.
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(c) Except as set forth on the Disclosure Schedule, the
Company and Arrow Precision have all Licenses and own, or possess adequate
rights to use, all Intellectual Properties and all inventions, technology,
processes, products, designs, computer programs, know-how, trade secrets and
formulae necessary to conduct the Company's Tray Products business and, to
the best knowledge of the Company and except as set forth on the Disclosure
Schedule, there are no actual or threatened claims, assertions or litigation
relating to the Company's ability to use the foregoing. Except as otherwise
described in the Disclosure Schedule and to the knowledge of the Company and
Arrow Precision, the Company and Arrow Precision are not infringing upon or
otherwise violating the rights of any third party with respect to any of the
Intellectual Properties or any of the Products, and the Company and Arrow
Precision are not infringing upon or otherwise violating the rights of any
third party with respect to any of the Intellectual Properties or any of the
Products, and the Company and Arrow Precision have not received any claim or
notice alleging any such infringement or violation. Except as set forth on
the Disclosure Schedule, neither the Company nor Arrow Precision knows of
any basis for any such proceeding or claim. There is no adverse judgment or
order against the Company or Arrow Precision with respect to any of the
foregoing.
4.11 Tax Matters. "Tax" shall mean any federal, state, local,
-----------
foreign or other tax (whether income, sales, use, franchise, excise, real or
personal property or other kind of tax), assessment, levy, impost,
withholding or other governmental charge and shall include all interest and
penalties thereon. Except as otherwise disclosed in the Disclosure Schedule,
the Company has timely filed all Tax returns, reports and forms concerning
Taxes that are required to be filed. Except as otherwise disclosed in the
Disclosure Schedule, the Company has made timely payment of all such Taxes
when
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due and payable, including all interest, penalties, deficiencies and
assessments, if any, heretofore levied or assessed, and where payment was
not required to be made before Closing Date, the Company has set up an
adequate reserve or accrual for the payment of all Taxes required to be
paid in respect of all periods on or prior to the Closing Date. There are
no agreements for extension of time of assessment or payment of any Taxes
of the Company. No waiver of any statute of limitations has been executed
by or on behalf of the Company. Except as set forth in the Disclosure
Schedule, there are no examinations by the Internal Revenue Service "IRS")
of or relating to the Company presently in process, or threatened against
the Company. To the knowledge of the Company, neither the IRS nor any other
taxing authority is now asserting or threatening to assert, any deficiency
or assessment for additional Taxes, including any interest, penalties or
fines against the Company. Except as set forth in the Disclosure Schedule,
no federal income tax returns of the Company have been audited by the IRS.
The Company has not received any notice of any liability for Taxes other
than in the ordinary course of business and the Company has not incurred
any liability for Taxes which, in the aggregate, would result in a material
decrease in the net worth of the Company.
4.12 Conflicts of Interest. Except as set forth in the Disclosure
---------------------
Schedule, no present or former officer or director, and no shareholder,
subsidiary, affiliate or related entity of the Company has or, to the
knowledge of the Company, claims to have (a) any interest in the Assets,
trade secrets, know-how, or technology used in or pertaining to the
manufacture and sale of the Products, or (b) any contract, commitment,
arrangement, or understanding regarding any of the foregoing. No present
officer or director of the Company or Arrow Precision and no subsidiary,
affiliate or related entity thereof, has any ownership or stock interest
in any other enterprise, firm, corporation, trust or
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June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
any other entity (other than AI) which is engaged in any line or lines of
business which are the same as, or similar to, or competitive with, the
Products. For purposes of this representation, ownership of not more than
five percent (5%) of the voting stock of any publicly held company whose
stock is listed on any recognized securities exchange or traded over the
counter shall be disregarded.
4.13 Human Resources.
---------------
(a) Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will violate,
or conflict with, or require any consent under, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or violate any of
the conditions of any labor contract or collective bargaining agreement
to which the Company or Arrow Precision is a party, or by which the
Company or Arrow Precision may be bound or affected. No consent or
approval by, or notice to any labor union is required in connection with
the execution and delivery by the Company of this Agreement or the
performance by the Company and Arrow Precision of any of the
transactions contemplated hereby.
(b) Any labor contract or collective bargaining agreement
which the Company or Arrow Precision is a party does not contain any
provisions which could be construed as imposing on AI any successor
liability for obligations thereunder of the Company or Arrow Precision.
(c) The Company is not in default with respect to its
payment or benefit obligations to its employees.
17
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
4.14 Contracts.
---------
(a) The Disclosure Schedule lists and describes any and
all contracts, agreements, commitment and engagements material to the
Company and its business of manufacturing and selling the Products (the
"Contracts"), but not including agreements between the Company and its
dealers and representatives, including, without limitation, all (i) supply
and service contracts pertaining to the Products to which the Company
is a party as vendor or vendee, (ii) consulting contracts and agreements
pertaining to the Products, (iii) leases of personal property pertaining to
the Products, as lessor or lessee, (iv) all contracts and agreements
regarding Licenses and Intellectual Properties pertaining to the Products.
(b) All such Contracts are valid and binding and in full
force and effect as of the date hereof, and no breach or default (or event
or condition, which after notice or lapse or time, or both, would constitute
a breach or default) by the Company or Arrow Precision or, to the knowledge
of the Company, by any other party thereto exists with respect thereto, and
this Agreement and the transactions contemplated hereby will not cause any
breach or default thereof.
4.15 Legal Proceedings. Except as set forth on the Disclosure
-----------------
Schedule, there is no action, dispute, claim ((including any counterclaim or
cross claim), litigation, arbitration, hearing or other proceedings, at law
or in equity, pending or to the best of the Company's knowledge, threatened,
against or affecting the Company or its business, Assets, or the transactions
contemplated by this Agreement, and the Company and Arrow Precision do not
know or have reasonable grounds to know of the basis for any such action.
The Company is not subject to or in default under any judicial,
18
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
governmental or administrative judgment, decree, order, writ or injunction
which would affect the transactions contemplated by this Agreement.
4.16 Compliance with Laws, Etc. The Company is not in violation of,
-------------------------
and to the best knowledge of the Company, the Company is not under
investigation with respect to, and the Company has not been charged
with and given any notice of any violation of any applicable law, statute,
order, rule, regulation, policy, guideline or judgment of any federal, state,
local or foreign court or governmental or administrative body or agency
relating to the Company, its business, operations, agreements or policies.
4.17 Risk Management. The Disclosure Schedule also sets forth a
---------------
list of all claims for any insured loss in excess of $5,000 per occurrence
between July 1, 1994 and the date of this Agreement relating to the Company
including, but not limited to, workers compensation, automobile and
general and product liability claims. All such policies are in full force
and effect. The Company has not been denied any insurance or
indemnity bond and no insurance carrier has cancelled or reduced any
insurance coverage of the Company. The Company has not received
any notice from any insurer or agent or any intent to cancel or reduce
any insurance coverage or that any substantial improvement or other
expenditure with respect to any insured property is necessary in order to
continue such insurance.
4.18 Fees or Commissions. The Company and Arrow Precision (including
-------------------
their officers, directors and employees) have not employed any broker,
agent or finder or incurred any liability for any brokerage fees, agent's
commissions or finder's fees or other similar obligations in connection with
the transactions contemplated hereby.
19
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4.19 Powers of Attorney. The Company has not granted any powers of
------------------
attorney to any entity or person.
4.20 Product Complaints. Except as set forth in the Disclosure
------------------
Schedule, the Company has not received any material complaint or injury
report regarding the Products, from July 1, 1994 to the date of this
Agreement.
4.21 Marketing and Sales.
-------------------
(a) The Disclosure Schedule lists all of the dealers (and
their addresses and telephone numbers) for the Company's Products.
(b) The Disclosure Schedule lists all of the hospitals
(including addresses and telephone numbers) which currently use the
Company's Products, identifying which Products are used by that hospital, and
showing the dollar amount of purchases of Products by each such hospital by
Product category in fiscal years 1994 and 1995, and in at least the first half
of fiscal year 1996.
4.22 Disclosure. No representation or warranty made by the Company
----------
or Arrow Precision in this Agreement and neither the Disclosure Schedule nor
any schedule, exhibit or certificate furnished or to be furnished by the
Company or Arrow Precision pursuant hereto contains or will contain any
untrue statement of a material fact or omits or will omit any material
fact necessary in order to make the statements contained therein not
misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF AI
As a material inducement to the Company's willingness to enter into and
perform this Agreement, AI hereby represents and warrants to the Company and
Arrow Precision that:
20
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
5.1 Organization. AI is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Pennsylvania,
with all requisite power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted and is
duly licensed, authorized and qualified to do business and in good standing
in Pennsylvania.
5.2 Authority. The execution, delivery and performance of this
---------
Agreement have been duly and effectively authorized by the Board of Directors
of AI and this Agreement has been duly executed and delivered by AI. No
other corporate proceedings on the part of AI are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement is a valid and binding obligations of AI, enforceable against AI
in accordance with its terms, except as may be affected by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by rules of law governing specific
performance, injunctive relief or by other equitable principles (regardless
of whether such principles are considered in a proceeding at law or in
equity). Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) violate, or
conflict with, or require any consent under, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the properties of AI, or violate any of the conditions or provisions of the
Articles of Incorporation or By-Laws of AI or of any note, bond, mortgage,
indenture, deed of trust, license, agreement or other instrument or
obligation to which AI is a party, or by which AI or any of the Assets may
be bound or affected, or (b) to the knowledge of AI violate any order, writ,
21
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
injunction, decree, statute, rule or regulation applicable to AI. To the
knowledge of AI, no consent or approval by, notice to or registration with
any governmental or administrative authority or board or third party is
required on the part of AI in connection with the execution and delivery by
AI of this Agreement or the performance by AI of any of the transactions
contemplated hereby.
5.3 Fees or Commissions. AI (including its officers, directors and
-------------------
employees) has not employed any broker, agent or finder or incurred any
liability for any brokerage fees, agent's commissions or finder's fee or
similar obligation in connection with the transactions contemplated hereby.
5.4 Legal Proceedings. There is no material action, dispute, claim
-----------------
(including any counterclaim or cross claim), litigation, arbitration, hearing
or other proceeding, at law or in equity, pending or, to the best of AI's
knowledge threatened against or affecting AI, its business, its property, or
the transactions contemplated by this Agreement and AI does not know
or have reasonable grounds to know of the basis for any such action. AI
is not subject to or in default under any judicial, governmental or
administrative judgment, decree, order, writ or injunction, which would
affect the transactions contemplated by this Agreement.
5.5 Compliance with Laws, Etc. AI is not in violation of, and to
-------------------------
the best knowledge of AI, AI is not under investigation with respect to, and
AI has not been charged with and given any notice of any violation of any
applicable law, statute, order, rule, regulation, policy, guideline or
judgment of any federal, state, local or foreign court or governmental or
administrative body or agency relating to the transactions contemplated by
this Agreement.
22
June 3, 1996 (9:52am) ::0DMA\S0FTS0L\311\SOFTSOL\11546\0
5.6 Disclosure. No representation or warranty made by AI in this
----------
Agreement or to be furnished by AI pursuant hereto contains or will contain
any untrue statement of a material fact or omits or will omit any material
fact necessary in order to make the statements contained therein not
misleading.
ARTICLE VI.
MISCELLANEOUS COVENANTS
6.1 Covenant Not to Compete.
-----------------------
(a) For the period ending on the third anniversary of the
Closing Date or for whatever time within that period found by a court of
competent jurisdiction to be reasonably necessary for the protection of AI,
the Company and Arrow Precision will not, themselves or together with other
persons, directly or indirectly, own, manage, operate, join, control,
consult in or participate in the ownership, management, operation or
control of any business that engages in the business of developing,
manufacturing, distributing, or selling any of the Products.
This restriction will apply throughout the continental United States and
in all foreign countries or whatever geographical scope within that area
described above found by a court of competent jurisdiction to be reasonably
necessary for the protection of AI or any of its assignees.
(b) The Company and Arrow Precision hereby agree (i) that
the restrictions set forth in the paragraph immediately above are founded on
valuable consideration and are reasonable in duration and geographic
extent in view of the circumstances in which this Agreement is executed
and are necessary to protect the legitimate interests of AI, and (ii) that
the remedy at law for any breach of the foregoing covenant will be
inadequate and that AI will be entitled to injunctive relief
23
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
in the event of any such breach. Nothing herein stated shall be construed as
prohibiting AI from pursuing any other remedies available to it for any such
breach or threatened breach or for any other breach of this Agreement.
(c) The consideration for the above-described covenant not
to compete is $25,000 ($25,000 applicable to the covenant not to compete of
each of the Company and Arrow Precision), and the Company and Arrow
acknowledge and agree that such consideration is fair and adequate payment
for said covenant and that they will be estopped from claiming at any time
in the future that such consideration is inadequate.
6.3 Tax Returns and Payments. After the Closing, the Company will
------------------------
timely file all Tax (as defined in Section 4.11) returns, reports and forms
required to be filed and will make timely payment of all such Taxes when due
and payable, including all interest, penalties, deficiencies, and assessments
owned, if any. The Company will use its best efforts to obtain from the
Pennsylvania Department of Revenue a clearance certificate (as contemplated
by 69 P.S. Section 529 and 72 P.S. Section 7240 Pennsylvania Statutes) and
will, upon receipt of such certificate, promptly deliver a copy thereof to AI.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by the Company and Arrow Precision. The Company
--------------------------------------------------
and Arrow Precision shall be individually (and not jointly) liability to AI
to indemnify, defend and hold harmless AI from and against and in respect of
any and all demands, claims, actions, causes of action, assessments, fines,
losses, damages, liabilities, interest, penalties, costs, and expenses
24
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith) (any and all of which are sometimes referred
to herein as a "Loss" or "Losses") resulting from, arising out of, or incurred
by reason of any breach of any representation, warranty, covenant or agreement
by any one or more of the Company or Arrow Precision contained in this
Agreement or any agreement, certificate or document executed and delivered
by the Company or Arrow Precision pursuant hereto. It is the intent of this
Agreement that the indemnification by the Company shall apply only to Losses
resulting from a breach of any representation, warranty, covenant or
agreement made by the Company, and that the indemnification of Arrow
Precision shall apply only to Losses resulting from a breach of any
representation, warranty, covenant, or agreement made by Arrow Precision.
7.2 Assertion of Claims by AI.
-------------------------
(a) If AI shall have any claim for indemnification pursuant
to Section 7.1 above, it shall promptly give written notice thereof to
the Company and Arrow Precision (a "Claim Notice"), including in such notice
the dollar amount (if known) of the claim and a brief description of the
facts upon which such claim is based.
(b) The Company and Arrow Precision shall have thirty (30)
days following receipt of such Claim Notice to cure the default or breach
giving rise to such claim; PROVIDED, HOWEVER, that if thirty (30) days do
not provide a sufficient period of time for the Company and Arrow Precision
to cure such default or breach, this cure period shall be extended for a
reasonable period of time so long as a substantial effort is commenced by
the Company or Arrow Precision during the thirty (30) day period to effect a
cure and reasonable efforts are maintained thereafter by the Company
or Arrow to effect a cure.
25
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(c) If the Company and Arrow Precision do not effect such
cure within said thirty (30) day period or, if applicable under paragraph
(b) above, the extended cure period, AI shall have the right to pursue its
rights and remedies at law and/or in equity.
7.3 Infringement Claims.
-------------------
(a) The Company and Arrow Precision shall be jointly and
severally liable to AI to indemnify, defend, reimburse and hold harmless AI
from and against and in respect of one-half (1/2) of all Defense Costs
incurred by AI in connection with a claim, demand, lawsuit, or other
proceeding in which a third party alleges that any of the Products infringes
a patent of said third party (including, without limitation, against AI or a
declaratory judgment action filed by AI with respect to a demand or claim
against AI.
(b) For purposes of this Section, "Defense Costs" shall
mean all reasonable fees and expenses incurred by AI in connection with such
claim, demand, lawsuit, or other proceeding, including, without limitation,
attorneys fees, expert witness fees and costs, deposition charges, travel
and accommodation expenses.
7.4 Indemnification by AI. AI shall be liable to the Company and
---------------------
Arrow Precision to indemnify, defend and hold harmless the Company and Arrow
Precision from and against and in respect of any and all demands, claims,
actions, causes of action, assessments, fines, losses, damages, liabilities,
interest, penalties, costs and expenses (including, without limitation,
reasonable legal fees and disbursements incurred in connection therewith)
(any and all of which are sometimes referred to herein as a "Loss" or
"Losses") resulting from, arising out of or imposed upon or incurred by the
Company or Arrow Precision by reason of any breach of any representation,
26
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
warranty, covenant oragreement of AI contained in this Agreement or any
agreement, certificate or document executed and delivered by AI pursuant
hereto. Arrow Precision is an intended third-party beneficiary of this
Agreement.
7.5 Assertion of Claims by the Company.
----------------------------------
(a) If the Company or Arrow Precision shall have any claim
for indemnification pursuant to Section 7.4 above, it shall promptly give
written notice thereof to AI (a "Claim Notice"), including in such notice
the dollar amount (if known) of the claim and a brief description of the
facts upon which such claim is based.
(b) AI shall have thirty (30) days following receipt of
such Claim Notice to cure the default or breach giving rise to such claim;
PROVIDED, HOWEVER, that if thirty (30) days do not provide a sufficient
period of time for AI to cure such default or breach, this cure period shall
be extended for a reasonable period of time so long as a substantial effort
is commenced by AI during the thirty (30) day period to effect a cure and
reasonable efforts are maintained thereafter by AI to effect a cure.
(c) If AI does not effect such cure within said thirty (30)
day period or, if applicable under paragraph (b) above, the extended cure
period, the Company and Arrow Precision shall each have the right to pursue
its rights and remedies at law and/or in equity.
7.6 Limitations. Notwithstanding any provision to the contrary in
-----------
this Agreement, the parties acknowledge and agree as follows:
(a) The aggregate indemnity liability of the Company and
Arrow Precision together to AI or AI to the Company and Arrow Precision
together under this Article VII shall not exceed the total purchase price
27
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
of the Assets under Section 2.3 above. Arrow Precision's maximum liability
under the aforesaid aggregate indemnity liability shall be limited to
$50,000.00.
(b) No party shall be entitled to indemnification under
this Article VII for any given Loss unless the amount of the Loss exceeds
$1,000.
(c) The indemnity obligations set forth in this Article VII
shall survive for a period of three (3) years from the Closing Date. Upon
the expiration of such period, no indemnifying party hereunder shall have any
liability for Losses or for indemnification under Section 7.3 above unless
the party to be indemnified has within the three (3) year period given
written notice of a claim asserting liability in which case such period
shall be tolled with respect to such claim.
(d) AI may recover from the Company and/or Arrow Precision
only once for any given Loss with respect to which AI is entitled to
indemnification, i.e., AI may not seek a double recovery by alleging the
same Loss.
ARTICLE VIII.
MISCELLANEOUS
8.1 Amendment or Supplement. This Agreement may be amended or
-----------------------
supplemented at any time by mutual agreement of AI and the Company. Any
amendment or supplement must be in writing.
8.2 Survival. All representations, warranties and covenants of the
--------
Company, Arrow Precision or AI made in this Agreement (including the
Disclosure Schedule) shall survive the Closing Date for a period of three
(3) years after the Closing Date, and notwithstanding any investigation made
by or on behalf of any party hereto prior to the Closing Date.
28
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
8.3 Expenses. Each party hereto shall bear and pay all costs and
--------
expenses incurred by it in connection with the transactions contemplated in
this Agreement, including fees and expenses of its own brokers, financial
consultants, accountants and counsel.
8.4 Entire Agreement. This Agreement, the Bill of Sale and related
----------------
closing documents being executed herewith contain the entire agreement among
the parties with respect to the transactions contemplated hereunder and
supersede all prior arrangements or understandings with respect thereto,
written or oral, other than documents referred to herein. The terms and
conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and their permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies, obligations or
liabilities.
8.5 Assignment. None of the parties hereto may assign any of its
----------
rights or obligations under this Agreement to any other person or entity,
except that:
(a) AI can assign all its rights hereunder to any of its
subsidiaries without any other party's consent, but such assignment by AI
will not relieve it of its obligations for the ultimate performance thereof;
and
(b) The Company can assign all of its rights hereunder to
Arrow Precision without any other party's consent, but such assignment by the
Company will not relieve it of its obligations for the ultimate performance
thereof.
29
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
8.6 Notices. All notices and other communications which are
-------
required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by overnight express or by registered or
certified mail, postage prepaid, addressed as follows:
If to Arrow: Arrow International, Inc.
Attention: John H. Broadbent, Jr.,
Vice President-Finance
3000 Bernville Road
P.O. Box 12888
Reading, PA 19612
If to Company: Arrow Tray Products, Inc.
Attention: T. Jerome Holleran, President
Hill and George Avenues
P.O. Box 6386
Wyomissing, PA 19610
If to Arrow Precision: Arrow Precision Products, Inc.
Attention: T. Jerome Holleran,
Vice President and Chief Operating Officer
Hill and George Avenues
P.O. Box 6386
Wyomissing, PA 19610
8.7 Captions. The captions contained in this Agreement are for
--------
reference purposes only and are not part of this Agreement.
8.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9 Litigation Expenses. If any action, suit or proceeding is
-------------------
brought by a party hereto against another party hereto with respect to a
matter or matters covered by this Agreement, all costs
30
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
and expenses of the prevailing party incident to such proceeding, including
reasonable attorneys' fees shall be paid by the other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
ARROW INTERNATIONAL, INC.
By: /s/ Marlin Miller, Jr.
------------------------
President
ARROW TRAY PRODUCTS, INC.
BY: /s/ T. Jerome Holleran
------------------------
President
31
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
JOINDER BY ARROW PRECISION PRODUCTS, INC.
-----------------------------------------
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, ARROW PRECISION PRODUCTS, INC., a Pennsylvania
corporation ("Arrow Precision") hereby agrees as follows:
1. Arrow Precision, solely in its capacity as the sole shareholder
of the Company, consent to the Company's entering into and consummating the
transactions contemplated in the foregoing Purchase Agreement.
2. To the extent that the Agreement contains any covenants or
representations, warranties, and agreements to be provided by Arrow
Precision, Arrow Precision hereby makes, joins in and agrees to be bound by
all of the covenants, representations, warranties, and agreements contained
in the Agreement which refer to Arrow Precision, to the same extent as if
such covenants, representations, warranties, and agreements are included in
their entirety in this Joinder. By way of example and without limitation:
(a) Arrow Precision joins in the representations and
warranties made in Sections 4.8 (to the extent of Intellectual Properties
owned by Arrow Precision being transferred under this Agreement) and 4.10
(also to the extent of Intellectual Properties being transferred by Arrow
Precision under this Agreement);
(b) Arrow Precision agrees to be bound by the noncompete
provisions of Article VI; and
32
June 3, 1996 (9:52am) ::ODMA\SOFTSOL\311\SOFTSOL\11546\0
(c) Arrow Precision agrees to be bound by the indemnification
provisions of Section 2.5(b) and Article VII.
ARROW PRECISION PRODUCTS, INC.
By: /s/ T. Jerome Holleran
-----------------------------
Vice President
Dated: June 3, 1996
33
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ARROW INTERNATIONAL, INC. FOR THE YEAR ENDED AUGUST 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 4,807
<SECURITIES> 0
<RECEIVABLES> 50,867
<ALLOWANCES> 774
<INVENTORY> 43,509
<CURRENT-ASSETS> 110,693
<PP&E> 158,551
<DEPRECIATION> 49,552
<TOTAL-ASSETS> 299,421
<CURRENT-LIABILITIES> 55,607
<BONDS> 0
0
0
<COMMON> 45,580
<OTHER-SE> 174,193
<TOTAL-LIABILITY-AND-EQUITY> 299,421
<SALES> 229,945
<TOTAL-REVENUES> 229,945
<CGS> 107,272
<TOTAL-COSTS> 175,532
<OTHER-EXPENSES> 1,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,238
<INCOME-PRETAX> 52,113
<INCOME-TAX> 19,282
<INCOME-CONTINUING> 32,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,831
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
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