UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the third quarter period ended May 31, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ____________ to ____________
Commission File Number 0-20212
ARROW INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1969991
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 Bernville Road, Reading, Pennsylvania 19605
- ------------------------------------------ ----------
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 378-0131
--------------
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares outstanding at July 12, 1996
----- -----------------------------------
Common Stock, No Par Value 23,229,319
<PAGE>
ARROW INTERNATIONAL, INC.
Form 10-Q Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at May 31, 1996
and August 31, 1995 3-4
Consolidated Statements of Income 5-6
Consolidated Statements of Cash Flows 7-8
Notes to Consolidated Financial Statements 9-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Exhibit Index 20
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
May 31, August 31,
1996 1995
----------- ----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,428 $ 9,453
Accounts receivable, net 48,122 43,399
Inventories 41,235 33,887
Prepaid expenses and other 12,393 8,806
Deferred income taxes 1,185 1,129
----------- ----------
Total current assets 106,363 96,674
----------- ----------
Property, plant and equipment:
Total property, plant and equipment 154,102 136,109
Less accumulated depreciation 47,170 40,088
----------- ----------
Property, plant and equipment, net 106,932 96,021
----------- ----------
Other assets:
Goodwill, net 52,429 54,533
Intangible and other assets, net 26,992 13,007
Deferred income taxes 1,107 2,275
----------- ----------
Total other assets 80,528 69,815
----------- ----------
Total assets $ 293,823 $ 262,510
=========== ==========
See accompanying notes to consolidated financial statements.
Continued
-3-
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands)
May 31, August 31,
1996 1995
----------- ----------
(unaudited)
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 7,555 $ 8,969
Notes payable 32,073 14,539
Accounts payable 6,803 6,729
Accrued liabilities 6,304 5,715
Accrued compensation 4,923 6,264
Accrued income taxes 1,068 1,595
----------- ---------
Total current liabilities 58,726 43,811
Long-term debt 14,877 20,463
Accrued postretirement benefit obligation 7,648 7,299
----------- ---------
Total liabilities 81,251 71,573
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 45,499 45,608
Retained earnings 176,400 154,272
Less cost of treasury stock:
3,249,494 and 3,247,805 shares
of Common Stock, respectively (8,300) (8,240)
Unearned compensation (527) (703)
Cumulative translation adjustment (500) -
----------- ---------
Total shareholders' equity 212,572 190,937
----------- ---------
Total liabilities and
shareholders' equity $ 293,823 $ 262,510
=========== =========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(All Dollar Amounts in Thousands, Except Per Share Data)
For the Three Months
Ended May 31,
1996 1995
----------- ---------
Net sales $ 57,548 $ 55,464
Cost of goods sold 27,772 25,606
----------- ---------
Gross profit 29,776 29,858
Operating expenses:
Research, development and engineering 3,631 2,866
Selling, general and administrative 13,660 12,827
----------- ---------
Operating income 12,485 14,165
----------- ---------
Other expenses (income):
Interest expense, net of amounts capitalized 418 556
Interest income (244) (71)
Other, net 670 (642)
----------- ---------
Other expenses (income), net 844 (157)
----------- ---------
Income before income taxes 11,641 14,322
Provision for income taxes 4,307 5,156
----------- ---------
Net income $ 7,334 $ 9,166
=========== =========
Net income per common share $ .32 $ .40
=========== =========
Cash dividends per common share $ .04 $ .035
=========== =========
Weighted average shares
outstanding 23,229,437 22,682,623
=========== ==========
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(All Dollar Amounts in Thousands, Except Per Share Data)
For the Nine Months
Ended May 31,
1996 1995
----------- ---------
Net sales $ 170,838 $ 155,402
Cost of goods sold 80,158 73,826
----------- ---------
Gross profit 90,680 81,576
Operating expenses:
Research, development and engineering 10,030 8,196
Selling, general and administrative 39,558 34,997
----------- ---------
Operating income 41,092 38,383
----------- ---------
Other expenses (income):
Interest expense, net of amounts capitalized 1,335 1,558
Interest income (513) (183)
Other, net 907 (1,497)
----------- ---------
Other expenses (income), net 1,729 (122)
----------- ---------
Income before income taxes 39,363 38,505
Provision for income taxes 14,564 13,862
----------- ---------
Net income $ 24,799 $ 24,643
=========== =========
Net income per common share $ 1.07 $ 1.10
=========== =========
Cash dividends per common share $ .115 $ .10
=========== =========
Weighted average shares
outstanding 23,230,062 22,500,232
=========== ==========
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(All Dollar Amounts in Thousands)
For the Nine Months Ended May 31,
1996 1995
----------- ---------
Cash flows from operating activities:
Net income $ 24,799 $ 24,643
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 7,324 5,938
Amortization of intangible assets 2,385 1,767
Amortization of unearned compensation 159 173
Deferred income taxes 1,112 1,695
Other (219) 353
Changes in operating assets and liabilities:
Accounts receivable (4,763) (4,551)
Inventories (7,348) (4,779)
Prepaid expenses and other (3,587) (4,610)
Accounts payable and accrued liabilities 663 1
Accrued compensation (1,341) 326
Accrued income taxes (527) (195)
----------- ---------
Total adjustments (6,142) (3,882)
----------- ---------
Net cash provided by operating activities 18,657 20,761
Cash flows from investing activities:
Capital expenditures (18,236) (11,250)
Purchase of intangible assets (14,266) -
Cash paid for businesses acquired - (6,442)
----------- ---------
Net cash used in investing activities (32,502) (17,692)
Cash flows from financing activities:
Increase (decrease) in notes payable 17,533 (5,422)
Proceeds from issuance of long-term debt - 4,967
Principal payments of long-term debt (6,999) (12,163)
Issuance of common stock - 15,498
Dividends paid (2,671) (2,270)
Purchase of treasury stock (43) (24)
----------- ---------
Net cash provided by
financing activities 7,820 586
Net change in cash and cash equivalents (6,025) 3,655
Cash and cash equivalents
at beginning of year 9,453 4,017
Cash and cash equivalents ----------- ---------
at end of period $ 3,428 $ 7,672
=========== =========
See accompanying notes to consolidated financial statements
Continued
-7-
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(All Dollar Amounts in Thousands)
For the Nine Months
Ended May 31,
1996 1995
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 1,335 $ 1,558
Income taxes $ 14,657 $ 15,615
Supplemental schedule of noncash investing and financing activities:
During the nine months ended May 31, 1996 and 1995, the Company purchased
intangible assets for $14,266 and $19,488, respectively. In conjunction
with the purchases, liabilities were assumed as follows:
Fair value of assets acquired $ 14,266 $ 19,488
Fair value of common stock issued - 11,253
Cash paid for assets 14,266 6,442
----------- ---------
Liabilities assumed $ 0 $ 1,793
=========== =========
Cash paid for businesses acquired:
Working capital, other than cash $ - $ (61)
Property, plant and equipment - 150
Goodwill - 6,353
----------- ---------
$ - $ 6,442
=========== =========
See accompanying notes to consolidated financial statements
-8-
<PAGE>
ARROW INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(unaudited)
(All Dollar Amounts in Thousands, Except Per Share Data)
Note 1 - Basis of Presentation
These unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, which
management considers necessary for a fair presentation of the Company's
consolidated financial position, results of operations, and cash flows
for the interim periods presented. Results for the interim period are
not necessarily indicative of results for the entire year. All dollar
amounts are presented in thousands, except per share amounts.
Note 2 - Inventories
Inventories are summarized as follows:
May 31, August 31,
1996 1995
---------- ----------
Finished goods $ 16,387 $ 13,246
Semi-finished goods 9,244 7,133
Work-in-process 6,583 5,768
Raw materials 9,021 7,740
---------- ----------
$ 41,235 $ 33,887
========== ==========
Note 3 - Commitments and Contingencies
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 it has adequate legal defenses or
insurance coverage for these actions and that the ultimate outcome of
these actions would not have a material adverse effect on the Company's
financial position or results of operations.
Continued
-9-
<PAGE>
ARROW INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(unaudited)
(All Dollar Amounts in Thousands, Except Per Share Data)
Note 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 $113 and $106 and $375 and $303 for the cost of such
utilization during the three months and nine months ended May 31, 1996
and 1995, respectively. The Company made purchases from Precision
amounting to $255 and $312 and $843 and $789 for the three months and
nine months ended May 31, 1996 and 1995, 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
$294 and $353 and $739 and $868 for the three months and nine months
ended May 31, 1996 and 1995, respectively. At May 31, 1996 and 1995,
the Company had a net receivable from Precision amounting to $145 and
$446, respectively.
-10-
<PAGE>
ARROW INTERNATIONAL, INC.
Item 2. 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 and uncertainties, 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 Securities and Exchange Commission.
Results of Operations
Three Months Ended May 31, 1996 Compared to Three Months Ended May 31,
1995
Net sales for the three months ended May 31, 1996 increased by $2.0
million, or 3.8%, to $57.5 million from $55.5 million in the same period
last year. Net sales represent gross sales invoiced to customers, plus
royalty income, less certain related charges, including freight costs,
discounts, returns and other allowances. This lower than anticipated
increase was due to an unforeseen reduction in U.S. market demand, the
strength of the U.S. dollar, particularly against the Japanese yen,
deferrals of some expected international dealer shipments and slower
than anticipated new product introductions. Sales of critical care
products increased 4.4% to $47.4 million from $45.4 million in the
comparable prior period. Interventional procedure product sales
increased to $10.1 million from $10.0 million, an increase of 0.5 % over
the comparable prior period. International sales increased by $1.3
million, or 6.2%, to 38.6% of net sales, excluding royalty income, for
the three months ended May 31, 1996, compared to 37.7% in the comparable
period of fiscal 1995. The stronger U.S. dollar reduced international
sales relative to the comparable prior year period by $2.0 million.
Health care cost containment initiatives in the U.S. have reduced demand
in markets where Arrow has 80% plus market shares, and protecting that
market share has eroded the Company's pricing in some instances. The
Company expects the U.S. market for many of its core products to remain
sluggish and competitive for the foreseeable future. However, demand in
international markets is expected to continue to grow more rapidly than
U.S. sales as the Company increases supply from its Mexican 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
introduction, regulatory approval, or late stage research and
development.
-11-
<PAGE>
ARROW INTERNATIONAL, INC.
Gross profit decreased 0.3% to $29.8 million in the three months ended
May 31, 1996 compared to $29.9 million in the same period of fiscal
1995. As a percentage of net sales, gross profit decreased to 51.7%
during the three months ended May 31, 1996 from 53.8% in the comparable
period of fiscal 1995, due principally to the unfavorable impact of
currency translations of foreign sales.
The Company realized manufacturing cost improvements in the third
quarter of fiscal 1996 compared to the same prior year period
through the use of its new sterilization facility which does not
require the use of freon gas and through increased production at the
Company's manufacturing facility in Mexico. The Company expects to
realize additional manufacturing cost benefits from its new
manufacturing facility in the Czech Republic, which commenced initial
operations in January 1996 and is anticipated to become fully
operational in the fourth quarter of fiscal 1996.
Research, development and engineering expenses increased by 26.7% to
$3.6 million in the three months ended May 31, 1996, from $2.9 million in the
comparable prior period. As a percentage of net sales, these expenses
increased in the third quarter of fiscal of 1996 to 6.3%, compared to
5.2% in the same period in fiscal 1995. These expenses increased
primarily as a result of development expenses related to certain
products of Therex Limited Partnership ("Therex"), which was acquired in
April 1995, and certain cardiac assist products.
Selling, general and administrative expenses increased by 6.5% to $13.7
million in the three months ended May 31, 1996 from $12.8 million in the
comparable prior period of fiscal 1995 and increased as a percentage of
net sales to 23.7% in the third quarter of fiscal 1996 from 23.1% in the
comparable period of fiscal 1995. This percentage increase was due
primarily to additions to the Company's domestic sales force to replace
a distributor in the New England area.
Principally due to the above factors, operating income decreased in the
third quarter of fiscal 1996 by 11.9% to $12.5 million from $14.2
million in the comparable period of fiscal 1995.
Other expenses (income), net, increased to $0.8 million during the third
quarter of fiscal 1996 from $(0.2) million in the comparable prior
period. Other expenses (income), net, consist principally of interest
expense and gains and losses on foreign exchange transactions associated
with the Company's direct sales subsidiaries, which resulted in a net
loss in the third quarter of fiscal 1996 due to the increased strength
of the U.S. dollar, compared to a net gain in the third quarter of
fiscal 1995.
-12-
<PAGE>
ARROW INTERNATIONAL, INC.
As a result of the factors discussed above, income before income taxes
decreased by 18.7% to $11.6 million in the third quarter of fiscal 1996
from $14.3 million in the comparable prior period. The Company's effective
tax rate increased to 37.0% in the third quarter of fiscal 1996 from
36.0% in the comparable prior period, principally as the result of
generating a larger proportion of earnings in higher tax jurisdictions.
Net income in the third quarter of fiscal 1996 decreased by 20.0% to
$7.3 million from $9.2 million in the comparable prior period. As a
percentage of net sales, net income represented 12.7% in the three
months ended May 31, 1996, compared to 16.5% in the comparable period of
fiscal 1995.
Net income per common share was $.32 in the three month period ended May
31, 1996, a decrease of 20.0%, or $.08 per share from $.40 per share in
the comparable prior period. Weighted average common shares outstanding
increased to 23,229,437 in the third quarter of fiscal 1996 from
22,682,623 in the comparable prior period, primarily 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.
Nine Months Ended May 31, 1996 Compared to Nine Months Ended May 31,
1995
Net sales for the nine months ended May 31, 1996 increased by $15.4
million, or 9.9%, to $170.8 million from $155.4 million in the same
period last year. This increase was due primarily to an increase in
unit volume in the Company's major product lines, including increased
shipments of ARROWg+ard Blue trademark antiseptic surface treated catheter
products. This increase was lower than the Company anticipated due to
an unforeseen reduction in U.S. market demand, the strength of the U.S.
dollar, particularly against the Japanese yen, and deferrals of some
expected international dealer shipments and slower than anticipated new
product introductions. Sales of critical care products increased 10.6%
to $141.0 million from $127.5 million in the comparable prior period.
Interventional procedure product sales increased to $29.3 million from
$27.4 million, an increase of 7.0% over the comparable prior period,
principally as a result of increased sales of intra-aortic balloon
catheters. International sales increased by $9.6 million, or 17.7%, to
37.4% of net sales, excluding royalty income, for the nine months ended
May 31, 1996, compared to 35.0% in the comparable period of fiscal 1995,
principally as a result of increased sales of multi-lumen catheters and
intra-aortic balloon catheters.
-13-
<PAGE>
ARROW INTERNATIONAL, INC.
Health care cost containment initiatives in the U.S. have reduced demand
in markets where Arrow has 80% plus market shares, and protecting that
market share has eroded the Company's pricing in some instances. The
Company believes that the U.S. market for many of its core products is
expected to remain sluggish and competitive for the foreseeable future.
However, demand in international markets is expected to continue to grow
more rapidly than U.S. sales as the Company increases supply from its
Mexican 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 introduction, regulatory approval, or
late stage research and development.
Gross profit increased 11.2% to $90.7 million in the nine months ended
May 31, 1996, compared to $81.6 million in the same period of fiscal
1995. As a percentage of net sales, gross profit increased to 53.1%
during the nine months ended May 31, 1996 from 52.5% in the comparable
period of fiscal 1995, 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 Blue 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 increased by 22.4% to
$10.0 million in the nine months ended May 31, 1996 from $8.2 million in
the comparable prior period. As a percentage of net sales, these
expenses increased in the first nine months of fiscal 1996 to 5.9%,
compared to 5.3% in the same period in fiscal 1995. These expenses
increased primarily as a result of development expenses related to
certain products of Therex and certain cardiac assist products.
Selling, general and administrative expenses increased by 13.0% to $39.6
million in the nine months ended May 31, 1996 from $35.0 million in the
comparable prior period and increased as a percentage of net sales to
23.1% in the first nine months of fiscal 1996 from 22.5% in the
comparable period of 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.
-14-
<PAGE>
ARROW INTERNATIONAL, INC.
Principally due to the above factors, operating income increased in the
first nine months of fiscal 1996 by 7.1% to $41.1 million from $38.4
million in the comparable period of fiscal 1995.
Other expenses (income), net, increased to $1.7 million in the first
nine months of fiscal 1996 from $(0.1) million in the comparable prior
period. Other expenses (income), net, consist 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 the
current nine month period compared to a net gain in the comparable prior
period due to the increased strength of the U.S. dollar.
As a result of the factors discussed above, income before income taxes
increased in the first nine months of fiscal 1996 by 2.2% to $39.4
million from $38.5 million in the comparable prior period. The
Company's effective tax rate increased to 37.0% in the nine month period
of fiscal 1996 from 36.0% in the comparable prior period, principally as
a result of generating a larger proportion of earnings in higher tax
jurisdictions.
Net income in the first nine months of fiscal 1996 increased by 0.6% to
$24.8 million from $24.6 million in the comparable prior period. As a
percentage of net sales, net income represented 14.5% during the nine
months ended May 31, 1996 compared to 15.9% in the comparable period of
fiscal 1995.
Net income per common share was $1.07 in the nine month period ended May
31, 1996, a decrease of 2.5%, or $.03 per share from $1.10 per share in
the comparable prior period. Weighted average common shares outstanding
increased to 23,230,062 from 22,500,232 between periods, primarily 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.
Liquidity and Capital Resources
For the nine months ended May 31, 1996, net cash provided by operations
was $18.7 million, a decrease of $2.1 million from the same period in
the prior year. Accounts receivable, measured in day sales outstanding
during the period, increased to 78 days at May 31, 1996 from 66 days at
May 31, 1995 due principally to an increase in the collection period for
the Company's international sales.
-15-
<PAGE>
ARROW INTERNATIONAL, INC.
Net cash used in the Company's investing activities increased to $32.5
million in the nine months ended May 31, 1996 from $17.7 million in the
comparable period of fiscal 1995, principally as a result of an increase
of $5.5 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 Corporation ("Cardiac Pathways") pursuant to
an agreement to purchase for $9.0 million preferred stock convertible
into approximately 9.5% of the 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 increased to $7.8 million in
the nine month period ended May 31, 1996 from $0.6 million in the
comparable period of fiscal 1995, principally as a result of an increase
in borrowings under the Company's revolving credit facility, offset by
repayments of long-term debt.
As of May 31, 1996, the Company had U.S. bank credit facilities
providing a total of $45.0 million in revolving credit for general
business purposes, of which $17.0 million remained unused. In addition,
certain of the Company's foreign subsidiaries have revolving credit
facilities totaling the U.S. dollar equivalent of $8.3 million, of which
$4.2 million remained unused as of May 31, 1996. Combined borrowings
under these facilities increased $17.5 million during the nine month
period ended May 31, 1996.
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 trading purposes.
-16-
<PAGE>
ARROW INTERNATIONAL, INC.
During the nine month periods ended May 31, 1996 and 1995, the
percentage of the Company's sales invoiced in currencies other than U.S.
dollars was 26.7% and 24.4%, respectively. As of May 31, 1996,
outstanding foreign currency exchange contracts totaling the U.S. dollar
equivalent of $28.8 million mature at various dates through November
1996. 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 effort in this regard will be successful.
Based upon its present plans, the Company believes that operating cash
flow and available credit resources 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.
-17-
<PAGE>
ARROW INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
The following exhibits will be filed as part of this
Form 10-Q:
Exhibit 10.45 Amended and Restated License
Agreement, dated May 24, 1996,
between Microwave Medical
Systems, Inc. and the Company
Exhibit 27 Financial Data Schedule
Exhibit 99.1 Cautionary Statement for Purposes
of the Safe Harbor Provisions of
the Private Securities Litigation
Reform Act of 1995
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended May 31, 1996.
-18-
<PAGE>
ARROW INTERNATIONAL, INC.
SIGNATURE
Pursuant to the requirements 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.
(Registrant)
Date: July 12, 1996 By: /s/ John H. Broadbent, Jr.
(signature)
John H. Broadbent, Jr.
Vice President-Finance
and Treasurer (Principal
Financial Officer and
Chief Accounting Officer)
-19-
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number of Exhibit Method of Filing
- ------- ----------- ----------------
10.45 Amended and Restated License Filed with this report
Agreement, dated May 24, 1996
between Microwave Medical
Systems, Inc. and the Company.
27 *Financial Data Schedule EDGAR
99.1 Cautionary Statement for Page 21 of this report
Purposes of the Safe Harbor
Provisions of the Private
Securities Litigation Reform
Act of 1995
*Not deemed filed for purposes of Section 11 of the Securities Act of
1933, Section 18 of the Securities Exchange Act of 1934 and Section 323
of the Trust Indenture Act of 1939, or otherwise subject to the
liabilities of such sections and not deemed part of any registration
statement to which such exhibit relates.
-20-
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In addition to the other information in the Company's periodic
reports filed with the Securities and Exchange Commission (the "SEC"),
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
SEC. The Company's actual results could differ materially from such
forward-looking statements due to material risks and uncertainties,
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.
-21-
<PAGE>
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 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.
-22-
<PAGE>
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 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.
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.
-23-
<PAGE>
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 rights held by the
Company. Future litigation may be necessary to enforce patent 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.
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
-24-
<PAGE>
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 trading purposes.
Dependence on Key Management
The Company's success depends upon the continued contributions of
Marlin Miller, Jr., its President and Chief Executive Officer, Raymond
Neag, its Executive Vice President, and John H. Broadbent, Jr., its
Vice-President-Finance and Treasurer, each of whom has 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.
-25-
<PAGE>
EXHIBIT 10.45
AMENDED AND RESTATED LICENSE AGREEMENT
--------------------------------------
THIS AMENDED AND RESTATED LICENSE AGREEMENT (the "Agreement") entered
into this 24th day of May, 1996 by and between MICROWAVE MEDICAL SYSTEMS,
INC., a Delaware corporation, having a place of business at 310-312 School
Street, Acton, Massachusetts 01720 ("Licensor")
and
ARROW INTERNATIONAL, INC., a Pennsylvania corporation, having a place of
business at 3000 Bernville Road, Reading, Pennsylvania 19605 ("Licensee").
WHEREAS, Licensee is engaged in the manufacture and sale of medical
and scientific products for and to the medical profession and others; and
WHEREAS, Licensor is the owner of all rights in U.S. Patent No.
4,583,556 to a Microwave Applicator/Receiver Apparatus and Japanese Patent
No. 1426077 and has the right to grant an exclusive license under the patents
and any patents issuing on applications which claims priority from the
applications which form the basis for said patents; and
WHEREAS, Licensor is the owner and possessor of certain know-how,
plans and drawings pertaining to the manufacture of the Licensed Products
(as hereinafter defined); and
WHEREAS, Licensee has assisted in funding Licensor's development of
part of the Licensed Products, and both Licensor and Licensee wish to
continue the development of such products; and
WHEREAS, on September 22, 1993 Licensor and Licensee entered into a
certain License and Exclusive Supply Agreement (the "Prior Agreement"), a
copy of which is attached hereto and marked Exhibit "A" and the Licensor and
the Licensee desire to amend and restate the Prior Agreement and intend that
this Agreement shall constitute said amendment and restatement of the Prior
Agreement.
NOW, THEREFORE, in consideration of the above premises and mutual
covenants and conditions herein contained, the parties hereto, INTENDING TO
BE LEGALLY BOUND HEREBY, agree as follows:
1. Definitions. Whenever used in this Agreement, unless
-----------
otherwise indicated in the context, the following terms shall have the
meanings defined in this Section 1.
(a) Know-How means all of Licensor's trade secrets,
technical know-how and other knowledge, information, plans, drawings,
instructions, software and engineering advice relating to any and all of
the Licensed Products developed by Licensor that Licensor, in its reasonable
determination, believes can be used in the myocardial ablation field and any
components thereof (but excluding Radiometer Know-How), and necessary and/or
desirable for the manufacture of any or all of the Licensed Products
exclusive of any radiometer temperature sensing device; and shall also
include all future updates, modifications, changes and additions to the
Know-How as same exists on the date of this Agreement which updates,
modifications, changes and additions shall be delivered to Licensee as same
come into existence during the term of this Agreement.
(b) Licensed Products means a microwave generator and
display and a disposable cathetercontaining a microwave antenna used for
ablation/heating of myocardial tissue (hereinafter referred to as a
"Catheter" or "Catheters") with a thermocouple based temperature sensing
device (or any other temperature sensing device acceptable to Licensee) with
logic and feedback circuitry coupled to the generator; provided, however,
2
that the term Licensed Products, as used in this Agreement, shall mean the
products described above in this section only to the extent that they may
be used in the ablation or heating of myocardial tissue, and nothing in
this Agreement shall restrict the Licensor from using such products or the
Know-How or permit the Licensee to use such products or the Know How for any
other purpose. Licensed Products shall also inlcude any future improvements
to the microwave generator and/or display that can be utilized for the
purpose of ablation or heating of myocardial tissue.
(c) Patent Rights means all of Licensor's U.S., Japanese
and other patents (including U.S. Patent No. 4,583,556 and Japanese Patent
1426077 attached hereto as Exhibit "B") now, or during the term of this
Agreement hereafter issued, relating to the Licensed Products and/or any
component thereof (including, without limitation, the use of the Licensed
Products and components thereof) and to any apparatus or process useful for
the manufacture of Licensed Products and components thereof.
(d) Radiometer Know-How means all of the Licensor's
trade secrets, technical know-how and other knowledge, information, plans,
drawings, instructions, software and engineering advice relating to
Licensor's miniature radiometer temperature sensing device developed by
Licensor and used or usable with an ablation generator.
2. License.
-------
(a) Licensor hereby grants, and Licensee hereby accepts,
upon the terms and conditions set forth in this Agreement, (i) a worldwide
exclusive license under the Patent Rights and Know-How to make, have made,
use, sell, and put into use the Licensed Products, exclusive of Licensor's
miniature radiometer temperature sensing device, for use in the myocardial
3
ablation field only, (ii) a worldwide exclusive license to make use of the
Patent Rights and any and all other U.S. and foreign patents issued to
Licensor pertaining in any manner to the Licensed Products developed by
Licensor that Licensor, in its reasonable determination, believes can be
used in the myocardial ablation field exclusive of Licensor's miniature
radiometer temperature sensing device, for use in the myocardial ablation
field only, (iii) and the exclusive right to use worldwide Licensor's
Know-How for the manufacture of the Licensed Products exclusive of
Licensor's miniature radiometer temperature sensing device, for use in the
myocardial ablation field only, as and when provided in Subsection 3(b)
below; and (iv) a worldwide exclusive license to use, sell, and put into
use any Licensed Products that include Licensor's radiometer temperature
sensing device for use in the myocardial ablation field only. Licensee may
not sublicense the license granted hereby.
(b) Modifications by Licensee. Licensee may, in such
-------------------------
manner as it deems fit and at its sole cost and expense, modify, alter,
change or improve any component or assembly of components which comprise the
Licensed Products and use the same, by itself or in combination with any
other product, component, or assembly of components; provided, however,
that such modifications, alterations, changes or improvements shall not
excuse Licensee from its obligation to pay royalties hereunder so long as
such products are covered by the Patent Rights and/or this Agreement.
3. Supply by Licensor; Licensee's Right to Manufacture.
---------------------------------------------------
(a) During the term of this Agreement, Licensor will
work only with Licensee in the continued development of the Licensed
Products, other than Licensor's miniature radiometer temperature sensing
device, and the development of other devices for microwave heating/ablation
4
of myocardial tissue (exclusive of Licensor's miniature radiometer
temperature sensing device); and will supply only Licensee with Licensed
Products (with or without Licensor's miniature radiometer temperature
sensing device, as determined by Licensee) for use in myocardial tissue
heating/ablation. Licensee will not work with any microwave development
company other than Licensor in the development of microwave generators or
other comparable microwave systems for microwave heating/ablation of
myocardial tissue. Licensee agrees to purchase from Licensor any new
improvements to the Licensed Products developed by Licensor which Licensee
desires to incorporate into the Licensed Products, so long as Licensor can
produce and deliver said improvements to Licensee in a timely manner.
(b) As hereinabove set forth in Section 2 of this
Agreement, Licensee has the right to use the Know-How and the Patent Rights
if Licensee decides to manufacture the Licensed Products (exclusive of
Licensor's miniature radiometer temperature sensing device) as provided for
in this Agreement; provided, however, Licensee shall not use such Know-How
for any purpose, including, without limitation, the obtaining of pricing
information from vendors, until:
(i) Licensee shall hereafter order from
Licensor at least twenty (20) Licensed Products with or without Licensor's
miniature radiometer temperature sensing device, as determined by Licensee
(exclusive of any Catheters); and
(ii) Licensee shall have paid one-third (1/3) of
the purchase price for the aforesaid Licensed Products (exclusive of any
Catheters) that may be ordered by Licensee from Licensor.
5
(c) Notwithstanding anything contained in this Agreement
to the contrary, if Licensee desires to purchase Licensor's miniature
radiometer temperature sensing device and Licensor is willing to sell
Licensor's miniature radiometer temperature sensing device to Licensee, then
Licensee may manufacture Licensed Products that include the Licensor's
miniature radiometer temperature sensing device purchased from Licensor for
use in the myocardial ablation field only.
(d) Notwithstanding Subsection (b) above, the existing
documentation containing the Know-How shall be delivered to Licensee at the
time of the payment to Licensor provided for in Subsection 4(a) below at
which time Licensee shall have the right to inspect such documentation to
satisfy itself that all of the necessary and applicable Know-How is being
delivered to Licensee. It is understood that as of the present time the
drawings consisting of part of the Know-How contain notations of change
orders which have not, as yet, been incorporated into said drawings.
Licensor agrees that within thirty (30) days after the date of the execution
of this Agreement, Licensor will cause the Know-How to be brought up to date
by preparing new drawings incorporating all of the change orders that have
been made to the drawings and/or other Know-How to the date hereof.
Updates, modifications, changes and additions to the Know-How shall be
delivered to Licensee as Licensor shall make and develop such updates,
modifications, changes and additions.
4. Financial Terms; Royalties.
--------------------------
(a) Purchase by Licensee of the Know-How. Subject to
------------------------------------
the terms and conditions of this Agreement, Licensee agrees to pay, within
ten (10) days after the execution of this Agreement and at such time as the
Know-How is delivered to Licensee within said ten (10) day period that
complies with the requirements of Subsection 3(d) above and meets the
6
satisfaction of Licensee as provided for in said Subsection, the sum of
Three Million Two Hundred Fifty Thousand Dollars ($3,250,000.00), which sum
shall constitute consideration for the acquisition of the Know-How.
Licensee shall have the right to deduct from said sum the aggregate amount
of One Million One Hundred Ten Thousand Dollars ($1,110,000.00) to be paid
by Licensor to Licensee pursuant to the terms of a separate agreement by
and between the Licensor and Licensee dated even date herewith, thereby
resulting in a net payment to be made by Licensee to Licensor of Two Million
One Hundred Forty Thousand Dollars ($2,140,000.00).
(b) Purchase by Licensee from Licensor of Licensed
----------------------------------------------
Products (Exclusive of Catheters). In the event Licensee elects to
- ---------------------------------
purchase from Licensor Licensed Products excluding Licensor's miniature
radiometer temperature sensing device (exclusive of the Catheters), the
purchase price to be charged by Licensor to Licensee for each such Licensed
Products shall be based upon the terms set forth in a certain letter from
Kenneth Carr, President of Licensor, to Raymond Neag, Executive Vice
President of Licensee, which letter is dated April 3, 1996 and a copy of
which is attached hereto marked Exhibit "C" and made a part hereof;
provided, however, that in no event shall the purchase price for each of
the twenty (20) Licensed Products referred to in Subsection 3(b)(i) exceed
the sum of Twenty-Four Thousand Dollars ($24,000.00). One-third (1/3) of
such purchase price shall be paid at the time any order for such Licensed
Products is placed by Licensee with Licensor; a second one-third (1/3) of
the purchase price shall be paid upon receipt of such Licensed Products by
Licensee; and the remaining one-third (1/3) of the purchase price shall be
paid within thirty (30) days thereafter.
7
(c) Royalty for Licensed Products (Exclusive of
-------------------------------------------
Catheters) Manufactured by Licensee. In the event that Licensee manufactures
- -----------------------------------
Licensed Products (which shall not include Licensor's miniature radiometer
temperature sensing device), then Licensee shall pay to Licensor throughout
the term of this Agreement a royalty on each such Licensed Products
(exclusive of any Catheters) manufactured by and sold or otherwise disposed
of by Licensor equal to the greater of (i) ten percent (10%) of the net
selling price of said Licensed Products (exclusive of any Catheters), or
(ii) Six Hundred Dollars ($600.00) for each such Licensed Products
(exclusive of any Catheters) manufactured by Licensee sold or otherwise
disposed of to a third party.
(d) Other Royalties. In addition to the consideration
---------------
to be paid by Licensee to Licensor as hereinabove provided, Licensee shall
pay Licensor additional running royalties throughout the term of this
Agreement of three percent (3%) of the net selling price of the Catheters
containing a microwave antenna for use in Licensed Products not containing
a miniature radiometer temperature sensing device; or five percent (5%) of
the net selling price of the Catheters containing a microwave antenna for
use in Licensed Products with a radiometer.
(e) Determination of Net Selling Price. The term "Net
----------------------------------
Selling Price" as used in Subsections (c) and (d) above, shall mean
Licensee's invoice prices to its customers for Licensed Products and/or
Catheters containing a microwave antenna (with or without a radiometer)
shipped to its customers during the term of this Agreement; exclusive of
promotional samples, whether by sale, rental, lease, license or otherwise,
less only sales commissions to dealers, returns, uncompleted on-approval
sales, shipping charges and sales, use and excise taxes and customs duties
separately stated on invoices to Licensee's customers.
8
(f) Method of Payment; Books and Records. The royalties
------------------------------------
shall be paid to Licensor in accordance with the following terms and
conditions:
(i) Statements. Royalties payable pursuant to
----------
Subsections (c) and (d) above shall be paid quarterly within thirty (30) days
following the end of quarterly periods ending November 30, February 28,
May 31 and August 31 of each year of the term of this Agreement. Licensee
shall accompany each payment with a statement showing in reasonable detail
all shipments of Licensed Products and Catheters containing a microwave
antenna (with or without a radiometer) made during such period and all
royalties which are payable by virtue of such shipments.
(ii) Books and Records. Licensee shall keep and
-----------------
maintain accurate and complete books and records relating to all matters
affecting royalties payable hereunder. Licensor shall have the right, at
reasonable times and on reasonable notice, to audit such books at Licensee's
offices. Licensee shall be required to retain records relating to royalties
paid to Licensee no more than five (5) years after payment in accordance
with Subsection (f)(i) above. Except as may be required in connection with
the resolution of any dispute arising under this Agreement, Licensor shall
keep in confidence all information furnished to it, either in the form of
the statement of royalties delivered by Licensee or any information which
Licensor might gain or gather from the examination or audit of Licensee's
books, except as may be required to be disclosed by Licensor in compliance
with law or regulation. If any audit discloses any error, the parties shall
by appropriate payment forthwith adjust the same.
(iii) Currency; Exchange Rate. The amounts
-----------------------
payable hereunder shall be paid by a check drawn in United States dollars.
To the extent required under this Agreement, all amounts stated in a
9
currency other than United States dollars shall be translated into United
States dollars applying the conversion rate of exchange prevailing in New
York on the last day of the month preceding the month in which any such
computation must be made. If payment of any sum is blocked by governmental
decree or order, payment of sums may, at the Licensee's election, be
deferred until such time as such transfer is no longer blocked.
5. Rights and Responsibilities of Parties.
--------------------------------------
(a) Licensee shall be responsible for all Catheter
product development, marketing and support activities and the expenses
attendant thereto, and Licensor shall conduct such other product development
on the Licensed Products, exclusive of the Catheter, all as from time to
time agreed to in writing by Licensee and Licensor; provided, however, that
as concerns Licensor's miniature radiometer temperature sensing device,
Licensor, at its own cost and expense, may conduct such additional product
development as Licensor may, from time to time, desire.
(b) Rights to all developments in Licensee-funded
myocardial tissue ablation program, including improved antenna designs and
improved diplexer, which can be used for myocardial tissue ablation, shall
be owned jointly by Licensor and Licensee. Such rights shall not be
included in the Patent Rights covered by this Agreement but Licensor will be
free to use any such developments without charge in fields other than
myocardial tissue ablation.
(c) Licensee shall be responsible for the preparation,
filing, prosecution and maintenance of all patent applications and patents
to the inventions and/or improvements relating to myocardial tissue
heating/ablation with microwave radiation, but such responsibility shall not
apply to Licensor's miniature radiometer temperature sensing device.
10
Licensor shall cooperate with Licensee in the preparation and/or execution
of any documents, including patent applications, which, in the opinion of
counsel for Licensee, is necessary to protect Licensee's interests in said
inventions and/or improvements.
6. Term and Termination.
--------------------
(a) Term. Unless sooner terminated, this Agreement
----
shall remain in effect until the expiration of the last to expire of any
patents covered by Licensor's Patent Rights. Licensee shall have the right
to terminate this Agreement upon the second anniversary date of the
Effective Date of this Agreement and at any time thereafter upon sixty
(60) days written notice to Licensor.
(b) Termination for Breach. If either party shall
----------------------
materially breach or default under this Agreement, the other party may give
written notice of its intention to terminate this Agreement, stating in
reasonable detail the nature of the breach or default. If the party in
breach or default fails to cure or remedy its breach or default within
ninety (90) days (thirty (30) days in the case of a default in the payment
of royalties), the other party may, while such breach or default continues,
terminate this Agreement forthwith on written notice.
(c) Final Accounting. Within thirty (30) days of
----------------
termination, Licensee shall provide Licensor with a final accounting of
the Licensed Products made through the effective date of termination and
pay royalties then due hereunder.
(d) Termination for Lack of Marketing. In the event
---------------------------------
Licensee does not commercially market the Licensed Products within one year
of FDA approval, or after having commercially marketed, ceases to
commercially market the Licensed Products for a two (2) year continuous
11
time interval during the term of this Agreement, Licensor may terminate
this Agreement forthwith upon written notice.
(e) Reversion of Rights. Upon any termination under
-------------------
this Section 6, except a termination caused by Licensor's breach, all rights
of Licensee to Exclusive Supply under this Agreement shall revert to
Licensor. In addition, upon termination, Licensor shall receive an option
to an exclusive worldwide license to market, sell and/or dispose of
Licensee's technology rights to Licensed Products, including improved
antenna designs and improved diplexers for myocardial ablation. Within
ninety (90) days of termination, Licensor shall provide Licensee with
written notice that Licensor desires such a license, and Licensor shall
agree to negotiate in good faith towards the execution of said license
agreement. If Licensor and Licensee having so negotiated in good faith
shall not have executed such a definitive agreement within sixty (60) days
of Licensor's termination, then Licensee shall thereafter be entitled to
license their technology rights to any person upon terms no more favorable
than those offered to Licensor, and in the event such a license is issued,
Licensor's rights under this Section to Licensee's technology rights to the
Licensed Products shall thereupon terminate.
7. Relationship. Nothing contained in this Agreement shall be
------------
construed by the parties hereto, or by any third party, as constituting the
parties as principal and agent, partners or joint ventures, nor shall
anything herein (except as otherwise specifically provided) render either
party liable for the debts and obligations of the other, it being understood
and agreed that the only relationship between the parties is that of
Licensor and Licensee.
12
8. Assignment. Except as hereinafter provided, and so long as
----------
this Agreement is in effect, Licensee may not assign or sublicense its
rights or obligations under this Agreement, without the prior written
consent of Licensor, which consent shall not be unreasonably withheld.
Notwithstanding the aforesaid, Licensee shall have the right to assign its
rights and obligations under this Agreement as a part of a sale of
substantially all of the assets of Licensee or by operation of laws in the
case of a merger involving Licensee.
9. Waiver. None of the terms of this Agreement may be waived
------
or modified except by an express agreement in writing signed by both
parties. The failure of either party hereto to enforce, or the delay by
either party in enforcing, any of is rights under this Agreement shall not
be deemed a continuing waiver or a modification thereof and either party
may, within the time provided by applicable law, commence appropriate legal
proceedings to enforce any or all of such rights.
10. Infringement.
------------
(a) Infringement by Third Parties. In the event any
-----------------------------
patents within the Patent Rights shall be infringed or appear to be
infringed by third parties so as to subject Licensee to substantial
unlicensed competition, the parties agree to cooperate in efforts to abate
the infringement or otherwise settle the matter. Licensor shall have the
first right, but not the obligation, to notify the infringer and/or to
initiate legal proceedings to abate the infringement. Licensee may elect
to join in any such legal proceedings. In the event Licensor has not
initiated such legal proceedings within six (6) months after becoming
aware of the infringement, then Licensee may initiate such legal proceedings
on its own behalf, and, thereafter, Licensor may elect to join in those
13
proceedings. Any recovery or proceeds from settlement shall be shared
between Licensor and Licensee in proportion to the expenses of the
proceedings borne by each party.
(b) Third Party Patents. To the best of Licensor's
-------------------
present knowledge, information and belief, no adversely owned patents will
be infringed by Licensee's activities pursuant to this Agreement. In the
event Licensee's activities pursuant to this Agreement result in the filing
of an action for infringement against Licensee, based on an adversely owned
patent, Licensee may defer fifty percent (50%) of the obligation to pay
royalties under Section 4(d), to the extent of Licensee's legal expenses
until the withdrawal of the claim of infringement.
(c) Additional Patents. Licensor represents that all
------------------
of its patents and patent applications that relate to the Licensed Products
or any component thereof and to any apparatus or process useful for the
manufacture of any or all of the Licensed Products are listed on Exhibit
"D", attached hereto and incorporated herein by reference thereto.
Licensee represents that all of its patents and patent applications
pertaining to the developments referred to in Subsection 5(b) above are
listed on Exhibit "D".
11. Warranty of Title. Licensor warrants that it is the owner
-----------------
of all right, title and interest in and to the Patent Rights and has the
right to grant the rights and licenses provided Licensee under this
Agreement.
12. No Warranty. Unless specifically provided to the contrary
-----------
in this Agreement, nothing herein shall be construed as a warranty or
representation by Licensor as to the validity or scope of any patent; or
that manufacture, use, distribution or sale of Licensed Products shall be
14
free from infringement or patents; or conferring by implication, estoppel
or otherwise upon Licensee any license or other right except the rights
expressly granted hereunder.
13. Patent Marking. Licensee shall plainly mark Licensed
--------------
Products or packaging for the same shipped to customers in the United
States or countries outside of the United States and all promotional
literature referring to such Licensed Products with a patent notice
identifying the patents within the Patent Rights in a manner which
complies with the laws pertaining thereto.
14. Confidentiality.
---------------
(a) Both parties will treat as confidential all
information furnished to the other party which the furnishing party has
designated as "Confidential". For the purpose of this Agreement, the
Know-How furnished by Licensor to Licensee shall be treated as confidential
information. For the terms of this Agreement and three (3) years following
termination, both parties will not disclose or make available
"Confidential" information to any third party without the other party's
prior written permission.
(b) The obligations of confidentiality under this
Section shall survive the termination of this Agreement. The obligations
of confidentiality do not apply to any information or Know-How which:
(i) can be demonstrated by written records that
the information was known to the party receiving the information prior to
receipt thereof from the other party; or
(ii) was or becomes a matter of public
information or publicly available through no act or failure to act on the
part of the party receiving the information; or
15
(iii) is acquired in good faith by the party
receiving the information from a third party entitled to disclose the
information to it; or
(iv) is required by law or court order to be
disclosed.
(c) Licensor acknowledges that it is aware that in the
event that Licensee decides to manufacture Licensed Products, other than
Licensor's miniature radiometer temperature sensing device, and use the
Know-How in connection therewith, Licensee will acquire various parts and
components for such Licensed Products from third party vendors (although
final assembly and manufacture will be conducted at one or more plants of
Licensee), and Licensor agrees that Licensee may acquire various parts and
components for such Licensed Products from third party vendors. In such
event, Licensee agrees to obtain a confidentiality agreement from such
third party vendors similar to the provisions set forth in the within
Section.
15. Entire Agreement. This Agreement and the Exhibits attached
----------------
hereto constitute the entire agreement between the parties with respect to
the subject matter hereof. There are no representations, promises,
warranties, covenants or undertakings other than those contained in this
Agreement. It is the intention of the parties that this Agreement
supersedes and replaces in full the Prior Agreement.
16. Survival. All provisions of this Agreement relating to
--------
confidentiality or the rights and obligations of the parties after
termination of this Agreement shall be deemed to survive such termination.
17. Notices. All notices, reports and other documents provided
-------
for herein shall be deemed to have been given or made when received by
Certified Mail, Return Receipt Requested, addressed to the parties at their
16
respective addresses set forth above or such other addresses as either of
the parties hereto may designate in writing to the other from time to time
for such purpose.
18. Construction. The operation and interpretation of this
------------
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania.
The titles of the Sections of this Agreement are for convenience only and
shall not define or limit any of the terms or provisions hereof.
19. Modification. Any modifications of this Agreement shall be
------------
in writing and signed by both Licensor and Licensee. Any attempt to modify
this Agreement orally or in writing not executed by all parties hereto shall
be void.
20. Severability. If any provision hereof is construed to be
------------
illegal or unenforceable by reason of treaty, statute, regulation or court
decision, the offending provision shall be stricken without affecting the
rest of the Agreement unless the striking of the offending provision would
render further operations under the Agreement substantially impossible or
so one-sided as to lack substantial mutuality.
THE PARTIES have duly executed this Agreement in duplicate executed
counterparts, effective the date first above written.
MICROWAVE MEDICAL SYSTEMS, INC.
May 30, 1996 By: /s/ Kenneth L. Carr
------------ -------------------------------
Date (signature)
President and Chief Executive Officer
ARROW INTERNATIONAL, INC.
By: /s/ Marlin Miller, Jr.
------------ -------------------------------
Date (signature)
President
17
Exhibit "A"
LICENSE AND EXCLUSIVE SUPPLY AGREEMENT
--------------------------------------
THIS AGREEMENT entered into this 22nd day of September, 1993,
between MICROWAVE MEDICAL SYSTEMS, INC., 9 Goldsmith Street, Littleton,
Massachusetts 01460-1088 ("Licensor"), and ARROW INTERNATIONAL, INC., a
Pennsylvania Corporation having a place of business at 3000 Bernville
Road, Reading Pennsylvania 19605 ("Licensee").
WHEREAS, Licensee is engaged in the manufacture and sale of medical
and scientific products for and to the medical profession and others; and
WHEREAS, Licensor is the owner of all rights in U.S. Patent No.
4,583,556 to a Microwave Applicator/Receiver Apparatus and Japanese
Patent No. 1426077 and has the right to grant an exclusive license under
the patents and any patents issuing on applications which claims priority
from the applications which form the basis for said patents; and
WHEREAS, Licensor manufactures and develops microwave
generators/receivers/diplexers and has developed a miniaturized radiometer,
and
WHEREAS, Licensee is desirous of acquiring an exclusive license and
worldwide exclusive supply of said microwave generators/receivers/diplexers
for use in the field of myocardial tissue ablation; and
WHEREAS, Licensee has assisted in funding Licensor's development of
improved antennae designs for use with cardiac ablation catheters, and
Licensor desires to manufacture for Licensee products with said improved
designs; and
WHEREAS, Licensor and Licensee also wish to continue the development of
products for microwave heating/ablation of tissue.
NOW, THEREFORE, in consideration of the above premises and mutual
covenants and conditions herein contained, the parties intending to be
legally bound agree as follows:
1. Definitions.
-----------
(a) Whenever used in this Agreement, unless otherwise
indicated in the context, the following terms shall have the meanings
defined in this Article 1.
(b) Patent Rights means all Licenser's U. S, Japanese and
other patents, (including U.S. Patent No. 4,583,556 and Japanese Patent
1426077 attached hereto as Exhibit "A") now, or during the term of this
Agreement hereafter issued, relating to the Licensed Products and to any
apparatus or process useful for the manufacture of any or all of the
Licensed Products..
(c) Licensed Products means a microwave
generator/receiver/diplexer device, including a disposable catheter,
containing a microwave antenna used for ablation/heating of myocardial
tissue.
2. License.
-------
(a) Licensor hereby grants, and Licensee hereby accepts,
upon the terms and conditions set forth in this Agreement, the exclusive
license to make, have made, use, sell, and put into use Licensed Products
under the Patent Rights.
(b) Modifications by Licensee: Licensee may, in such manner
-------------------------
as it deems fit and at its sole cost and expense, modify, alter, change
or improve any component or assembly of components which comprise the
Licensed Products and use the same, by itself or in combination with any
other product, component, or assembly of components provided, however,
that such modifications, alterations, changes or improvements shall not
excuse Licensee from its obligation to pay royalties hereunder so long as
such products are covered by the Patent Rights.
2
3. License Fees.
------------
Licensee shall pay to Licensor the following royalties:
(a) a running royalty throughout the term of this License
Agreement of:
3% of net selling price of the disposable catheters
containing a microwave antenna for use in Licensed Products; or
5% of net selling price of the disposable catheters
containing a microwave antenna for use in Licensed Products with a
radiometer.
4. Financial Terms.
---------------
(a) Net Selling Price: as used in paragraph 3 (a) above,
-----------------
shall mean Licensee's invoice prices to its customers for Licensed
Products shipped to its customers during the term of this Agreement;
exclusive of promotional samples, whether by sale, rental, lease, license
or otherwise, less only sales commissions to dealers, returns, uncompleted
on-approval sales, shipping charges and sales, use and excise taxes and
customs duties separately stated on invoices to Licensee's customers.
(b) Method of Payment: Books and Records: The License Fees
------------------------------------
shall be paid to Licensor in accordance with the following terms and
conditions:
(i) Statements: Royalties payable pursuant to
----------
paragraph 4 shall be paid quarterly within thirty (3 0) days following
the end of quarterly periods ending November 3 0, February 28, May 3 1
and August 3 1 of each year of the term of this Agreement. Licensee
shall accompany each payment with a Statement showing in reasonable
detail all shipments of Licensed Products made during such period and all
Licensee Fees which are payable by virtue of such shipments.
(ii) Books and Records: Licensee shall keep and
-----------------
maintain accurate and complete books and records relating to all matters
affecting License Fees payable hereunder. Licensor shall have the right,
at reasonable times and on reasonable notice, to audit such books at
Licensee's offices. Licensee shall be required to retain records
relating to Licensed
3
Products for which payment has been made hereunder no more than five (5)
years after payment in accordance with paragraph 4(b)(i). Except as may
be required in connection with the resolution of any dispute arising under
this Agreement, Licensor shall keep in confidence all information
furnished to it, either in the form of the Statement of License Fees
delivered by Licensee or any information which it might gain or gather
from the examination or audit of Licensee's books, except as may be
required to be disclosed by Licensor in compliance with law or regulation.
If any audit discloses any error, the parties shall by appropriate payment
forthwith adjust the same.
(iii) Currency; Exchange Rate: The amounts payable
-----------------------
hereunder shall be paid by a check of the party drawn in United States
dollars. To the extent required under this Agreement, all amounts stated
in a currency other than United States dollars shall be translated into
United States dollars applying the conversion rate of exchange prevailing
in New York on the last day of the month preceding the month in which any
such computation must be made. If payment of any sum is blocked by
governmental decree or order, payment of sums may, at the Licensee's
election, be deferred until such time as such transfer is no longer
blocked.
5. Exclusive Supply.
----------------
During the term of this Agreement, Licensor will work only with
Licensee in the development of devices for microwave heating/ablation of
myocardial tissue, and will supply Licensee ONLY with microwave
generators/receivers/diplexers and radiometers for use in myocardial
tissue heating/ablation.
Each generator/receiver/diplexer or radiometer shall be sold
by Licensor to Licensee at a price equal to 1.5 times the cost of
manufacture of such generator/receiver/diplexer or radiometer. For
purposes of this provision, the "cost of manufacture" is defined as the
sum of (i) the amount paid by Licensor to its suppliers for purchased
components for the generator/receiver/diplexer or radiometer, plus (ii)
Licensor's direct labor and (iii) Licensor's manufacturing overhead
reasonably allocable to the assembly of the generator/receiver/diplexer
or radiometer.
4
6. Rights and Responsibilities of Parties:
--------------------------------------
(a) Licensee shall be responsible for all product
development, marketing and support activities and the expense attendant
thereto.
(b) Rights to all developments in Licensee-funded myocardial
tissue ablation program, including improved antenna designs and improved
diplexer, which can be used for myocardial tissue ablation, shall be owned
jointly by Licensor and Licensee. Such rights shall not be included in
the Patent Rights covered by this Agreement but Licensor will be free to
use any such developments without charge in fields other than myocardial
tissue ablation.
(c) Licensee shall be responsible for the preparation,
filing, prosecution and maintenance of all patent applications and patents
to the inventions and/or improvements relating to tissue heating/ablation
with microwave radiation. Licensor shall cooperate with Licensee in the
preparation and/or execution of any documents, including patent
applications, which, in the opinion of counsel for Licensee, is necessary
to protect Licensee's interests in said inventions and/or improvements.
7. Term and Termination.
--------------------
(a) Term: Unless sooner terminated, this Agreement shall
----
remain in effect until the expiration of the last to expire of any patents
covered by Licensor's Patent Rights. Licensee shall have the right to
terminate this Agreement upon the second anniversary date of the Effective
Date of this Agreement and at any time thereafter upon sixty (60) days
written notice to Licensor.
(b) Termination for Breach: If either party shall materially
----------------------
breach or default under this Agreement, the other party may give written
notice of its intention to terminate this Agreement, stating in reasonable
detail the nature of the breach or default. If the party in breach or
default fails to cure or remedy its breach or default within ninety (90)
days (thirty (30) days in the case of a default in the payment of
royalties), the other party may, while such breach or default continues,
terminate this Agreement forthwith on written notice.
(c) Final Accounting: Within thirty (30) days of
----------------
termination, Licensee shall provide Licensor with a final accounting of
the Licensed Products made through the effective date of termination and
pay royalties then due hereunder.
(d) Termination for Lack of Marketing: In the event Licensee
---------------------------------
does not commercially market the Licensed Product within one year of FDA
approval, or after having commercially marketed, ceases to commercially
market the Licensed Products for a two year continuous time interval
during the term of this Agreement, Licensor may terminate this
Agreement forthwith upon written notice.
(e) Reversion of Rights: Upon any termination under this
-------------------
Section 7, except a termination caused by Licensor's breach, all rights of
Licensee to Patent Rights and Exclusive Supply under this Agreement shall
revert to Licensor. In addition, upon termination, Licensor shall receive
an option to an exclusive world-wide license to market, sell and/or
dispose of Licensee's technology rights to Licensed Products, including
improved antenna designs and improved diplexers for myocardial ablation.
Within ninety (90) days of termination, Licensor shall provide Licensee
with written notice that Licensor desires such a license, and Licensor and
Licensee shall agree to negotiate in good faith towards the execution of
said license agreement. If Licensor and Licensee having so negotiated in
good faith shall not have executed such a definitive agreement within
sixty (60) days of Licensor's termination, then Licensee shall thereafter
be entitled to license their technology rights to any other person upon
terms no more favorable than those offered to Licensor, and in the event
such a license is issued, Licensor's rights under this paragraph to
Licensee's technology rights to Licensed Products shall thereupon
terminate.
8. Relationship.
------------
Nothing contained in this Agreement shall be construed by the
parties hereto, or by any third party, as constituting the parties as
principal and agent, partners or joint ventures, nor shall anything herein
(except as otherwise specifically provided) render either party liable for
the debts and obligations of the other, it being understood and agreed that
the only relationship between the parties is that of Licensor and
Licensee.
6
9. Assignment.
----------
Licensee may not assign its rights or obligations under this
Agreement, without the prior written consent of Licensor, which may not be
unreasonably withheld.
10. Waiver.
------
None of the terms, of this Agreement may be waived or modified
except by an express agreement in writing signed by both parties. The
failure of either party hereto to enforce, or the delay by either party
in enforcing, any of its rights under this Agreement shall not be deemed
a continuing waiver or a modification thereof and either party may,
within the time provided by applicable law, commence appropriate legal
proceedings to enforce any or all of such rights.
11. Infringement.
------------
(a) Infringement by Third Parties: In the event any patents
-----------------------------
within the Patent Rights shall be infringed or appear to be infringed by
third parties so as to subject Licensee to substantial unlicensed
competition, the parties agree to cooperate in efforts to abate the
infringement or otherwise settle the matter. Licensor shall have the
first right, but not the obligation, to notify the infringer and/or to
initiate litigation or legal proceedings to abate the infringement.
Licensee may elect to join in any such legal proceedings. In the event
Licensor has not initiated such legal proceedings within six (6) months
after becoming aware of the infringement, then Licensee may initiate such
legal proceedings on its own behalf, and, thereafter, Licensor may elect
to join in those proceedings. Any recovery or proceeds from settlement
shall be shared between Licensor and Licensee in proportion to the
expenses of the proceedings borne by each party.
(b) Third Party Patents: To the best of Licensor's present
-------------------
knowledge, information and belief no adversely owned patents will be
infringed by Licensee's activities pursuant to this Agreement. In the
event Licensee's activities pursuant to this Agreement result in the
filing of an action for infringement against Licensee, based on an
adversely owned patent, Licensee may defer fifty (50) percent of the
payments due under paragraph 4(a) and
7
the obligation to pay royalties under paragraph 3, to the extent of
Licensee's legal expenses until the withdrawal of the claim of
infringement.
12. Warranty of Title.
-----------------
Licensor warrants that it is the owner of all right, title and
interest in and to the Patent Rights and has the right to grant the rights
and licenses provided Licensee under this Agreement.
13. No Warranty.
-----------
Unless specifically provided to the contrary in this Agreement,
nothing herein shall be construed as a warranty or representation by
Licensor as to the validity or scope of any patent; or that manufacture,
use, distribution or sale of Licensed Products shall be free from
infringement of patents; or conferring by implication, estoppel or
otherwise upon Licensee any license or other right except the rights
expressly granted hereunder.
14. Patent Marking.
--------------
Licensee shall plainly mark Licensed Products or packaging for
the same shipped to customers in the United States or countries outside of
the United States and all promotional literature referring to such Licensed
Products with a patent notice identifying the patents within the Patent
Rights in a manner which complies with the laws pertaining thereto.
15. Confidentiality.
---------------
(a) Both parties will treat as confidential all information
furnished to the other party which the Punishing party has designated as
"Confidential". For the terms of this Agreement and three (3) years
following termination, both parties will not disclose or make available
'Confidential' information to any third party without the other party's
prior written permission.
(b) The obligations of confidentiality under this Article
shall survive the termination of this Agreement. The obligations of
confidentiality do not apply to any information which:
8
(i) can be demonstrated by written records that the
information was known to the party receiving the information prior to
receipt thereof from the other party;
(ii) was or becomes a matter of public information or
publicly available through no act or failure to act on the part of the party
receiving the information; or
(iii) is acquired in good faith by the party receiving
the information from a third party entitled to disclose the information to
it; or
(iv) is required by law or court order to be
disclosed.
16. Entire Agreement.
----------------
This Agreement and the Exhibits attached hereto constitute the
entire agreement between the parties with respect to the subject matter
hereof. There are no representations, promises, warranties, covenants or
undertakings other than those contained in this Agreement.
17. Survival.
--------
All provisions of this Agreement relating to confidentiality or
the rights and obligations of the parties after termination of this
Agreement shall be deemed to survive such termination.
18. Notices.
-------
All notices, reports and other documents provided for herein
shall be deemed to have been given or made when received by Certified
Mail, Return Receipt Requested, addressed to the parties at their
respective addresses set forth above or such other addresses as either of
the parties hereto may designate in writing to the other from time to
time for such purpose.
9
19. Construction.
------------
The operation and interpretation of this Agreement shall be
governed by the laws of the Commonwealth of Pennsylvania. The titles of
the Sections of this Agreement are for convenience only and shall not
define or limit any of the terms or provisions hereof.
20. Modification.
------------
Any modifications of this Agreement shall be in writing and
signed by both Licensor and Licensee. Any attempt to modify this Agreement
orally or in writing not executed by all parties hereto shall be void.
21. Severability.
------------
If any provision hereof is construed to be illegal or
unenforceable by reason of treaty, statute, regulation or court decision,
the offending provision shall be stricken without affecting the rest of
the Agreement unless the striking of the offending provision would render
further operations under the Agreement substantially impossible or so
one-sided as to lack substantial mutuality.
THE PARTIES have duly executed this Agreement in duplicate executed
counterparts, effective the date first above written.
MICROWAVE MEDICAL SYSTEMS, INC.
9/22/93 By: /s/ KENNETH L. CARR
--------- --------------------
Date (signature)
KENNETH L. CARR
Title: President and Chief
Executive Officer
ARROW INTERNATIONAL, INC.
9/22/93 By: /s/ MARLIN MILLER, JR.
--------- ----------------------
Date (signature)
MARLIN MILLER, JR.
Title: President
NAB:mak
051293
10
Exbibit "B"
UNITED STATES PATENT [19] [11] PATENT NUMBER: 4,583,556
HINES ET AL. [45] DATE OF PATENT: APR. 22, 1986
- ---------------------------------------------------------------------
[54] MICROWAVE APPLICATOR/RECEIVER
APPARATUS
[75] Inventors: Marion E. Hines; Robert J. Bielawa;
Robert 0. Geoffroy, all of Middlesex
County, Mass.
[73] Assignee: M/A-Corn, Inc., Burlington. Mass.
[21] Appl. No.: 449,389
[22] Filed: Dec. 13, 1982
[51] Int. Cl. ............................................ A61N 1/40
[52] U.S. Cl. .................................... 128/804; 128/798;
129/784
[58] Field of Search ....................... 128/804, 784, 786, 399,
128/401, 421, 422; 219/10.55 R, 10.55 A, 10.55
M, 10.55 F, 10.81
[56] REFERENCES CITED
U.S. PATENT DOCUMENTS
4,154,246 5/1979 LeVeen ............ 128/804
FOREIGN PATENT DOCUMENTS
2027594 2/1980 United Kingdom ........ 128/798
Primary Examiner-Edward M. Coven
Attorney, Agent, or Firm-Wolf, Greenfield & Sacks
[57]
ABSTRACT
A microwave applicator for applying microwave energy to living tissue
for providing uniform heating with out hot spots. The applicator
includes a first electrical conductor and a second electrical conductor
substantially shielding the first conductor in a transmission line
configuration capable or propagating microwave energy in a frequency
band suitable for heating living tissue. The first conductor has an
unshielded portion extending a distance beyond the second conductor and
there is additionally provided a coil as a third electrical conductor
surrounding the extending portion of the first conductor and
connected between the ends of the first and second conductors. The
applicator is preferably configured for insertion through an opening
into the body and includes a substantially smooth dielectric sleeve
covering the coil of the third conductor.
7 Claims, 4 Drawing Figures
4,583,556
1
MICROWAVE APPLICATOR/RECEIVER
APPARATUS
INTRODUCTION
This invention relates in general to methods and means for
hypothermal medical treatment. More particularly the invention discloses
an applicator for applying microwave energy to living tissue within a
human or animal body for uniformly heating such tissue without "hot
spots", and a novel method for achieving such uniform heating, to any
desired temperature in a range including temperatures which will destroy
tumorous tissue while being safe for viable tissue.
Prior known applicators for this purpose are in the configuration of
a simple coaxial monopole (illustrated at FIG. 2(a) of the accompanying
drawings), which is characterized by intense heating in a region where
the inner and outer conductors are close together; FIG. 2(a) illustrates
the isothermal field lines of that kind of applicator.
The following prior art is noted:
Kraus "ANTENNAS", McGraw-Hill 1950, chapter 7, Sec. 7-16, pages 213-
215; U.S. Pat. No. 3,014,791-Dec. 26, 1961-Benzing, et al.
SUMMARY OF THE INVENTION
Accordingly, it is an object of the invention to provide an
applicator sufficiently small, especially sufficiently thin, so that it
may be inserted into the body for hypothermal medical treatment
purposes. Such purposes include measurement of local temperature
differences by radiometry, and heating of living tissue by application
of RF energy.
Another object of the present invention is to provide an applicator
which heats the active zone of tissue uniformly, avoiding the creation
of "hot spots" which could burn tissue and cause pain.
In accordance with the present invention, an applicator is made of a
first electrical conductor and a second electrical conductor
substantially shielding said first conductor in a transmission line
configuration capable of propagating microwave energy in a frequency
band suitable for heating living tissue; the first conductor has an
unshielded portion extending a distance beyond said second conductor;
and a coil of a third electrical conductor surrounding the extending
portion of the first conductor is connected between the ends of the
first and second conductors. This arrangement is capable of providing a
pattern of microwave radiation into living tissue which pattern is
characterized by substantially uniform non-burning intensity
distribution over a prescribed spatial distribution within said tissue.
The applicator is configured for insertion through an opening into said
body, and it includes a substantially smooth dielectric sleeve covering
the coil of the third conductor.
BRIEF DESCRIPTION OF THE DRAWINGS
Numerous other objects, features and advantages of the invention
should now become apparent upon a reading of the following detailed
description taken in conjunction with the accompanying drawing, in
which:
FIG. 1 is a side-sectional view or an applicator according to the
invention;
FIGS. 2(a) and (b) are sketches showing isothermal lines in the
radiation fields of the prior-known coaxial monopole applicator referred
2
to above and the applicator of FIG. 1. respectively; and
FIG. 3 is a side-sectional view. partly schematic, of a two-frequency
applicator according to the invention.
DETAILED DESCRIPTION
The applicator shown in FIG. 1 is the heating tip 10 of a unit intended
to be inserted into a body cavity or duct for heating living tissue
within the body with radio-frequency energy in a microwave frequency
band, fixed to an end of a coaxial line 12. The coaxial line comprises
the usual center conductor 14, outer conductor 16 and dielectric 18
between them. This is the RF input to the heating tip 10. The outer
conductor 16 is removed to expose an end portion 15 of the inner
conductor 14. A coil of a third conductor 17 surrounds the end portion
15 and dielectric 18 which envelopes it; the third conductor is, by
conductive connection, connected in series between the end 19 of the
outer conductor and the end 21 (radial conductor) of the end portion
15. A smooth insulating dielectric sleeve 22 surrounds the heating tip
10 and the immediately-adjacent portion of the outer conductor 16.
When the applicator of FIG. 1 is inserted into living tissue and
microwave-frequency energy is applied to the coaxial line 12, local RF
heating of the surrounding tissue will occur, the temperature reached in
the tissue depending on many known factors such as power, inverse-square
law radiation decrements, etc. FIGS. 2(a) and (b) respectively
illustrate the approximate field pattern of a prior art applicator as
compared with an applicator constructed in accordance with the present
invention. In FIG. 2(b) reference characters similar to those in FIG.
1 are used; in FIG. 2(a) the coaxial line section 12 is coupled at the
center conductor 14 to a monopole 30, which is free of the outer
conductor 16. A high-voltage gradient exists between the monopole 30
and the outer conductor 16 where they are closest together; i.e.:
between a circular locus A at the end of the outer conductor 16 and a
circular locus B on the monopole 30 which is nearest to it. The
radiation field is strongest between these two loci, and tapers off in
strength between regions of the outer conductor 16 and monopole 30 which
are progressively further apart. Thus, the isothermal lines T1, T2-Tn,
shown in FIG. 2(a) show that the temperature achieved in tissue in
contact with the applicator varies along the applicator, with the
potential for an excessively hot ring in the annular region between
locus A and locus B. This puts a limit on how much power can
be applied to the RF input for heating tissue more remote from the
applicator.
Referring to FIG. 2(b). the isothermal lines T1 and T2 indicate that
heating of tissue surrounding the applicator is more nearly uniform
along the applicator. The coil 17 is electrically connected at its ends
to the inner and outer conductors, respectively, and there is no region
axially along the heating tip 10 where the RF field is substantially
stronger than in any other region. Thus the isothermal line T1
representing the highest temperature nearest to the applicator, is
nearly flat throughout the axial extent of the heating tip. Direct
electrical connections at the ends of the third conductor 17 eliminate
any Field build-up at the heating tip. Thus, with an applicator of the
invention, RF power can be increased without causing a hot spot, or a
hot ring: The power can be raised substantially entirely in accordance
with what temperature the user desires to achieve in
4,583,556
3
surrounding tissue for hypothermal medical purposes. Alternatively, an
applicator according to the invention is a superior detector of heat
being radiated from within the surrounding tissue, in that the
predictably uniform radiation field indicated in FIG. 2(b) enables more
reliable location or a source of heat within the tissue.
In brief, applicators according to the invention can provide a more
uniform heating or detection measurement of temperature over a wider
zone of the human body than has heretofore been possible. Such improved
capability is thought to be useful for detection and possible heat
treatment of cancer sites within living tissue.
In FIG. 3 the first coaxial line section 12 of FIG. 1 is surrounded
by a second coaxial line section 42, the outer conductor 16 of the first
section 12 being the inner conductor of the second section 42. The
conductor 46 of the second section is a fourth conductor assembly. A
second coil of a fifth conductor 47 surrounds the first coil of the
third conductor 17, the fifth conductor being connected between the
first conductor 14 and the fourth conductor 46. This is a dual-
frequency applicator/probe, the second coil of conductor 47 and outer
coaxial line section 42 being intended for use at a lower frequency than
the first coil of conductor 17 and inner coaxial line section 12. The
coils are similarly connected between the free end 21 of the first inner
conductor 14 and the ends of the respective outer conductors 16 and 46.
The coils of conductors 17 and 47 may be helical, in which event FIG.
3 includes the case of two concentric helices.
We claim:
1. For use in medical treatment of living tissue a microwave
applicator/receiver device capable of applying microwave-frequency
radiant energy to living tissue by way of insertion thereof through an
opening into the body and of receiving similar energy radiating from
within such tissue while in contact with said tissue, said device
comprising an inner electrical conductor and an outer electrical
conductor substantially shielding said inner conductor in a non-resonant
transmission line configuration capable of propagating microwave energy
in a frequency band suitable for heating living tissue, said inner
conductor having an unshielded portion extending a distance beyond said
outer conductor, and a helical coil surrounding said extending portion
of said inner conductor and including first and second means connected
between the ends of said outer and
4,583,556
4
inner conductors respectively, for providing a traveling wave pattern of
microwave radiation into tissue which pattern is characterized by
substantially uniform intensity distribution over a prescribed spatial
distribution within said tissue thus providing uniform heating absent
hot-spots over the length of said helical coil, said first means
providing a conductive connection from the outer conductor to the
helical coil, said second means comprising a substantially radial
conductor interconnecting the helical coil with the inner conductor
extending portion with an absence of any conductor extending axially
substantially beyond said helical coil, said helical coil having
multiple wire turns each separated from the next by an inter-turn
spacing greater than the diameter of the helical conductor wire, the
axial length of said helical coil being substantially greater than the
diameter of the helical coil, and including a substantially smooth
dielectric sleeve covering at least said helical coil.
2. A device according to claim 1 in which said outer conductor
substantially coaxially surrounds said inner conductor.
3. A device according to claim 2 wherein said substantially smooth
dielectric sleeve covers both said helical coil and an immediately-
adjacent portion of said outer conductor.
4. A device according to claim 2 including a third conductor
surrounding and spaced from said outer conductor, and a second coil of a
fourth electrical conductor surrounding and spaced from said helical
coil and connected between the ends of said inner and third conductors,
for propagating microwave energy in a second frequency band removed from
said first-named frequency band.
5. A device according to claim 1 in which the outer conductor
substantially, coaxially surrounds said inner conductor with said first
means providing a direct substantially point conductor contact between
the coaxial outer conductor and helical coil.
6. A device according to claim 1 wherein said radial conductor is
slightly curved to provide a smooth conductive transition from the inner
conductor to the helical coil.
7. A device according to claim 1 wherein the helical coil comprises a
helix wire having a length substantially greater than a minor fraction
of one quarter wavelength at the operating frequency band.
(Translation)
Letters Patent
Japanese Patent Application No. 234934/1983
Japanese Patent Publication No. 32947/1987
Patent No. 1 4 2 6 0 7 7
Title of Invention: Microwave Applicator/Receiver Apparatus
Patentee: 63 South Avenue
Burlington, Massachusetts
U. S. A.
Nationality: The United States of America
M/A Com, Inc.
Inventor(s): Marion E. Hines
Robert J. Bielawa
Robert 0. Geoffroy
This is to certify that this invention, having been decided to be
patented. has been registered in the Patent Register.
Date: February 25, 1988
Kunio Ogawa (Seal)
Director of Patent Office
Exhibit "C"
MMS
3 April 1996
Mr. Ray Neag. Executive Vice President
ARROW INTERNATIONAL, INC.
300O Bernville Road
Reading, Pennsylvania 19605
Dear Ray:
Enclosed is a copy of Ned Brewer's letter to Robert Kauffman dated 3
April 1996. In that letter, Ned refers to a "learning curve" to define
the maximum unit price for the Ablation System ... stating that I will
FAX directly to you. Attached is a copy of that learning curve. This
is done to protect Arrow's position on Myocardial Ablation by
maintaining a cost to Arrow of 1.5 times MMS's manufacturing cost, while
providing a not-to-exceed figure. Arrow would, therefore, pay the lower
of the two figures. In the determination of the not-to-exceed figures,
it has been assumed that the lap-top computer currently used in the
clinical trial units will not be required.
Also suggested is a plan to reduce unit cost by cost-sharing the cost
reduction efforts. This is a provision commonly used in military
procurement. MMS believes that, working with Arrow, a unit price goal
of $12,000. in quantities of 400 is achievable.
In addition, MMS has been awarded a Phase II SBIR Grant entitled
"Microwave Device For Myocardial Ablation." This grant provides
$750,000. of funding over a period of two (2) years. The purpose of
this grant is to investigate the use of microwave radiometry as a
temperature sensing technique. I have forwarded (21 March 1996) a copy
of the grant submittal to Phil Fleck for his review and, as stated in
that letter, "The results of this program could prove of significant to
Arrow's Myocardial Ablation Program."
I believe that Arrow will be very successful on this program, and we
look forward to working with you.
If you have any questions, please do not hesitate to call.
Very truly yours,
MICROWAVE MEDICAL SYSTEMS, INC.
By: /s/ Kenneth L. Carr
(signature)
Kenneth L. Carr
President and Chief
Executive Officer
KLC/g
Encl.
Learning Curve Graph
The price per unit is defined as the not-to-exceed price for a given
release. For example: The not-to-exceed price for a release of 160
units will be $17,519.
Quantity Per Unit Price
20 $24,031
40 $21,628
80 $19,465
160 $17,519
320 $15,767
EXHIBIT "D"
A. Patents and patent applications of Licensor relating to the
Licensed products or any component thereof.
1. U.S. Patent 4,583,556, dated April 22, 1996, Pertaining to a
Microwave Applicator/Receiver Apparatus,
2. Japanese Patent #1426077, dated February 25, 1998, for a
Microwave Applicator/Receiver Apparatus.
B. Patent and patent applications of Licensee pertaining to
developments referred to in Subsection 5(b):
1. U.S. Patent application filed May 15, 1995 pertaining to
Microwave Antenna Catheter, PCT application filed for European
continent, Canada and Japan.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ARROW INTERNATIONAL, INC. FOR THE NINE MONTHS ENDED MAY
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 3,428
<SECURITIES> 0
<RECEIVABLES> 48,812
<ALLOWANCES> 690
<INVENTORY> 41,235
<CURRENT-ASSETS> 106,363
<PP&E> 154,102
<DEPRECIATION> 47,170
<TOTAL-ASSETS> 293,823
<CURRENT-LIABILITIES> 58,726
<BONDS> 0
0
0
<COMMON> 45,499
<OTHER-SE> 167,073
<TOTAL-LIABILITY-AND-EQUITY> 293,823
<SALES> 170,838
<TOTAL-REVENUES> 170,838
<CGS> 80,158
<TOTAL-COSTS> 129,746
<OTHER-EXPENSES> 907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 822
<INCOME-PRETAX> 39,363
<INCOME-TAX> 14,564
<INCOME-CONTINUING> 24,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,799
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
