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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20212
ARROW INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
PENNSYLVANIA 23-1969991
(State of Incorporation) (I.R.S. Employer Identification No.)
2400 Bernville Road
Reading, Pennsylvania 19605
(Address of principal executive offices)
Telephone number: (610) 378-0131
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class: On Which Registered:
-------------------- --------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value
(Title of Class)
Exchange where registered: NASD
Indicate by Check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of November 2, 1998 was approximately $340,637,724.
The number of shares of Registrant's Common Stock outstanding on November 2,
1998 was 23,224,061.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on January 20, 1999, which will be filed with the
Securities and Exchange Commission within 120 days after August 31, 1998, are
incorporated by reference in Part III of this report.
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ITEM 1. BUSINESS:
Certain of the information contained in this Form 10-K, including the
discussion which follows in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" found in Item 7 of this Report, contain
forward-looking statements. For a discussion of important factors that could
cause actual results to differ materially from such forward-looking statements,
carefully review this Report, including Exhibit 99.1 hereto, as well as other
information contained in Arrow International, Inc.'s periodic reports filed with
the Securities and Exchange Commission (the "SEC" or "Commission").
Arrow International, Inc. (together with its subsidiaries, "Arrow" or the
"Company") was incorporated as a Pennsylvania corporation in 1975. Arrow
develops, manufactures and markets a broad range of clinically advanced,
disposable catheters and related products for critical and cardiac care. The
Company's critical care products are used principally for central vascular
access for administration of fluids, drugs, and blood products, patient
monitoring and diagnostic purposes, as well as for pain management. These
products are used by anesthesiologists, critical care specialists, surgeons,
cardiologists, nephrologists, emergency and trauma physicians and other health
care providers. Arrow's cardiac care products are used by interventional
cardiologists, interventional radiologists and electrophysiologists for such
purposes as the diagnosis and treatment of heart and vascular disease and to
provide short-term cardiac assist following cardiac surgery, serious heart
attack or balloon angioplasty.
Arrow's critical care products, which were originally introduced in 1977,
accounted for 84.3%, 84.4% and 82.2% of net sales in fiscal 1998, 1997 and 1996,
respectively. The majority of these products are vascular access catheters and
related devices which consist principally of the following: the Arrow-Howes(TM)
Multi-Lumen Catheter, a catheter equipped with three or four channels that
enables the simultaneous administration of multiple critical care therapies
through a single puncture site; double-and single-lumen catheters, which are
designed for use in a variety of clinical procedures; the ARROWg+ard(TM)
antiseptic surface treatment, which is applied to many of the Company's vascular
access catheters to reduce the risk of catheter-related infection; percutaneous
sheath introducers, which are used as a means for inserting cardiovascular and
other catheterization devices into the vascular system during critical care
procedures; radial artery catheters, which are used for measuring arterial blood
pressure and taking blood samples; and FlexTip Plus(TM) epidural catheters,
which are designed to minimize indwelling complications associated with
conventional epidural catheters.
In April 1995, the Company expanded its critical care product line by
acquiring Therex Limited Partnership ("Therex"), a company engaged in the
development, manufacture and marketing of implantable constant flow drug
delivery pumps and a broad line of implantable vascular access ports used for
the infusion of certain drugs over an extended period of time in connection with
the treatment of cancer, other chronic diseases and chronic pain. The Company
received Food and Drug Administration ("FDA") marketing clearance in March 1996
for its Model 3000 Constant Flow Implantable Pump for the administration of the
chemotherapy drug, 2-Deoxy 5-Flourouridine ("FUDR"), for the treatment of liver
cancer. The Company received additional FDA marketing clearance for the Model
3000 pump for the administration of morphine to treat malignant pain in February
1997 and to treat intractable pain with morphine in September 1997. In July
1997, the Company further expanded its critical care product line by acquiring
the implantable constant flow drug delivery pump product business of
Strato/Infusaid Inc., a former subsidiary of Pfizer, Inc., ("Strato/Infusaid").
In March 1998, the Company received FDA marketing clearance for its Model 3000-
16 constant flow implantable pump for the administration of morphine to treat
benign pain. In September 1998, the Company received FDA marketing clearance
for its Model 3000 pump for the administration of Baclofen, a drug used for the
treatment of spasticity.
In August 1997, the Company received FDA marketing clearance for its
Percutaneous Thrombolytic Device ("PTD") which is designed for clearance of
thrombosed hemodialysis
(2)
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ITEM 1. BUSINESS (CONTINUED):
grafts in chronic hemodialysis patients. This mechanical rotating device,
patented by Johns Hopkins University and exclusively licensed by the Company,
has shown effective graft de-clotting results in a 122 patient human clinical
trial, when compared with a commonly used thrombolysis method for dissolving
these clots. The Company believes that this device provides a cost-effective
alternative means for clearing these grafts, which occur an average of once each
year in a large percentage of the estimated 185,000 U.S. patients currently
undergoing chronic hemodialysis treatment.
In August 1998, the Company strengthened its ability to meet the needs of
critical care physicians by acquiring Medical Parameters, Inc. Medical
Parameters, Inc. manufactures and markets custom tubing sets used by critical
care physicians to connect central venous catheters to blood pressure monitoring
devices and drug infusion systems.
Arrow's cardiac care products accounted for 15.7%, 15.6% and 17.5% of net
sales in fiscal 1998, 1997 and 1996, respectively. These products include
cardiac assist products, such as intra-aortic balloon pumps and catheters ("IAB
products"), which are used primarily to augment temporarily the pumping
capability of the heart following cardiac surgery, serious heart attack or
balloon angioplasty; electrophysiology products, such as pacing and mapping
catheters, which are used primarily to provide temporary pacing of the heart and
to map the electrical signals which activate the heart; the Berman(TM)
Angiographic Catheter, which is used for pediatric cardiac angiographic
procedures; and other cardiac care products, such as the Super Arrow-Flex(TM)
sheath, which provides a kink-resistant passageway for the introduction of
cardiac and other catheters into the vascular system. The Company entered the
cardiac care market in 1987 through the purchase of certain assets from
Critikon, Inc. and, in February 1994, expanded into the field of cardiac assist
by acquiring the intra-aortic balloon pump and catheter business of Kontron
Instruments, Inc. ("Kontron Instruments").
In November 1997, the Company continued the expansion by acquiring the
Cardiac Assist Division of the Boston Scientific Corporation, a manufacturer and
marketer of intra-aortic balloon catheters and an intra-aortic balloon pump. In
January 1998, the Company received clearance from the FDA to market the
Company's new ACAT(TM)1 intra-aortic balloon pump in the U.S. The ACAT(TM)1 is
smaller, lighter and more technologically advanced than the KAAT II Plus (R)
pump, which it replaces, and represents the current state-of-the art in intra-
aortic balloon pumping.
The Company received FDA marketing clearance in May 1996 for its Narrow-
Flex(TM) reduced diameter (8 Fr.) intra-aortic balloon catheter based on new,
patented construction technology. The Company believes this catheter is the
smallest available with full 40cc balloon augmentation capability, the same
degree of heart pumping augmentation that previously had been available only
through the use of larger diameter catheters. This smaller diameter catheter
takes up less space in the femoral artery than previously available catheters
and, therefore, is designed to improve blood circulation to the lower
extremities. Reduced blood flow to the leg is a major complication of intra-
aortic balloon pumping.
In March 1995, the Company extended its line of electrophysiology products
by entering into agreements with Cardiac Pathways Corporation ("Cardiac
Pathways") for certain distribution and manufacturing rights to Cardiac
Pathways' Trio/Ensemble(TM) mapping catheter system used for the diagnosis of
certain cardiac tachyarrhythmias (conditions involving abnormal, potentially
life-threatening electrical signals in the heart). The Company's distribution
rights are worldwide, with the exception of Japan and certain countries in
Europe, where Cardiac Pathways had distribution arrangements already in place.
The Company received FDA marketing clearance for the Trio/Ensemble(TM) mapping
catheter system in December 1995 and currently sells this product in the U.S.
In connection with these agreements, the Company also acquired an equity
interest in Cardiac Pathways, representing approximately 6.2% of the currently
outstanding common stock of Cardiac Pathways.
(3)
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ITEM 1. BUSINESS (CONTINUED):
SALES AND MARKETING
Arrow markets its products to physicians and hospitals through a
combination of direct selling and independent distributors. Within each
hospital, marketing efforts are targeted to those physicians, including critical
care specialists, cardiologists, anesthesiologists, interventional radiologists,
electrophysiologists and surgeons, most likely to use the Company's products.
Arrow's products are generally sold in the form of pre-sterilized procedure kits
containing the catheters and virtually all of the related medical components and
accessories needed by the clinician to prepare for and perform the intended
medical procedure. Additional sales revenue is derived from equipment provided
for use in connection with certain of the Company's disposable products.
In fiscal 1998, 1997 and 1996, 64.9%, 63.8% and 61.8%, respectively, of the
Company's net sales were to U.S. customers. In this market, approximately 79.0%
of the Company's fiscal 1998 revenue was generated by its direct sales force.
The remainder resulted from shipments to independent distributors. For the
majority of such distributors, the Company's products represent a principal
product line. Direct selling generally generates higher gross profit margins
than sales made through independent distributors.
Internationally, the Company sells its products through eleven direct sales
subsidiaries serving markets in Japan, Germany, the Netherlands, France, Spain,
Greece, Africa, Canada, Mexico, the Czech Republic and Slovakia. As of November
2, 1998, independent distributors in 79 additional countries service the
remainder of the world.
To support growth in international sales, the Company operates a 40,000
square foot manufacturing facility in Chihuahua, Mexico and, in January 1996,
completed construction of a 65,000 square foot manufacturing and research
facility in the Czech Republic, which began shipments in the fourth quarter of
fiscal 1996.
Revenues, profitability and identifiable assets attributable to significant
geographic areas are presented in Note 13 to the Company's consolidated
financial statements, included herein.
In general, Arrow does not produce against a backlog of customer orders;
production is based primarily on the level of inventories of finished products
and projections of future customer demand with the objective of shipping from
stock upon receipt of orders. No single customer accounts for a material part
of the Company's sales. Usage of the Company's products by hospitals and
physicians has not been materially influenced by seasonal factors.
Rapid growth in U.S. health care costs, coupled with a lack of access by
some U.S. citizens to adequate health care, has resulted in numerous legislative
initiatives in the U.S. Congress during the last several years. While none of
these initiatives have to date resulted in substantive legislation, the intent
of these initiatives was, generally, to expand health care coverage for the
uninsured and reduce the rate of growth of total health care expenditures. In
addition, certain states have made significant changes to their Medicaid
programs and have adopted various measures to expand coverage and limit costs.
Implementation of government health care reform and other efforts to control
costs may limit the price of, or the level at which reimbursement is provided
for, the Company's products. The increased emphasis in the U.S. on health care
cost containment has resulted in reduced growth in demand for certain of the
Company's products in markets where Arrow has 80% or greater market shares, and
protecting that market share has affected the Company's pricing in some
instances. The Company presently believes that this emphasis has increased the
importance of competitive prices and may continue to reduce the U.S. growth rate
for certain of the Company's products. The Company anticipates that Congress,
state legislatures, foreign governments and the private sector will continue to
review and assess alternative health care delivery and payment
(4)
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ITEM 1. BUSINESS (CONTINUED):
SALES AND MARKETING (CONTINUED)
systems. The Company cannot predict what additional legislation or regulation,
if any, relating to the health care industry may be enacted in the future or
what impact the adoption of any federal, state or foreign health care reform,
private sector reform or market forces may have on its business. No assurance
can be given that any such reforms will not have a material adverse effect on
the medical device industry in general, or the Company in particular.
RESEARCH AND PRODUCT DEVELOPMENT
Arrow is engaged in ongoing research and development to introduce
clinically advanced new products, to enhance the effectiveness, ease of use,
safety and reliability of its existing products and to expand the clinical
applications for which use of its products is appropriate. The principal focus
of the Company's research and development effort is to identify and analyze the
needs of physicians in critical and cardiac care medicine, and to develop
products that address these needs. The Company views ideas submitted by
physicians and other health care professionals as an important source of
potential research and development projects. The Company believes that these
end-users are often in the best position to conceive of new products and to
recommend ways to improve the performance of existing products. Most of the
Company's principal products and product improvements have resulted from
collaborative efforts with physicians, other health care professionals or other
affiliated entities. For certain proprietary ideas, the Company pays royalties
to such persons, and in many instances, incorporates such persons' names in the
tradename or trademark for the specific product. The Company also utilizes other
outside consultants, inventors and medical researchers to carry on its research
and development effort and sponsors research through medical associations and at
various universities and teaching hospitals.
Certain of the Company's strategic acquisitions and investments have
provided the basis for its introduction of significant new products. The
Company entered the field of cardiac assist with the acquisition of Kontron
Instruments. The Company's investment in Cardiac Pathways provided new products
in the field of electrophysiology, and the Company's acquisition of Therex,
augmented by the acquisition of the Strato/Infusaid implantable constant flow
drug delivery pump product line, has provided it with a new product offering of
implantable drug delivery devices, which the Company believes represents an
important addition to its critical care product line. Where appropriate, the
Company plans to continue to complement its internal research and development
efforts with similar acquisitions and collaborative arrangements.
Research and development expenses totaled $18.4 million (7.1% of net
sales), $15.9 million (6.5% of net sales) and $14.1 million (6.1% of net sales)
in fiscal 1998, 1997 and 1996, respectively. Such amounts were used to develop
new products, improve existing products and implement new technology to produce
these products.
Since 1988, the Company has been developing the Arrow-Fischell Pullback
Atherectomy Catheter (the "PAC") for the removal of atherosclerotic plaque. The
Company acquired certain patents relating to the technology underlying the PAC
in 1990. In conjunction with the acquisition, the Company entered into a
research and development agreement under which the Company was required to make
certain payments upon the PAC's achievement of specified development milestones.
In July 1995, the Company amended this agreement to modify the terms of payment
of, and recognize as pre-paid royalties, such milestone payments thereunder.
Since December 1994, the Company has been conducting human clinical trials
outside the U.S. using the PAC in coronary arteries and, in March 1995, the
Company received
(5)
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ITEM 1. BUSINESS (CONTINUED):
FDA approval under an Investigational Device Exemption ("IDE") to conduct Phase
I human clinical trials in the U.S. for use of the PAC in treating
atherosclerosis of coronary arteries. Cardiologists have expressed interest in
using the device for removing plaque at arterial junctions (bifurcations) and
for clearing restenosed stents. For treatment of coronary arteries, the device
has been used successfully in approximately 164 cases internationally and 60
cases in the U.S. Phase I clinical trials. In the fourth quarter of 1998, the
Company began a European multi-center randomized study to evaluate the
effectiveness of the PAC for the removal of plaque from restenosed coronary
stents.
The Company began conducting clinical trials under an IDE in August 1996
for a catheter device, which uses microwave energy for the ablation of cardiac
tissue responsible for ventricular tachycardia. The microwave ablation
catheter's radiative heating mechanism is potentially capable of creating
deeper, wider lesions than currently marketed radio frequency ablation
catheters, which lesions electrophysiologists indicate are necessary for the
effective treatment of ventricular tachycardia using ablation therapy. This
microwave ablation catheter also incorporates several advanced features that are
designed to permit continuous monitoring of catheter/tissue interface
temperature, reduce the risk of tissue overheating and enhance maneuverability
of the catheter to facilitate proper placement in the heart. In June 1996, the
Company acquired additional exclusive, worldwide rights with respect to the
technology underlying its microwave ablation catheter program. Ongoing research
is being conducted on an ablation catheter which uses microwave energy to
eliminate aberrant electrical signals which cause ventricular tachycardia,
atrial flutter and atrial fibrillation arrhythmias. Animal trials, to be
followed by human trials, are underway to determine if microwave energy offers
advantages over currently available catheters utilizing radio frequency energy
for this procedure.
In January 1994, the Company formed a cooperative relationship with
Pennsylvania State University's Hershey Medical School for the commercial
development of a fully implantable long-term Left Ventricular Assist Device
("LVAD"). Although LVADs are currently used to provide short-term cardiac
assist to patients awaiting heart transplants, the Company's efforts are aimed
at developing a fully implantable device to provide long-term cardiac assist for
patients having insufficient ventricular heart function. In contrast to
currently marketed LVADs, the LVAD currently under development by the Company is
not intended merely as a bridge to heart transplant, but is designed, upon
receipt of necessary regulatory approvals, to serve as a long-term cardiac
assist device for certain patients. The Hershey Medical School LVAD has been in
development for over fifteen years and has undergone extensive preclinical
studies and testing. The LVAD being developed is electrically driven by a
wearable battery pack transmitting power non-invasively through the skin to an
implanted receiving coil that maintains a charge in batteries incorporated into
the device. These implanted batteries are capable of maintaining LVAD function
for approximately 45 minutes without the aid of any external power source. In
fiscal 1997, the Company began long-term durability testing of its LVAD, which
must be satisfactorily completed before Phase I human clinical trials under an
IDE can be commenced in the U.S. In addition, the Company conducted animal
trials in fiscal 1998 and currently anticipates the first human implant of the
device in late 1999.
There can be no assurance that the FDA or any foreign government regulatory
authority will grant the Company authorization to market products under
development or, if such authorization is obtained, that such products will prove
competitive when measured against other available products.
ENGINEERING AND MANUFACTURING
Arrow has developed the core technologies that the Company believes are
necessary for it to design, develop and manufacture complex, high quality
catheter-related medical devices. This technological capability has enabled the
Company to develop internally many of the major
(6)
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ITEM 1. BUSINESS (CONTINUED):
ENGINEERING AND MANUFACTURING (CONTINUED)
components of its products and reduce its unit manufacturing costs. To help
further reduce manufacturing costs and improve efficiency, the Company has
increasingly automated the production of its high-volume products and plans to
continue to make significant capital expenditures to promote efficiency and
reduce operating costs.
Raw materials and purchased components essential to Arrow's business have
typically been available within the lead times required by the Company and,
consequently, procurement has not historically posed any significant problems in
the operation of the Company's business. Although the Company currently
maintains only one supplier for certain of its out-sourced components, it has
identified alternative vendors for most of these items and, therefore, does not
believe that it is dependent on any single supplier for major raw materials or
components.
PATENTS, TRADEMARKS, PROPRIETARY RIGHTS AND LICENSES
Arrow believes that patents and other proprietary rights are important to
its business. The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. Arrow currently holds numerous U.S. patents and
patent applications, as well as several foreign patents and patent applications
which relate to aspects of the technology used in certain of the Company's
products, including its radial artery catheter, percutaneous sheath introducer
and interventional diagnostic catheter products. There can be no assurance that
patent applications filed by the Company will result in the issuance of patents
or that any patents owned by or licensed to the Company will provide competitive
advantages for the Company's products or will not be challenged or circumvented
by others.
In addition, Arrow is a party to several license agreements with unrelated
third parties pursuant to which it has obtained, for varying terms, the
exclusive rights to certain patents held by such third parties in consideration
for royalty payments. Many of the Company's major products, including its
Arrow-Howes(TM) Multi-Lumen Catheters and antiseptic surface treatment for
catheters, have been developed pursuant to such license agreements. The Company
has in the past granted rights in certain patents relating to its Arrow-
Howes(TM) Multi-Lumen Catheters to others in consideration for royalty payments.
The Company also has certain proprietary rights to aspects of the technology,
including certain U.S. patents, used in the PAC. See "Research and Product
Development". All of the existing patents owned by or licensed to the Company
relating to its major products expire after October 2001. The U.S. patent
licensed to the Company relating to its Arrow-Howes(TM) Multi-Lumen Catheter
expired in February 1995. Since the expiration of this patent, the Company has
not experienced significant new competition in this market, and the Company does
not presently believe that such competition will have a material adverse effect
on the Company's business, financial condition or results of operations for the
foreseeable future.
From time to time, the Company is subject to legal actions involving patent
and other intellectual property claims. Based upon information presently
available to the Company, the Company knows of no legal actions involving patent
claims that are currently pending or threatened against the Company that could
have a material adverse effect on the Company. Arrow owns a number of
registered trademarks in the United States and, in addition, has obtained
registration in many of its major foreign markets for the trademark ARROW and
certain other trademarks.
(7)
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ITEM 1. BUSINESS (CONTINUED):
GOVERNMENT REGULATION
As a developer, manufacturer and marketer of medical devices, the Company
is subject to extensive regulation by, among other governmental entities, the
FDA and the corresponding state, local and foreign regulatory agencies in
jurisdictions in which the Company sells its products. These regulations govern
the introduction of new medical devices, the observance of certain standards
with respect to the manufacture, testing and labeling of such devices, the
maintenance of certain records, the tracking of such devices and other matters.
Failure to comply with applicable federal, state, local or foreign laws or
regulations could subject the Company to enforcement action, including product
seizures, recalls, withdrawal of clearances or approvals, and civil and criminal
penalties, any one or more of which could have a material adverse effect on the
Company. In recent years, the FDA has pursued a more rigorous enforcement
program to ensure that regulated businesses, like the Company's, comply with
applicable laws and regulations. The Company believes that it is in substantial
compliance with such governmental regulations. However, federal, state, local
and foreign laws and regulations regarding the manufacture and sale of medical
devices are subject to future changes. No assurance can be given that such
changes will not have a material adverse effect on the Company.
On occasion, the Company has received notifications, including warning
letters, from the FDA of alleged deficiencies in the Company's compliance with
FDA requirements. The Company believes that it has been able to address or
correct such deficiencies. In addition, from time to time the Company has
recalled, or issued safety alerts on, certain of its products. No such warning
letter, recall or safety alert has had a material adverse effect on the Company,
but there can be no assurance that a warning letter, recall or safety alert
would not have such an effect in the future.
Like other medical device manufacturers, the Company in recent years has
experienced extended delays in obtaining FDA clearance or approval to market new
products in the U.S. The FDA review process may continue to delay the Company's
new product introductions in the U.S. in the future. In addition, many foreign
countries have recently adopted more stringent regulatory requirements which are
expected to add to the delays and uncertainties associated with the release of
new products, as well as the clinical and regulatory costs of supporting such
releases. It is possible that delays in receipt of, or failure to receive, any
necessary clearance or approval could have a material adverse effect on the
Company's business, financial condition or results of operations.
COMPETITION
Arrow faces substantial competition from a number of other companies in the
market for catheters and related medical devices and equipment, including
companies with greater financial and other resources. In addition, in response
to increased concern about the rising costs of health care, U.S. hospitals and
physicians are placing increasing emphasis on cost-effectiveness in the
selection of products to perform medical procedures. The Company believes that
its products compete primarily on the basis of product differentiation and
quality and that its comprehensive manufacturing capability enables it to
expedite the development and market introduction of new products and to reduce
manufacturing costs, thereby permitting more effective responses to competitive
pricing in an environment where the Company's ability to increase prices is
limited.
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. In the course of its
business, Arrow is involved in the handling, storing and disposal of materials,
which are classified as hazardous. In June 1989,
(8)
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ITEM 1. BUSINESS (CONTINUED):
ENVIRONMENTAL COMPLIANCE (CONTINUED):
the Company was notified that it was among the potentially responsible parties
under the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), for the costs of investigating or
remediating contamination at a waste recycling, treatment and disposal facility.
The Company was notified by the U.S. Environmental Protection Agency ("EPA") in
September 1995 of the means by which it may resolve its alleged liability with
respect to the conduct of a remedial investigational feasibility study at this
facility and of the opportunity to participate with other small waste
contributors to this facility in a de minimis settlement which the EPA believes
is likely to be appropriate for this facility. In December 1995, the Company
indicated its interest in entering into such a de minimis settlement, and this
case has not been active since such date insofar as it involves the Company.
In November 1991, the EPA made a formal request for information regarding
the nature of the Company's waste that was transported to a municipal landfill,
which is included on the National Priority List under CERCLA. In October 1997,
the Company received notification from the EPA that it is a potentially
responsible party in connection with environmental contamination at this
landfill. No determination has yet been made as to allocation of responsibility
for such actions at this landfill. Previously, in June 1994, the Company,
together with 16 other parties, was named in a complaint filed by a group of
five companies seeking to recover costs incurred as a result of an EPA order
directing such companies to take certain response actions in connection with
this landfill. Although technically CERCLA imposes strict joint and several
liability for the costs of investigating and remediating certain contaminated
properties, such as this landfill, the extent of each responsible parties'
financial contribution is expected to be based on the number and financial
strength of these parties and the volume and types of waste attributable to each
party. Although the costs of investigation, study and remediation at this site
may be substantial, the EPA has orally informed the Company that it believes the
Company may be eligible for a de minimis settlement under CERCLA. EPA has
evaluated information provided to it by the Company and others, which shows that
the volume of materials allegedly transported to the landfill on behalf of the
Company is minor. The Company expects that the EPA will propose a de minimis
settlement sometime prior to the end of 1998. If the Company accepts a de
minimis settlement, then it will be afforded contribution protection, and likely
will be dismissed from the private party cost recovery action. Based on the
foregoing, the Company has concluded that its share of the liability for such
matters will not have a material adverse effect on its business, financial
condition or results of operations. Therefore, the Company has not accrued any
amounts toward such liability.
The Company believes that its operations comply in all material respects
with applicable environmental laws and regulations. While the Company continues
to make capital and operational expenditures for protection of the environment,
it does not anticipate that these expenditures will have a material adverse
effect on its business, financial condition or results of operations.
PRODUCT LIABILITY AND INSURANCE
The design, manufacture and marketing of medical devices of the types
produced by the Company entail an inherent risk of product liability. The
Company's products are often used in intensive care settings with seriously ill
patients. While the Company believes that, based on claims made against the
Company in the past, the amount of product liability insurance maintained by the
Company has been adequate, there can be no assurance that the amount of such
insurance will be sufficient to satisfy claims made against the Company in the
future or that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts.
(9)
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ITEM 1. BUSINESS (CONTINUED):
ENVIRONMENTAL COMPLIANCE (CONTINUED):
EMPLOYEES
As of November 2, 1998, Arrow had 2,551 full-time employees. All of the
Company's hourly-paid manufacturing employees at the Company's Reading and
Wyomissing, Pennsylvania facilities are represented by the United Steelworkers
of America AFL-CIO, Local 8467 (the "Union"). The Company and the Union are
currently operating under a three-year agreement that expires in September 2000.
The Company has never experienced an organized work stoppage or strike and
considers its relations with its employees to be good.
EXECUTIVE OFFICERS
The executive officers of the Company and their ages and positions as of
November 2, 1998 are listed below. All executive officers are elected or
appointed annually and serve at the discretion of the Board of Directors. There
are no family relationships among the executive officers of the Company.
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Name Age Current Position
- ---- --- ----------------
<S> <C> <C>
Marlin Miller, Jr. 66 President and Chief Executive Officer
Raymond Neag 67 Executive Vice President
Frederick J. Hirt 50 Vice President-Finance, Chief Financial
Officer and Treasurer
T. Jerome Holleran 62 Secretary
Philip B. Fleck 54 Vice President-Research
and Manufacturing
Paul L. Frankhouser 53 Vice President-Marketing
Thomas D. Nickel 59 Vice President-Regulatory Affairs
and Quality Assurance
Scott W. Hurley 40 Controller
</TABLE>
Mr. Miller has served as President and Chief Executive Officer and a
director of the Company since it was founded in 1975. Mr. Miller is also
President and a director of Arrow Precision Products, Inc. ("Precision"), a
corporation controlled by principal shareholders of the Company, and in fiscal
1998 he devoted approximately 1% of his time to Precision. He is a director of
Carpenter Technology Corporation, a manufacturer of specialty steel.
Mr. Neag has served as Executive Vice President since April 1992 and prior
thereto served as Senior Vice President of the Company. Mr. Neag has been an
officer and a director of the Company since it was founded in 1975. Mr. Neag
also serves as Secretary and a director of Precision.
(10)
<PAGE>
ITEM 1. BUSINESS (CONTINUED):
EXECUTIVE OFFICERS (CONTINUED)
Mr. Hirt has served as Vice President - Finance, Chief Financial Officer
and Treasurer of the Company since August 1998. Prior to joining the Company,
Mr. Hirt served in various capacities with Pharmacia & Upjohn, Inc. from 1980 to
1998, where he most recently served as Vice President, Accounting and Reporting.
Mr. Holleran has served as Secretary and a director of the Company since
its founding in 1975 and, until September 1997, also served as a Vice President.
Since July 1996, Mr. Holleran has served as President and Chief Executive
Officer of Precision Medical Products, Inc., a former subsidiary of Precision,
which manufactures and markets certain non-catheter medical products and was
sold on August 29, 1997 to certain employees of Precision, including Mr.
Holleran. From February 1986 to September 1997, Mr. Holleran was also Vice
President, Chief Operating Officer and a director of Precision. From 1991 to
1996 Mr. Holleran served as President of Endovations, Inc., a subsidiary of
Precision that manufactured and marketed certain gastroenterological medical
products, until the sale in June 1996 of a portion of the Endovations business
to the Company and the remainder to an unrelated third party.
Mr. Fleck has served as Vice President - Research and Manufacturing of the
Company since June 1994. From 1986 to June 1994, Mr. Fleck served as Vice
President - Research and Engineering of the Company. From 1975 to 1986, Mr.
Fleck served as Engineering Manager of the Company.
Mr. Frankhouser has served as Vice President-Marketing of the Company since
1986. From 1980 to 1986, Mr. Frankhouser served as Manager of Marketing of the
Company.
Mr. Nickel has served as Vice President-Regulatory Affairs and Quality
Assurance of the Company since 1991. From 1986 to 1991, Mr. Nickel served as
Director of Regulatory Affairs and Quality Assurance of the Company.
Mr. Hurley has served as Controller of the Company since April 1998. Prior
to joining the Company, from 1990 to 1998 he served in various capacities with
Rhone-Poulenc Rorer most recently as a Director of Finance.
ITEM 2. PROPERTIES:
The Company's corporate headquarters and principal research center are
located in a 165,000 square foot facility in Reading, Pennsylvania. This
facility, which also includes manufacturing space, is located on 126 acres.
Other major properties owned by the Company include a 130,000 square foot
manufacturing and warehousing facility in Asheboro, North Carolina; a 145,000
square foot manufacturing facility in Wyomissing, Pennsylvania (of which
approximately 34,000 square feet was leased through August 1997 to Precision); a
40,000 square foot manufacturing facility in Chihuahua, Mexico; a 49,000 square
foot manufacturing and warehouse facility in Mount Holly, New Jersey; and a
65,000 square foot manufacturing and research facility in the Czech Republic.
In addition, the Company leases a 55,000 square foot manufacturing facility
in Everett, Massachusetts, a 12,000 square foot manufacturing facility in
Walpole, Massachusetts, a 56,000 square foot manufacturing facility and sales
office in Norwood, Massachusetts, and a 7,700 square foot manufacturing facility
and sales office in Woburn, Massachusetts. The
(11)
<PAGE>
ITEM 2. PROPERTIES (CONTINUED):
Company also leases sales offices and warehouse space in Canada, France,
Germany, Japan, South Africa, the Netherlands, Spain and Greece, sales office
space in Mexico and warehouse space in California.
The Company considers all of its facilities to be in good condition and
adequate to meet the present and reasonably foreseeable needs of the Company.
ITEM 3. LEGAL PROCEEDINGS:
The Company is a party to certain legal actions arising in the ordinary
course of its business. Based upon information presently available to the
Company, the Company believes that it has adequate legal defenses or insurance
coverage for these actions and that the ultimate outcome of these actions will
not materially adversely affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1998, through the solicitations of proxies or otherwise.
PART II
ITEM 5. MARKETS FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS:
The Company's common stock has traded publicly on The Nasdaq Stock Market
under the symbol "ARRO" since June 9, 1992, the date that its common stock was
initially offered to the public. The table below sets forth the high and low
sale prices of the Company's common stock as reported by the Nasdaq Stock Market
and the quarterly dividends per share declared by the Company during the last
eight fiscal quarters:
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
============= ==================================
<S> <C> <C> <C>
August 31, 1998 35 1/2 25 3/4 $.050
May 31, 1998 40 30 .050
February 28, 1998 41 32 5/8 .050
November 30, 1997 39 1/2 29 11/16 .045
August 31, 1997 32 1/4 26 3/4 $.045
May 31, 1997 36 1/2 28 1/2 .045
February 28, 1997 35 1/4 26 1/2 .045
November 30, 1996 35 1/4 25 .040
</TABLE>
As of November 2, 1998, there were approximately 844 registered
shareholders of the Company's common stock.
(12)
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the years ended
August 31, 1998, 1997, 1996, 1995 and 1994 have been derived from the Company's
audited consolidated financial statements. The consolidated financial
statements of the Company as of August 31, 1998 and 1997 and for each of the
three years in the period ended August 31, 1998, together with the notes thereto
and the related report of PricewaterhouseCoopers LLP, independent accountants,
are included elsewhere herein. The following data should be read in conjunction
with the Company's audited consolidated financial statements, the notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere herein.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales $260,890 $245,889 $229,945 $213,014 $178,777
Cost of goods sold 114,072 110,811 107,272 100,343 86,586
Gross profit 146,818 135,078 122,673 112,671 92,191
Operating expenses
Research, development and engineering 18,393 15,871 14,106 11,305 10,462
Selling, general, and administrative 62,956 57,444 54,154 48,119 37,453
Special charge 36,249 - - - -
Total operating expenses 117,598 73,315 68,260 59,424 47,915
Operating income 29,220 61,763 54,413 53,247 44,276
Other expenses (income), net 1,638 2,031 2,300 (569) (812)
Income before income taxes 27,582 59,732 52,113 53,816 45,088
Provision for income taxes 19,010 22,997 19,282 19,374 16,232
-------- -------- -------- -------- --------
Net income $ 8,572 $ 36,735 $ 32,831 $ 34,442 $ 28,856
======== ======== ======== ======== ========
Basic and diluted earnings per
common share $0.37 $1.58 $1.41 $1.52 $1.29
======== ======== ======== ======== ========
Cash dividends per common
share $.195 $.175 $.155 $.135 $.115
Weighted average common shares
outstanding 23,225 23,227 23,230 22,684 22,394
BALANCE SHEET DATA:
Working capital $100,256 $ 81,460 $ 55,086 $ 52,863 $ 32,437
Total assets 322,881 320,373 299,421 262,510 209,720
Notes payable and current maturities of
long-term debt 30,252 24,653 34,001 23,508 18,580
Long-term debt, excluding current maturities 11,686 12,043 15,988 20,463 32,003
Shareholders' equity 247,868 245,917 219,773 190,937 132,803
</TABLE>
(13)
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
The following discussion includes certain forward-looking statements.
Such forward-looking statements are subject to a number of factors, including
material risks, uncertainties and contingencies, which could cause actual
results to differ materially from the forward-looking statements. For a
discussion of important factors that could cause actual results to differ
materially from the forward-looking statements, see Exhibit 99.1 to this Report
and the Company's periodic reports and other documents filed with the
Commission.
RESULTS OF OPERATIONS
The following table presents for the three years ended August 31, 1998
Consolidated Statements of Income expressed as a percentage of net sales and the
period-to-period changes in the dollar amounts of the respective line items.
<TABLE>
<CAPTION>
Period-to-Period
Percentage of Net Sales Percentage Increase
---------------------------------- --------------------------
1998 1997 1996
Year ended August 31, vs vs vs
----------------------------------
1998 1997 1996 1997 1996 1995
----- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 6.1% 6.9% 7.9%
Gross profit 56.3 54.9 53.3 8.7 10.1 8.9
Operating expenses:
Research, development and
engineering 7.1 6.5 6.1 15.9 12.5 24.8
Selling, general and
administrative 24.1 23.4 23.5 9.6 6.1 12.5
Special charge 13.9 - - 100.0 - -
----- ----- ----- ----- ---- ----
Operating income 11.2 25.1 23.7 (52.7) 13.5 2.2
Other expenses (income), net 0.6 0.8 1.0 * * *
Income before income taxes 10.6 24.3 22.7 (53.8) 14.6 (3.2)
Provision for income taxes 7.3 9.4 8.4 (17.3) 19.3 (0.5)
----- ----- ----- ----- ---- ----
Net income 3.3 14.9 14.3 (76.7) 11.9 (4.7)
</TABLE>
* Not a meaningful comparison
(14)
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales increased by $15.0 million, or 6.1%, to $260.9 million in fiscal 1998
from $245.9 million in fiscal 1997. Net sales represent gross sales invoiced to
customers, plus royalty income, less certain related charges, including freight
costs, discounts, returns and other allowances. Sales of critical care products
increased 6.1% to $220.0 million from $207.3 million in fiscal 1997, due
primarily to an increase in unit shipments of central venous catheters,
including increased shipments of ARROWg+ard(TM) Blue(R) antiseptic surface
treated catheter products, pain management catheters, percutaneous thrombectomy
devices ("PTD") and implantable constant flow drug delivery pumps. Sales of
cardiac care products increased 6.5% to $40.9 million from $38.4 million in the
previous year, due primarily to increased shipments of intra-aortic balloon
("IAB") pump and catheter products offset by lower revenue related to
discontinuation of sales of the Thoratec Corporation bi-ventricular assist
device which the Company had been distributing in Europe until July 1, 1997.
International sales increased by $2.4 million, and represented 35.1% of net
sales, excluding royalty income, in fiscal 1998, compared to 36.2% in the prior
year, principally as a result of growth in shipments of IAB pump and catheter
products as well as multi-lumen catheters, offset by the effect of the stronger
U.S. dollar on sales in significant foreign markets and by lower revenue related
to a terminated contract for the sale of Thoratec products. The percentage of
net sales attributable to the Company's direct sales force remained stable in
fiscal 1998 at approximately 74.1% compared to approximately 74.2% in fiscal
1997.
This increase in net sales was below the Company's historic growth rates due to
the strength of the U.S. dollar in significant foreign markets, constrained
European health care budgets, and slower than expected new product
introductions. Health care cost containment initiatives in the U.S. have
reduced growth in demand in markets where the Company has significant market
shares, and protecting that market share has affected the Company's pricing in
some instances.
Gross profit increased 8.7% to $146.8 million in fiscal 1998 from $135.1 million
in fiscal 1997. As a percentage of net sales, gross profit improved to 56.3% in
fiscal 1998 from 54.9% in the prior year, due primarily to a more profitable
product mix and improved manufacturing costs resulting from increased production
at the Company's international manufacturing facilities.
Research, development and engineering expenses in fiscal 1998 increased by 15.9%
to $18.4 million from $15.9 million in fiscal 1997. As a percentage of net
sales, these expenses increased to 7.1% in fiscal 1998, compared to 6.5% in
fiscal 1997. These expenses increased primarily as a result of development
expenses related to several clinical trials now in progress, including the
Company's Left Ventricular Assist Device ("LVAD").
Selling, general and administrative expenses increased by 9.6% to $62.9 million
during fiscal 1998 from $57.4 million in the previous year, and increased as a
percentage of net sales to 24.1% in fiscal 1998, compared to 23.4% in fiscal
1997. The increase was due primarily to increased sales and marketing costs for
IAB products and establishing a dedicated sales force for implantable infusion
pumps.
In the fourth quarter 1998, in accordance with Statement of Financial Accounting
Standards No. 121 (FAS 121) "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" and the Company's accounting policy
for goodwill, intangible and long-lived assets, the Company recorded a non-cash
pre-tax special charge of $36 million ($32 million after tax or $1.38 per basic
and diluted common share) to write down to fair value certain goodwill and
intangible assets. As a result of the Company's successful development of more
advanced cardiac assist products, the Company estimated that the carrying value
of the goodwill was not recoverable. Accordingly, the Company has reduced the
carrying value of goodwill related to previously acquired cardiac assist
products by $29 million. The remaining carrying value of the goodwill will be
amortized using the straight-line method over 10 years. The Company has also
reduced the carrying value of certain intangible assets related to
(15)
<PAGE>
FISCAL 1998 COMPARED TO FISCAL 1997 (CONTINUED):
cardiac assist technology and other assets in the amount of $7 million. The
remaining carrying value of these intangible assets will be amortized using the
straight-line method over the estimated periods of benefits, from 5 to 17 years.
Principally due to the above factors, operating income decreased 52.7% to $29.2
million in fiscal 1998 from $61.8 million in fiscal 1997.
Other expenses (income), net, decreased to $1.6 million in fiscal 1998 from $2.0
million in fiscal 1997, due to a reduction in interest expense and decreased
losses due to foreign exchange translation. Other expenses (income), net,
consists principally of interest expense and foreign exchange gains and losses
associated with the Company's direct sales subsidiaries. Aggregate foreign
exchange losses in fiscal 1998 and 1997 were $1.1 million and $2.0 million,
respectively, including gains relating to foreign currency contracts of $2.2 and
$2.4 million, respectively.
As a result of the factors discussed above, income before income taxes decreased
in fiscal 1998 by 53.8% to $27.6 million from $59.7 million in fiscal 1997. The
effective income tax rate increased to 68.9% (without special charges, the
effective income tax rate decreased to 36.5%) in fiscal 1998 from 38.5% in
fiscal 1997, principally as a result of the non-deductiblity for tax purposes of
special charges related to the write down to fair value of goodwill.
Net income in fiscal 1998 decreased by 76.7% to $8.6 million from $36.7 million
in fiscal 1997. As a percentage of net sales, net income represented 3.3% in
fiscal 1998 compared to 14.9% in the previous year.
Net income per basic and diluted common share decreased to $.37 in fiscal 1998,
a decrease of $1.21, or 76.6%, per share, from $1.58 per share in fiscal 1997
due principally to the impact of the special charges for the write down to fair
value of certain goodwill and intangible assets ($1.38 per basic and diluted
share) offset by income from operations. Weighted average common shares
outstanding decreased to 23,224,780 in fiscal 1998 from 23,227,102 in fiscal
1997 as a result of the forfeiture of restricted stock awards by certain former
employees.
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased by $15.9 million, or 6.9%, to $245.9 million in fiscal 1997
from $229.9 million in fiscal 1996. Net sales represent gross sales invoiced to
customers, plus royalty income, less certain related charges, including freight
costs, discounts, returns and other allowances. This increase was due primarily
to an increase in unit shipments of central venous catheters, including
increased shipments of ARROWg+ard(TM) Blue(R) antiseptic surface treated
catheter products, pain management catheters, and implantable, constant flow
drug delivery pumps. Sales of critical care products increased 9.6% to $207.3
million from $189.1 million in fiscal 1996. Sales of cardiac care products
decreased 4.5% to $38.4 million from $40.3 million in the previous year, due
primarily to decrease shipments of intra-aortic balloon pump and catheter
products in Japan, where the Company is transitioning from a dealer to direct
sales. International sales increased by $1.4 million, and represented 36.2% of
net sales, excluding royalty income, in fiscal 1997, compared to 38.2% in the
prior year, principally as a result of growth in shipments of multi-lumen
catheters, offset by the effect of the stronger U.S. dollar on sales in
significant foreign markets and by reduced shipments of intra-aortic balloon
pump and catheter products in Japan. The percentage of net sales attributable
to the Company's direct sales force decreased in fiscal 1997 to approximately
74% from approximately 75% in fiscal 1996, principally as a result of the effect
of the stronger U.S. dollar on sales in significant foreign markets where the
Company has direct sales subsidiaries.
(16)
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996 (CONTINUED):
This increase in net sales was lower than the Company anticipated due to
decreased shipments of intra-aortic balloon products, the strength of the U.S.
dollar in significant foreign markets and slower than expected new product
introductions. Health care cost containment initiatives in the U.S. have
reduced growth in demand in markets where Arrow has 80% or greater market
shares, and protecting that market share has affected the Company's pricing in
some instances. The Company anticipates increased U.S. sales of several
products in fiscal 1998; however, U.S. demand for certain of the Company's core
products is expected to remain sluggish. The Company also anticipates that
fiscal 1998 international sales will grow more rapidly than U.S. sales due to
rising demand in several regions of the world, supported by increased production
in the Company's Mexico and Czech Republic manufacturing facilities and the
completion of the transition from dealer to direct sales of intra-aortic balloon
products in Japan. Continued strengthening of the U.S. dollar, however, would
adversely affect this expectation. A return to the Company's traditionally
higher rates of sales growth is dependent on demand for its new products now in
various stages of market introduction, as well as timely receipt of required
regulatory approvals and timely completion of research and development programs.
Gross profit increased 10.1% to $135.1 million in fiscal 1997 from $122.7
million in fiscal 1996. As a percentage of net sales, gross profit improved to
54.9% in fiscal 1997 from 53.3% in the prior year, due primarily to the
reduction in manufacturing costs resulting from increased production at the
Company's manufacturing facilities in Mexico and the Czech Republic and
increased sales of higher margin ARROWg+ard(TM) Blue(R) antiseptic surface
treated catheter products, offset by the unfavorable impact of currency
translations of foreign sales.
Research, development and engineering expenses in fiscal 1997 increased by 12.5%
to $15.9 million from $14.1 million in fiscal 1996. As a percentage of net
sales, these expenses increased to 6.5% in fiscal 1997, compared to 6.1% in
fiscal 1996. These expenses increased primarily as a result of development
expenses related to several new products, including the Company's Left
Ventricular Assist Device ("LVAD").
Selling, general and administrative expenses increased by 6.1% to $57.4 million
during fiscal 1997 from $54.1 million in the previous year, and decreased as a
percentage of net sales to 23.4% in fiscal 1997, compared to 23.5% in fiscal
1996. This percentage decrease was due primarily to successful efforts to
restrain the growth in these expenditures in view of the prior year's expansion
of the Company's U.S. salesforces and Japanese and European direct sales
subsidiaries.
Principally due to the above factors, operating income increased 13.5% to $61.8
million in fiscal 1997 from $54.4 million in fiscal 1996.
Other expenses (income), net, decreased to $2.0 million in fiscal 1997 from $2.3
million in fiscal 1996, due to a reduction in interest expense, offset by
increased losses due to foreign exchange translation. Other expenses (income),
net, consists principally of interest expense and foreign exchange gains and
losses associated with the Company's direct sales subsidiaries. Aggregate
foreign exchange (gains) and losses in fiscal 1997 and 1996 were $2.0 million
and $0.9 million, respectively, including (gains) and losses relating to foreign
currency contracts of ($2.4) and ($1.5) million, respectively.
As a result of the factors discussed above, income before income taxes increased
in fiscal 1997 by 14.6% to $59.7 million from $52.1 million in fiscal 1996. The
effective income tax rate increased to 38.5% in fiscal 1997 from 37.0% in fiscal
1996, principally as a result of the provision for taxes in certain state and
international jurisdictions.
Net income in fiscal 1997 increased by 11.9% to $36.7 million from $32.8 million
in fiscal 1996. As a percentage of net sales, net income represented 14.9% in
fiscal 1997 compared to 14.3% in the previous year.
(17)
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996 (CONTINUED):
Net income per basic and diluted common share increased to $1.58 for fiscal
1997, an increase of $0.17, or 11.9%, per share, from $1.41 per share in fiscal
1996. Weighted average common shares outstanding decreased to 23,227,102 in
fiscal 1997 from 23,229,687 in fiscal 1996 as a result of the forfeiture of
unvested restricted stock awards by certain former employees.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended August 31, 1998, net cash provided by operations was $40.4
million, an increase of $8.0 million from the prior year. This increase was due
primarily to an increase in net income adjusted for the impact of special
charges for the write down to fair value of certain goodwill and intangible
assets. Accounts receivable, net of the allowance for doubtful accounts,
increased by $3.1 million for the year ended August 31, 1998, compared to a
$14.4 million increase in the prior year. Accounts receivable, measured in days
sales outstanding, increased to 89 days at August 31, 1998, from 87 days at
August 31, 1997, due principally to an increase in the collection period for
both U.S. and international sales. Inventories increased by $13.3 million in
the twelve months ended August 31, 1998 as compared to an increase of $13.8
million in fiscal 1997. This was due principally to an increase in inventory to
support increased production at the Company's international manufacturing
facilities, additional inventory obtained as a result of the acquisition of
Medical Parameters, Inc. in August 1998, and an increase in inventory to support
marketing of PTD and IAB catheters.
Net cash used in the Company's investing activities increased to $38.9 million
in fiscal 1998 from $21.4 million in the prior year, principally as a result of
cash paid to acquire the Cardiac Assist Division of the Boston Scientific
Corporation and Medical Parameters Inc.
Net cash used by financing activities decreased to $3.0 million in fiscal 1998,
compared to $9.0 million in fiscal 1997. This change resulted principally from
a decrease in the repayment of long-term debt.
As of August 31, 1998, the Company had U.S. bank credit facilities providing a
total of $50.0 million in available revolving credit for general business
purposes, of which $26.7 million remained unused. In addition, certain of the
Company's foreign subsidiaries have revolving credit facilities totaling the
U.S. dollar equivalent of $11.3 million, of which $4.9 million remained unused
as of August 31, 1998. Combined borrowing under these credit facilities
increased $7.8 million and decreased $5.7 million during the years ended August
31, 1998 and 1997, respectively.
During fiscal 1998, 1997 and 1996, the percentage of the Company's sales
invoiced in currencies other than the U.S. dollar was 24.7%, 26.8% and 27%,
respectively. In addition, a small part of the Company's cost of goods sold is
denominated in foreign currencies. As a partial hedge against these foreign
currency risk exposures, the Company periodically enters into foreign currency
exchange contracts with certain major financial institutions. By their nature,
all such contracts involve risk, including the risk of nonperformance by
counterparties. Accordingly, losses relating to these contracts could have a
material adverse effect upon the Company's business, financial condition and
results of operations. Based upon the Company's knowledge of the financial
condition of the counterparties to its existing forward contracts, the Company
believes that it does not have any material exposure to any individual
counterparty. The Company's policy prohibits the use of derivative instruments
for speculative purposes. As of November 2, 1998, outstanding foreign currency
exchange contracts totaling the U.S. dollar equivalent of $12.7 million mature
at various dates through March 1999. The Company expects to continue to utilize
foreign currency exchange contracts to manage its exposure, although there can
be no assurance that the Company's efforts in this regard will be successful.
Operations of the Company are also exposed to, in the normal course of business,
fluctuations in interest rates. This interest rate risk exposure results from
changes in short-term U.S.
(18)
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
dollar interest rates. In an effort to manage interest rate exposure, in April
1998 the Company entered into an interest rate swap agreement to reduce
potential interest rate fluctuations on its floating rate debt. The interest
rate swap agreement exchanges floating rate for fixed interest payments over the
5-year life of the agreement.
The Company's exposure to credit risk consists principally of trade receivables.
Hospitals and international dealers account for a substantial portion of trade
receivables and collateral is generally not required. The Company believes that
its risk associated with this concentration is limited due to the Company's on-
going credit review procedures.
Based upon its present plans, the Company believes that its working capital,
operating cash flow and available credit sources will be adequate to repay
current portions of long-term debt, to finance currently planned capital
expenditures and to meet the currently foreseeable liquidity needs of the
Company.
During the periods discussed above, the overall effects of inflation and
seasonality on the Company's business were not significant.
YEAR 2000 READINESS
The Company has actively addressed the Year 2000 problem as it relates to its
business operations and regulation by the FDA. This disclosure describes the
Company's progress toward its objective of ensuring that the Company's business
systems will operate satisfactorily on or after January 1, 2000.
The Company's Central Venous Catheters and other catheter products are
unaffected by the Year 2000 problem. Early in 1998, the Company responded to
the FDA concerning the effect of the Year 2000 problem on its intra-aortic
balloon pumps. The software in the more recent models of the pumps has taken
the change of century issues into account. The operating range for the clock
calendar in these pumps spans a 100 year period from the years 1988 through
2087. The clock calendar on certain older models advances as high as 1999.
However, none of the pumps depend on the year information for any calculations
or in communicating with other electronic devices, and all of these pumps will
function as intended or expected, regardless of the date. Customers requesting
certifications are provided with specific pump model numbers that have or do not
have the updated clock calendars.
The Company's major Year 2000 concerns relate to business systems that support
the continuity of its business operations and the delivery of products and
support services to its customers.
For the Company's business applications relating to sales order processing,
billing, disbursements, marketing and manufacturing management, the necessary
software code modifications have been completed in the development version of
the applications. During the remainder of 1998, the modified versions will be
tested by advancing dates beyond December 31, 1999. The validated software will
then be moved to the production machines. U.S. payroll and general ledger
software will be tested and validated in the above manner in the spring of 1999.
The cost of the Company's software upgrades is estimated to be approximately
$30,000 for all U.S. systems and $120,000 for all foreign systems. Internal
resources devoted to these efforts are estimated at 500 man-days. In the event
that the production systems malfunction due to the change to the Year 2000, the
software and data will be moved back to the machines on which the validation was
done so that business processes can continue.
(19)
<PAGE>
YEAR 2000 READINESS
The Company's engineering documentation systems which are critical systems for
manufacturing are planned to be tested and Year 2000 compliant by the spring of
1999.
The Company's PC systems were upgraded in fiscal 1998 at a cost of $700,000. An
estimated $500,000 will be spent in fiscal 1999 to upgrade servers and replace
the e-mail system.
The Company's computer controlled equipment includes programmable controllers on
production equipment and systems for time and attendance recording, building
management, life safety, security, elevators, air compressors and high purity
water. For equipment or systems controlled by computer chips or programs, the
Company plans to contact the manufacturer to determine that these systems or
equipment are Year 2000 compliant. These efforts are expected to be completed
by the end of 1998.
The status of Year 2000 compliance by key suppliers of products and services to
the Company will be determined by using a compliance survey, which the Company
plans to mail by December 1998. Telephone contact is planned for organizations
who do not respond or who report a lack of Year 2000 compliance in critical
business processes.
The Company increased its available domestic revolving credit facility to $75
million in October 1998. This additional borrowing capacity could be utilized to
support the Company's cash flow requirements in the event that health care
providers are unable to pay amounts owed to the Company on a timely basis due to
system malfunctions related to the Year 2000 change.
If the Company is able to fulfill its plans to secure its business systems as
described above, then any adverse Year 2000 effects will arise from
circumstances outside the Company's control. Because such circumstances can not
be reasonably anticipated at this time, the Company has not developed a Year
2000 worst case scenario for disclosure. While the Company believes that it is
adequately addressing the Year 2000 problem, there can be no assurance that the
costs and liabilities of the Year 2000 problem will not materially adversely
affect its business, financial condition and results of operations.
EUROPEAN UNION CONVERSION TO EURO
The Company has proactively considered issues related to conversion by eleven
member states of the European Union to a common currency, the "Euro", beginning
on January 1, 1999. For business applications relating to sales order
processing, billing and payments the necessary software code modifications to
address the triangulation requirements of the conversion are in process. The
cost of such modifications is approximately $50,000. Pricing of the Company's
products in the European Union generally is market driven. As such, the Company
is unable to determine at this time whether or not the Euro conversion will have
any impact on product pricing or contractual arrangements with health care
service providers.
RECENT DEVELOPMENT
In August 1998, the Company signed an agreement to purchase for $28 million the
global intra-aortic balloon catheter and pump business of C.R. Bard, Inc. The
acquisition is currently being reviewed pursuant to a second request for
information by the Federal Trade Commission (FTC) under the Hart Scott-Rodino
Antitrust Improvements Act of 1976. Sales of C.R. Bard's intra-aortic balloon
products were approximately $14 million in 1998.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED:
On March 4, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer
Software Development or Obtained for Internal Use". The SOP provided guidance
on accounting for the costs of computer software developed or obtained for
internal use. The SOP is effective for financial
(20)
<PAGE>
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED (CONTINUED):
statements for fiscal years beginning after December 15, 1998, but earlier
application is encouraged. The Company does not anticipate the adoption of this
new standard to have a material effect on the Company's consolidated financial
statements. The Company will adopt this standard in fiscal year 1999.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The statement is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company does not anticipate the adoption of this
new standard to have a material effect on the Company's consolidated financial
statements.
In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The statement is effective for fiscal years
beginning after December 15, 1997. The Company need not currently adopt the
standard as the Company maintains separate financial information available for
regular evaluation by the chief operating decision maker for only one segment.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits" (FAS 132). FAS 132 does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets, and eliminates certain disclosures that are no longer as useful.
The statement is effective for fiscal years beginning after December 15, 1997,
but earlier application is encouraged. The adoption of SFAS No. 132 is not
expected to have any impact on the Company's results of operations, financial
position or cash flows.
On June 15, 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 establishes new
procedures for accounting for derivatives and hedging activities and supersedes
and amends a number of existing standards. FAS 133 is effective for fiscal
years beginning after June 15, 1999, but earlier application is permitted as of
the beginning of any fiscal quarter subsequent to June 15, 1998. The adoption
of this new standard will not have a material effect on the Company as FAS 133
retains the provisions of Statement of Accounting Standards No. 52 "Foreign
Currency Translation" with respect to long-term and short-term intercompany
transactions eliminating the need for special accounting and does not change the
accounting for interest rate swaps.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative disclosures about market risk (e.g. interest
rate and foreign currency exchange risk) are set forth in note 14 to the
Company's Consolidated Financial Statements contained herein under Item
14(a)(1).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 (a) (1) and (2).
(21)
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Information regarding directors and nominees for directors of the Company,
as well as certain other information required by this item, will be included in
the Company's Proxy Statement to be issued in connection with its 1999 Annual
Meeting of Shareholders (the "Proxy Statement"), and is incorporated herein by
reference. The information regarding executive officers required by this item
is contained herein in Part I under the caption "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION:
Information regarding executive compensation of Arrow's directors and
executive officers will be included in the Proxy Statement and is incorporated
herein by reference.
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Information regarding beneficial ownership of the Company's common stock by
certain beneficial owners and by management of the Company will be included in
the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Information regarding certain relationships and related transactions with
management of the Company will be included in the Proxy Statement and is
incorporated herein by reference.
(22)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K:
(a) (1) The following financial statement schedule of the Company is filed
as part of this Form 10-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Report of Independent Accountants 25
2. Consolidated Balance Sheets at
August 31, 1998 and 1997 26,27
3. Consolidated Statements of Income
for the years ended August 31, 1998,
1997 and 1996 28
4. Consolidated Statements of Cash Flows
for the years ended August 31, 1998,
1997 and 1996 29,30
5. Consolidated Statements of Changes in
Shareholders' Equity for the years ended
August 31, 1998, 1997 and 1996 31-33
6. Notes to Consolidated Financial Statements 34-55
(a) (2) The following financial statement schedules of the Company are
filed as part of this Form 10-K:
<CAPTION>
Page
----
<S> <C>
1. Report of Independent Accountants on
Financial Statement Schedule 56
2. Schedule II - Valuation and Qualifying Accounts 57
</TABLE>
Other statements and schedules are not presented because they are either not
required or the information required by statements or schedules is presented
elsewhere.
(a) (3) See Exhibit Index on pages 58 through 67 hereof for a list of the
Exhibits filed or incorporated by reference as part of this report.
(b) Reports on Form 8-K:
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARROW INTERNATIONAL, INC.
By: /s/ Frederick J. Hirt
----------------------
Frederick J. Hirt
Chief Financial Officer,
Vice President-Finance
and Treasurer
Dated: November 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Marlin Miller, Jr. Director, President and November 24, 1998
- ----------------------------
(Marlin Miller, Jr.) Chief Executive Officer
(Principal Executive
Officer)
/s/ Raymond Neag Director, Executive November 24, 1998
- ----------------------------
(Raymond Neag) Vice President
/s/ Frederick J. Hirt Chief Financial Officer November 24, 1998
- ----------------------------
(Frederick J. Hirt) Vice President -
Finance and Treasurer
(Principal Financial and
Accounting Officer)
/s/ John H. Broadbent, Jr. Director November 24, 1998
- ----------------------------
(John H. Broadbent, Jr.)
/s/ T. Jerome Holleran Director, Secretary November 24, 1998
- ----------------------------
(T. Jerome Holleran)
/s/ Richard T. Niner Director November 24, 1998
- ----------------------------
(Richard T. Niner)
/s/ George W. Ebright Director November 24, 1998
- ----------------------------
(George W. Ebright)
/s/ Alan M. Sebulsky Director November 24, 1998
- ----------------------------
(Alan M. Sebulsky)
/s/ John E. Gurski Director November 24, 1998
- ----------------------------
(John E. Gurski)
/s/ Carl G. Anderson, Jr. Director November 24, 1998
- ----------------------------
(Carl G. Anderson, Jr.)
/s/ R. James Macaleer Director November 24, 1998
- ----------------------------
(R. James Macaleer)
</TABLE>
(24)
<PAGE>
PricewaterhouseCoopers LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of Arrow International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Arrow International,
Inc. ("the Company") at August 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania 19103
October 5, 1998
(25)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(All Dollar Amounts in Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
August 31,
----------------------
1998 1997
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,652 $ 6,276
Accounts receivable, less allowance for doubtful accounts
of $768 and $855 in 1998 and 1997, respectively 63,872 60,801
Inventories 70,592 57,334
Prepaid expenses and other 13,461 8,729
Deferred income taxes 2,040 2,833
-------- --------
Total current assets 154,617 135,973
-------- --------
Property, plant and equipment:
Land and improvements 5,395 5,384
Buildings and improvements 74,650 70,067
Machinery and equipment 85,003 70,974
Construction-in-progress 19,073 24,642
-------- --------
184,121 171,067
Less accumulated depreciation (72,753) (60,474)
-------- --------
111,368 110,593
-------- --------
Goodwill, net of accumulated amortization of $4,869
and $9,024 in 1998 and 1997, respectively 34,320 48,720
Intangible and other assets, net of accumulated amortization of
$7,240 and $8,684 in 1998 and 1997, respectively 20,118 24,430
Deferred income taxes 2,458 657
-------- --------
Total assets $322,881 $320,373
======== ========
</TABLE>
See notes to consolidated financial statements
Continued
(26)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS, continued
(All Dollar Amounts in Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
August 31,
----------------------
1998 1997
----------- ---------
<S> <C> <C>
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 522 $ 2,675
Notes payable 29,730 21,978
Accounts payable 6,677 4,516
Cash overdrafts 1,395 5,467
Accrued liabilities 7,053 6,856
Accrued compensation 6,877 9,945
Accrued income taxes 2,107 3,076
-------- --------
Total current liabilities 54,361 54,513
Long-term debt 11,686 12,043
Accrued postretirement benefit obligation 8,966 7,900
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
5,000,000 shares authorized;
none issued - -
Common stock, no par value;
50,000,000 shares authorized;
issued 26,478,813 shares in
1998 and 1997 45,661 45,603
Retained earnings 220,217 216,173
Less treasury stock at cost:
3,254,752 and 3,252,687 shares
in 1998 and 1997, respectively (8,432) (8,374)
Cumulative translation adjustment (6,159) (5,088)
Unearned compensation (44) (239)
Unrealized holding loss on marketable securities (3,375) (2,158)
-------- --------
Total shareholders' equity 247,868 245,917
-------- --------
Total liabilities and shareholders' equity $322,881 $320,373
======== ========
</TABLE>
See notes to consolidated financial statements
(27)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(All Dollar Amounts in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
for the years ended August 31,
-----------------------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Net sales $ 260,890 $ 245,889 $ 229,945
Cost of goods sold 114,072 110,811 107,272
----------- ------------ -----------
Gross profit 146,818 135,078 122,673
----------- ------------ -----------
Operating expenses:
Research, development and engineering 18,393 15,871 14,106
Selling, general and administrative 62,956 57,444 54,154
Special charge 36,249 - -
----------- ------------ -----------
117,598 73,315 68,260
----------- ------------ -----------
Operating income 29,220 61,763 54,413
----------- ------------ -----------
Other expenses (income):
Interest expense, net of amounts capitalized 784 897 1,849
Interest income (456) (894) (611)
Other, net 1,310 2,028 1,062
----------- ------------ -----------
1,638 2,031 2,300
----------- ------------ -----------
Income before income taxes 27,582 59,732 52,113
Provision for income taxes 19,010 22,997 19,282
----------- ------------ -----------
Net income $ 8,572 $ 36,735 $ 32,831
=========== ============ ===========
Basic earnings per common share $ 0.37 $ 1.58 $ 1.41
=========== ============ ===========
Diluted earnings per common share $ 0.37 $ 1.58 $ 1.41
=========== ============ ===========
Cash dividends per common share $ .195 $ .175 $ .155
=========== ============ ===========
Weighted average common shares outstanding 23,224,780 23,227,102 23,229,867
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements
(28)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
for the years ended August 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 8,572 $ 36,735 $ 32,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11,794 11,240 9,746
Special charge 36,249 - -
Amortization of intangible assets and goodwill 3,576 4,083 3,637
Amortization of unearned compensation 253 229 210
Deferred income taxes (1,007) (1,257) 1,171
Other 1,845 1,832 (157)
Changes in operating assets and liabilities:
Accounts receivable (3,147) (14,384) (6,819)
Inventories (11,537) (10,407) (9,623)
Prepaid expenses and other (4,700) (2,462) (769)
Accounts payable and accrued liabilities 2,773 4,551 1,931
Accrued compensation (3,300) 771 (771)
Accrued income taxes (1,015) 1,450 143
-------- -------- --------
Total adjustments 31,784 (4,354) (1,301)
-------- -------- --------
Net cash provided by operating activities 40,356 32,381 31,530
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (12,255) (16,249) (22,724)
Increase in intangible and other assets (4,963) (3,187) (15,826)
Cash paid for businesses acquired, net (21,641) (2,002) -
-------- -------- --------
Net cash used in investing activities (38,859) (21,438) (38,550)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in notes payable 6,848 (2,892) 13,168
Proceeds from new borrowings 69 12 12,037
Principal payments of long-term debt,
including current maturities (1,233) (7,508) (19,187)
(Decrease) Increase in book overdrafts (4,072) 5,467 -
Dividends paid (4,528) (4,065) (3,601)
Purchase of treasury stock (58) (43) (43)
-------- -------- --------
Net cash provided by (used in)
financing activities (2,974) (9,029) 2,374
-------- -------- --------
Effects of exchange rate changes on
cash and cash equivalents (147) (445) -
Net change in cash and cash equivalents (1,624) 1,469 (4,646)
Cash and cash equivalents at beginning of year 6,276 4,807 9,453
-------- -------- --------
Cash and cash equivalents at end of year $ 4,652 $ 6,276 $ 4,807
======== ======== ========
</TABLE>
See notes to consolidated financial statements
Continued
(29)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(All Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
for the years ended August 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 784 $ 897 $ 1,849
Income taxes $ 20,412 $ 21,092 $ 17,305
Supplemental schedule of noncash investing and financing activities:
During 1998, 1997 and 1996, the Company assumed liabilities in conjunction with
the purchase of certain intangible assets as follows:
Estimated fair value of assets acquired $ 25,258 $ 6,051 $ -
Cash paid for assets, net of cash acquired 21,641 2,002 -
-------- -------- -------
Liabilities assumed $ 3,617 $ 4,049 $ -
======== ======== ========
Cash paid for businesses acquired:
Working capital $ 3,676 $ 2,002 $ -
Property, plant and equipment 249 - -
Goodwill 17,716 - -
-------- -------- --------
$ 21,641 $ 2,002 $ -
======== ======== ========
</TABLE>
See notes to consolidated financial statements
(30)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, continued
for the years ended August 31, 1996, 1997 and 1998
(All Dollar Amounts in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Unrealized
Unearned Gain (Loss) On Cumulative
Common Stock Retained Treasury Stock Compen- Marketable Translation
-------------------- -------------------
Shares Amount Earnings Shares Amount sation Securities Adjustment
---------- ------- -------- --------- -------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1997 26,478,813 $45,603 $216,173 3,252,687 $(8,374) $(239) $(2,158) $(5,088)
Cash dividends on common
stock, $.195 per share (4,528)
Purchase of treasury stock 1,085 (38)
Forfeiture of restricted stock by
terminated employees 980 (20) 20
Amortization of unearned
compensation 175
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 58
Unrealized loss on marketable
securities, net of taxes ($797) (1,217)
Translation adjustments (1,071)
Net income 8,572
---------- ------- -------- --------- ------- -------- -------------- -----------
Balance, August 31, 1998 26,478,813 $45,661 $220,217 3,254,752 $(8,432) $ (44) $(3,375) $(6,159)
========== ======= ======== ========= ======= ======== ============== ===========
</TABLE>
See notes to consolidated financial statements
Continued
(31)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, continued
for the years ended August 31, 1996, 1997 and 1998
(All Dollar Amounts in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Unrealized
Unearned Gain (Loss) On Cumulative
Common Stock Retained Treasury Stock Compen- Marketable Translation
------------------- -------------------
Shares Amount Earnings Shares Amount sation Securities Adjustment
---------- ------- --------- --------- -------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1996 26,478,813 $45,580 $183,502 3,249,914 $(8,308) $(469) $ - $ (532)
Cash dividends on common
stock, $.175 per share (4,064)
Purchase of treasury stock 1,213 (33)
Forfeiture of restricted stock by
terminated employees 1,560 (33) 33
Amortization of unearned
compensation 197
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 23
Unrealized loss on marketable
securities, net of taxes ($1,425) (2,158)
Translation adjustments (4,556)
Net income 36,735
---------- ------- -------- --------- ------- -------- -------------- ----------
Balance, August 31, 1997 26,478,813 $45,603 $216,173 3,252,687 $(8,374) $(239) $(2,158) $(5,088)
========== ======= ======== ========= ======= ======== ============== ==========
</TABLE>
See notes to consolidated financial statements
Continued
(32)
<PAGE>
ARROW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY, continued
for the years ended August 31, 1996, 1997 and 1998
(All Dollar Amounts in Thousands, Except per Share Amounts)
<TABLE>
<CAPTION>
Unrealized
Unearned Gain (Loss) On Cumulative
Common Stock Retained Treasury Stock Compen- Marketable Translation
-------------------- -------------------
Shares Amount Earnings Shares Amount sation Securities Adjustment
---------- -------- --------- --------- -------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 26,478,813 $45,608 $154,272 3,247,805 $(8,240) $(703) $ - $ -
Cash dividends on common
stock, $.155 per share (3,601)
Registration costs (109)
Purchase of treasury stock 1,009 (44)
Forfeiture of restricted stock by
terminated employees 1,100 (24) 24
Amortization of unearned
compensation 210
Tax benefit of compensation
deduction related to
Restricted Stock Bonus Plan 81
Translation adjustments (532)
Net income 32,831
---------- ------- -------- --------- ------- -------- -------------- -----------
Balance, August 31, 1996 26,478,813 $45,580 $183,502 3,249,914 $(8,308) $(469) $ - $(532)
========== ======= ======== ========= ======= ======== ============== ===========
</TABLE>
See notes to consolidated financial statements
Continued
(33)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies:
General:
Arrow International, Inc. develops, manufactures and markets a broad range of
clinically advanced, disposable catheters and related products for critical care
and interventional medical procedures.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of Arrow
International, Inc. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation. Certain prior period amounts have been reclassified to conform to
the fiscal 1998 presentation.
Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be cash equivalents. The Company's cash
management program utilizes zero balance accounts. The carrying amount of cash
and cash equivalents approximate fair value.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Inventory Valuation:
Inventories are valued at lower of cost or market. Cost is determined by the
"first-in, first-out" (FIFO) method.
Goodwill, Intangible and Other Assets:
Goodwill represents the excess of the cost over the fair value of net assets
acquired in business combinations. Goodwill is amortized using the straight-line
method over a period of 15 to 25 years depending on the circumstances.
"Intangible and Other Assets, net" include certain assets acquired from business
acquisitions and investments and are being amortized using the straight-line
method over their estimated periods of benefits, from 5-17 years. Management
reviews the carrying amount of goodwill, intangible and other assets at each
balance sheet date to assess the continued recoverability based on future gross
cash flows and operating results from the related asset, future asset
utilization and changes in market conditions. In accordance with Statement of
Financial Accounting Standards No. 121 (FAS 121) "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of", long-lived
assets and certain identifiable intangibles to be held and used or disposed of
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If an evaluation is
required and a market value is not determinable, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write down to a new basis is required.
Impairment will be recorded based on an estimate of future discounted cash
flows.
Continued
(34)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies (Continued):
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets using the straight-line method ranging from
3 to 31 years. Upon retirement, sale or other disposition, the cost and
accumulated depreciation are eliminated from the accounts and any gain or loss
is included in operations.
Capitalized Interest:
Interest is capitalized as part of the historical cost of certain property,
plant and equipment constructed by the Company for its own use. The amount of
interest capitalized is based on a weighted average of the interest rates of
outstanding borrowings during the construction period.
Marketable Equity Securities:
Marketable securities are carried at fair market value, with unrealized holding
gains and losses, net of tax, reported as a separate component of shareholders'
equity. The fair market value of securities held at August 31, 1998 and 1997 was
$4,352 and $6,374 and the unrealized holding loss was $3,375 and $2,158,
respectively.
Financial Instruments:
The Company enters into foreign currency exchange forward contracts, which are
derivative financial instruments, with certain major financial institutions to
reduce the effect of fluctuating exchange rates, primarily on U.S. dollar cash
inflows resulting from the collection of intercompany receivables denominated in
foreign currencies. In 1997, the Company classified a portion of certain
Intercompany receivables as long-term investments. The foreign exchange
translation effect related to the investment is included in the cumulative
translation adjustment section of shareholders' equity. Such transactions occur
throughout the year and are probable, but not firmly committed. Forward
contracts are marked to market each accounting period, and the resulting gains
or losses on these contracts are recorded in Other Income / Expense of the
consolidated statements of income. Realized gains and losses on these contracts
are offset by the assets, liabilities and transactions being hedged. In 1998,
the Company entered into an interest rate swap agreement to reduce the impact of
its floating rate debt. The interest rate swap agreement allows the Company to
exchange floating rate for fixed interest payments over the life of the
agreement. The differential is accrued as interest rates change and is recorded
as interest expense. The Company does not use financial instruments for trading
or speculative purposes.
Revenue Recognition:
Revenue is recognized at the time products are shipped and title has passed to
the customer. Net sales represent gross sales invoiced to customers, plus
royalty income, less certain related charges, including freight costs,
discounts, returns and other allowances.
Income Taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns using current tax rates. Undistributed earnings of the
Company's foreign subsidiaries are indefinitely reinvested and amounted to
$8,193 and $7,268 at August 31, 1998 and 1997, respectively. No deferred taxes
have been provided on these earnings.
Continued
(35)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
1. Summary of Significant Accounting Policies (Continued):
Foreign Currency Translation:
During fiscal 1998 and 1997 most of the Company's foreign subsidiaries used
their local currency as the functional currency and translated all assets and
liabilities at year-end exchange rates, all income and expense accounts at
average rates and recorded adjustments from the translation in a separate
component of shareholders' equity. The foreign subsidiaries that still used the
U.S. dollar as the functional currency translated monetary assets and
liabilities at year-end exchange rates and inventories, property and nonmonetary
assets and liabilities at historical rates. Income and expense accounts were
translated at the average rates in effect during the year, except that
depreciation, amortization and cost of sales were translated at historical
rates. Adjustments resulting from the translation of the entities were included
in "Other expenses (income)" of the consolidated statements of income. Gains and
losses resulting from transactions of the Company and its foreign subsidiaries
were included in "Other expenses (income)". Aggregate foreign exchange losses
were $1,102, $1,996 and $919 for the years ended August 31, 1998, 1997 and 1996,
respectively.
Concentration of Credit Risk:
Concentration of credit risk with respect to trade receivables is limited due to
both the large number of customers and their geographic dispersion. As of August
31, 1998 and 1997, the Company had no significant concentrations of credit risk.
Postretirement Benefits Other Than Pensions:
Postretirement health care and life insurance benefits are recorded using the
accrual method of accounting based on actuarially determined costs, which are
recognized over the period from the date of hire to the full eligibility date of
employees who are expected to qualify for such benefits.
Earnings/(Loss) Per Share
Basic earnings/(loss) per common share is computed by dividing net income/(loss)
available to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings/(loss) per share is computed by
dividing net income/(loss) available to common shareholders by the weighted-
average number of shares that would have been outstanding if the dilutive
potential common shares had been issued. The diluted earnings/(loss) per share
does not assume the exercise of options that would have an antidilutive effect
on earnings/(loss) per share.
Cost of Start-up Activities:
In the fourth quarter 1998, the Company adopted Statement of Position (SOP) 98-5
"Reporting the Costs of Start-up Activities" issued by the Accounting Standards
Executive Committee of the Institute of Certified Public Accountants (AcSec). It
requires costs of start-up activities and organization costs to be expensed as
incurred. As a result of the adoption, the Company recorded additional expense
included in "Special Charges" of $580 ($368 after tax) or $.016 per basic and
diluted common share.
Continued
(36)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
2. Special Charges:
In the fourth quarter 1998, and in accordance with Statement of Financial
Accounting Standards No. 121 (FAS 121) "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of" and the Company's
accounting policy for goodwill, intangible and other assets, the Company
recorded a non-cash pre-tax special charge of $36 million ($32 million after tax
or $1.38 basic and diluted per share) to write down to fair value certain
goodwill and intangible assets. As a result of the Company's successful
development of more advanced cardiac assist products, the Company estimated that
the carrying value of the goodwill was not recoverable. Accordingly, the Company
has reduced the carrying value of goodwill related to previously acquired
cardiac assist products by $29 million. The remaining carrying value of these
intangible assets will be amortized using the straight-line method over the
estimated periods of benefits, from 5 to 17 years.
3. Business Acquisitions:
On July 15, 1997, the Company expanded its critical care product line by
acquiring the implantable constant flow drug delivery pump product business of
Strato/Infusaid Inc., a former subsidiary of Pfizer, Inc. The acquisition has
been accounted for using the purchase method of accounting. In conjunction with
the acquisition, the Company discontinued manufacturing operations effective on
or about November 30, 1997, and compensation expense of $3,464 was accrued and
paid for employee terminations. The cost of the acquisition has been allocated
on the basis of the estimated fair market value of the assets acquired, $6,051
and the liabilities assumed, $4,049. The results of operations are included in
the Consolidated Statements of Income from the date of acquisition.
On November 5, 1997, the Company continued its expansion into the cardiac care
market by purchasing the assets of the Cardiac Assist Division of the Boston
Scientific Corporation, a manufacturer and marketer of intra-aortic balloon
catheters and an intra-aortic balloon pump, for $7.3 million. The acquisition
has been accounted for using the purchase method of accounting. The results of
operations are included in the Consolidated Statements of Income from the date
of acquisition. The excess of the purchase price over the estimated fair value
of net assets acquired of approximately $5.5 million is being amortized over a
period of 15 years.
On August 3, 1998, the Company acquired Medical Parameters, Inc. (MPI), a maker
of custom manufactured tubing sets used by critical care physicians to connect
central venous catheters to blood pressure monitoring devices and drug infusion
systems for $15 million in cash. The acquisition has been accounted for using
the purchase method of accounting. The results of operations are included in the
Consolidated Statements of Income from the date of acquisition. The excess of
the purchase price over the estimated fair value of the net assets acquired of
approximately $12.2 million is being amortized over a period of 25 years.
Pro forma amounts are not presented as the aforementioned acquisitions had no
material effect on the Company's results of operations or financial condition
for any of the years presented.
Continued
(37)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
4. Stock Option Plans:
The Company has adopted two stock plans, the 1992 Stock Incentive Plan (the
"1992 Plan"), which was adopted on April 1, 1992, and the Directors Stock
Incentive Plan (the "Directors Plan"), which was approved by the shareholders on
January 17, 1996. The 1992 Plan authorizes the granting of stock options, stock
appreciation rights and restricted stock. The Directors Plan authorizes the
granting of a maximum of 100,000 non-qualified stock options. Under the
Directors Plan, members of the Board of Directors of the Company and its
subsidiaries are eligible to participate if they are not also employees or
consultants of the Company or its subsidiaries, were not shareholders at the
time of the Company's initial public offering on June 9, 1992 and do not serve
on the Board as representatives of the interest of shareholders who have made an
investment in the Company. The Directors Plan authorizes an initial grant of an
option to purchase 5,000 shares of common stock upon each eligible director's
initial election to the Board and the grant of an additional option to purchase
500 shares of common stock on the date each year when directors are elected to
the Board.
The Company follows the provision of Accounting Principles Board (APB) No. 25,
"Accounting for Stock Issued to Employees", and related interpretations, which
require compensation expense for options to be recognized only if the market
price of the underlying stock exceeds the exercise price on the date of grant.
Accordingly, the Company has not recognized compensation expense for its options
granted during the 1998, 1997 and 1996 fiscal years.
On December 1, 1993 and February 11, 1994, the Company issued 44,900 and 8,200
shares, respectively, of restricted common stock to certain employees pursuant
to the 1992 Plan. The market value of the shares awarded, based on the closing
price of $20.75 and $23.125 per share, as reported by the Nasdaq stock market on
the dates of the awards, was $932 and $190, respectively. The transactions were
recorded as unearned compensation in a separate component of shareholders'
equity and are being amortized to expense over the five year vesting period.
In fiscal years 1998 and 1996, options to purchase 180,900 and 171,700 shares,
respectively of the Company common stock were granted to key employees of the
Company pursuant to the 1992 plan. There were no options granted in the fiscal
year 1997. The option price per share ranged from $27.75 to $35 in fiscal year
1998 and was $38 in fiscal year 1996. These amounts represent the fair market
value of the common stock of the Company on the dates the options were granted.
The options expire ten years from the grant date. The options vest ratably over
five years at one year intervals from the grant date and become exercisable at
any time once vested.
On January 21, 1998, January 15, 1997 and January 17, 1996, options to purchase
6,500, 10,500 and 5,000 shares, respectively, of the Company common stock were
granted to directors of the Company pursuant to the Directors Plan. The option
price per share for the 1998, 1997 and 1996 awards were $38.375, $29.25 and $38,
respectively, the fair market value of the common stock of the Company on the
dates the options were granted. The options expire ten years from the grant
date. The options vest fully one year from the grant date and become exercisable
at any time once vested.
Continued
(38)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
4. Stock Option Plans (Continued):
Stock option activity for the years ended August 31, 1998, 1997 and 1996 is
summarized below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
1998 Price 1997 Price 1996 Price
-------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
September 1 174,420 $37.47 176,700 $38.00 0 -
Granted 187,400 $31.95 10,500 $29.25 176,700 $38.00
Exercised 0 - 0 - 0 -
Terminated (15,560) $37.17 (12,780) $38.00 0 -
------- ------- -------
Outstanding at
August 31 346,260 $34.50 174,420 $37.47 176,700 $38.00
Exercisable at
August 31 74,380 $36.76 37,120 $38.00 0 -
</TABLE>
Stock options outstanding at August 31, 1998 are summarized below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- -------------------- ----------- ---------------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 27.75 - $38.375 346,260 8.33 years $ 34.50 74,380 $ 36.76
</TABLE>
The Company adopted the disclosure provisions of FAS No. 123, "Accounting for
Stock-Based Compensation". As permitted under FAS 123, the Company continues to
apply the existing accounting rules under APB No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made as if the fair value method in measuring compensation cost for stock
options granted subsequent to December 15, 1995, had been applied.
The per share weighted average value of stock options granted in 1998,1997 and
1996 was $13.35, $13.88 and $15.50, respectively. The fair value was estimated
as of the grant date using the Black-Scholes option pricing model with the
following average assumption:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate 6.13% 5.17% 5.26%
Dividend yield 0.66% 0.58% 0.58%
Volatility factor 40.00% 40.00% 40.00%
Expected lives 5 years 4 years 5 years
</TABLE>
Had compensation expense for stock options granted in 1998, 1997 and 1996 been
recorded
Continued
(39)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
4. Stock Option Plans (Continued):
based on the fair market value at the grant date, the Company's net income and
basic and diluted earnings per share, net of income tax effects, for the years
ended August 31, 1998, 1997 and 1996 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Net income applicable to common shareholders
As reported $8,572 $36,735 $32,831
Pro forma $7,949 $36,375 $32,615
Basic and diluted earnings per
common share
As reported $ 0.37 $ 1.58 $ 1.41
Pro forma $ 0.34 $ 1.57 $ 1.40
</TABLE>
The pro forma effects are not representative of the effects on reported net
income for future years, as most of the stock option grants vest in cumulative
increments over a period of five years.
5. Related Party Transactions:
During the year ended August 31, 1998, the Company assumed certain pension and
retirement health care benefit obligations of Arrow Precision Products, Inc.
("Precision"), which is related to the Company through common ownership, to
former employees of Precision who are currently, or previously were, employed by
the Company in exchange for the transfer by Precision to the Company of
appropriate assets to satisfy such obligations. See Note 12. Retirement
Benefits for additional details related to this transaction. In addition,
Precision transferred to the Company, with no payment by either party to the
other, its rights and responsibilities under a split dollar life insurance
policy covering the former Chief Operating Officer of Precision.
The Company also made payments on behalf of Precision in the amount of $170,
relating to activities of Precision prior to August 29, 1997, for which
reimbursement was offset by credits of $37 issued by the Company to Precision
against previous charges for utilization of certain of the Company's facilities,
personnel and services during the twelve month period ended August 29, 1997.
The Company made no purchases from Precision during the year ended August 31,
1998. The Company had a net receivable from Precision amounting to $369 at
August 31, 1998.
During fiscal 1997, certain of the Company facilities, personnel and services
were utilized by Precision. Effective August 29, 1997, such utilization ended
when Precision Medical Products, Inc., the wholly owned and remaining operating
subsidiary of Precision, was acquired by a company formed by certain management
employees of Precision.
(Continued)
(40)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
5. Related Party Transactions (Continued):
The Company charged Precision $379 and $478 for the cost of such utilization
during the years ended August 31, 1997 and 1996, respectively. The Company made
purchases from Precision amounting to $1,199 and $1,222 for the years ended
August 31, 1997 and 1996, 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,
$891 and $974 during the years ended August 31, 1997 and 1996, respectively.
The Company had a net receivable from Precision of $190 at August 31, 1997.
In June 1996, the Company purchased for $1,135 certain assets from a subsidiary
of Precision that manufactured and marketed gastroenterological medical
products.
6. Rent Expense:
The Company leases certain warehouses and production facilities, office
equipment and vehicles under leases with varying terms.
Rent expense under operating leases totaled $3,638, $3,201 and $3,094 for the
years ended August 31, 1998, 1997 and 1996, respectively. Following is a
schedule by year showing future minimum rentals under operating leases.
<TABLE>
<CAPTION>
Year Ending August 31, Total
---------------------- --------
<S> <C>
1999 $ 3,084
2000 2,081
2001 1,318
2002 809
2003 333
Thereafter 551
-------
$ 8,176
=======
</TABLE>
7. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
August 31,
----------
1998 1997
------- -------
<S> <C> <C>
Finished goods $24,875 $20,718
Semi-finished goods 18,492 13,906
Work-in-process 9,558 9,900
Raw materials 17,667 12,810
------- -------
$70,592 $57,334
======= =======
</TABLE>
Continued
(41)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
8. Credit Facilities:
As of August 31, 1998 and 1997, the Company had U.S. bank credit facilities
providing a total of $50,000, in revolving credit for general business purposes
of which $23,322 and $18,902 were outstanding, respectively. Interest rate
terms for both U.S. and foreign bank credit facilities are based on either bids
provided by the bank or the prime rate, London Interbank Offered Rates (LIBOR)
or Certificate of Deposit rates, plus applicable margins. Certain of these
borrowings, primarily those with U.S. banks, are due on demand. Interest is
payable monthly during the revolving credit period. At August 31, 1998 and
1997, the weighted average interest rates on short-term borrowings were 5.3% and
5.7%, respectively. At August 31, 1998 and 1997, certain of the Company's
foreign subsidiaries had available revolving credit facilities, at market rates
of interest, totaling the U.S. dollar equivalent of $11,323 and $11,791, under
which $6,407 and $3,076 was outstanding, respectively. The Company is required
to maintain a ratio of total liabilities to tangible net worth (total assets
less total liabilities and intangible assets) of no more than 1.5 to 1 and a
working capital ratio of 1.25 to 1 or greater. At August 31, 1998 and 1997, the
carrying amount of short-term borrowings approximated fair value and the Company
was in compliance with its lending agreements and convenants.
9. Accrued Compensation:
The components of accrued compensation at August 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Accrued vacation pay $2,780 $2,929
Accrued payroll 1,983 5,016
Accrued productivity plan compensation 1,668 1,683
Other 446 317
------ ------
$6,877 $9,945
====== ======
</TABLE>
Continued
(42)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
10. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 31,
1998 1997
----- -------
<S> <C> <C>
Bank note payable in July 2001, plus interest at
a quoted fixed rate or at a variable rate based upon
LIBOR plus 0.75%. As of August 31, 1998 the interest rate
is fixed at 4.55% through July 1999. At August 31, 1997, the
interest rate was fixed at 4.19% $10,066 $ 9,828
Industrial Development Authority Bonds, $3,500
face amount, subject to mandatory annual sinking
fund payments of $200 from December 1989 through
December 1998; and $300 from December 1999 through
December 2003; plus interest at a variable rate ranging
from 3.35% to 4.90% in 1998 and from 3.35% to 5.00%
in 1997 1,700 1,900
Bank note payable in equal quarterly installments
of $500 paid May 1998, plus interest at a variable
rate based upon LIBOR plus 0.875%, previously 6.25%
at May 31, 1998 and 6.53% at August 31, 1997 - 1,500
Bank note payable in quarterly installments of
$89 through March 1999, plus interest at a fixed
rate of 1.34% at August 31, 1998 and 1997 267 725
Bank note payable in monthly installments
of $5 through October 2001, plus interest at
a fixed rate of 1.50% at August 31, 1998 and 1997 175 268
Bank note paid in October 1997, plus interest at
a fixed rate of 4.20% at August 31, 1997 - 497
------- -------
Total debt $12,208 $14,718
Less current maturities 522 2,675
------- -------
$11,686 $12,043
======= =======
</TABLE>
Continued
(43)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
10. Long-Term Debt (Continued):
The Industrial Development Authority Bonds are collateralized by a $1,927 letter
of credit and the Company's headquarters, research and development, and
manufacturing facility in Reading, PA. The Company also has a U.S. dollar
equivalent of irrevocable standby letters of credit totaling $4,027 related to
subsidiary indebtedness and workers compensation insurance coverage and foreign
performance bonds. The annual commitment fees associated with the letters of
credit were 0.75% per annum at August 31, 1998.
Following is a schedule by year showing maturities of long-term debt for each of
the five years in the period ending August 31, 2003:
<TABLE>
<CAPTION>
Year Ending August 31, Total
---------------------- -------
<S> <C>
1999 $ 522
2000 355
2001 10,421
2002 310
2003 300
Thereafter 300
-------
$12,208
=======
</TABLE>
Total interest costs for fiscal 1998, 1997 and 1996 were $2,091, $2,510 and
$3,170 respectively, of which $1,307, $1,613 and $1,321, respectively, were
capitalized.
At August 31, 1998 and 1997, the carrying amount of long term debt approximated
fair value.
11. Income Taxes:
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1998
------------------------------------
Federal State Foreign Total
------- ------ ------- -------
<S> <C> <C> <C> <C>
Current $16,407 $2,020 $ 380 $18,807
Deferred 178 24 - 203
------- ------ ------ -------
$16,585 $2,044 $ 380 $19,010
======= ====== ====== =======
1997
------------------------------------
Federal State Foreign Total
------- ------ ------- -------
Current $19,953 $3,499 $ (287) $23,165
Deferred (148) (20) - (168)
------- ------ ------ -------
$19,805 $3,479 $ (287) $22,997
======= ====== ====== =======
1996
------------------------------------
Federal State Foreign Total
------- ------ ------- -------
Current $15,459 $1,405 $1,247 $18,111
Deferred 1,030 141 - 1,171
------- ------ ------ -------
$16,489 $1,546 $1,247 $19,282
======= ====== ====== =======
</TABLE>
Continued
(44)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
11. Income Taxes (Continued):
Research and development tax credits were $367, $509 and $88 in fiscal 1998,
1997 and 1996, respectively.
Deferred taxes are recorded based upon differences between financial statement
and tax bases of assets and liabilities. The following deferred taxes and
balance sheet classifications are recorded as of August 31, 1998 and 1997:
<TABLE>
<CAPTION>
Deferred tax assets (liabilities): 1998 1997
-------- --------
<S> <C> <C>
Accounts receivable $ (311) $ 293
Inventories 1,727 1,826
Marketable securities 2,229 1,425
Property, plant and equipment (7,942) (4,395)
Intangible assets 5,506 1,362
Accrued liabilities (1,257) (1,204)
Accrued compensation 738 859
Postretirement benefits other than pensions 3,808 3,324
------- --------
$ 4,498 $ 3,490
======= ========
Balance Sheet classification:
Current deferred tax assets $ 2,040 $ 2,833
Non current deferred tax assets 2,458 657
------- --------
$ 4,498 $ 3,490
======= ========
</TABLE>
The sources of significant temporary differences which gave rise to deferred
taxes and their effects were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Accounts receivable $ 604 $ (27) $ 58
Depreciation and amortization 4,075 410 1,731
Marketable securities (804) (1,425) -
Common stock issued
to employees 66 21 94
Accrued vacation pay 55 (150) (15)
Inventories 99 (248) (1,759)
Postretirement benefits
and other liabilities (484) (145) (150)
Intangible assets (4,673) - 735
Other 54 307 477
------- ------- --------
$(1,008) $(1,257) $ 1,171
======= ======= ========
</TABLE>
Continued
(45)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
11. Income Taxes (Continued):
The following is a reconciliation of the statutory federal income tax rate to
the Company's effective tax rate expressed as a percentage of income from
operations before income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 4.8 3.8 1.9
Foreign statutory tax rates differential .7 1.8 3.0
Foreign sales corporation (6.2) (2.9) (3.3)
Research and development tax credit (1.3) (1.0) -
Goodwill amortization 32.7 - -
Other 3.2 1.8 .4
---- ---- ----
Effective tax rate 68.9% 38.5% 37.0%
==== ==== ====
</TABLE>
12. Retirement Benefits:
Pension Plans:
The Company has three noncontributory pension plans that cover substantially all
employees. Benefits under the plans are based upon an employee's compensation
and years of service and, where applicable, the provisions of negotiated labor
contracts. It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws and
regulations plus such additional amounts, if any, as the Company's actuarial
consultants advise to be appropriate. The projected unit credit method is
utilized for determination of actuarial amounts.
As discussed in Note 5 Related Party Transactions, the Company assumed certain
pension obligations of Arrow Precision Products, Inc. ("Precision"), which is
related to the Company through common ownership, to former employees of
Precision who are currently or previously were, employed by the Company in
exchange for the transfer by Precision to the Company of appropriate assets to
satisfy such obligations. Consequently, Precision's two pension plans, both of
which were overfunded as of August 31, 1997, were merged with the Company's
pension plans covering comparable employees. The Company paid Precision $2,975,
the amount by which the value of Precision's pension plan assets exceeded the
actuarially determined present value of Precision's pension plan obligations.
The payment exceeded the prepaid pension asset recorded on Precision's financial
statements by $2,071. This difference ("Plan acquisition differential") is
being amortized over an actuarially determined period.
Continued
(46)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
12. Retirement Benefits (Continued):
Pension Plans (Continued):
The following tables set forth the plan's funded status and amounts recognized
in the Company's balance sheet at August 31, 1998 and 1997:
<TABLE>
<CAPTION>
Assets Accumulated
Exceeded Accumulated Benefits Exceeded
Benefits Assets
1998 1997 1998 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested $(16,983) $(11,598) $(16,550) $ (9,530)
Nonvested (44) (61) (665) (586)
-------- -------- -------- --------
Accumulated benefit obligation (17,027) (11,659) (17,215) (10,116)
Effect of projected future
salary increases (1) (32) (6,655) (5,810)
-------- -------- -------- --------
Projected benefit obligation (17,028) (11,691) (23,870) (15,926)
Less plan assets at fair value 28,704 23,491 17,942 14,648
-------- -------- -------- --------
Plan assets in excess of (less than)
projected benefit obligation 11,676 11,800 (5,928) (1,278)
Unrecognized net (gain) (5,268) (6,436) (464) (2,617)
Unrecognized prior service cost 2,288 824 2,934 1,364
Unrecognized net obligation (1,159) (1,279) 327 271
Plan acquisition differential 852 - 1,069 -
-------- -------- -------- --------
Prepaid pension asset (liability) $ 8,389 $ 4,909 $ (2,062) $ (2,260)
======== ======== ======== ========
</TABLE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 2,118 $ 1,560 $ 1,577
Interest cost 2,768 1,903 1,701
Actual return on plan assets (399) (7,395) (3,455)
Net amortization and deferral (4,146) 4,391 924
Amortization of plan acquisition differential 150 - -
-------- -------- --------
Net periodic pension cost $ 491 $ 459 $ 747
======== ======== ========
</TABLE>
Actuarial assumptions used in accounting for the plans for the years ended
August 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Discount Rate:
Pension Expense 7.75% 8.00% 7.50%
Benefit Obligations 7.00% 7.75% 8.00%
Rate of increase in
compensation levels:
Pension Expense 5.00% 5.00% 5.00%
Benefit Obligations 4.00% 5.00% 5.00%
</TABLE>
Continued
(47)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
12. Retirement Benefits (Continued):
Plan assets consist principally of U.S. government securities, short-term
investments, other equity securities and cash equivalents.
Postretirement Benefits Other Than Pensions:
The Company provides limited amounts of postretirement health and life insurance
benefit plan coverage for substantially all of its employees. The determination
of postretirement benefit cost for postretirement health benefit plans is based
on comprehensive hospital, medical, surgical, and dental benefit provisions.
The determination of postretirement benefit cost for postretirement life
insurance benefits is based on stated policy amounts.
As discussed in Note 5 Related Party Transactions, the Company assumed certain
postretirement benefit obligations of Arrow Precision Products, Inc.
("Precision"), which is related to the Company through common ownership, to
former employees of Precision who are currently or previously were, employed by
the Company in exchange for the transfer by Precision to the Company of
appropriate assets to satisfy such obligations. Consequently, Precision's
postretirement benefit plan, which was unfunded as of August 31, 1997, was
merged with the Company's postretirement plan covering comparable employees.
Precision paid the Company $757, the actuarially determined present value of
Precision's postretirement benefit plan obligations. The payment exceeded the
post retirement benefit liability recorded on Precision's financial statements
by $607. This difference, ("Plan acquisition differential") is being amortized
over an actuarially determined period.
For the years ended August 31, 1998, 1997 and 1996, respectively, the components
of periodic expense for the postretirement benefits are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during year $ 271 $ 297 $ 305
Interest cost 534 408 375
Amortization of Net Transition Obligation 49 -
Amortization of Prior Service Cost (84) (84) (26)
Amortization of Unrecognized Net (Gain)\Loss (25) (67) (49)
Amortization of Plan Acquisition and
Differential (29) - -
----- ----- -----
Total Expense $ 716 $ 554 $ 605
===== ===== =====
</TABLE>
Continued
(48)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
12. Retirement Benefits (Continued):
At August 31, 1998 and 1997, respectively, the actuarial and recorded
liabilities for these postretirement benefits, none of which have been funded,
are as follows:
<TABLE>
<CAPTION>
1998 1997
------ --------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees and dependents $ 2,875 $ 1,529
Fully eligible active plan participants 2,399 1,278
Other active participants 2,582 3,048
-------- --------
Excess of accumulated postretirement
benefit obligation over assets 7,856 5,855
Unrecognized prior service cost 795 879
Unrecognized transition obligation (827) -
Unrecognized gain 1,014 1,467
Plan acquisition differential 578 -
-------- --------
Liability included on the balance sheet 9,416 8,201
Less current portion 450 301
-------- --------
Noncurrent liability $ 8,966 $ 7,900
======== ========
</TABLE>
The actuarial assumptions used to measure the accumulated postretirement benefit
obligation as of August 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Assumed discount rate 7.00% 7.75% 8.00%
Initial health care cost trend rate 8.00% 8.00% 10.00%
Decreasing to ultimate health care cost trend rate 5.00% 5.00% 5.00%
Effect of one- percent increase in
health care cost trend rate:
On cost components $ 73 $ 99 $ 92
On accumulated benefit obligation $ 583 $ 689 $ 654
</TABLE>
It is anticipated that the health care cost trend rate will decrease gradually
from 7.00% in 1999 to 5.00% in the year 2009.
Savings Plan:
The Company has a defined contribution savings plan that covers substantially
all of its eligible U.S. employees. The purpose of the plan is generally to
provide additional financial security to employees during retirement.
Participants in the savings plan may elect to contribute, on a before-tax basis,
a certain percent of their annual earnings with the Company matching a portion
of these contributions. Expense under the plan was $838, $789 and $737 for the
fiscal years ended August 31, 1998, 1997 and 1996, respectively.
Continued
(49)
<PAGE>
13. Geographical Information:
The following tables present information about operations in certain
significant geographic areas:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
United Asia and Other
States(1) Africa Europe Foreign Eliminations Consolidated
----------- -------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $196,378 $28,270 $29,197 $7,045 $260,890
Transfers between
geographic areas 49,681 $ (49,681) -
-------- ------- ------- ------ --------- ------------
Total revenue $246,059 $28,270 $29,197 $7,045 $ (49,681) $260,890
======== ======= ======= ====== ========= ============
Operating income $ 27,345 $ 599 $ 435 $ 841 $ 29,220
======== ======= ======= ======
Other expense, net (1,638)
------------
Income from operations
before income taxes $ 27,582
============
Identifiable assets at
August 31 $355,092 $12,329 $51,242 $4,766 $(103,338) $322,881
======== ======= ======= ====== ========= ============
<CAPTION>
1997
----------------------------------------------------------------------
United Asia and Other
States Africa Europe Foreign Eliminations Consolidated
-------- -------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $180,074 $29,223 $30,547 $6,045 - $245,889
Transfers between
geographic areas 52,023 - - - $ (52,023) -
-------- ------- ------- ------ --------- ------------
Total revenue $232,097 $29,223 $30,547 $6,045 $ (52,023) $245,889
======== ======= ======= ====== ========= ============
Operating income $ 60,904 $ 1,160 $ (90) $ (212) $ 61,763
======== ======= ======= ======
Other expense, net (2,031)
------------
Income from operations
before income taxes $ 59,732
============
Identifiable assets at
August 31 $342,121 $12,338 $40,919 $4,547 $ (79,552) $320,373
======== ======= ======= ====== ========= ============
<CAPTION>
1996
----------------------------------------------------------------------
United Asia and Other
States Africa Europe Foreign Eliminations Consolidated
-------- -------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $167,914 $30,550 $26,092 $5,389 - $229,945
Transfers between
geographic areas 44,071 - - - $ (44,071) -
-------- ------- ------- ------ --------- ------------
Total revenue $211,985 $30,550 $26,092 $5,389 $ (44,071) $229,945
======== ======= ======= ====== ========= ============
Operating income $ 51,534 $ 1,078 $ 1,589 $ (212) $ 54,413
======== ======= ======= ======
Other expense, net (2,300)
------------
Income from operations
before income taxes $ 52,113
============
Identifiable assets at
August 31 $305,726 $12,187 $41,843 $4,141 $ (64,476) $299,421
======== ======= ======= ====== ========= ============
</TABLE>
Export sales for domestic operations to unaffiliated customers were $32,688,
$28,410 and $25,562 for the years ended August 31, 1998, 1997 and 1996,
respectively.
(1) Included in United States Operating income was a special charge of $36,249
Continued
(50)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
14. Financial Instruments:
During fiscal 1998 and 1997, the percentage of the Company's sales invoiced in
currencies other than U.S. dollars was 24.7% and 26.8%, respectively. In
addition, a small part of the Company's cost of goods sold is denominated in
foreign currencies. The Company enters into foreign currency forward contracts,
which are derivative financial instruments, with major financial institutions to
reduce the effect of these foreign currency risk exposures, primarily on U.S.
dollar cash inflows resulting from the collection of intercompany receivables
denominated in foreign currencies. Such transactions occur throughout the year
and are probable, but not firmly committed. Forward contracts are marked to
market each accounting period, and the resulting gains or losses on these
contracts are recorded in Other Income / Expense of the consolidated statements
of income. Realized gains and losses on these contracts are offset by the
assets, liabilities and transactions being hedged. The Company does not use
financial instruments for trading or speculative purposes. The Company expects
to continue to utilize foreign currency exchange contracts to manage its
exposure, although there can be no assurance that the Company's efforts in this
regard will be successful.
Operations of the Company are also exposed to, in the normal course of business,
fluctuations in interest rates. This interest rate risk exposure results from
changes in short-term U.S. dollar interest rates. In an effort to manage
interest rate exposure. In April 1998 the Company entered into an interest rate
swap agreement to reduce the impact of its floating rate debt. The swap
agreement exchanges floating rates for fixed interest payments over the life of
the agreement.
The Company's exposure to credit risk consists principally of trade receivables.
Hospitals and international dealers account for a substantial portion of trade
receivables and collateral is generally not required. The risk associated with
this concentration is limited due to the Company's on-going credit review
procedures.
At August 31, 1998, the Company had forward exchange contracts to sell foreign
currencies which mature at various dates through March 1999. The following table
identifies forward exchange contracts to sell foreign currencies and interest
rate swap agreement at August 31, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
August 31, 1998 August 31, 1997
Notional Fair Market Notional Fair Market
Amounts Value Amounts Value
-------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Foreign currency: (U.S. Dollar Equivalents)
Japanese yen $ 7,062 $ 6,404 $ 6,410 $ 6,210
German marks - - 2,926 2,762
French francs 1,168 1,191 1,751 1,707
Spanish pesetas 1,468 1,507 2,531 2,489
Canadian dollars - - 2,176 2,161
Greek drachmas 1,136 1,203 1,394 1,407
Mexican peso 909 977 1,109 1,151
African rand - - 1,470 1,492
Netherlands guilder 498 503 994 983
Interest rate swap agreement 5,000 (77) - -
------- ------- ------- -------
$12,241 $11,785 $20,761 $20,362
======= ======= ======= =======
</TABLE>
Continued
(51)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
14. Financial Instruments (Continued):
In 1998, the Company entered into an interest rate swap to reduce the impact of
its floating rate debt. The swap agreement allows the Company to exchange
floating rates for fixed interest payments over the life of the agreement. The
differential is accrued as interest rates change and is recorded as interest
expense. The agreement expires in May 2003, but allows for early termination.
The effect of the agreement is to limit interest rate exposure to 5.62% on $5.0
million of its revolving credit. As a result of the swap agreement interest
expense was increased by $2.0.
15. Contingencies:
The Company is a party to certain legal actions arising in the ordinary course
of its business. Based upon information presently available, the Company
believes it has adequate legal defenses or insurance coverage for these actions
and that the ultimate outcome of these actions would not have a material effect
on the Company's financial position or results of operations.
16. Statements of Financial Accounting Standards not yet Adopted:
On March 4, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-1 "Accounting for the Costs of Computer
Software Development or Obtained for Internal Use". The SOP provided guidance
on accounting for the costs of computer software developed or obtained for
internal use. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998, but earlier application is encouraged. The
Company does not anticipate the adoption of this new standard to have a material
effect on the Company's consolidated financial statements. The Company will
adopt this standard in fiscal year 1999.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The statement is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company does not anticipate the adoption of this
new standard to have a material effect on the Company's consolidated financial
statements.
In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The statement is effective for fiscal years
beginning after December 15, 1997. The Company need not currently adopt the
standard as the Company maintains separate financial information available for
regular evaluation by the chief operating decision maker for only one segment.
During February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pension and Other Postretirement Benefits" (FAS 132). FAS 132 does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets, and eliminates certain disclosures that are no longer as useful.
The statement is effective for fiscal years beginning after December 15, 1997,
but earlier application is encouraged. The adoption of SFAS No. 132 is not
expected to have any impact on the Company's results of operations, financial
position or cash flows.
On June 15, 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and
Continued
(52)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
16. Statements of Financial Accounting Standards not yet Adopted (Continued):
Hedging Activities" (FAS 133). FAS 133 establishes new procedures for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. FAS 133 is effective for fiscal years beginning
after June 15, 1999, but earlier application is permitted as of the beginning of
any fiscal quarter subsequent to June 15, 1998. The adoption of this new
standard will not have a material effect on the Company as FAS 133 retains the
provisions of Statement of Accounting Standards No. 52 "Foreign Currency
Translation" with respect to long-term and short-term intercompany transactions
eliminating the need for special accounting and does not change the accounting
for interest rate swaps.
17. Summary of Quarterly Results (unaudited):
Quarterly financial results for the year ended August 31, 1998 are as follows:
<TABLE>
<CAPTION>
Quarter
---------------------------------------
11-30-97 2-28-98 5-31-98 8-31-98
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 63,769 $ 66,770 $ 65,735 $ 64,616
Cost of goods sold 27,860 29,831 28,499 27,882
--------- -------- -------- --------
Gross profit 35,909 36,939 37,236 36,734
Operating expenses
Research, development
and engineering 4,158 4,330 4,799 5,107
Selling, general and
administrative 15,295 15,349 16,291 16,020
Special charge - - - 36,249
Operating income (loss) 16,456 17,260 16,146 (20,642)
Other expenses 178 217 599 644
Income (loss) before
income taxes 16,278 17,043 15,547 (21,286)
Provision for income taxes 6,104 6,391 5,830 684
Net income (loss) $ 10,174 $ 10,652 $ 9,717 $(21,970)
Basic and diluted
earnings (loss)
per common share $ .44 $ .46 $ .42 $ (.95)
Weighted average common
shares outstanding (000's) 23,226 23,225 23,224 23,224
</TABLE>
In the fourth quarter, the Company recorded a special charge (see footnote 2).
Continued
(53)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
17. Summary of Quarterly Results (unaudited) (Continued):
Quarterly financial results for the year ended August 31, 1997 are as follows:
<TABLE>
<CAPTION>
Quarter
---------------------------------------
11-30-96 2-28-97 5-31-97 8-31-97
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 59,190 $ 61,965 $ 62,107 $ 62,627
Cost of goods sold 27,405 27,978 27,900 27,528
--------- -------- -------- --------
Gross profit 31,785 33,987 34,207 35,099
Operating expenses
Research, development
and engineering 3,808 3,993 4,090 3,981
Selling, general and
administrative 13,960 14,336 14,366 14,781
Operating income 14,017 15,658 15,751 16,337
Other expenses 552 598 313 568
Income before
income taxes 13,465 15,060 15,438 15,769
Provision for income taxes 5,184 5,798 5,944 6,071
Net income $ 8,281 $ 9,262 $ 9,494 $ 9,698
Basic and diluted
earnings per
common share $ .36 $ .40 $ .41 $ .42
Weighted average common
shares outstanding (000's) 23,229 23,227 23,226 23,226
</TABLE>
18. Subsequent Events
In August 1998, the Company signed an agreement to purchase for $28 million the
global intra-aortic balloon catheter and pump business of C.R. Bard, Inc. The
acquisition is currently being reviewed pursuant to a second request for
information by the Federal Trade Commission (FTC) under the Hart Scott-Rodino
Antitrust Improvements Act of 1976. Sales of C.R. Bard's intra-aortic balloon
products were approximately $14 million in 1998.
19. Earnings per Share:
In the second quarter of 1998, the Company adopted Statement of Accounting
Standards No. 128, "Earnings per Share", which requires presentation in the
Consolidated Statement of Income of both basic and diluted earnings per share.
The Company restated all prior years' per
Continued
(54)
<PAGE>
ARROW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands, Except Share and Per Share Amounts)
19. Earnings per Share (Continued):
share amounts presented in these Consolidated Financial Statements and notes
according to FAS 128. Earnings per common share (basic) as calculated in
accordance with this Statement does not differ from earnings per share reported
in prior periods and earnings (loss) per common share assuming dilution is not
materially different.
The net income effect of dilutive securities was not significant. A
reconciliation of weighted average common shares outstanding to weighted average
common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Average common shares outstanding 23,224,780 23,227,102 23,229,867
Common shares issuable(1) 925 -0- -0-
---------- ---------- ----------
Average common shares
outstanding assuming dilution 23,225,705 23,227,102 23,229,867
</TABLE>
(1) Issuable primarily under stock option plans.
Stock options outstanding at August 31, 1998 to purchase 335,760 shares of
common stock were not included in the computation of earnings per common share
assuming dilution because the options' exercise prices were greater than the
average market price of the common shares.
In 1997 and 1996, the weighted average number of shares outstanding for the
basic and diluted per share calculations are identical since the assumed
exercise of outstanding options would be antidilutive.
(55)
<PAGE>
PricewaterhouseCoopers LLP
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Arrow International, Inc.:
Our audits of the consolidated financial statements of Arrow International, Inc.
referred to in our report dated October 5, 1998 appearing in Item 14(a)(1) of
this Form 10-K also included an audit of the financial statement schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 5, 1998
(56)
<PAGE>
SCHEDULE II
ARROW INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(Column A) (Column B) (Column C) (Column D) (Column E)
---------- ---------- ---------------------- ---------- ----------
Additions
----------------------
Charges / Charged
Balance at (Credits)to to Other Balance at
Beginning Cost and Accounts Deductions End
Description of Period Expenses (Describe) (Describe)(1) of Period
----------- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended August 31, 1996:
Accounts receivable:
Allowance for doubtful accounts $ 650 $ 150 - $ 26 $ 774
========== ========= ========= =========== ==========
Investment, at cost:
Valuation reserve $ 780 - - $ 780 $ -
========== ========= ========= =========== ==========
For the year ended August 31, 1997:
Accounts receivable:
Allowance for doubtful accounts $ 774 $ 195 - $ 114 $ 855
========== ========= ========= =========== ==========
For the year ended August 31, 1998:
Accounts receivable:
Allowance for doubtful accounts $ 855 $ 116 - $ 203 $ 768
========== ========= ========= =========== ==========
</TABLE>
(1) Deductions represent write-off of accounts receivable and investment.
(57)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- ------- ---------- ----------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Incorporated by reference from
the Company. Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal
year ended August 31, 1992
3.2 By-laws of the Company, as amended Incorporated by reference from
and restated. Exhibit 3.4 to the Company's
Registration Statement on Form S-1
File No. 33-47163 ("Registration
Statement")
4.1 Form of Common Stock certificate. Incorporated by reference from
Exhibit 4.1 to the Company's
Registration Statement
10.1 1992 Stock Incentive Plan. Incorporated by reference from
Exhibit 10.1 to the Company's
Registration Statement
10.2 Investment Plan - 401(k). Incorporated by reference from
Exhibit 10.2 to the Company's
Registration Statement
10.3.1 Amended and Restated Retirement Incorporated by reference from
Plan for Salaried Employees of the Exhibit 10.3 to the Company's
Company, effective September 1, 1989. Registration Statement
10.3.2 Amended and Restated Retirement Incorporated by reference from
Plan for Salaried Employees of the Exhibit 10.3.2 to the Company's
Company, effective September 1, 1989, Annual Report on Form 10-K for
as amended. the year ended August 31, 1993
(the "1993 Form 10-K")
10.4 Amended and Restated Restricted Incorporated by reference from
Stock Bonus Plan. Exhibit 10.4 to the Company's
Registration Statement
10.5 Split Dollar Life Insurance Incorporated by reference from
Agreements, dated December 16, Exhibit 10.5 to the Company's
1991, between the Company and Registration Statement
James H. Miller, as Trustee under the
provisions of a certain Irrevocable
Trust Agreement with Marlin Miller, Jr.
dated December 13, 1991.
10.6 Split Dollar Life Insurance Agreements, Incorporated by reference from
dated December 16, 1991, between the Exhibit 10.6 to the Company's
Company and Raymond Neag Registration Statement
Irrevocable Trust, dated October 11,
1991, Evelyn Neag, Trustee.
</TABLE>
(58)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- --------- -------------------------------------- ------------------------------
<S> <C> <C>
10.7 Split Dollar Life Insurance Agreements Incorporated by reference from
dated December 16, 1991, between Exhibit 10.7 to the Company's
the Company and Robert E. Gedney, Registration Statement
as Trustee under the provisions of a
certain Irrevocable Trust Agreement
with John H. Broadbent, Jr. dated
December 13, 1991.
10.8 Split Dollar Life Insurance Incorporated by reference from
Agreements, dated December 16, Exhibit 10.8 to the Company's
1991 between the Company and Registration Statement
Donald M. Mewhort, as Trustee
under Agreement of Trust dated
October 8, 1991, created by
T. Jerome Holleran, Settlor (the
"Holleran Split Dollar Life Insurance
Agreements").
10.8.1 Assignment, dated April 24, Incorporated by reference
1992, of the rights and obligations from Exhibit 10.8.1 to the
under the Holleran Split Dollar Life Company's Registration Statement
Insurance Agreements from the
Company to Arrow Precision Products,
Inc.
10.9 License Agreement, dated October 23, Incorporated by reference from
1981, between Dr. Ketan Shevde and Exhibit 10.9 to the Company's
the Company. Registration Statement
10.10 License Agreement, dated January Incorporated by reference from
18, 1992, between Innovation Exhibit 10.10 to the Company's
Associates, Inc. and the Company. Registration Statement
10.11 License Agreement, dated March 28, Incorporated by reference
1991, between Daltex Medical from Exhibit 10.11 to the
Sciences, Inc. and the Company. Company's Registration Statement
10.11.1 Modification Agreement, dated Incorporated by reference
October 25, 1995, to License Exhibit 10.11.1. to the Company's
Agreement between Daltex Medical Form 10-Q for the third quarter
Sciences, Inc. and the Company period ended May 31, 1997
10.11.2 Second Modification Agreement, Incorporated by reference
dated May 30, 1997, to License from Exhibit 10.11.2 to the
Agreement between Daltex Medical Company's Form 10-Q for the third
Sciences, Inc. and the Company. quarter period ended May 31, 1997
10.12 Agreement and Compromise Incorporated by reference
and Release, dated November from Exhibit 10.12 to the Company's
30, 1988, between Michael A. Registration Statement
Berman, Critikon, Inc. and the
Company.
</TABLE>
(59)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT METHOD OF FILING
- ------ ---------- ----------------
<S> <C> <C>
10.13 License Agreement, dated Incorporated by reference from
April 15, 1982, between Dr. Exhibit 10.13 to the Company's
Randolph M. Howes and the Registration Statement
Company, as amended pursuant
to the Addendum to License
Agreement, dated August 26, 1986,
among Dr. Randolph M. Howes,
Howes, Baham & Anderson and
the Company.
10.14 License Agreement, dated September Incorporated by reference from
16, 1988, between J. Daniel Raulerson Exhibit 10.14 to the Company's
and the Company, as amended pursuant Registration Statement
to Addendum to License Agreement,
dated November 27, 1989, between J.
Daniel Raulerson and the Company.
10.15 License Agreement, dated February 24, Incorporated by reference from
1984, between Blair Medical Products, Exhibit 10.15 to the Company's
Inc. and the Company. Registration Statement
10.16 Stock Purchase Agreement, dated Incorporated by reference from
October 24, 1990, among Robert E. Exhibit 10.16 to the Company's
Fischell, Standard Associates, Registration Statement
Cymed Ventures, Inc., Arrow
International Investment Corp. and the
Company.
10.17 License Agreement, dated Incorporated by reference from
October 24, 1990, between Medical Exhibit 10.17 to the Company's
Innovative Technologies R&D Limited Registration Statement
Partnership and the Company.
10.18 Research and Development Agreement, dated Incorporated by reference from Exhibit
October 24, 1990, between Medical 10.18 to the Company's Registration
Innovative Technologies R&D Limited Statement
Partnership and the Company.
10.19 License Agreement, dated February 24, Incorporated by reference from Exhibit
1992, between Cathco, Inc. and the Company. 10.19 to the Company's Registration
Statement
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- ----- ----------- ----------------
<S> <C> <C>
10.20 Settlement Agreement, dated September 30, Incorporated by reference from Exhibit
1991, among Dr. Randolph M. Howes, Janice 10.20 to the Company's Registration
Kinchen Howes, Baham & Anderson, the Statement
Company and Baxter Health Care Corporation
and related License Agreement, dated
September 30, 1991, among Dr. Randolph M.
Howes, Janice Kinchen Howes, Baham &
Anderson, the Company and Baxter Health
Care Corporation.
10.21 Agreement between the Company, Arrow Incorporated by reference from Exhibit
Precision Products, Inc. and United 10.21 to the Company's Annual Report on
Steelworkers of America AFL/CIO Local 8467. Form 10-K for the year ended August 31,
1994
(the "1994 Form 10-K")
10.22 Extension of Lease Agreement between Incorporated by reference from Exhibit
Indian Mills Associates and the Company, 10.22 to the Company's Registration
dated December 4, 1991, extending the Statement
Lease, dated February 5, 1988, between
Lyco Associates and the Company.
10.23.1 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the Wyomissing 10.23 to the Company's Registration
Plant of the Company, effective September Statement
1, 1989.
10.23.2 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the Wyomissing 10.23.2 to the Company's 1993 Form 10-K
Plant of the Company, effective September
1,1989, as amended.
10.24.1 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the North 10.24 to the Company's Registration
Carolina and New Jersey Plants of the Statement
Company, effective September 1, 1989.
10.24.2 Amended and Restated Retirement Plan for Incorporated by reference from Exhibit
Hourly-Rated Employees of the North 10.24.2 to the Company's 1993 Form 10-K
Carolina and New Jersey Plants of the
Company, effective September 1, 1989, as
amended.
10.25.1 Loan Agreement, dated January 3, 1986, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.1 to the Company's Registration
Limited, Arrow International Export Statement
Corporation, and Hamilton Bank.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- ------ ---------- ----------------
<S> <C> <C>
10.25.2 First Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 18, 1987, among the Company, Arrow 10.25.2 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.3 Second Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 31, 1988, among the Company, Arrow 10.25.3 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.4 Third Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 31, 1989, among the Company, Arrow 10.25.4 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.5 Fourth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 30, 1990, among the Company, Arrow 10.25.5 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.6 Fifth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
March 1, 1991, among the Company, Arrow 10.25.6 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.7 Sixth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
July 15, 1991, among the Company, Arrow 10.25.7 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.8 Seventh Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
September 6, 1991, among the Company, 10.25.8 to the Company's Registration
Arrow Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.9 Eighth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
February 21, 1992, among the Company, 10.25.9 to the Company's Registration
Arrow Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- ------ ---------- ----------------
<S> <C> <C>
10.25.10 Letters of Amendment, dated April 10, Incorporated by reference from Exhibit
1992, and May 19, 1992, to Loan Agreement 10.25.17 to the Company's Registration
between the Company and Hamilton Bank. Statement
10.25.11 Ninth Amendment to Loan Agreement, dated Incorporated by reference from Exhibit
May 27, 1992, among the Company, Arrow 10.25.18 to the Company's Registration
Medical Products, Limited, Arrow Statement
International Export Corporation, and
Hamilton Bank.
10.25.12 Letter Agreement, dated February 25, 1993, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.12 to the 1994 Form
Limited, Arrow International Export 10-K
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.13 Letter Agreement, dated January 31, 1994, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.13 to the 1995 Form
Limited, Arrow International Export 10-K
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.14 Letter Agreement, dated March 6, 1995, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.14 to the 1995 Form
Limited, Arrow International Export 10-K
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.15 Letter Agreement, dated November 14, 1995, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.15 to the 1995 Form
Limited, Arrow International Export 10-K
Corporation, and CoreStates Hamilton Bank,
and Note relating thereto.
10.25.16 Letter Agreement, dated February 23, 1996, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.16 to the Company's Form 10-Q for
Limited, Arrow International Export the second quarter period ended February
Corporation, and CoreStates Hamilton Bank, 29, 1996
and Note relating thereto.
10.25.17 Letter Agreement, dated January 29, 1996 Incorporated by reference from Exhibit
among the Company and First Union National 10.25.17 to the Company's Form 10-Q for
Bank, and note relating thereto. the second quarter period ended February
29, 1996
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- ------ ---------- ----------------
<S> <C> <C>
10.25.18 Letter Agreement, dated July 11, 1996, Incorporated by reference from Exhibit
among the Company, Arrow Medical Products, 10.25.18 to the Company's Annual Report on
Limited, Arrow International Export Form 10-K for the fiscal year ended August
Corporation, and CoreStates Hamilton Bank, 31, 1996 (the "1996 Form 10-K")
and Note relating thereto.
10.26.1 Installment Sale Agreement between Berks Incorporated by reference from Exhibit
County Industrial Development Authority 10.25.10 to the Company's Registration
and the Company, dated as of December 1, Statement
1988.
10.26.2 Indenture of Trust between Berks County Incorporated by reference from Exhibit
Industrial Development Authority and 10.25.11 to the Company's Registration
Bankers Trust Company, as trustee, dated Statement
as of December 1, 1988.
10.26.3 Irrevocable Direct Pay Letter of Credit, Incorporated by reference from Exhibit
dated December 28, 1988, issued for the 10.25.12 to the Company's Registration
benefit of Bankers Trust Company, as Statement
trustee under the Indenture of Trust, for
the account of the Company.
10.26.4 Letter of Credit Note from the Company Incorporated by reference from Exhibit
payable to the order of Hamilton Bank, 10.25.13 to the Company's Registration
dated December 28, 1988. Statement
10.26.5 Letter of Credit Reimbursement Agreement Incorporated by reference from Exhibit
between the Company and Hamilton Bank, 10.25.14 to the Company's Registration
dated as of December 1, 1988. Statement
10.26.6 Accommodation Mortgage, Security Agreement Incorporated by reference from Exhibit
and Second Assignment of Installment Sale 10.25.15 to the Company's Registration
Agreement, dated as of December 15, 1988, Statement
by and among Berks County Industrial
Development Authority, the Company and
Hamilton Bank.
10.27 Variable Amount Grid Note Agreement, dated Incorporated by reference from Exhibit
May 8, 1991, between the Company and First 10.25.16 to the Company's Registration
Union National Bank. Statement
10.28 Purchase Agreement, dated January 20, Incorporated by reference from Exhibit
1984, between the Company and Arrow 10.26 to the Company's Registration
Research Partners. Statement
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- ------ ---------- ----------------
<S> <C> <C>
10.29 Form of Research and Development Incorporated by reference from Exhibit
Agreement, dated August 2, 1982, between 10.27 to the Company's Registration
the Company and Arrow Research Partners. Statement
10.30 Arrow International, Inc. Profit Sharing Incorporated by reference from Exhibit
Plan 10.30 to the Company's Registration
Statement
10.31 Agreement, dated May 19, 1992, between the Incorporated by reference from Exhibit
Company and Arrow Precision Products, Inc. 10.32 to the Company's Registration
Statement
10.32 Agreement, dated September 22, 1993, among Incorporated by reference from Exhibit
Microwave Medical Systems, Inc., the 10.32 to the Company's
Company and Kenneth L. Carr. 1993 Form 10-K
10.33 License and Exclusive Supply Agreement, Incorporated by reference from Exhibit
dated September 22, 1993, between 10.33 to the Company's
Microwave Medical Systems, Inc. and the 1993 Form 10-K
Company.
10.34 Stock Purchase Agreement, dated as of Incorporated by reference from Exhibit 2
January 28, 1994 between Kontron to the Company's Current Report on Form
Instruments Holding N.V. and the Company. 8-K filed with the Securities and Exchange
Commission on February 18, 1994
10.35 Loan Agreement, dated as of February 8, Incorporated by reference from Exhibit
1994, among the Company, Arrow Medical 10.35 to the 1994 Form 10-K
Products, Limited, Arrow International
Export Corporation, and CoreStates
Hamilton Bank, and Notes relating thereto.
10.36 Loan Agreement, dated February 8, 1994, Incorporated by reference from Exhibit
between the Company and First Union 10.36 to the 1994 Form 10-K
National Bank of North Carolina, and Note
relating thereto.
10.37 Loan Agreement between Arrow Japan KK and Incorporated by reference from Exhibit
the Bank of Tokyo (with English 10.37 to the Company's Current Report on
translation). Form 8-K filed with the Securities and
Exchange Commission on April 10, 1995
("the 1995 Form 8-K")
10.38 Thoratec Laboratories Corporation Incorporated by reference from Exhibit
International Medical Products Distributor 10.38 to the 1995 Form 8-K
Agreement, dated as of January 19, 1995,
between Thoratec Laboratories Corporation
and the Company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
Number OF EXHIBIT METHOD OF FILING
- ------ ---------- ----------------
<S> <C> <C>
10.39 Series F Preferred Stock Purchase Agreement, Incorporated by reference from Exhibit
dated as of March 8, 1995, between Cardiac 10.39 to the 1995 Form 8-K
Pathways Corporation and the Company.
10.40 Manufacturing and Supply Agreement, dated as Incorporated by reference from Exhibit
of March 8, 1995, between Cardiac Pathways 10.40 to the 1995 Form 8-K
Corporation and the Company.
10.41 International Distributor Agreement, dated Incorporated by reference from Exhibit
as of March 8, 1995, between Cardiac 10.41 to the 1995 Form 8-K
Pathways Corporation and Arrow.
10.42 Purchase Agreement, dated as of April 7, Incorporated by reference from Exhibit
1995, among the Company, TLP Acquisition 10.39 to the 1995 Form 8-K
Corp., Therex Corporation, Therex Limited
Partnership Holding Corporation and each of
the other persons signatory thereto.
10.43 Amendment, dated July 27, 1995, to License Incorporated by reference from Exhibit
Agreement, dated October 24, 1990, between 10.43 to the 1995 Form 10-K
Medical Innovative Technologies R&D Limited
Partnership and the Company.
10.44 Amendment, dated July 27, 1995, to Research Incorporated by reference from Exhibit
and Development Agreement, dated October 24, 10.44 to the 1995 Form 10-K
1990, between Medical Innovative
Technologies R&D Limited Partnership and the
Company.
10.45 Amended and Restated License Agreement dated Incorporated by reference from Exhibit
May 24, 1996, between Microwave Medical 10.45 to the Company's Form 10-Q for the
Systems, Inc. and the Company. third quarter period ended May 31, 1996
10.46 Loan Agreement, dated July 11,1996, between Incorporated by reference from Exhibit
AMH (Arrow Medical Holdings) B.V. and 10.46 to the 1996 Form
CoreStates Bank, N.A., and Note relating 10-K
thereto.
10.47 Directors Stock Incentive Plan Incorporated by reference from
Exhibit 10.47 to the 1996
Form 10-K
10.48 Purchase Agreement, dated June 1, 1996, Incorporated by reference from
between Arrow Tray Products, Inc. (formerly Exhibit 10.48 to the 1996
known as Endovations, Inc.) and the Company. Form 10-K
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
Number of Exhibit Method of Filing
- ------ ---------- ----------------
<S> <C> <C>
10.49 Purchase Agreement, dated August 3, Filed with this report
1998, between Medical Parameters, Inc.
and the Company.
10.50 Line of Credit Note, dated October 7, Filed with this report
1998, between the Company and First
First Union National Bank.
10.51 Interest rate swap Agreement, dated Filed with this report
April 6, 1998 between the Company
And CoreStates Bank, N.A.
10.52 Asset Purchase Agreement, dated Filed with this report
November 5, 1997, between Arrow
Interventional, Inc., Boston Scientific
Corporation and IABP Corporation.
10.53 Mutual Release Agreement, dated July Filed with this report
20, 1998, between Arrow International,
Inc. and Daltex Medical Sciences, Inc.
10.54 Exclusive License Agreement, dated Filed with this report
February 14, 1996 between Arrow
International, Inc. and Israel Schur, M.D.
18 Preferability Letter of Pricewaterhouse- Incorporated by reference from
Coopers LLP Exhibit 18 to the 1994 Form 10-K
21 Subsidiaries of the Company. Page 68 of this report
23 Consent of Pricewaterhouse- Page 69 of this report
Coopers LLP
27 Financial Data Schedule EDGAR
99.1 Cautionary Statement for Purposes Page 70 of this report
of the Safe Harbor Provisions of the
Private Securities Litigation Reform
Act of 1995.
</TABLE>
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<PAGE>
EXHIBIT 10.49
-------------
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT and the Exhibits and Schedules attached hereto
(collectively, the "Agreement") is dated as of August 3, 1998, by and among A.
WALTER MacEACHERN, an individual residing in Woburn, Massachusetts, A. GARY
MacEACHERN, an individual residing in Lynnfield, Massachusetts, GAYLE MacEACHERN
CHASE, an individual residing in Charlestown, Massachusetts, CHARLES MacEACHERN,
an individual residing in Hudson, New Hampshire, CHRIS MacEACHERN, an individual
residing in West Palm Beach, Florida, MATTHEW MacEACHERN, an individual residing
in Woburn, Massachusetts, STEPHANIE MacEACHERN, an individual residing in
Newton, Massachusetts, MARY MacEACHERN, an individual residing in Woburn,
Massachusetts, MICHAEL A. RUSSELL, an individual residing in Cohassett,
Massachusetts, MICHAEL A. RUSSELL, JR., an individual residing in Berkeley,
California, AMY RUSSELL, an individual residing in Austin, Massachusetts, ARTHUR
S. LYNCH, an individual residing in Norwood, Massachusetts and STEPHEN P.
BUCKLEY, an individual residing in Hingham, Massachusetts (hereinafter
individually and collectively referred to as the "Sellers") and MEDICAL
PARAMETERS, INC., a Massachusetts corporation (the "Company")
AND
ARROW INTERNATIONAL, INC., a Pennsylvania corporation (the "Buyer").
<PAGE>
Background
----------
A. The Company is primarily in the business of manufacturing, selling and
distributing specialty tubing sets and related products for anesthesia
applications in hospitals (the "Business"). The operations of the Business are
conducted at 3OG Commerce Way and at 20 Commerce Way, Woburn, Massachusetts
01801 (collectively, the "Facility").
B. Sellers own a total of 1,000 shares of common stock, no par value, of
the Company (the "Securities"), which constitute all of the Company's presently
outstanding common stock. Attached hereto, marked Exhibit "A" and made a part
hereof is a list of the Sellers and the number of shares of the Securities owned
by each of the Sellers.
C. Buyer desires to purchase from Sellers and Sellers desire to sell to
Buyer the Securities, upon the terms and subject to the conditions hereinafter
set forth. In addition, Buyer desires to purchase from the Company, and the
Company is willing to issue and sell to Buyer, an additional 255.23 shares of
the Company's common stock (the "Newly Issued Securities"), upon the terms and
subject to the conditions hereinafter set forth.
Accordingly, INTENDING TO BE LEGALLY BOUND, the parties hereto hereby agree
as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
-----------
(a) Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following meanings:
2
<PAGE>
"Affiliate" of any Person means any Person directly or indirectly
----------
controlling, controlled by or under common control with such Person, and
includes any Person who is an officer, director or employee of such Person and
any Person that would be deemed to be an "affiliate" or an "associate" of such
Person, as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended. As used in
this definition, "controlling" (including, with its correlative meanings,
"controlled by" and "under common control with") means possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities, partnership or other ownership
interests, by contract or otherwise).
"Authority" means any Federal, state, provincial, local or foreign
---------
governmental department, regulatory agency, authority, commission, board or
court or other law, rule or regulation-making entity having jurisdiction over
the Company.
"Best Efforts" means a diligent, reasonable and good faith effort to
------------
accomplish the applicable objective, provided that Best Efforts does not require
any unreasonable expenditure of funds or the incurrence of any unreasonable
liability on the part of the obligated party, nor does it require the obligated
party to act in a manner which would otherwise be contrary to prudent business
judgment or normal commercial practices in order to accomplish the objective.
"Business Day" means any day other than a Saturday, Sunday, or a day on
------------
which banking institutions in New York, New York, are authorized or obligated by
law or executive order to close.
"Employee" means an individual listed in Schedule 5.2(d)(i) (as updated
-------- ------------------
by Sellers and the Company on the Closing Date) who, as of the Business Day
immediately preceding the Closing Date,
3
<PAGE>
(i) shall be (or in the case of (D) below, is about to become) an employee of
the Company and (ii) either (A) shall have been employed and at work on the
Business Day immediately preceding the Closing Date, or (B) shall have been on
short-term disability (including maternity disability), workers' compensation,
vacation, parental or other leave of absence consistent with the Company's
policies, practices and procedures in effect at the time such leave commenced,
or (C) shall have been receiving short term disability benefits for no more than
180 consecutive days or (D) shall have received and accepted an offer of
employment with the Company, in the ordinary course of business, but shall have
not yet commenced work.
"Environmental Laws" means all applicable federal, state and local laws,
------------------
rules, regulations, codes and ordinances, and any orders, decrees, judgments or
injunctions issued, promulgated, approved or entered thereunder, relating to the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act, as further amended ("CERCLA"); the Resource
Conservation and Recovery Act of 1976, as amended; the Federal Water Pollution
Control Act, as amended; the Federal Clear Air Act, as amended; the Toxic
Substances Control Act, as amended; the Surface Mining Control and Reclamation
Act of 1977, as amended; the Safe Drinking Water Act, as amended; the Pollution
Control Act of 1990, as amended; the Federal Insecticide, Fungicide and
Rodenticide Act, as amended; and comparable state and local laws, in all of the
foregoing cases, in effect on the date hereof.
4
<PAGE>
"Hazardous Substances" means any substance (a) that is defined as a
--------------------
"hazardous waste", "hazardous material", "hazardous substance", "toxic
substance" or similar term used under any Environmental Law; or (b) that
contains or consists of oil, petroleum or petroleum products.
"Knowledge: means, with respect to Sellers, the actual current knowledge
---------
of any of the Sellers and, with respect to the Company, any of those officers of
the Company identified in Schedule 4. 1 (q) hereto. The knowledge of any of the
-------------
Sellers shall be imputed to and shall constitute the knowledge of all of the
Sellers.
"Material Adverse Effect" means a material adverse effect on the
-----------------------
financial condition or results of operations of the Company or the Buyer, as the
case may be, other than with respect to any adverse effects which, directly or
indirectly, relate to or result from matters which are public or industry
knowledge relating to transactions contemplated by this Agreement.
"Person" means an individual, a corporation, a partnership, an
------
association, a trust or other entity or organization, including an Authority.
(b) Other Definitions. The following defined terms shall have the
-----------------
meanings set forth in the referenced Section:
Defined Term As Defined in Section
- ------------ ---------------------
Agreement......................... Recitals
Annual Financial Statements....... 4.1(e)
Basket............................ 7.1(a)
Books and Records................. 5.2(a)
Business.......................... Recitals
Buyer............................. Recitals
Cap............................... 7.1(a)
Closing........................... 3.1
Closing Date...................... 3.1
5
<PAGE>
Closing Date Financial Statements. 2.1(c)(ii)
Code.............................. 4.1(f)(i)
Collateral Source................. 7.3
Company........................... Recitals
Company's Working Capital......... 2.1(c)(ii)
Contracts......................... 4.1(i)
Employee Benefit Plans............ 4.1(k)(i)
Encumbrances...................... 4.1(c)
Environmental Permits............. 4.1(n)(i)
ERISA............................. 4.1(k)(i)
Facility.......................... Recital
FDA............................... 4.1(j)(iii)
Financial Statements Date......... 4.1(e)
Form 483s......................... 4.1(r)
GAAP.............................. 4.1(e)
IDE............................... 4.1(r)
Indemnified Party................. 7.5
Indemnifying Party................ 7.5
Interim Financial Statements...... 4.1(e)
IRS............................... 4.1(k)(iii)
Landlord.......................... 4.1(t)
Lease............................. 4.1(t)
Loss.............................. 7.1(a)
Multiemployer Plans............... 4.1(k)(i)
Multiple Employer Plans........... 4.1(k)(i)
Newly Issued Securities........... Recitals
Newly Issued Securities Purchase
Price........................... 2.1(b)
Non-Competitive Period............ 5.1(f)
Patents........................... 4.1(h)
PBGC.............................. 4.1(k)(iii)
PMA............................... 4.1(r)
Purchase Price.................... 2.1(b)
Qualified Plans................... 4.1(k)(iii)
Returns........................... 4.1(f)(ii)
Sellers........................... Recitals
Sellers' Tax Returns.............. 6.3(a)
Securities........................ Recitals
Securities Purchase Price......... 2.1(b)
Sub-limit......................... 7.1(a)
Taxes............................. 4.1(f)
Third Party Claim................. 7.5
6
<PAGE>
510(k).............................. 4.1(r)
ARTICLE II
PURCHASE AND SALE OF THE PATENTS AND THE SECURITIES
2.1 Purchase and Sale of the Securities and the Newly Issued Securities;
--------------------------------------------------------------------
Payment of Purchase Price.
- --------------------------
(a) On the terms and subject to the conditions of this Agreement, at
the Closing referred to below, (i) Sellers will sell, transfer and deliver to
Buyer, and Buyer will purchase from the Seller, the Securities, free and clear
of any Encumbrances (as hereinafter defined in Section 4.1(c)), and (ii) the
Company will sell, transfer and deliver to Buyer, and Buyer will purchase from
the Company, the Newly Issued Securities, free and clear of any Encumbrances.
(b) Subject to a working capital adjustment hereinafter described, the
purchase price for the Securities (the "Securities Purchase Price") shall be
Eleven Million Nine Hundred Fifty Thousand Dollars ($11,950,000.00) and the
purchase price for the Newly Issued Securities (the "Newly Issued Securities
Purchase Price") shall be Three Million Fifty Thousand Dollars ($3,050,000.00).
(c) The Securities Purchase Price shall be paid by Buyer to Sellers as
follows:
(i) Eleven Thousand Four Hundred Fifty Thousand Dollars
($11,450,000.00) shall be paid at the Closing by certified check or transfer of
funds wired to Sellers' account in accordance with Sellers' instructions.
(ii) Within thirty (30) days after the Date of Closing, the Company
shall prepare its financial statements as of the Closing Date (the "Closing Date
Financial Statements").
7
<PAGE>
Promptly thereafter, and within five (5) Business Days after the completion of
the Closing Date Financial Statements, the Buyer shall cause the Company to
deliver to the Sellers a true and correct copy of the Company's Closing Date
Financial Statements and at such time the Buyer shall pay to the Sellers, by
certified check or transfer of funds wired to Sellers' account in accordance
with Sellers' instructions, the sum of Five Hundred Thousand Dollars
($500,000.00), reduced by the amount, if any, by which the Company's working
capital ("Company's Working Capital") as of the end of the day immediately
preceding the Closing Date is less than Two Million Two Hundred Thousand Dollars
($2,200,00.00). For the purposes of this provision, the Company's Working
Capital, as said term is used in this provision, after the Closing Date, shall
be equal to (i) the Company's current assets as of the Closing Date, consisting
of cash and cash equivalents, accounts receivable, inventory (at cost) and
prepaid and other current assets minus the Company's current liabilities as of
the Closing Date, consisting of accounts payable, and accrued and other current
liabilities including, without limitation, (i) all unpaid Taxes for any period
of time preceding the Closing Date, but not due or payable until on or after the
Closing Date and (ii) all indebtedness for money borrowed (including, without
limitation, indebtedness repayable over any period of time); provided, however,
the determination of current liabilities shall not include a certain loan
recently made or about to be made by Woburn National Bank to the Company in the
amount of Three Million Fifty Thousand Dollars ($3,050,000.00), the proceeds of
which the Company intends to distribute to the Sellers prior to the Closing
Date.
8
<PAGE>
(d) The New Issued Securities Purchase Price shall be paid at the
Closing by certified check or transfer of funds wired to the Company's account
in accordance with the Company's instructions
ARTICLE III
THE CLOSING
3.1 Closing Date. The closing (the "Closing") of the purchase and sale
------------
of the Securities and the Newly Issued Securities shall be held at the offices
of Buyer, 2400 Bernville Road, Reading, Pennsylvania 19605, on Monday, August 3,
1998, at 10:00 a.m. EDST The date on which the Closing shall occur is
hereinafter referred to as the "Closing Date". All transactions at the Closing
shall be deemed to take place simultaneously and effective as of 12:01 a.m.,
EDST on the Closing Date.
3.2 Conditions to Obligations of Buyer. The obligation of Buyer to
----------------------------------
purchase and pay for the Securities and the Newly Issued Securities is subject
to the satisfaction (or waiver by the Buyer) as of the Closing of the following
conditions:
(a) (i) The representations and warranties of Sellers and the
Company made in this Agreement shall be true and correct in all material
respects on and as of the Closing, as though made on or as of the Closing Date,
except for (1) changes contemplated by this Agreement or attributable to matters
disclosed by Sellers or the Company in the Schedules hereto and (2) those
representations and warranties that address matters only as of a particular date
(which shall be true and correct as of that date); (ii) Sellers and the
Company shall have performed their respective covenants contained in this
Agreement required to be performed by the time of the Closing; (iii) all
9
<PAGE>
consents by third parties that are required for the transfer of the Securities
and/or the Newly Issued Securities or that are required in order to prevent a
breach of, a default under, a termination and modification of, or any
acceleration of, any material agreement or any obligations thereunder to which
the Company is a party shall have been obtained; (iv) A. Walter MacEachern,
Michael A. Russell, A. Gary MacEachern, Gayle MacEachern Chase and Richard
Housman shall have entered into employment agreements with the Company, in form
and substance satisfactory to the Buyer; (v) the Buyer shall receive an opinion,
dated the Closing Date, of Choate, Hall & Stewart, counsel to the Sellers and
the Company, in form and substance satisfactory to the Buyer and (vi) Sellers
shall have delivered to Buyer a certificate dated the Closing Date and signed by
the Sellers and the duly authorized signatories of the Company, in the form of
Exhibit "B", confirming the satisfaction of the foregoing clauses (i) through
(iv) inclusive. At the Closing, Sellers and the Company shall deliver to Buyer
such additional documentation as Buyer may reasonably request pertaining to the
performance by Sellers and the Company of their covenants contained in this
Agreement.
(b) No injunction or order of any court or administrative agency of
competent jurisdiction shall be in effect as of the Closing which restrains or
prohibits the purchase and sale of the Securities and/or the Newly Issued
Securities.
(c) All accounts between (i) Sellers on the one hand and the Company on
the other hand and (the Company on the one hand and its Affiliates, if any, on
the other hand), shall be paid or otherwise satisfied in full.
(d) The directors and officers of the Company shall have delivered
resignations to Buyer.
10
<PAGE>
3.3 Conditions to Obligations of Sellers and Company. The obligation of
------------------------------------------------
the Sellers to sell and deliver the Securities to Buyer and the obligation of
the Company to sell and deliver the Newly Issued Securities to Buyer are subject
to the satisfaction (or waiver by the Sellers or the Company, as applicable) as
of the Closing of the following conditions:
(a) (i) The representations and warranties of Buyer made in this
Agreement shall be true and correct in all material respects on and as of the
Closing, as though made on or as of the Closing Date, except for (1) changes
contemplated by this Agreement or attributable to matters disclosed by Buyer in
the Schedules hereto and (2) those representations and warranties that address
matters only as of a particular date (which shall be true and correct as of that
date); (ii) Buyer shall have performed the covenants of Buyer contained in this
Agreement required to be performed by the time of the Closing; (iii) the Sellers
shall receive an opinion, dated the Closing Date, of Rhoda, Stoudt & Bradley,
counsel to the Buyer, in form and substance satisfactory to the Sellers, and
(iv) Buyer shall have delivered to the Sellers a certificate dated the Closing
Date and signed by the duly authorized signatories of Buyer, in the form of
Exhibit "C", confirming the satisfaction of the foregoing clauses (i) and (ii).
(b) No injunction or order of any court or administrative agency of
competent jurisdiction shall be in effect as of the Closing which restrains or
prohibits the purchase and sale of the Securities and/or the Newly Issued
Securities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
11
<PAGE>
4.1 Representations and Warranties of Sellers and the Company. Sellers and
---------------------------------------------------------
the Company hereby jointly and severally represent and warrant to Buyer as
follows:
(a) Authority. The Company has all requisite corporate power and the
---------
Sellers and the Company have all requisite authority to enter into this
Agreement and to consummate the transactions contemplated hereby. All acts and
other proceedings required to be taken by each of the Sellers and the Company to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by each of the
Sellers and the Company and constitutes the legal, valid and binding obligation
of each of them, enforceable against them in accordance with its terms. The
execution, delivery and performance by Sellers and the Company of this Agreement
and the consummation by each of them of the transactions contemplated hereby
will not (i) violate any provision of law, rule or regulation to which any of
them is subject, (ii) violate or conflict with any order, judgment, injunction,
award or decree applicable to any of them, (iii) violate or conflict with the
certificate or articles of organization, bylaws or other similar governing
documents of the Company, (iv) constitute a default under or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
the Sellers or the Company under any provision of any material agreement,
contract or other instrument binding upon the Sellers or the Company or any
license, franchise, permit or other similar authorization held by Sellers or the
Company, or (v) result in the creation or imposition of any lien, encumbrance,
charge or claim upon any of the assets of the Company, the Securities, or the
Newly Issued Securities, except in the case of any of the foregoing clauses (i)
- - (iv) and that portion of clause (v) pertaining to the assets of the
12
<PAGE>
Company, for any such violation, conflict, default, right or lien which would
not individually or in the aggregate have a Material Adverse Effect. The
execution, delivery and performance by Sellers and the Company of this Agreement
and the consummation by each of them of the transactions contemplated hereby do
not require any consent from or filing with any Authority except for (i) any
consent or filing that Buyer is required to obtain or make; and (ii) consents
and filings which, if not obtained or made, will not individually or in the
aggregate have a Material Adverse Effect.
(b) Organization and Standing of the Company. The Company is a
----------------------------------------
corporation duly organized and validly existing under the laws of the
Commonwealth of Massachusetts. The Company has full corporate power and
authority and possesses all material governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its corporate name
and to own, lease or otherwise hold its properties and assets and to carry on
its Business in all respects as presently conducted. The Company is not
qualified or registered as a foreign corporation to do business in any other
jurisdiction. The Company has delivered to Buyer true and correct copies of the
Articles of Organization, as amended to date, duly certified by the Secretary of
the Commonwealth of Massachusetts, and the Bylaws, as in effect on the date
hereof, of the Company, duly certified as being true and correct by the
Secretary of the Company,
(c) Capital Structure of the Company, Ownership of Securities. The
---------------------------------------------------------
authorized capital stock of the Company consists solely of 10,000 shares of
common stock, of which 1,000 shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable. There are no outstanding warrants,
options, agreements, subscriptions, convertible or exchangeable securities or
other commitments pursuant to which the Company is or may become obligated to
issue, sell,
13
<PAGE>
purchase, return or redeem any shares of capital stock or other securities of
the Company and no equity securities of the Company are reserved for issuance
for any purpose, except with respect to the issuance of the Newly Issued
Securities on the Closing Date. Except as set forth on Schedule 4.1(c), each of
---------------
the Sellers owns of record and beneficially the Securities, free and clear of
any claims, liens, encumbrances, security interests, options, charges or
restrictions whatsoever ("Encumbrances") as set forth on Exhibit "A", attached
hereto and made a part hereof. At the Closing, the Sellers will convey to Buyer
good and marketable title to the Securities, free and clear of all Encumbrances
and the Company will issue to Buyer the Newly Issued Securities, free and clear
of all Encumbrances.
(d) Subsidiaries and Affiliates of the Company. The Company does not,
------------------------------------------
directly or indirectly, own any stock of, or any other interest in, any other
corporation or business entity other than those entities listed on Schedule
4.1(d). In addition, the Company does not have any Affiliates.
(e) Financial Statements. Schedule 4.1(e) sets forth the audited
--------------------------------------
balance sheet of the Company as of February 28, 1998 (the "Financial Statements
Date"), and the related statement of income for the year then ended, together
with the notes to such financial statements (collectively, the "Annual Financial
Statements"). The Annual Financial Statements fairly present, in all material
respects, the financial position of the Company as of February 28, 1998 and the
results of operations of the Company for the year then ended, in conformity with
United States generally accepted accounting principles as applied by the Company
("GAAP") and in a manner consistent with prior practice. Schedule 4.1(e) also
---------------
sets forth the unaudited financial statements of the Company as of May 31, 1998
(the "Interim Financial Statements") which fairly represent in all material
respects, the financial position of the Company for the three (3) month period
ended May 31, 1998, in conformity
14
<PAGE>
with GAAP and in a manner consistent with prior practice. Schedule 4.1(e) also
---------------
sets forth a list of all of the Company's current indebtedness for borrowed
money, whether borrowed from lending institutions or elsewhere as well as a list
of accrued but unpaid Taxes and the dates such Taxes, if any, are due and
payable.
(f) Taxes.
-----
(i) For purposes of this Agreement, (A) "Tax" or "Taxes" shall mean
all Federal, state, local and foreign income, franchise, sales and use, real
estate, excise and other taxes and assessments, including all interest,
penalties and additions imposed with respect to such amounts and (B) "Code"
shall mean the Internal Revenue Code of 1986, as amended.
(ii) Except as set forth on Schedule 4.1(f): (A) the Company has filed
--------------
or caused to be filed in a timely manner (without any applicable extension
periods) all Tax returns, reports and forms required to have been filed by the
Code or by applicable state, local or foreign Tax laws (collectively "Returns");
(B) all Taxes shown to be due on such Returns have been timely paid in full or,
as disclosed on Schedule 4.1(f), as of the Closing Date are being contested in
--------------
good faith with adequate reserves provided for on the Interim Financial
Statements and/or the Closing Date Financial Statements; and (C) no Tax liens
have been filed and no material claims are being asserted in writing with
respect to any Taxes. Except as set forth on Schedule 4.1(f), no presently
--------------
effective waivers or extensions of statutes of limitations with respect to Taxes
have been given by the Company for any taxable year. Except as set forth on
Schedule 4.1(f), as of the date of this Agreement, the Returns filed by, or with
- --------------
respect to, the Company are not being examined by, and no written notification
of intention to examine has been received from the Internal Revenue Service or,
15
<PAGE>
to the Knowledge of the Sellers, any other taxing authority with respect to
Taxes. Except as set forth in Schedule 4.1(f), no currently pending issues
--------------
involving the Company have been raised in writing by the Internal Revenue
Service or, to the Sellers' Knowledge, any other taxing authority in connection
with any Return. Except as set forth in Schedule 4.1(f), the Company has no
--------------
agreement with Sellers or any of its Affiliates or, to the Knowledge of Sellers
or the Company, with any other Person regarding the filing of Returns or
relating to the sharing of Tax benefits or liabilities with such Persons.
(g) Properties. Except as described on Schedule 4.1(g), the Company
---------- ------------
has good and valid title, free and clear of all Encumbrances, to all its owned
properties and assets, real and personal, tangible and intangible (including
those reflected on the Annual Financial Statements or acquired by the Company
since the Financial Statements Date), except property sold or otherwise disposed
of in the ordinary course of business since the Financial Statements Date.
(h) Intellectual Property. Schedule 4.1(h) sets forth a true and
---------------------- ---------------
complete list of all (i) United States and foreign Patents owned by or licensed
to the Company, as well as all United States and foreign applications now
pending, (ii) trademarks, trade names, and service marks currently in use by the
Company in the Business and (iii) material copyrights and applications therefor
owned by or licensed to the Company. Except as set forth in Schedule 4.1(h),
---------------
Sellers and the Company have no notice or Knowledge of any objections or claims
being asserted in writing by any Person with respect to the ownership, validity,
enforceability or use of any such Patents, trademarks, trade names, copyrights
and applications therefor or challenging or questioning the validity or
effectiveness of any such license.
16
<PAGE>
(i) Contracts. Except as described in Schedule 4.1(i) or the other
--------- --------------
Schedules hereto (and except for purchase order agreements (other than
requirements contracts) for inventory purchased in the ordinary course of
business consistent with past practice), the Company is not as of the date of
this Agreement party to or bound by any of the following written agreements:
(i) employee collective bargaining agreement or other contract
with any labor union;
(ii) employment agreement with any director, officer or employee;
(iii) (A) lease or similar agreement under which the Company is
lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible
personal property owned by a third party, (B) continuing contract for the future
purchase of materials, supplies or equipment, (C) management, service,
consulting or other similar type of contract, (D) distribution or sales agency
agreement or arrangement, or (E) advertising agreement or arrangement, in any
such case which has an aggregate future liability in excess of Twenty-Five
Thousand Dollars ($25,000) or which is not terminable by the Company (x) on not
more than ninety (90) days' notice without penalty or premium or (y) for a cost
of less than twenty five thousand dollars ($25,000);
(iv) agreement or contract under which the Company has borrowed or
loaned any money or financed any purchase or issued any note, bond, indenture or
other evidence of indebtedness or guaranteed indebtedness, liabilities or
obligations of others, in each case for an amount in excess of twenty-five
thousand dollars ($25,000);
(v) mortgage, pledge, security agreement, deed of trust or other
document, in each case granting a lien (including liens upon properties acquired
under conditional sales, capital
17
<PAGE>
leases or other title retention or security devices) securing obligations in
excess of twenty five thousand dollars ($25,000);
(vi) license of any patent, trademark, trade name, or copyright by or
to the Company involving a royalty or similar payment by or to the Company
during the immediately preceding or succeeding twelve (12) months, in each case
in excess of ten thousand dollars ($10,000) in the aggregate for such twelve
(12) month period,
(vii) lease or similar agreement under which the Company is lessee of
any real property; and
(viii) any other agreement, license, undertaking, covenant or
understanding involving a payment by the Company during the immediately
preceding or succeeding twelve (12) month period, in each case in excess of
Twenty-Five Thousand Dollars ($25,000) in the aggregate for such twelve (12)
month period.
To the Knowledge of the Sellers after reasonable investigation, each
agreement, contract, lease, license, commitment or instrument of the Company
described on Schedule 4.1(i) or the other Schedules hereto (collectively, the
--------------
"Contracts") is in full force and effect, except as disclosed on Schedule 4.1(i)
--------------
or the other Schedules hereto. Schedule 4.1(i) includes, without limitation, a
--------------
list of all insurance policies to which the Company is a party and/or the named
insured, and which provide coverage for, without limitation, general liability,
product liability, automobile, property, workmen's compensation, life and
officers and directors omissions. To the Knowledge of the Sellers after
reasonable investigation, the Company is not (with or without the lapse of time
or the giving of notice, or both) in breach or default in any material respect
as concerns any of the Contracts, and no
18
<PAGE>
other party to any of the Contracts is (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder,
(j) Litigation, Compliance with Laws.
--------------------------------
(i) Except as set forth in Schedule 4.1(j) or otherwise described in
--------------
Section 4.1(r) hereto, there is no action, suit, proceeding or investigation
pending or, to the Knowledge of Sellers, threatened, against or involving the
Company or any of its assets (whether or not covered by insurance) which would,
individually or in the aggregate, have a Material Adverse Effect. To the
Knowledge of the Sellers, there exists no basis for the commencement of any
action, proceeding or investigation against the Company which would,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth on Schedule 4.1(j), there is no outstanding judgment, order, writ,
--------------
injunction or decree against the Company or related to any of its assets, other
than any such judgment, order, writ, injunction or decree which would not,
individually or in the aggregate, have a Material Adverse Effect.
(ii) There is no action, suit, investigation or proceeding pending
against, or to the Knowledge of Sellers threatened against or affecting, the
Company before any court or arbitrator or any Authority which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
(iii) Except as set forth on Schedule 4.1(j) (or, with respect to
------------
matters described in either Section 4. 1(n) or Section 4. 1(r) hereto), the
Company is in compliance with all applicable local, Federal, state, domestic or
foreign laws, statutes, rules, regulations, ordinances, orders, judgments and
decrees, (including, without limitation, U.S. Food and Drug Administration
19
<PAGE>
("FDA") good manufacturing practice regulations, applicable insurance
requirements, requirements of any Board of Fire Underwriters or similar body,
building, zoning, occupational safety and health, pension, fair employment,
equal opportunity, safety, health, procurement, reimbursement, consumer
protection or similar laws, rules, regulations and ordinances), other than where
any such failure to comply would not have a Material Adverse Effect. No notice
has been received by the Company or Sellers, and neither the Company nor Sellers
has Knowledge of any notice being given, with respect to any violation of any
such legal requirements. There is no action or proceeding by the FDA, the
Health Care Financing Agency or other agency or part of the U.S. Department of
Health & Human Services or any other Authority, including, but not limited to,
recall procedures, pending or, to Sellers' or the Company's Knowledge,
threatened against the Company relating to the safety or efficacy of or use or
charges for any of the Company's products developed or sold in connection with
the Business.
(k) Benefit Plans.
-------------
(i) Schedule 4.1(k) sets forth a complete and correct list of all
---------------
"employee benefit plans", as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and any other pension plans
or employee benefit arrangements or payroll practices (including, without
limitation, severance pay, vacation pay, company awards, salary continuation for
disability, sick leave, deferred compensation, bonus or other incentive
compensation, stock purchase arrangements or policies) maintained, or
contributed to, by the Company for the benefit of any employees of the Company
or to which the Sellers or the Company contribute or are obligated to contribute
with respect to employees of the Company ("Employee Benefit Plans").
20
<PAGE>
Schedule 4.1(k) identifies, in separate categories, Employee Benefit Plans that
- ---------------
are (i) subject to Section 4063 and 4064 of ERISA ("Multiple Employer Plans"),
(ii) multiemployer plans (as defined in Section 4001(a) of ERISA)
("Multiemployer Plans") or (iii) welfare plans providing continuing benefits
after the termination of employment (other than as required by Section 4980B of
the Code and at the former employee's own expense).
(ii) To the Knowledge of the Sellers and the Company, none of the
Company or any ERISA Affiliate (defined as any trade or business which, with the
Company, is treated as a single employer under Section 414(b), (c) or (m) of the
Code) has incurred any liability to the Pension Benefit Guaranty Corporation
("PBGC") under, arising out of or by operation of Title IV of ERISA (other than
any liability for premiums to the PBGC arising in the ordinary course of
business), including, without limitation, any material liability in connection
with (i) the termination or reorganization of any employee pension benefit plan
subject to Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan
or Multiple Employer Plan, and no fact or event exists which could reasonably be
expected to give rise to any such material liability. Except as set forth on
Schedule 4.1(k), to the Knowledge of the Sellers and the Company, no complete or
- ---------------
partial termination has occurred within the five (5) years preceding the date
hereof with respect to any Employee Benefit Plan.
(iii) Each of the Employee Benefit Plans intended to qualify under
Section 401 of the Code ("Qualified Plans"), which Qualified Plans are
designated as such on Schedule 4.1(k), has received a favorable determination
---------------
letter from the Internal Revenue Service ("IRS") that such plan is so qualified,
and to the Knowledge of the Sellers and the Company, since the date of such IRS
21
<PAGE>
determination, except as disclosed on Schedule 4.1(k), nothing has occurred with
---------------
respect to the operation of any such plan which, either individually or in the
aggregate, would likely cause the loss of such qualification.
(iv) To the Knowledge of the Sellers and the Company, all
contributions and premiums required by law or by the terms of any Employee
Benefit Plan or any agreement relating thereto have been timely made (without
regard to any waivers granted with respect thereto) and, except as disclosed on
Schedule 4.1(k) hereto, no accumulated funding deficiencies exist in any of the
- ---------------
Employee Benefit Plans subject to Section 412 of the Code.
(v) To the Knowledge of the Sellers and the Company, the liabilities
of each Employee Benefit Plan that has been terminated or otherwise wound up
within the two (2) years preceding the date hereof, have been fully discharged
in compliance with applicable law.
(vi) Except as disclosed on Schedule 4.1(k) hereto, to the Knowledge
---------------
of the Sellers and the Company, there has been no "reportable event" as that
term is defined in Section 4043 of ERISA and the regulations thereunder with
respect to any of the Employee Benefit Plans subject to Title IV of ERISA which
would require the giving of notice, or any event requiring notice to be provided
under Section 4063(a) of ERISA.
(vii) To the Knowledge of the Sellers and the Company, there has been
no violation of ERISA with respect to the filing of applicable returns, reports,
documents and notices regarding any of the Employee Benefit Plans with the
Secretary of Labor or the Secretary of the Treasury or the furnishing of such
notices or documents to the participants or beneficiaries of the
22
<PAGE>
Employee Benefit Plan which, either individually or in the aggregate, could
result in material liability to the Company.
(viii)Complete and correct copies of the following documents, with
respect to each of the Employee Benefit Plans (as applicable), have been
delivered to Buyer: (i) any plan documents and related trust documents, and all
amendments thereto; (ii) the most recent Forms 5500 and schedules thereto; (iii)
the most recent IRS determination letter; (iv) the most recent summary plan
descriptions; and (v) written descriptions of all nonwritten agreements relating
to the Employee Benefit Plans.
(ix) To the Knowledge of the Sellers and the Company, there are no
pending legal proceedings which have been asserted or instituted against any of
the Employee Benefit Plans, the assets of any such plans or the Company or the
plan administrator or any fiduciary of the Employee Benefit Plans with respect
to the operation of such plans (other than routine, uncontested benefit claims).
(x) To the Knowledge of the Sellers and the Company, each of the
Employee Benefit Plans has been maintained, in all material respects, in
accordance with its terms and all provisions of applicable laws and regulations,
except where noncompliance would not have a Material Adverse Effect. To the
Knowledge of the Sellers, all amendments and actions required to bring each of
the Employee Benefit Plans into conformity in all material respects with all of
the applicable provisions of ERISA and other applicable laws and regulations
have been made or taken except to the extent that such amendments or actions are
not required by law to be made or taken until a date after the Closing Date.
23
<PAGE>
(xi) Except as disclosed on Schedule 4.1(k) hereto, none of the
---------------
Company or any ERISA Affiliate maintains a welfare benefit plan providing
continuing benefits to Company employees after the termination of employment
(other than as required by Section 4980B of the Code and at the former
employee's own expense), and the Company and each of the ERISA Affiliates have
complied in all material respects with the notice and continuation requirements
of Section 4980B of the Code and the regulations thereunder.
(xii) To the Knowledge of Sellers and the Company, none of the Company
or any ERISA Affiliate has divested any business or entity maintaining or
sponsoring a defined benefit pension plan having unfunded benefit liabilities
(within the meaning of Section 4001(a)(18) of ERISA) or transferred any such
plan to any Person other than the Company or any ERISA Affiliate during the
five-year period ending on the Closing Date in a transaction that could
reasonably be expected to result in a Material Adverse Effect.
(xiii)Except as disclosed on Schedule 4.1(k) hereto, no Employee
---------------
Benefit Plan will require the payment by the Company of any severance benefits,
separation pay or any similar pay as a result of the consummation of the
transactions contemplated by this Agreement.
(l) Absence of Changes or Events. Except as set forth in Schedule
----------------------------- --------
4.1(1) hereto, or any other Schedule to this Agreement, from the Financial
- ------
Statements Date until the Closing Date, the Business has been and will continue
to be conducted in the ordinary course consistent with past practice and there
has not been any change in the financial condition or results of operations of
the Company taken as a whole (other than changes relating to the economy in
general or industry conditions), which would, individually or in the aggregate,
have a Material Adverse Effect.
24
<PAGE>
(m) Licenses, Permits. To the Knowledge of the Sellers and the
------------------
Company, all material governmental licenses, permits or authorizations of the
Company are validly held by the Company, the Company has complied in all
material respects with all requirements in connection therewith and the same
will not be subject to suspension, modification or revocation as a result of
this Agreement or the consummation of the transactions contemplated hereby. To
the Knowledge of the Sellers and the Company, the Company has all of the
governmental licenses, permits or authorizations which are required to carry on
the Business as such Business is now conducted.
(n) Environmental Matters. Except as set forth on Schedule 4.1(n)
---------------------- ---------------
hereto or as described in Section 4.1(r) hereto:
(i) The Company has all permits, licenses, and other authorizations
required for the operations or conduct of the Business under applicable
Environmental Laws (the "Environmental Permits"), other than where the failure
to have such permits, licenses or other authorizations would not have a Material
Adverse Effect. The Company is, and at all times since the Company has been
owned by any of the Sellers, or to the Knowledge of the Sellers, prior to the
time that the Sellers, or any of them, owned a majority of the issued and
outstanding shares of the common stock of the Company, has been in compliance
with all terms and conditions of the Environmental Permits, and with all
applicable Environmental Laws. Set forth in Schedule 4.l(n) hereto is a list of
---------------
the Environmental Permits.
(ii) Since the majority of the issued and outstanding shares of the
common stock of the Company has been owned by the Sellers, or any of them, or to
the Knowledge of the Sellers prior to the time that the Sellers, or any of them,
owned a majority of the issued and
25
<PAGE>
outstanding shares of the common stock of the Company, the Company has received
no written notice of any citation, summons, order, complaint, penalty,
investigation, or review by any Authority or other Person with respect to any
violation by the Company of any Environmental Law; and there is no action, suit,
investigation or proceeding pending, or to the Knowledge of the Sellers or of
Company, threatened, against or involving the Company involving or arising out
of any alleged violation of any Environmental Laws.
(iii) Since a majority of the issued and outstanding shares of the
common stock of the Company has been owned by the Sellers, or any of them, or to
the Knowledge of the Sellers, prior to the time that the Sellers, or any of
them, owned a majority of the issued and outstanding shares of the common stock
of the Company, the Company has received no written notice of claim, demand or
notification that it is, or may be, potentially responsible with respect to any
investigation or cleanup of any threatened or actual release of any Hazardous
Substance or with respect to any personal injury or property damage arising from
or caused by exposure to, or the threatened or actual release of, any Hazard
Substance, and there is no action, suit, investigation or proceeding pending, or
to the Sellers' and the Company's Knowledge, threatened, against or involving
the Company involving any potential liability caused by or relating to Hazardous
Substances.
(iv) To the Knowledge of the Sellers and the Company, there are no
aboveground or underground storage tanks, no friable asbestos and no
polychlorinated biphenyls on property currently leased by the Company.
26
<PAGE>
(v) To the Knowledge of the Sellers and the Company, no employees of
the Company have been exposed to any Hazardous Substances in connection with
employment with the Company which exposure is reasonably likely to give rise to
liability of the Company under Environmental Laws or other statutory or common
law.
(vi) To the Knowledge of the Sellers and the Company, no site
assessment, audit or other investigation has been conducted by or on behalf of
the Company by a third party professional engineer as to environmental matters
at any property owned, leased, operated or occupied by the Company.
(vii) To the Knowledge of the Sellers and the Company, no disposal,
release or burial of any Hazardous Substances has occurred on the Facility or
any other facilities or properties now or heretofore owned, leased, or operated
by the Company which require remediation by the Company under applicable
Environmental Laws except for such remediation which would not have a Material
Adverse Effect.
(o) Employee and Labor Relations. Except as set forth in Schedule
----------------------------- --------
4.1(o) hereto:
- ------
(i) There is no labor strike, dispute, slowdown, or work stoppage,
boycott, picketing, handbilling or lockout actually pending or, to the Knowledge
of the Sellers and the Company, threatened against or affecting the Company, and
during the past year there has not been any such action.
(ii) There is no unfair labor practice charge, petition, application
or complaint against the Company pending or, to the Knowledge of Sellers and the
Company, threatened
27
<PAGE>
before the National Labor Relations Board, the Massachusetts Labor Relations
Commission or any other Authority.
(iii) There is no complaint against the Company pending, or to the
Knowledge of the Sellers and the Company, threatened before the Equal Employment
Opportunity Commission, the Massachusetts Commission Against Discrimination, the
Department of Labor and Workplace Development or any other Authority.
(p) Undisclosed Liabilities. To the Knowledge of the Sellers and the
------------------------
Company, after reasonable investigation, the Company does not have any material
liabilities or obligations of any nature (where accrued, absolute, contingent,
unasserted or otherwise) required by GAAP to be reflected on a balance sheet or
in notes thereto, except (i) as set forth or reflected on the Interim Financial
Statements, (ii) for items disclosed in the Schedules hereto or for which Buyer
shall be otherwise indemnified by Sellers hereunder, (iii) for purchase
contracts and orders for inventory in the ordinary course of business and (iv)
for liabilities and obligations incurred in the ordinary course of business
consistent with past practices since the Financial Statements Date and not in
violation of this Agreement.
(q) Accounts, Safe Deposit Boxes, Powers of Attorney, Officers and
--------------------------------------------------------------
Directors. Attached hereto as Schedule 4.1(q) are (i) a true and correct list
- --------- ---------------
of all bank and savings accounts, investment accounts, certificates of deposits
and safe deposit boxes and outstanding powers of attorney of the Company and
those Persons authorized to sign thereon, (ii) true and correct copies of all
corporate borrowing, depository and transfer resolutions and those Persons
entitled to act thereunder, and (iii) a true and correct list of all officers
and directors of the Company.
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<PAGE>
(r) Regulatory Matters. Except as set forth on Schedule 4.1(r) hereto,
------------------- ---------------
the Company, and the products manufactured, assembled and/or sold by the Company
and the labeling of such products, are in compliance with all current and
otherwise applicable statutes, rules, regulations, standards, guides or orders
administered or issued by FDA and all other Authorities having regulatory
authority over the products of the Company and the Business.
Except as set forth on Schedule 4.1(r) hereto, since January 1, 1994 no
---------------
Notice of Adverse Findings, Warning Letter, Section 305 notice, subpoena, or
other similar communication by any Authority has been given to the Company with
respect to the Company or the Business, and there have been no recalls, field
notifications, alerts or seizures requested or, to the knowledge of the Company
and the Sellers, threatened relating to the products sold by the Company.
Except as set forth on Schedule 4.1(r) hereto, the Company has made
---------------
available to Buyer a copy of all currently active investigational device
exemptions ("IDF") filed with or approved by FDA by or on behalf of the Company
and all premarket approval ("PMA") and premarket notification ("510(k)")
clearance or concurrence letters received from the FDA and comparable
communications received from any other applicable Authority and provided Buyer
with access to all related documents and information, including device master
files and post-market studies.
Except as set forth on Schedule 4.1(r) hereto, the Company has made
---------------
available to Buyer in a manner so as to provide Buyer an opportunity to review
all FDA inspection reports ("Forms 483s") or comparable reports of a foreign
Authority, the Company's Responses to such Form 483s or comparable foreign
reports and the FDA Establishment Inspection Reports which the Company has
obtained for all FDA inspections of the Company's facilities since January 1,
1994. The
29
<PAGE>
Company has also furnished Buyer with access to all internal inspection reports
(as required by 21 C.F.R. Section 820.20) conducted by the Company since January
1, 1994, as well as the written procedure for such audits.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review copies of all complaint files (as required by 21
C.F.R. Section 820.198) and foreign vigilance reports as well as all Medical
Device Reports filed by the Company and maintained by such person (as required
by 21 C.F.R. Section 803) as well as copies of all related documents and a copy
of the Company's corporate policy for maintaining such files and filing such
reports.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review copies of all labels and the label history for
all of the Company's products in the Company's possession.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review copies of all regulatory approvals obtained from
any foreign regulatory body related to the products distributed and sold by the
Company.
(s) Except as set forth in Schedule 4.1(s) hereto, the Company does not
---------------
have or use, nor does it have any agreements with, any distributor,
representative or other agents not employees of the Company, for the sale or
other distribution of any of the Company's products.
(t) The Company operates its Business out of the Facility pursuant to a
lease dated March 10, 1997 (the "Lease") between the Company and Landman Omnibus
XI Limited Partnership, a Massachusetts limited partnership (the "Landlord"). A
true and correct copy of the
30
<PAGE>
Lease is attached hereto as Schedule 4.1(t). The company is in full compliance
---------------
with the terms of the Lease and is not in default thereunder.
(u) There are no claims or any threatened claims against the Company
involving death or bodily injury to a third party arising out of the design,
manufacture, labeling, sale or other handling or distribution of Products of the
Company sold prior to the Closing Date.
4.2 Representations and Warranties of Buyer. Buyer hereby represents and
---------------------------------------
warrants to the Company and the Sellers as follows:
(a) Authority. Buyer has all requisite corporate power and the
---------
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate acts and other proceedings required to be
taken by Buyer to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and properly taken. This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms. The execution, delivery
and performance by Buyer of this Agreement and the consummation by Buyer and the
transactions contemplated hereby will not (i) violate any provision of law, rule
or regulation to which Buyer is subject, (ii) conflict with or violate any
order, judgment, injunction, award or decree applicable to Buyer, (iii) violate
or conflict with the certificate or articles of incorporation, bylaws or other
similar governing documents of Buyer, (iv) constitute a default under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of such Buyer under any provision of any material agreement, contract
or other instrument binding upon Buyer or any license, franchise, permit or
other similar authorization held by Buyer, or (v) result in
31
<PAGE>
the creation or imposition of any lien, encumbrance, charge or claim upon any of
the assets of Buyer, except in the case of any of the foregoing clauses (i)-(v)
for any such violation, conflict, default, right or lien which would not
individually or in the aggregate have a Material Adverse Effect. The execution,
delivery and performance by Buyer of this Agreement and the consummation by
Buyer of the transactions contemplated hereby do not require any consent from or
filing with any Authority except for (i) any consent or filing that the Company
or Sellers are required to obtain or make; and (ii) consents and filings which,
if not obtained or made, will not individually or in the aggregate have a
Material Adverse Effect or have a material adverse effect on the ability of the
parties hereto to consummate the transactions contemplated hereby.
(b) Sufficient Funds. Buyer has sufficient funds to pay both the
----------------
Securities Purchase Price and the Newly Issued Securities Purchase Price.
(c) Organization and Standing of Buyer. Buyer represents and warrants
----------------------------------
that it is a corporation duly organized and validly existing under the laws of
the Commonwealth of Pennsylvania. Buyer has full corporate power and authority
and possesses all material governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its corporate name
and to own, lease or otherwise to hold its properties and assets and to carry on
its business in all material respects as presently conducted.
(d) Litigation, Decrees. There are no law suits, claims, proceedings
-------------------
or investigations pending or, to the Knowledge of Buyer, threatened by or
against or affecting Buyer or any of its properties, assets, operations or
businesses which challenge the legality of this
32
<PAGE>
Agreement or any action to be taken in connection herewith. To the best of its
Knowledge, Buyer is not in default under any judgment, order, or decree which
would have a Material Adverse Effect.
ARTICLE V
COVENANTS
5.1 Covenants of Sellers. Sellers covenant and agree as follows:
--------------------
(a) Access. Prior to the Closing, Sellers will cause the Company to
-------
give Buyer's representatives, employees, counsel and accountants reasonable
access to the properties, books and records of the Company during mutually
agreeable business hours; it being understood that Sellers, in their sole
discretion, may deny or restrict any access involving possible breaches of
applicable confidentiality agreements with third parties or possible waivers of
any applicable attorney-client privileges.
(b) Ordinary Conduct. From and after the date hereto and prior to
-----------------
Closing, and unless Buyer shall otherwise consent or agree in writing and except
as contemplated by this Agreement, Sellers covenant and agree that the Company:
(i) Will use its Best Efforts to conduct the Business in the ordinary
course and shall not sell or convey any assets owned by the Company and utilized
in the Business other than in the ordinary course.
(ii) Will use its Best Efforts to preserve its business organization
intact and to preserve the goodwill of the suppliers, customers and others
having business dealings with the Company.
33
<PAGE>
(iii) Will not amend its Articles of Organization, Bylaws or other
similar governing documents.
(iv) Will not issue any capital stock (other than the Newly Issued
Securities to be issued to Buyer) or rights, warrants or options to acquire
shares of such capital stock or issue any securities convertible into such
shares or convertible into securities in turn so convertible, or grant any
options, warrants or rights to acquire any such convertible securities.
(v) Will not split, combine or reclassify its outstanding capital
stock.
(vi) Will not declare or pay any dividend or other distribution in
respect of any class of its capital stock, or make any payment to redeem,
purchase or otherwise acquire, or call for redemption, any of such stock.
(vii) Will not merge or consolidate with any other corporation or,
except in the ordinary course of business, acquire any property or assets of any
other Person.
(viii)Will use its Best Efforts to maintain the services of its
present key employees, and by the time of Closing, will have entered into
employment agreements substantially in form and substance satisfactory to Buyer,
with the following individuals: A. Walter MacEachern, Michael Russell, A. Gary
MacEachern, Gayle MacEachern Chase and Richard Housman.
(ix) Will, together with A. Walter MacEachern and Michael A. Russell,
two of the Sellers, terminate a certain Shareholders' Agreement dated December
22, 1988 and cause the Company to reissue all certificates for Securities that
have noted thereon a legend as provided by the aforesaid Stockholders' Agreement
so as to remove said legend from said reissued certificates.
34
<PAGE>
(x) Except as set forth in Schedule 5.1(b), will pay and satisfy in
----------
full (i) all indebtedness of the Company for borrowed money, whether borrowed
from lending institutions or elsewhere, and (ii) all purchase money obligations.
(xi) Will either terminate all Company memberships in private clubs
or other private organizations or cause said memberships to be transferred to
individuals and pay in full all obligations owing to such clubs or
organizations, so that on and after the Closing Date, the Company shall no
longer have any liability or responsibility, financial or otherwise, for such
memberships.
(xii) Will cancel or transfer to the appropriate Persons all life
insurance policies either owned by the Company or the premiums for which are
paid by the Company, so that the Company shall no longer have any obligations as
concerns said policies by the Closing Date; and as concerns the split-dollar
policy issued by Phoenix Home Life Mutual Insurance Company wherein Michael A.
Russell is the insured, assign said policy to the said Michael A. Russell or to
a Person designated by him upon payment to the Company of an amount equivalent
to the present cash value of said policy.
(xiii)Will cancel or transfer to the appropriate Persons all leases
for motor vehicles leased by the Company for the benefit of any of the officers
or directors of the Company, so that on and after the Closing Date, the Company
shall have no further liability or obligation pursuant to any of said leases.
(xiv) Will provide to Buyer a statement as of the Closing Date of all
accrued entitlements for Employees including, but not limited to, vacation days,
wages and other compensation consistent with past practice.
35
<PAGE>
(xv) At the Closing, will issue and deliver the New Issued
Securities to the Buyer free and clear of all Encumbrances.
(c) Confidentiality. For a period of three (3) years from the Closing,
---------------
Sellers will keep confidential all non-public information relating to the
Company and the Business, except as required by applicable law or legal process
and except for information which becomes public other than as a result of a
breach of this Section 5. 1 (c).
(d) Other Transactions. Prior to the Closing, none of Sellers, the
------------------
Company nor any of its Affiliates shall, nor shall they permit any of their
respective officers, directors or other representatives to, directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any information or assistance to, any Person
(other than the representatives of Buyer) concerning any merger, sale of the
Securities or any other securities, sale of substantial assets or any similar
transaction involving the Company.
(e) Non-Competition. As a further inducement to Buyer to purchase the
---------------
Securities, A. Walter MacEachern and Michael A. Russell, two of the Sellers,
severally and not jointly, agree that for a period beginning on the Closing Date
and ending on the third anniversary of the Closing Date (the "Non-Competition
Period"), each of them will not, either directly or indirectly, individually or
in conjunction with any other Person as an employee, partner, stockholder,
representative, agent, or otherwise, compete with the Company by engaging in the
development, license, manufacture, sale or distribution anywhere in the United
States, of any product presently manufactured, sold or distributed by the
Company or in development by the Company as of the date hereof. Notwithstanding
the aforesaid, if any of the Sellers are on the Closing Date, or thereafter
36
<PAGE>
become, parties to any employment agreement with the Company which contains a
different Non-Competition Period, the Non-Competition Period contained in the
said employment agreement shall prevail in the event such Seller's employment
with the Company is terminated.
(f) Lease. Prior to the Closing Date, the Seller shall obtain from the
-----
Landlord and deliver to Buyer any consents that may be required by the Lease as
a result of the sale of the Securities by the Sellers to Buyer and/or as a
result of the Company's issuance of the Newly Issued Securities to Buyer.
5.2 Covenants of Buyer. Buyer covenants and agrees as follows:
------------------
(a) Financial and Other Information. Buyer will (i) hold all of the
-------------------------------
books and records of the Company existing on the Closing Date (or copies,
microfiche or other comparable reproductions thereof (collectively "Books and
Records") and not destroy or dispose of any thereof for a period of eight (8)
years from the Closing Date or such longer time as may be required by law, and
thereafter, if it desires to destroy or dispose of any such Books and Records,
will offer first in writing at least sixty (60) days prior to such destruction
or disposition to surrender them to Sellers and (ii) provide to Sellers
financial information with respect to the Company for the portion of the current
fiscal year during which the Securities were owned by Sellers in accordance with
past practice to allow Sellers to comply with securities law, financial and tax
reporting and accounting requirements. Buyer shall reasonably cooperate with
Sellers after the Closing Date so that Sellers have access to the business
records, contracts, regulatory filings and related materials, and other
information relating to the Company and the Business as is reasonably necessary
for (a) the preparation for or the prosecution or defense of any suit, action,
litigation or administrative,
37
<PAGE>
arbitration or other proceeding or investigation by or against Sellers, (b) the
preparation and filing of any tax return or election relating to the Company and
the Business and any audit by any taxing authority of any Returns of Sellers
relating thereto, and in this respect, Buyer agrees that the Company, within
sixty (60) days after the Closing Date, will prepare and file the Company's
Subchapter S short term Tax Returns and will thereafter provide for the
distribution to the Sellers, consistent with the Company's prior practice, of
such funds as are required for the Sellers to pay any Tax that may be due as a
result of said short term Tax Returns, and (c) the preparation and filing of any
other documents required by any Authority. The access to Books and Records
contemplated by this Section 5.2(b) shall be during normal business hours and
upon not less than two (2) Business Days prior written request.
(b) Solicitation of Employees. If this Agreement is terminated in
-------------------------
accordance with Section 8.3, Buyer agrees that neither it nor any of its
Affiliates will solicit, entice or offer employment to any employee of the
Company for a period of three (3) years from the date of this Agreement;
provided, that the foregoing shall not prohibit Buyer from employing any
individual who has received notice of termination from, or ceased to be employed
by, the Company prior to the first time such individual discussed employment by
Buyer with any representative of Buyer.
(c) Employees and Employee Benefits.
-------------------------------
(i) Offer of Employment, Continued Employment, Severance. Buyer
----------------------------------------------------
agrees to continue the employment, as of the Closing Date, of each Employee at a
rate of pay at least equal to the Employee's rate of pay in effect on the
Business Day immediately preceding the Closing Date. Schedule 5.2(c)(i) (which
------------------
shall be updated by Sellers or the Company on the Closing Date)
38
<PAGE>
shall set forth each Employee's current rate of pay, position and date of hire.
For purposes of this covenant, Buyer shall be entitled to rely on the accuracy
thereof and, with respect to such Employee's benefits under the Company's
Benefit Plans, on the materials referred to in Schedule 4.1(k). Buyer shall have
------------------
no obligation whatsoever with regard to any Employees or former Employees of the
Company constituting (a) retired or inactive employees, who are not, or shall
have ceased to be, Employees as of the Business Day immediately preceding the
Closing Date; or (b) Employees who do not accept any offer of employment that
may be extended by Buyer and do not work for Buyer at least one (1) day. The
Company shall be solely responsible for all salaries or wages accruing on or
after the Closing Date with respect to any of the Employees that become
employees of Buyer. After the Closing Date, the Company may, at its discretion,
change the conditions of employment, except as concerns such employment
agreements referred to in Section 5. 1 (b)(viii) above; provided, however, that
during the period from the Closing Date until February 28, 1999, the Company
agrees to maintain or cause to be maintained wages, compensation levels,
employee pension and welfare plans and other employee benefits for the benefit
of the Company's Employees which are, in the aggregate, no less favorable than
those wages, compensation levels and other benefits provided under the Company's
Benefit Plans that are in effect on the date of this Agreement. In addition,
the Company's Employees shall be permitted to participate in the Buyer's 401(k)
at the earliest practical date. Sellers and the Company represent and warrant
that the sale of the Securities and/or the Newly Issued Securities contemplated
by this Agreement, will not give rise to any severance or termination benefits
under any of the Benefit Plans described in Schedule 4.1(k) hereto for which
---------------
Buyer shall be responsible.
39
<PAGE>
(ii) No Third Party Beneficiaries, No Buyer Limitations. Nothing
--------------------------------------------------
expressed or implied in this Section 5.2 shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company with respect to continued
employment (or resumed employment) with Buyer or any Affiliate of Buyer.
Further, no provision of this Section 5.2 shall create any such rights in any
employee or former employee (including any beneficiary or dependent thereof) of
the Company with respect to any benefits that may be provided, directly or
indirectly, under any employee compensation and benefits plans, programs,
policies or arrangements or any plan or arrangement which may be established by
Buyer. Notwithstanding anything contained herein to the contrary, no provision
of this Agreement shall constitute a limitation on rights to amend, modify or
terminate, after the Closing Date, any specific plan or arrangement of Buyer.
5.3 Mutual Covenants. Each of the Sellers, the Company and Buyer covenants
----------------
and agrees as follows:
(a) Publicity. Prior to the Closing, Sellers and the Company on the
----------
one hand and Buyer on the other hand agree that no public release or
announcement concerning the transactions contemplated hereby shall be issued by
any of them without the prior consent (which consent shall not be unreasonably
withheld) of the other, except such release or announcement as may be required
by law or the rules or regulations of any United States or foreign securities
exchange or the NASDAQ Stock Market, in which case the party required to make
the release or announcement shall allow the other party reasonable time to
comment on such release or announcement in advance of issuing such release or
announcement.
40
<PAGE>
(ii) No Third Party Beneficiaries, No Buyer Limitations. Nothing
--------------------------------------------------
expressed or implied in this Section 5.2 shall create any third party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company with respect to continued
employment (or resumed employment) with Buyer or any Affiliate of Buyer.
Further, no provision of this Section 5.2 shall create any such rights in any
employee or former employee (including any beneficiary or dependent thereof) of
the Company with respect to any benefits that may be provided, directly or
indirectly, under any employee compensation and benefits plans, programs,
policies or arrangements or any plan or arrangement which may be established by
Buyer. Notwithstanding anything contained herein to the contrary, no provision
of this Agreement shall constitute a limitation on rights to amend, modify or
terminate, after the Closing Date, any specific plan or arrangement of Buyer.
5.3 Mutual Covenants. Each of the Sellers, the Company and Buyer covenants
----------------
and agrees as follows:
(a) Publicity. Prior to the Closing, Sellers and the Company on the
---------
one hand and Buyer on the other hand agree that no public release or
announcement concerning the transactions contemplated hereby shall be issued by
any of them without the prior consent (which consent shall not be unreasonably
withheld) of the other, except such release or announcement as may be required
by law or the rules or regulations of any United States or foreign securities
exchange or the NASDAQ Stock Market, in which case the party required to make
the release or announcement shall allow the other party reasonable time to
comment on such release or announcement in advance of issuing such release or
announcement.
40
<PAGE>
(b) Reasonable Diligent Efforts. Subject to the terms and conditions
---------------------------
of this Agreement, each party will, severally, use its reasonable diligent
efforts to cause the Closing to occur as promptly as reasonably possible.
(c) Cooperation. The Sellers, the Company and the Buyer shall
-----------
cooperate with each other and shall cause their respective officers, employees,
agents, auditors and representatives to cooperate with the others during the
period prior to the Closing and for a period of one hundred twenty (120) days
after the Closing to ensure the orderly transition of the Company from the
Sellers to the Buyer and reasonably minimize any disruption to the respective
businesses of the Company and Buyer that might result from the transactions
contemplated hereby. Neither the Sellers nor the Buyer shall be required by
this Section 5.3(d) to take any action that would unreasonably interfere with
the conduct of the business of the Company or of Buyer.
(d) Tax Treatment. Sellers on the one hand and Buyer on the other hand
-------------
agree to treat the sale of the Securities contemplated by this Agreement in
accordance with its form as a sale of capital stock of the Company for tax
purposes.
ARTICLE VI
OTHER AGREEMENTS
6.1 Certain Understandings. Each of the parties is sophisticated and was
----------------------
advised by experienced counsel and, to the extent it deemed necessary, other
advisors in connection with this Agreement. Each of the parties hereby
acknowledges that (i) no party has relied or will rely in respect of this
Agreement or the transactions contemplated hereby upon any document or written
or oral information previously furnished to or discovered by it or its
representatives, other than this
41
<PAGE>
Agreement (including the Schedules hereto) and other documents delivered at the
Closing, (ii) there are no representations or warranties by or on behalf of any
party hereto or any of its respective Affiliates or representatives other than
those expressly set forth in this Agreement or in documents delivered at the
Closing, and (iii) the parties' respective rights and obligations with respect
to this Agreement and the events giving rise thereto will be solely as set forth
in this Agreement.
6.2 Further Assurances. From time to time, as and when requested by any
------------------
party hereto, the other parties shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
6.3 Tax Matters. (a) Sellers shall be responsible for the preparation, on a
-----------
basis consistent with Returns filed for the previous periods, and filing of all
Federal, state and local income Tax Returns of the Company for all taxable
periods that are due (giving effect to valid extensions) before the Closing Date
("Sellers' Tax Returns"). Sellers shall make all payments required with respect
to Sellers' Tax Returns, as well as the payments required with respect to the
Subchapter S short term Tax Returns referred to in Section 5.2(a) above.
(b) Buyer and/or the Company will be responsible for the timely (i)
preparation and filing of all Returns of the Company and (ii) payment of all
Taxes related thereto, for periods of time beginning on the Closing Date and
ending after the Closing Date or accrued on the Interim Financial Statements or
otherwise set forth on Schedule 4.1(e).
------
42
<PAGE>
(c) Sellers and Buyer shall provide reasonable cooperation to each
other in connection with (i) the preparation or filing of any Return, Tax
election, Tax consent or certification, or any claim for a Tax refund, (ii) any
determination of liability for Taxes, and (iii) any audit, examination or other
proceeding in respect of Taxes related to the Company. Such cooperation shall
include, if requested by Sellers, making available, on a reasonable basis,
employees of Buyer or the Company, as the case may be, whose out-of-pocket
costs, if any, shall be reimbursed by the Sellers. After the Closing Date,
Sellers and Buyer shall make available to each other, as reasonably requested,
all information, records or documents of the Company for all periods prior to
and including the Closing Date and shall preserve all such information, records
and documents until the expiration of any applicable statute of limitations,
including extensions thereof, provided that notice of such extension is given to
the party which did not grant the extension, but in all events such information,
records and documents shall be preserved for a period of not less than eight (8)
years.
(d) Sellers shall have the right, at their own expense, to control any
audit or examination by any Authority to initiate any claim for refund, to amend
any Company Tax Return or to contest, resolve and defend against any assessment,
notice of deficiency, or other adjustment or proposed adjustment relating to
Sellers' Tax Returns (whether or not a Tax Return was actually filed). Buyer
shall notify Sellers within ten (10) days following receipt of notice from any
taxing or other Authority relating to any proposed investigation, audit or other
proceeding that may affect Sellers' Tax Returns.
(e) Tax Indemnity. Notwithstanding the provisions of Article VII of
-------------
this Agreement, Sellers agree to indemnify Buyer for and hold Buyer harmless
from any Taxes of the
43
<PAGE>
Company with respect to Sellers' Tax Returns or otherwise with respect to any
Taxes which are not either accrued on the Interim Financial Statements or set
forth on Schedule 4.1 (e), are payable or due prior to the Closing Date and
which relate to the ownership and/or operation of the Business prior to the
Closing Date (including, without limitation, all interest, penalties, reasonable
costs of defense and reasonable legal fees and expenses incurred by Buyer).
Notwithstanding the provisions of Article VII of this Agreement. Buyer shall
indemnify and hold Sellers harmless for all Tax liabilities of the Company
including, without limitation, all interest, penalties, reasonable costs of
defense and reasonable legal fees incurred by Sellers, payable with respect to
any period on and after the Closing Date (other than amounts that are the
responsibility of Sellers pursuant to Section 6.3(a) of this Agreement).
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Sellers. (a) Sellers hereby agree to indemnify
--------------------------
Buyer, its Affiliates and, after the Closing Date, the Company and their
respective officers and directors against and hold them harmless on a net after-
Tax basis from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses and costs of enforcing any right to
indemnification pursuant to this Agreement (a "Loss") suffered or incurred by
any such indemnified party (other than any relating to Taxes, for which
indemnification provisions are set forth in Section 6.3 of this Agreement) as a
direct consequence of (i) any breach of any representation or warranty of
Sellers contained in this Agreement which by the terms of Section 8.4 survives
the Closing, (ii) any breach of any covenant of Sellers contained in this
Agreement; provided, however, that the covenants of A. Walter
44
<PAGE>
MacEachern and Michael A. Russell, two of the Sellers, set forth in Section 5.1
(f) are several and not joint and several, and any breach by either individual
of such covenants shall only create an obligation hereunder of such individual,
(iii) the release or threatened release of any Hazardous Substance by the
Company or its employees or agents during the Company's ownership, lease or
operation of real property now or formerly owned, leased or operated by the
Company (or with respect to the Facility, during or prior to the Company's lease
of the Facility) to the extent arising prior to the Closing Date at, on, or
under any portion of such real property which requires remediation by the
Company under applicable Environmental Laws or which constitutes a violation by
the Company of applicable Environmental Laws or the off-site disposal or
shipment for disposal by the Company prior to the Closing Date of any Hazardous
Substance, or (iv) the injury to or the death of any employee of the Company or
any other third person resulting from the release or threatened release by the
Company or its employees or agents of any Hazardous Substance that arose prior
to the Closing Date, regardless of where such release occurred and regardless of
when the injury or death of such person occurred or occurs; provided, however,
that Sellers shall not have any liability hereunder (other than with respect to
clause (ii) above) unless and until the aggregate of all Losses, for which
Sellers would, but for this proviso, be liable exceeds on a cumulative basis a
dollar amount equal to One Hundred Thousand Dollars ($100,000.00) (the
"Basket"), and then only to the extent of any amount which, in the aggregate,
exceeds the Basket; provided, further, that Sellers shall not have any liability
hereunder unless and until the amount of Loss with respect to each individual
matter, or series of related matters, exceeds Ten Thousand Dollars ($10,000.00)
(the "Sub-limit"); provided, further, that the maximum aggregate obligation of
Sellers to Buyer (including, but not limited to, liabilities of
45
<PAGE>
Sellers for costs, expenses and attorneys' fees paid or incurred in connection
therewith or in connection with the curing of any or all breaches of the
Sellers' representations and warranties) collectively pursuant to this Section
7.l(a) shall not exceed Three Million Dollars ($3,000,000.00) (the "Cap");
provided, however that the Cap shall not apply to any obligation arising out of
the Tax indemnification provided for in Section 6.3(e) of this Agreement; nor
shall any such Tax obligation be included in determining or calculating the Cap.
(b) Buyer acknowledges and agrees that Sellers shall not have any
liability under any provision of this Agreement for any Loss to the extent that
such Loss relates to actions taken by or omitted to be taken by Buyer, the
Company or their respective Affiliates after the Closing Date.
7.2 Indemnification by Buyer. (a) Buyer and, after the Closing, the
------------------------
Company, hereby agrees to indemnify Sellers against and hold them harmless on a
net after-Tax basis from any loss suffered or incurred by Sellers (other than
any relating to Taxes, for which indemnification provisions are set forth in
Section 6.3 of this Agreement) as a direct consequence of (i) any breach of any
representation or warranty of the Buyer contained in this Agreement which by the
terms of Section 8.4 survives the Closing, (ii) any breach of any covenant of
Buyer contained in this Agreement, (iii) any obligation or liability of the
Company arising on or after the Closing Date (except to the extent Sellers are
obligated to indemnify Buyer pursuant to Section 7.1(a) of this Agreement), or
(iv) without limiting the indemnity provided in clause (iii) of this Section
7.2, the release or threatened release, or the exacerbation of any pre-Closing
release (but only to the extent of such exacerbation), of any Hazardous
Substance, to the extent arising after the Closing Date at, on, or under any
portion of the real property owned, leased or operated by the Company
(including, without limitation, the
46
<PAGE>
Facility) which requires remediation under applicable Environmental Laws or
which constitutes a violation of applicable Environmental Laws or the off-site
disposal or shipment for disposal by the Company on or after the Closing Date of
any Hazardous Substance; provided, however, that Buyer shall not have any
liability hereunder unless and until the aggregate of all Losses, for which
Buyer would, but for this proviso, be liable exceeds on a cumulative basis the
Basket, and then only to the extent of any amount which, in the aggregate,
exceeds the Basket; provided, further, that Buyer shall not have any liability
hereunder unless and until the amount of Loss with respect to each individual
matter, or series of related matters, exceeds the Sub-limit; provided, further,
that the maximum aggregate obligation of Buyer to the Sellers (including, but
not limited to, liabilities of the Buyer for costs, expenses and attorneys' fees
paid or incurred in connection therewith or in connection with the curing of any
or all breaches of Buyer's representations or warranties) collectively pursuant
to this Section 7.2(a) shall not exceed the Cap.
7.3 Losses Net of Insurance, Etc. The amount of any Loss for which
----------------------------
indemnification is provided under this Article VII shall be net of (i) in the
case of Section 7.1, any accruals or reserves on the Annual Financial Statements
which relate specifically to such Loss, (ii) any amounts recovered by the
Indemnified Party (as such term is defined in Section 7.5 of this Agreement)
pursuant to any indemnification by or indemnification agreement with any third
party, (iii) the positive difference, if any, between (a) any insurance proceeds
or other cash receipts or sources of reimbursement recovered as an offset
against such Loss and (b) the net present value of any increase in insurance
premiums payable by the Indemnified Party which such party is able to
demonstrate to the Indemnifying Party (as such term is defined in Section 7.5 of
this Agreement) is directly attributable
47
<PAGE>
to any insurance proceeds paid on account of such Loss (each such Person named
in clauses (i), (ii) and (iii), a "Collateral Source") and (iv) an amount equal
to the Tax benefit, if any, attributable to such Loss. If the amount to be
netted hereunder from any payment required under Sections 7.1 or 7.2 is
determined after payment by the Indemnifying Party of any amount otherwise
required to be paid to an Indemnified Party pursuant to this Article VII, the
Indemnified Party shall repay to the Indemnifying Party, promptly after such
determination, any amount that the Indemnifying Party would not have had to pay
pursuant to this Article VII had such determination been made at the time of
such payment.
7.4 Termination of Indemnification. The obligations to indemnify and hold
------------------------------
harmless a party hereto, pursuant to Sections 7.1 and 7.2, shall terminate when
the applicable representation or warranty terminates pursuant to Section 8.4;
provided; however, that the obligation of Sellers to indemnify and hold harmless
Buyer pursuant to Section 7.1(a) clause (iii) with respect to the Facility shall
terminate on the third anniversary of the Closing Date; provided, further, that
the obligation of Sellers to indemnify and hold harmless Buyer pursuant to
Section 7.1(a) clause (iii) with respect to the off-site disposal or shipment
for disposal by the Company prior to the Closing Date of any Hazardous Substance
and pursuant to Section 7.1(a) clause (iv) with respect to injury or death
resulting from a release or threatened release of any Hazardous Substance shall
terminate on the fifth (5th) anniversary of the Closing Date; provided, further,
that such obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which the person to be indemnified (or the related
party thereto) shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice (stating in reasonable detail the
basis of such claim) to the party providing
48
<PAGE>
the indemnification. Notwithstanding the aforesaid, the obligations of all of
the Sellers, other than A. Walter MacEachern and Michael A. Russell, to
indemnify and hold harmless the Buyer pursuant to Section 7.1 of this Agreement
shall terminate on the first anniversary of the Closing Date. In addition, the
obligations of the Buyer and the Company to indemnify and hold harmless the
Sellers, pursuant to Section 7.2 of this Agreement, shall terminate on the first
(1st) anniversary of the Closing Date except that the obligations of the Buyer
and the Company to indemnify and hold harmless the Sellers, pursuant to Section
7.2(a)(iv) with respect to the Facility, shall terminate on the third (3rd)
anniversary of the Closing Date, and the obligations of the Buyer and the
Company to indemnify and hold harmless the Sellers, pursuant to Section 7.2 (iv)
with respect to off-site disposal, or shipment for disposal, by the Company on
or after the Closing Date of any Hazardous Substances shall terminate on the
fifth (5th) anniversary of the Closing Date.
7.5 Procedures Relating to Indemnification under Sections 7.1 and 7.2 In
-----------------------------------------------------------------
order for a party (the "Indemnified Party") to be entitled to any
indemnification provided for under Sections 7.1 or 7.2 of this Agreement in
respect of, arising out of or involving a claim or demand made by any Person
against the Indemnified Party (a "Third Party Claim"), such Indemnified Party
must notify the party from whom indemnification is sought (the "Indemnifying
Party") in writing of the Third Party Claim within ten (10) Business Days after
receipt by such Indemnified Party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been prejudiced as a result of such failure (except that the
Indemnifying Party shall not be liable for any expenses incurred during the
period in which the Indemnified Party failed to give such notice).
49
<PAGE>
Thereafter, the Indemnified Party shall deliver to the Indemnifying Party,
within five (5) Business Days after the Indemnified Party's receipt thereof,
copies of all notices and documents (including, without Stations court papers)
received by the Indemnified Party relating to the Third Party Claim.
If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party will be entitled to participate in the defense thereof and,
if it so chooses, assume at any time the defense thereof with counsel selected
by the Indemnifying Party and reasonably acceptable to the Indemnified Party.
Should the Indemnified Party so elect to assume and control the defense and
settlement of a Third Party Claim (assuming the Indemnifying Party has not
chosen to assume such defense), the Indemnifying Party will not be liable to the
Indemnified Party for legal expenses subsequently incurred by the Indemnified
Party in connection with the defense or settlement thereof. If the Indemnifying
Party assumes such defense, the Indemnified Party shall have the right to
participate in, but not control, the defense thereof and to employ counsel, at
its own expense, separate from the counsel employed by the Indemnifying Party.
The Indemnifying Party shall be liable for the fees and expenses of counsel
employed by the Indemnified Party for any period during which the Indemnifying
Party has not assumed the defense thereof (subject to the first sentence of the
first paragraph of this Section 7.5). Whether or not the Indemnifying Party
chooses to defend or prosecute any Third Party Claim, both parties hereto shall
cooperate in the defense or prosecution thereof. Such cooperation shall include
the retention and (upon the Indemnifying Party's written request) the provision
to the Indemnifying Party of records and information which are reasonably
relevant to such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the Indemnifying
50
<PAGE>
Party shall have assumed the defense of a Third Party Claim, the Indemnifying
Party shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the Indemnified Party's prior written
consent.
7.6 Exclusive Remedy. The indemnification provided in this Article II
----------------
shall be the sole and exclusive remedy after the Closing Date for monetary
damages available to Buyer and Sellers for breach of any of the terms,
conditions, representations or warranties contained herein. As between Sellers
on the one hand, and Buyer and its Affiliates, including without limitation
after the Closing, the Company, on the other hand, the rights and obligations
set forth in this Agreement will be the exclusive rights and obligations with
respect to this Agreement, the events giving rise to this Agreement and the
transactions provided for herein or contemplated hereby. Without limiting the
generality or effect of the foregoing, as a material inducement to the other
parties hereto entering into this Agreement, and in right of, among other
factors, the acknowledgments contained in this Section 7.6, each of the parties
to this Agreement hereby waives any claim or cause of action, known and unknown,
foreseen and unforeseen, which exists or may arise in the future, or which it
otherwise might assert, including without limitation under the common law or
Federal or state securities laws, trade regulation laws, Environmental Laws
(including CERCLA or any other statutes now or hereafter in effect) or other
laws, by reason of this Agreement, the events giving rise to this Agreement and
the transactions provided for herein or contemplated hereby or thereby, except
for (i) claims or causes of action brought under or in accordance with and
subject to the terms and conditions of this Agreement, or (ii) injunctive or
other equitable relief (other than for rescission or rescissory or similar
damages). Notwithstanding any other provision contained in this Section 7.6,
51
<PAGE>
none of the parties to this Agreement shall be deemed to have waived or
otherwise limited such party's rights on account of any fraudulent act by any of
the other parties hereto. In addition and notwithstanding any limitation in
this Section to the applicability of this Section, each of the Sellers hereby
waives and releases the Company from any and all other claims or causes of
action, known and unknown, foreseen and unforeseen, which any of the Sellers may
have, as of the date of this Agreement, against the Company for any reason
whatsoever.
7.7 Collateral Sources. Indemnification under this Article VII shall not
------------------
be available to any Indemnified Party unless such Indemnified Party concurrently
seeks recovery from any Collateral Source for such claim. Any Indemnifying
Party may, in its sole discretion, require any Indemnified Party to grant an
assignment of the right of such Indemnified Party to assert a claim against any
Collateral Source. In the event of such assignment, the Indemnifying Party will
pursue such claim at its own expense.
7.8 Certain Limitations. Sellers hereby agree that if any payment by
-------------------
Sellers is made under the terms of this Agreement, Sellers shall have no rights
or causes of action against the Company or any director, officer, employee or
agent thereof, whether by reason of contribution, indemnification, subrogation,
set off or otherwise (including, without limitations, by reason of the making of
the Company of representations and warranties hereunder, it being understood and
agreed that the Company made such representations and warranties for the benefit
of Sellers), in respect of any such payments, any action or inaction at or prior
to the Closing Date, or in respect of any representation, warranty, covenant or
agreement made by the Company hereunder, and shall not take any action against
the Company or any director, officer, employee or agent thereof with respect
52
<PAGE>
thereto. Any such rights which Sellers may, by operation of law or otherwise,
have against the Company or any director, officer, employee or agent thereof
shall, at the Closing Date, be deemed to be hereby expressly and knowingly
waived.
ARTICLE VIII
MISCELLANEOUS
8.1 Assignment. This Agreement and the rights hereunder shall not be
----------
assignable or transferable by Buyer at any time prior to the payment of the
Securities Purchase Price (subject to any adjustment in accordance with Section
2.1(c)(ii) of this Agreement), or by the Sellers (including by sale of stock,
operation of law in connection with a merger, or sale of substantially all the
assets of Buyer or the Company), without the prior written consent of the other
party hereto. This Agreement shall inure to the benefit of, and be binding upon
and enforceable against, the successors and permitted assigns of the respective
parties hereto.
8.2 No Third-Party Beneficiaries. Except as provided in Article VII, this
----------------------------
Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or be construed to
give to any Person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
8.3 Termination.
-----------
(a) This Agreement may be terminated by written notice given by Buyer
to Sellers or Sellers to Buyer (i) if the Closing shall not have occurred by
September 1, 1998, other than as a result of a material default by the party
seeking to terminate, or (ii) if (x) the purchase and sale of the Securities
and/or the Newly Issued Securities contemplated hereby shall violate any non-
appealable
53
<PAGE>
final order, decree or judgment of any Authority having competent jurisdiction
or (y) there shall be a statute, rule or regulation which makes the purchase and
sale of the Securities and/or the Newly Issued Securities contemplated hereby
illegal or otherwise prohibited.
(b) In the event of termination by Sellers or Buyer pursuant to
paragraph (a) of this Section 8.3, written notice thereof shall forthwith be
given to the other and the transactions contemplated by this Agreement shall be
terminated, without further action by either. If the transactions contemplated
by this Agreement are terminated as provided herein:
(i) Buyer shall return all documents and other material received from
Sellers, or the Company relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to Sellers;
(ii) only the provisions of Sections 5.2(b), 8.5, 8.9, 8.10, 8.11 and
8.15 hereof shall remain in full force and effect; and
(iii) in no event shall any termination of this Agreement limit or
restrict the rights and remedies of any party hereto against any other party
which has willfully breached any of the agreements or other provisions of this
Agreement prior to termination hereof.
8.4 Survival of Representations. The representations and warranties in
---------------------------
this Agreement shall survive the Closing solely for purposes of Sections 7.1 and
7.2 of this Agreement and shall terminate at the close of business on the first
anniversary of the date hereof, provided, however that as concerns A. Walter
MacEachern and Michael A. Russell, two of the Sellers, the representations and
warranties in Section 4.1(c), Section 4.1(k), Section 4.1(g), and Section 4.1(n)
of this Agreement shall terminate at the close of business on the fifth (5th)
anniversary of the Closing Date.
54
<PAGE>
8.5 Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs or expenses, except as may otherwise be expressly provided in this
Agreement.
8.6 Amendments. No amendment to or modification of this Agreement shall be
----------
effective unless it shall be in writing and signed by each of the parties
hereto.
8.7 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given (a) on the date of delivery if delivered
personally; (b) on the date of transmission if sent via facsimile transmission
to the facsimile number, if any, given below, and telephonic confirmation of
receipt is obtained promptly after completion of transmission; (c) on the date
after delivery to a reputable nationally recognized overnight courier service or
(d) three (3) days after being mailed by registered or certified mail (return
receipt requested) by the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) If to Sellers:
A. Walter MacEachern
13 Freedom Road
Woburn, MA 01801
Michael A. Russell, Jr.
105 Atlantic Avenue
Cohasset, MA 02025
With a required copy to:
Choate, Hall & Stewart
Attn: Lyman G. Bullard, Jr., Esquire
53 State Street
Boston, MA 02109
Telecopier: 617/248-4000
55
<PAGE>
(ii) If to Arrow,
Arrow International, Inc.
2400 Bernville Road
Reading, Pennsylvania 19605
Attention: Vice President-Finance
Telecopier: 610/478-3177
With a required copy to:
Rhoda, Stoudt & Bradley
Attention: Robert H. Kauffman, Esquire
501 Washington Street
P.O. Box 877
Reading, PA 19603-0877
Telecopier: 610/374-6061
(iii) If to the Company, to:
Medical Parameters, Inc.
30 G Commerce Way
Woburn, MA 01801
Attention: President
Telecopier: 781/935-5931
Such addresses may be changed, from time to time by means of a notice given in
the manner provided in this Section (provided that no such notice shall be
effective until it is received by the other parties hereto). Notice to the
Sellers named above in this Section shall constitute notice to all of the
Sellers without further notice to the other Sellers.
8.8 Fees. Each party hereto hereby agrees that no broker or finder has
----
acted for such party in connection with this Agreement or the transactions
contemplated hereby or that may be entitled to any brokerage fee, finder's fee
or commission in respect thereof.
56
<PAGE>
8.9 Consent to Jurisdiction. Buyer and Sellers each irrevocably submits to
-----------------------
the nonexclusive jurisdiction of (a) the state courts of the Commonwealth of
Pennsylvania, Berks County, and (b) the United States District Court for the
Eastern District of Pennsylvania, for the purpose of any suit, action or other
proceeding arising out of this Agreement or any transactions contemplated
hereby. Buyer and Sellers consent to service of process in accordance with the
procedures set forth in Section 8.7 of this Agreement or as otherwise permitted
by law.
8.10 Severability. If any provision of this Agreement or the application
------------
of any such provision to any Person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not effect any other
provision hereof.
8.11 Interpretation. All references to immediately available funds or
--------------
dollar amounts contained in this Agreement shall mean United States dollars.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
The parties acknowledge and agree that (i) each party and its counsel have
reviewed the terms and provisions of this Agreement and have contributed to its
revision, (ii) the normal rule of construction, to the effect that any
ambiguities are resolved against the drafting party, shall not be employed in
the interpretation of it, and (iii) the terms and provisions of this Agreement
shall be constructed fairly as to all parties hereto, regardless of which party
was generally responsible for the preparation of this Agreement. All
information disclosed by Sellers in any Schedule hereto or any representation or
warranty herein shall be deemed to have been disclosed in any other Schedule
hereto or any representation or warranty herein where such disclosure of such
57
<PAGE>
information is required or pertains to a representation or warranty made by
Sellers herein. Reference in this Agreement to dollar amount thresholds
(including such references in Article VII of this Agreement) shall not, for
purposes of this Agreement, be deemed to be evidence of materiality or a
Material Adverse Effect.
8.12 Waiver. Waiver of any term or condition of this Agreement by any
------
party shall be effective if in writing and shall not be construed as a waiver of
any subsequent breach or failure of the same term or condition, or a waiver of
any other term of this Agreement. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
8.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
8.14 Entire Agreement. This Agreement, including the Schedules hereto and
---------
the other documents delivered pursuant to this Agreement, contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements,
negotiations, correspondence, undertakings and understandings, oral or written,
relating to such subject matter.
8.15 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the Commonwealth of Pennsylvania applicable
to agreements made and to
58
<PAGE>
be performed entirely within the Commonwealth of Pennsylvania, without regard to
the conflicts of law principles thereof.
8.16 Gender and Number. When the sense so requires, words of any gender
-----------------
used in this Agreement shall be deemed to include any other gender and words
used in the singular number shall be deemed to include the plural, and vice
versa.
IN WITNESS WHEREOF, the parties hereto, INTENDING TO BE LEGALLY BOUND, have
executed, or caused this Agreement to be executed by their duly authorized
officers, the day and year first above written.
A. Walter MacEachern (SEAL)
------------------------------
A. WALTER MacEACHERN
A. Gary MacEachern (SEAL)
------------------------------
A. GARY MacEACHERN
Gayle MacEachern Chase (SEAL)
------------------------------
GAYLE MacEACHERN CHASE
Charles MacEachern (SEAL)
------------------------------
CHARLES MacEACHERN
Chris MacEachern (SEAL)
------------------------------
CHRIS MacEACHERN
Matthew MacEachern (SEAL)
------------------------------
MATTHEW MacEACHERN
Stephanie MacEachern (SEAL)
------------------------------
STEPHANIE MacEACHERN
Mary MacEachern (SEAL)
------------------------------
MARY MacEACHERN
ONE SIGNATURE PAGE FOLLOWS
59
<PAGE>
Michael A. Russell (SEAL)
-------------------------------
MICHAEL A. RUSSELL
Arthur S. Lynch (SEAL)
-------------------------------
ARTHUR S. LYNCH
Stephen P. Buckley (SEAL)
-------------------------------
STEPHEN P. BUCKLEY
Michael A. Russell, Jr. (SEAL)
-------------------------------
MICHAEL A. RUSSELL, JR.
Amy Russell (SEAL)
-------------------------------
AMY RUSSELL
"SELLERS"
MEDICAL PARAMTERS, INC.
By: A. Walter MacEachern
-------------------------------
A. Walter MacEachern, President
Attest: Mary MacEachern
-------------------------------
Mary MacEachern, Clerk
"COMPANY"
ARROW INTERNATIONAL, INC.
By: Marlin Miller Jr.
---------------------------------
President
Attest: Raymond Neag
---------------------------------
(Assistant) Secretary
"BUYER"
60
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER ADDRESS SHARES
<S> <C> <C>
Michael Arthur Russell Cohassett, MA 229.500
Arthur S. Lynch Westwood, MA 20.000
Stephen Paul Buckley Hingham, MA 10.000
Alexander Walter MacEachern Woburn, MA 578.200
Mary Reimer MacEachern Woburn, MA 38.200
Gayle Marie Chase Charlestown, MA 20.600
Alexander Gray MacEachern Lynnfield, MA 20.600
Christopher Charles MacEachern West Palm Beach, FL 20.600
Charles Henry MacEachern Hudson, NH 20.600
Stephanie Ann MacEachern Newton, MA 20.600
Matthew Reimer MacEachern Boston, MA 20.600
Amy Elizabeth Russell Boston, MA 0.250
Michael Arthur Russell, Jr. Berkley, CA 0.250
---------
</TABLE>
1,000.000
=========
<PAGE>
EXHIBIT "B"
WAIVED BY COUNSEL FOR SELLERS AND COUNSEL FOR BUYERS
<PAGE>
EXHIBIT "C"
WAIVED BY COUNSEL FOR SELLERS AND COUNSEL FOR BUYERS
<PAGE>
Schedule 4.1(c) - Encumbrances on Securities
None
<PAGE>
Schedule 4.1(d)-- Subsidiaries of the Company
None
<PAGE>
FINANCIAL STATEMENTS
MEDICAL PARAMETERS, INC.
FEBRUARY 28, 1998
<PAGE>
CONTENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS.. 1
FINANCIAL STATEMENTS:
Statements of Financial Position................... 2
Statements of Earnings............................. 3
Statements of Cash Flows........................... 4
NOTES TO FINANCIAL STATEMENTS......................... 5-8
SUPPLEMENTAL SCHEDULES:
Schedules of Property and Equipment................ 9
Schedules to Statements of Earnings................ 10
FINANCIAL STATEMENT RATIOS............................ 11-13
</TABLE>
<PAGE>
BACALL & CONNIFF, P.C. Certified Public Accountants
================================================================================
ONE ELEVEN STATE STREET
BOSTON, MASSACHUSETTS 02109
------
TELEPHONE (617) 367-3250
FAX (617) 367-2511
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors of
MEDICAL PARAMETERS, Inc.
We have audited the accompanying statements of financial position of MEDICAL
PARAMETERS, INC. as of February 28, 1998 and 1997, and the related statements of
earnings and cash flows for the years then ended. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MEDICAL PARAMETERS, INC. as of
February 28, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information contained in
pages nine and ten is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
June 30, 1998
Bacall & Conniff, P.C.
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
STATEMENTS OF FINANCIAL POSITION
--------------------------------
FEBRUARY 28, 1998 and 1997
--------------------------
<TABLE>
<CAPTION>
ASSETS
------
<S> <C> <C>
1998 1997
--------- ---------
CURRENT ASSETS
--------------
Cash and cash equivalents 333,010 168,906
Accounts receivable 1,426,965 1,498,689
Inventory 1,265,256 1,284,689
Due from stockholders 28,290 22,568
Prepaid expenses 79,409 97,049
--------- ---------
Total current assets 3,132,930 3,071,901
--------- ---------
PROPERTY AND EOUIPMENT 213,671 262,374
---------------------- --------- ---------
OTHER ASSETS
------------
Cash surrender value of life insurance 92,404 38,987
Deposits 327,704 224,550
--------- ---------
Total other assets 420,108 263,537
--------- ---------
TOTAL ASSETS 3,766,709 3,597,812
------------ ========= =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EOUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
<TABLE>
<S> <C> <C>
Notes payable - bank 0 360,000
Current maturities of long-term debt 147,495 176,676
Accounts payable 462,383 491,747
Accruals and other current liabilities 323,678 229,980
--------- ---------
Total current liabilities 933,556 1,258,403
--------- ---------
LONG-TERM DEBT
--------------
Term notes payable - bank 326,899 503,575
Less: current portion 147,495 176,676
--------- ---------
Net long-term debt 179,404 326,899
--------- ---------
TOTAL LIABILITIES 1,112,960 1,585,302
----------------- --------- ---------
STOCKHOLDERS' EOUITY
--------------------
Common stock - no par value -
10,000 shares authorized;
1,000 shares issued and outstanding 10,000 10,000
Retained earnings 2,643,749 2,002,510
--------- ---------
Total stockholders' equity 2,653,749 2,012,510
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 3,766,709 3,597,812
-------------------- ========= =========
</TABLE>
See accountants' audit report and accompanying notes.
2
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
STATEMENTS OF EARNINGS
----------------------
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
----------------------------------------------
1998 Pct 1997 Pct
--------- ------ --------- ------
<TABLE>
<CAPTION>
SALES
-----
<S> <C> <C> <C> <C>
Sales - Walrus Products 8,250,453 84.92 6,869,264 75.56
Sales - Distributed Products 1,385,004 14.26 2,066,987 22.74
Commissions 43,674 0.45 140,412 1.54
Service Income 36,210 0.37 14,000 0.15
--------- ------ --------- ------
Total sales 9,715,341 100.00 9,090,663 100.00
--------- ------ --------- ------
COST OF SALES
-------------
Walrus division 4,816,884 58.38 4,225,093 61.51
Distributor products 1,000,543 72.24 1,456,340 70.46
--------- ------ --------- ------
Total cost of sales 5,817,427 59.88 5,681,433 62.50
--------- ------ --------- ------
GROSS PROFIT
------------
Walrus division 3,433,569 41.62 2,644,171 38.49
Distributor products 384,461 27.76 610,647 29.54
Commissions 43,674 100.00 140,412 100.00
Service Income 36,210 100.00 14,000 100.00
--------- ------ --------- ------
Total gross profit 3,897,914 40.12 3,409,230 37.50
--------- ------ --------- ------
EXPENSES
--------
Sales 1,713,503 17.64 1,535,737 16.89
Administration 1,076,426 11.08 1,009,247 11.10
--------- ------ --------- ------
Total expenses 2,789,929 28.72 2,544,984 28.00
--------- ------ --------- ------
NET INCOME BEFORE TAXES 1,107,985 11.40 864,246 9.51
-----------------------
PROVISION FOR TAXES 69,000 0.71 38,753 0.43
------------------- --------- ------ --------- ------
NET INCOME BEFORE
EXTRAORDINARY ITEMS 1,038,985 10.69 825,493 9.08
-------------------
EXTRAORDINARY ITEMS 225,000 2.32 (152,226) (1.67)
------------------- --------- ------ --------- ------
NET INCOME 1,263,985 13.01 673,267 7.41
----------
RETAINED EARNINGS
BEGINNING OF YEAR 2,002,510 1,751,243
-----------------
LESS: DIVIDENDS 622,746 422,000
--------------- --------- ---------
RETAINED EARNINGS
END OF YEAR 2,643,749 2,002,510
----------- ========= =========
</TABLE>
See accountants' audit report and accompanying notes.
3
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
----------------------------------------- ----
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
CASH PROVIDED BY (APPLIED TO)
OPERATING ACTIVITIES
--------------------
Net income 1,263,985 673,267
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 96,265 92,061
Changes in operating assets and
liabilities:
Accounts receivable 71,724 (209,362)
Inventory 19,433 19,324
Miscellaneous receivables (10,388) (10,094)
Prepaid expenses 28,028 12,258
Cash surrender value of life insurance (53,417) (19,375)
Accounts payable (29,364) (195,661)
Accruals & other current liabilities 93,698 44,598
Tax and utility deposits (103,154) (85,687)
---------- --------
Net cash provided by/(applied to)
operating activities 1,376,810 321,329
---------- --------
CASH (APPLIED TO)
INVESTING ACTIVITIES
--------------------
Acquisition of fixed assets (47,562) (26,922)
---------- --------
CASH (APPLIED TO)
FINANCING ACTIVITIES
--------------------
Dividends to stockholders (622,746) (422,000)
Loans from/(repayments to) stockholders (5,722) (6,490)
Increase/(decrease) in notes payable (536,676) 58,324
---------- --------
Net cash provided by/(applied to)
financing activities (1,165,144) (370,166)
---------- --------
NET CASH FLOW 164,104 (75,759)
-------------
CASH AT BEGINNING OF YEAR 168,906 244,665
------------------------- ---------- --------
CASH AT END OF YEAR 333,010 168,906
------------------- ========== ========
SUPPLEMENTAL CASH FLOW DATA
Cash paid during the year for:
Interest 94,942 97,335
Income Taxes 51,655 30,099
</TABLE>
See accountants' audit report and accompanying notes.
4
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FEBRUARY 28, 1998
-----------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A) NATURE OF BUSINESS
------------------
The company develops and manufactures custom fluid high flow delivery
systems for which some patents are acquired. They also sell specialty
medical products purchased from other medical device manufacturers.
B) BASIS OF ACCOUNTING
-------------------
The company uses the accrual method of accounting. Sales revenues and
commissions are recorded at the time of product shipment and expenses
are recorded when incurred by the company.
C) CONCENTRATION OF RISK
---------------------
Amounts on deposit at a single financial institution occasionally exceed
the $100,000 federally insured limit. As of February 28, 1998, the
amounts on deposit exceeded the insured limit by $29,514.
D) ESTIMATES
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
E) CASH EQUIVALENTS
----------------
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. The Company has also
included a small mutual fund in cash equivalents since it is readily
convertible to cash and the balance is immaterial on the financial
statements taken as a whole.
F) INVENTORIES
-----------
The inventory is valued at the lower of cost (first-in, first-out
method) or market. Inventories consist of:
<TABLE>
<CAPTION>
<S> <C> <C>
Raw Materials $ 493,165 $ 430,177
Work in Process 213,542 219,189
Finished Goods 558,549 635,323
---------- ----------
$1,265,256 $1,284,689
========== ==========
</TABLE>
5
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FEBRUARY 28, 1998
-----------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
G) PROPERTY AND EQUIPMENT
----------------------
The company depreciates its property and equipment over their
estimated useful lives by the accelerated and straight line methods.
Expenditures for maintenance and repairs are charged directly to the
appropriate operating account at the time the expense is incurred.
Expenditures representing additions, betterments, and capitalized
lease obligations are included in property and equipment.
H) S CORPORATION - INCOME TAX STATUS
---------------------------------
The Company, with the consent of its shareholders, had elected under
the Internal Revenue Code to be an S corporation effective March 1,
1988. In lieu of corporate income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the Company's
taxable income. Thus, no provision for federal income taxes and only
the portion of state taxes payable by the corporation are included
within these financial statements.
I) ACCOUNTS RECEIVABLE
-------------------
The allowance for doubtful accounts is based on management's
evaluation of outstanding accounts receivable at the end of the
year. Due to the amount of bad debts incurred in fiscal year 1998 as
noted below, management has decided to record an allowance of
$10,000 for 1998. The allowance was zero for 1997 as management
believed substantially all of the receivables would be collectible.
Bad debts were $5,861 for 1998 and $389 for 1997.
NOTE 2 - RETAINED EARNINGS
-----------------
The components of retained earnings at the end of the year are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Pre-election accumulations $ 245,560 $ 245,560
Other adjustments account (237,580) (250,106)
Accumulated adjustments account 2,635,769 2,007,056
---------- ----------
Total Retained Earnings $2,643,749 $2,002,510
========== ==========
</TABLE>
6
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FEBRUARY 28, 1998
-----------------
NOTE 3 - BUILDING RENTAL
---------------
The Company conducts it operations from leased facilities. On March 10,
1997, the Company entered into a new forty-one month lease, classified
as an operating lease, which expires on August 31, 2000 with an option
to renew for two additional years. The initial base rent was
$121,439.41 payable in monthly installments. Also, as additional rent,
the Company pays its proportionate share of the real estate taxes and
operating costs of the building of which the premises are a part. The
additional rent is included in the monthly payments. The total rent
expense for the year was $206,410. The base rent increases February 1
of each year as follows:
<TABLE>
<CAPTION>
Annual Monthly
------------ ----------
<S> <C> <C>
1998 $139,360.99 $11,613.41
1999 144,898.49 12,074.87
2000 86,074.24* 12,296.32
</TABLE>
* 7 months only (2/l/00 - 8/31/00)
NOTE 4 - SALES
-----
During fiscal 1998, there was no one customer to whom sales of Walrus
products or distributor products exceeded 10% of the corporation's
sales. As noted below, the sale of distributor products was comprised
primarily of Pall Biomedical products and the rights to this line were
sold during the year.
NOTE 5 - SUPPLIERS
---------
Elcam Plastics, an Israeli company, provided 39% and NP Medical, Inc.
provided 16% of the material purchases during fiscal 1998 for Walrus
Products. No other company supplied more than 10% of Walrus materials
purchased.
Pall Biomedical Inc. accounted for virtually all of the distributor
products purchased during the current year. As noted below, the rights
to this line were sold during the year.
NOTE 6 - EXTRAORDINARY ITEMS
-------------------
During 1997, the Company incurred legal, investment banking and
accounting fees in relation to a proposed sale of substantially all of
its assets to an outside third party. Several issues could not be
resolved and the sale was never consummated.
During 1998, the Company sold its rights to the exclusive distribution
of Pall Corporation products in a certain territory to an unrelated
corporation. The Company received $225,000 at the time of the sale and
will receive another $225,000 subject to certain contingencies.
7
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FEBRUARY 28, 1998
-----------------
NOTE 7 - NOTES PAYABLE - BANK
--------------------
Currently, the corporation has three agreements with Woburn National
Bank for financing. The first is a $750,000 revolving line of credit
which carries interest set at prime plus 1.0% and is evidenced by a
demand note. The second is a $633,312 sixty month term loan with
interest set at prime plus 2.0% and matures on August 20, 2000. The
third is a $150,000 thirty-six month term loan with interest set at
prime plus 2.0% and matures on August 20, 1998. These loans are secured
by a first security interest on "all business assets" and have the
unconditional guaranty of A. Walter MacEachern and Michael A. Russell.
The corporation is in compliance with all loan covenants as of February
28, 1998.
The balance of each loan on February 28, 1998 is:
<TABLE>
<CAPTION>
Current Long-term Total
---------- --------- ---------
<S> <C> <C> <C>
Term loan $126,672 $179,404 $306,076
Term loan
(equipment) 20,823 -0- 20,823
Line of credit -0- -0- -0-
-------- -------- --------
Total $147,495 $179,404 $326,899
======== ======== ========
Debt maturing in the next five years consists of:
Current Long-Term
--------- ---------
Fiscal Y/E 2/99 $147,495
2/00 $126,672
2/01 52,732
2/02 -0-
2/03 -0-
--------
$147,495 $179,404
======== ========
</TABLE>
NOTE 8 - SUBSEQUENT EVENTS
-----------------
As of the date of the auditors' report, the stockholders were
negotiating a sale of their shares to an unrelated third party.
8
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
SCHEDULES OF PROPERTY AND EOUIPMENT
-----------------------------------
FEBRUARY 28, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
PROPERTY AND EOUIPMENT
Equipment 520,706 492,149
Accumulated depreciation 376,843 302,482
------- -------
143,863 189,667
======= =======
Motor Vehicles 57,292 92,145
Accumulated depreciation 29,822 49,384
------- -------
27,470 42,761
======= =======
Leasehold Improvements 61,103 42,553
Accumulated depreciation 18,765 12,607
------- -------
42,338 29,946
------- -------
Total property and equipment 213,671 262,374
======= =======
</TABLE>
9
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
SCHEDULES TO STATEMENTS OF EARNINGS
-----------------------------------
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
----------------------------------------------
<TABLE>
<CAPTION>
1998 Pct 1997 Pct
---------- ------ --------- -----
<S> <C> <C> <C> <C>
COST OF SALES - WALRUS PRODUCTS
-------------------------------
Beginning inventory 963,603 9.92 942,096 10.36
Purchases 2,607,113 26.84 2,188,686 24.08
Labor and related costs 1,820,348 18.74 1,570,966 17.28
Supplies and other costs 555,918 5.72 486,948 5.36
--------- ----- --------- -----
Available for sale 5,946,982 61.21 5,188,696 57.08
Less - ending inventory 1,130,098 11.63 963,603 10.60
--------- ----- --------- -----
Total cost of sales 4,816,884 49.58 4,225,093 46.48
========= ===== ========= =====
COST OF SALES DISTRIBUTOR PRODUCTS
----------------------------------
Beginning inventory 321,087 3.30 361,917 3.98
Purchases 814,613 8.38 1,415,510 15.57
--------- ----- --------- -----
Available for sale 1,135,700 11.69 1,777,427 19.55
Less - ending inventory 135,157 1.39 321,087 3.53
--------- ----- --------- -----
Total cost of sales 1,000,543 10.30 1,456,340 16.02
========= ===== ========= =====
SALES EXPENSE
-------------
Salaries and wages 651,250 6.70 576,858 6.35
Fringe benefits 101,279 1.04 95,575 1.05
--------- ----- --------- -----
Total 752,529 7.75 672,433 7.40
Commissions 436,754 4.50 398,439 4.38
Travel and entertainment 279,090 2.87 227,457 2.50
Communications 59,173 0.61 66,383 0.73
Promotion and marketing 75,017 0.77 49,481 0.54
Computer expenses 59,609 0.61 73,093 0.80
Other sales expenses 12,371 0.13 19,988 0.22
Occupancy expense 38,960 0.40 28,463 0.31
--------- ----- --------- -----
Total sales expense 1,713,503 17.64 1,535,737 16.89
========= ===== ========= =====
ADMINISTRATION EXPENSE
----------------------
Salaries and wages 491,276 5.06 467,878 5.15
Fringe benefits 69,868 0.72 73,420 0.81
--------- ----- --------- -----
Total 561,144 5.78 541,298 5.95
Professional services 151,099 1.56 140,141 1.54
Travel and entertainment 83,373 0.86 80,794 0.89
Officers' life insurance (4,920) (0.05) 26,147 0.29
Financial expense 102,857 1.06 90,673 1.00
Other administrative expenses 55,145 0.57 26,497 0.29
Communications 29,336 0.30 33,526 0.37
Computer expenses 42,149 0.43 43,354 0.48
Occupancy expense 55,576 0.57 22,525 0.25
Equipment expense 667 0.01 4,292 0.05
--------- ----- --------- -----
Total administration expense 1,076,426 11.08 1,009,247 11.10
========= ===== ========= =====
</TABLE>
10
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
FINANCIAL STATEMENT RATIOS
--------------------------
FEBRUARY 28, 1998 and 1997
--------------------------
1998 1997
----------- -----------
RATIOS TO MEASURE RETURN ON INVESTMENTS
1. RETURN ON EOUITY 54.18% 35.68%
-------------------
Measures the return on the investment
made by the owners.
Net income
----------------------------
Average shareholders, equity
2. RETURN ON ASSETS 33.81% 18.83%
-------------------
Measures return on the gross investment in
the business, including that financed by the
owners as well as that financed by creditors.
Net income
------------
Total assets
RATIOS TO MEASURE SAFETY AND LIQUIDITY
1. NET WORKING CAPITAL 2,199,373 1,813,503
----------------------
Indicates the ability to meet short-term
obligations, reporting the excess of
current assets over current liabilities.
Current Assets
-------------------
Current Liabilities
2. CURRENT RATIO 3.43 : 1 2.47 : 1
----------------
Also indicates the ability to pay
current liabilities as they mature.
Current assets
-------------------
Current liabilities
3. QUICK RATIO 1.94 : 1 1.35 : 1
--------------
Measures the ability to meet
current liabilities with cash and
accounts receivable.
Cash + accounts receivable
--------------------------
Current liabilities
11
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
FINANCIAL STATEMENT RATIOS
--------------------------
FEBRUARY 28, 1998 and 1997
--------------------------
1998 1997
------------- -------------
4. DEBT TO EQUITY 0.41 : 1 0.78 : 1
-----------------
Indicates the proportion of capital
provided by creditors rather than by owners.
Total debt
-------------
Total equity
5. LONG-TERM DEBT RATIO 6.33% 13.97%
-----------------------
Indicates the balance between total
equity ownership and long-term debt.
Long-term debt
----------------------------------
Capitalization(long-term debt plus
stockholders' equity)
6. TIMES INTEREST EARNED 14.31 times 7.92 times
------------------------
Measures the ability of a company to
cover the payment of interest to lenders.
Income before interest
----------------------
Interest expense
7. DEBT SERVICE RATIO 5.61 times 1.22 times
---------------------
An indicator of the company's
ability to pay both the interest
and the current principal installments
on its outstanding debt.
Income before interest
----------------------
Interest expense + current portion
of long-term debt
12
<PAGE>
MEDICAL PARAMETERS, INC.
------------------------
FINANCIAL STATEMENT RATIOS
--------------------------
FEBRUARY 28, 1998 and 1997
1998 1997
------------ ------------
RATIOS TO MEASURE OPERATING EFFICIENCY
--------------------------------------
1. COLLECTION PERIOD 39.15 days 39.87 days
- --------------------
Measures the number of days' sales that
are uncollected in average accounts
receivable providing an idea of how
successful the firm is in collecting
its customer debt.
Average accounts receivable
---------------------------
Average daily sales
2. RECEIVABLE TURNOVER RATIO 6.64 times 6.52 times
- ----------------------------
An alternative, but equivalent, measure
of the efficiency of the company's
receivable collection efforts.
Total sales
-----------
Average accounts receivable
3. NUMBER OF DAYS' SALES IN INVENTORY 56.98 days 59.23 days
- -------------------------------------
An indicator of the amount of inventory
maintained relative to the company's
sales (as measured by cost of goods
sold).
Average inventory
-----------------
Average daily cost of sales
4. INVENTORY TURNOVER RATIO 4.56 times 4.39 times
- ---------------------------
An alternative measure of how
quickly inventory is sold.
Cost of goods sold
------------------
Average inventory
13
<PAGE>
UNAUDITED
May `98
MEDICAL PARAMETER, INC.
STATEMENTS OF NET INCOME AND RETAINED EARNINGS
FOR THE MONTHS ENDED MAY 31, 1998 AND 1997
<TABLE>
<CAPTION>
Fiscal 99 Fiscal 99 Fiscal 98
Current month Percent Year to date Percent Year to date Percent
-------------- --------- ------------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales
Walrus $725,323 77.2% $2,100,460 80.7% $1,890,815 81.0%
Distributor products 9,966 1.1% 38,136 1.6% 446,746 19.1%
Commission rep pro 204,285 21.7% 204,285 8.7% 0 0.0%
-------- ----- ---------- ----- ---------- -----
Total sa 939,574 100.0% 2,342,881 100.0% 2,337,561 100.1%
Sales Discounts (2,606) (0.3%) (10,093) (0.4%)
Cost of goods sold
Walrus 436,343 60.2% 1,187,438 56.5% 1,111,681 58.8%
Distributor products 7,579 76.0% 30,454 79.9% 315,487 70.6%
Commission rep products
-------- ----- ---------- ----- ---------- -----
Total co 443,922 47.2% 1,217,892 62.0% 1,427,168 61.1%
Gross profit
Walrus 286,374 39.5% 902,929 43.0% 779,134 41.2%
Distributor products 2,387 24.0% 7,682 20.1% 131,259 29.4%
Commission, rep pro 204,285 100.0% 204,285 100.0% 0 #DIV/0!
-------- ----- ---------- ----- ---------- -----
Total gr. 493,046 52.5% 1,114,896 47.6% 910,393 38.9%
Expenses
Sales 138,677 14.8% 438,627 18.7% 353,855 15.1%
Administration 85,378 9.1% 268,507 11.5% 254,403 10.9%
-------- ----- ---------- ----- ---------- -----
Total ex 224,055 23.9% 707,134 30.2% 608,258 26.0%
Earnings before interest and 268,991 28.6% 407,762 17.4% 302,135 12.9%
Interest 2,489 0.3% 7,761 0.3% 24,244 1.0%
Sub-S income tax equivalent 102,217 10.9% 154,950 6.6% 114,811 4.9%
-------- ----- ---------- ----- ---------- -----
NET INCOME $164,285 17.7% $ 245,051 10.8% $ 163,080 8.0%
======== ===== ========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
RETAINED EARNINGS Fiscal 99 Fiscal 98
Year to date Year to date
------------ ------------
Beginning of year $2,098,499 $2,091,657
Net income 245,051 163,080
Less Sub-S dividends 93,000 234,483
---------- ----------
END OF PERIOD $2,250,550 $2,020,254
========== ==========
</TABLE>
Page 1
<PAGE>
May `98
MEDICAL PARAMETERS, INC
SCHEDULE OF COST OF GOODS SOLD
FOR THE TWELVE MONTHS ENDED MAY 31,1998 AND 1997
<TABLE>
<CAPTION>
Fiscal 99 Fiscal 99 Fiscal 98
Current month Percent Year to date Percent Year to date Percent
----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Labor and fringe benefits
Beginni 225,831 51.8% $ 179,671 15.1% 138,371 12.5%
Labor 82,996 19.0% 296,910 25.0% 259,840 23.4%
Fringe D 24,866 5.7% 65,111 5.5% 40,448 4.4%
Ending i (196,364) (45.0%) (196,364) (16.5%) (136,798) (12.3%)
----------------------- ---------------------- ------------------------
Total labor and fring $ 137,329 31.5% $ 345,328 29.1% $ 311,861 28.0%
======================= ====================== ========================
Materials
Beginni 872,201 199.9% $ 849,362 71.5% 751,820 67.6%
Material 187,607 43.1% 631,024 53.2% 634,096 57.0%
Sterilizi 16,745 3.8% 50,244 4.2% 31,080 2.8%
Royalty 0 0.0% 0 0.0% 902 0.1%
Ending: (851,280) ###### (851,280) (71.7%) (793,459) (71.4%)
----------------------- ---------------------- ------------------------
Total materials $ 225,273 51.7% $ 679,350 57.2% $ 624,439 56.1%
======================= ====================== ========================
Production overhead
Beginni 127,030 29.1% $ 101,065 8.5% 78,553 7.1%
Salary a. 30,651 7.0% 87,761 7.4% 82,437 7.4%
Fringe b 6,507 1.5% 14,348 1.2% 10,232 0.9%
Occup 13,967 3.2% 49,122 4.1% 59,638 5.4%
Comput 3,173 0.7% 13,727 1.2% 6,761 0.6%
Other 2,000 0.7% 6,086 0.6% 12,135 1.1%
Equipm. 0 0.0% 208 0.0% 2,674 0.2%
Ending: (110,455) (25.3%) (110,455) (9.3%) (77,049) (6.9%)
----------------------- ---------------------- ------------------------
Total production ove: $ 73,741 16.9% $ 162,760 13.7% $ 175,381 15.8%
======================= ====================== ========================
Total Walrus cost of $ 436,343 100.1% $1,187,438 100.0% $ 1,111,681 99.9%
======================= ====================== ========================
</TABLE>
Page 2
<PAGE>
May `98
MEDICAL PARAMETERS, INC.
SCHEDULES OF SALES AND ADMINISTRATION EXPENSES
FOR THE TWELVE MONTHS ENDED MAY 31, 1998 AND 1997
<TABLE>
<CAPTION>
Fiscal 99 Fiscal 99 Fiscal 98
Current month Percent Year to date Percent Year to date Percent
------------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
SALES EXPENSES,
Salary and wages $ 58,163 41.9% $177,022 40.4% $135,712 38.4%
Fringe benefits 14,458 10.4% 32,011 7.3% 26,283 7.4%
------------------- ------------------- -----------------
Salary 72,021 52.3% 200,033 47.7% 161,995 45.8%
Commission 37,828 27.3% 98,079 22.4% 95,804 27.1%
------------------- ------------------- -----------------
Subtotal 110,449 79.6% 307,112 70.1% 257,799 72.9%
Travel and entertain 10,019 7.2% 39,066 8.9% 43,448 12.3%
Training 0 0.0% 10,542 2.4% 4,702
Meetings 403 0.3% 8,556 2.0%
Shows 1,378 1.0% 16,986 3.9% 4,858
Computer 3,173 2.3% 13,727 3.1% 6,761 1.9%
Communication 5,409 3.9% 11,109 2.5% 14,144 4.0%
Promotion and mark 3,240 2.3% 15,993 3.6% 5,003 1.4%
Occupancy expense 2,358 1.7% 8,293 1.9% 10,068 2.8%
Other 2,248 1.6% 7,243 1.7% 7,072 2.0%
------------------- ------------------- -----------------
Total $138,677 99.9% $438,627 100.1% $353,855 97.3%
=================== =================== =================
</TABLE>
Page 3
<PAGE>
May '98
<TABLE>
<CAPTION>
ADMINISTRATION EXPENS
<S> <C> <C> <C> <C> <C> <C>
Salary and wages $47,361 55.5% $146,896 54.7% $123,657 48.6%
Fringe benefits 10,642 12.5% 25,120 9.4% 19,404 7.6%
------- ----- -------- ----- -------- ----
Salary, 58,003 68.0% 172,016 64.1% 143,061 56.2%
Travel and entertain 5,036 5.9% 21,150 7.9% 18,074 7.2%
Research and Devel 677 0.8% 2,819 1.0%
Professional service 3,145 3.7% 22,955 0.5% 49,102 19.3%
Insurance expense 1,869 2.2% 10,813 4.0% 5,103 2.0%
Other 3,763 4.4% 10,150 3.8% 6,099 2.4%
Communication 2,317 2.7% 8,063 3.0% 6,828 2.7%
Computer expense 5,108 6.0% 10,386 3.9% 8,027 3.2%
Taxes income 3,000 3.5% 9,000 3.4% 9,282
Occupancy expense 1,981 2.3% 547 0.2% 8,702 3.4%
Equipment expense 479 0.6% 608 0.2% 125 0.0%
------- ----- -------- ----- -------- ----
Total a $85,378 100.1% $268,507 100.0% $254,403 96.4%
======= ===== ======== ===== ======== ====
</TABLE>
Page 4
<PAGE>
UNAUDITED
Bal Sheet
MEDICAL PARAMETERS, INC.
BALANCE SHEET
May-98
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 629,968
Accounts receivable 1,420,969
Inventory, at cost 1,287,760
Prepaid and other current assets 38,821
---------
3,377,518
PROPERTY AND EQUIPMENT
Cost 661,901
Accumulated depreciation 448,416
213,485
OTHER ASSETS 399,468
Deposits
TOTAL ASSETS 3,990,471
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank 0
Accounts payable 642,147
Due to stockholders 29,948
Tax dividend payable
Accruals and other current liabilities 229,416
Current portion of long-term debt
Total Current Liabilities 841,615
LONG TERM DEBT
Term note - bank 282,730
less; current portion
STOCKHOLDERS EQUITY
Common stock, no par value, 10,000
Retained earnings 2,856,396
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY 3,990,741
</TABLE>
<PAGE>
Schedule 4.1 (C) - List of Current Indebtedness
<TABLE>
<CAPTION>
<S> <C>
Woburn National Bank $750000 Line of Credit..........$0
Woburn National Bank $150000 Equipment Loan..........$0
Woburn National Bank $633312 Term Loan.........$253,296
Ford Motor Credit (Automobile Loan).............$24,816
Lloyds Credit (Insurance).......................$13,706
Woburn National Bank subordinated loans......$3,050,000
Annual Massachusetts Corporate Excise Tax
Annual Massachusetts Annual Report
Semi-annual Woburn personal property taxes
Massachusetts Vehicle Excise Tax
Quarterly Federal Unemployment Tax
Quarterly Federal Social Security and Medicare Taxes
Quarterly State Unemployment Taxes (Filed in States where the Field sales
force resides)
Annual Pennsylvania Foreign Franchise' Tax
</TABLE>
<PAGE>
Schedule 4.1(f) Tax Issues
City of Philadelphia Business Privilege Taxes (1986- 1998)........... $18,117
Note:MPI is protesting this tax assessment as it does not
conduct business in Philadelphia as defined in the
Business Privilege Tax Ordinance and Regulations.
We are working with a local CPA, Jeremy Oliver.
(610) 896-9220
The Company is a Subchapter S Corporation and has historically made quarterly
distributions to shareholders in the maximum amount of Federal and State taxes
due from the shareholders in the highest tax bracket.
The Company files an annual Form 1120-S.
<PAGE>
Schedule 4.1 (g) -- Encumbrances to Property
None
<PAGE>
SCHEDULE 4.1 (h)
----------------
<TABLE>
<CAPTION>
UNITED STATES PATENTS
---------------------
<S> <C> <C>
PATENT TITLE ISSUE DATE
------ ----- ----------
4,860,757 Guidewire Advancement System August 29, 1989
4,917,094 Guidewire Advancement System April 17, 1990
5,186,179 Guidewire Advancement System February 16, 1993
5,438,993 Guidewire Advancement System August 8, 1995
5,448,993 Guidewire Advancement System September 12, 1995
5,273,042 Guidewire Advancement System December 28, 1993
4,857,062 Catheter Introducer Valve August 15, 1989
5,758,657 Pressure Transducer Positioning System June 2, 1998
5,769,083 Pressure Transducer Positioning System June 23, 1998
</TABLE>
UNITED STATES PATENT APPLICATIONS
---------------------------------
<TABLE>
<CAPTION>
PATENT
APPLICATION TITLE DATE FILED
- -------------- ----- ----------
<S> <C> <C>
08/455,698 Guidewire Advancement System May 31, 1995/1/
09/069,431 Guidewire Advancement System April 29, 1998
08/828,231 Multi-Lumen Percutaneous Introducer April 3, 1997/2/
Multi-Lumen Percutaneous Introducer July 29, 1998
09/075,066 Pressure Transducer Positioning System May 8, 1998
</TABLE>
- -----------------------
1 Expected Issue Date September 22, 1998
2 Expected Issue Date September 1, 1998
<PAGE>
SCHEDULE 4.1 (h)
Page 2
FOREIGN PATENT APPLICATIONS
---------------------------
<TABLE>
<CAPTION>
PATENT
COUNTRY APPLICATION TITLE DATE FILED
- ------- -------------- ----- -----------------
<S> <C> <C> <C>
Canada 2,183,679 Pressure Transducer Positioning System February 17, 1995
European 95911031.3 Pressure Transducer Positioning System February 17, 1995
Japan 521931/95 Pressure Transducer Positioning System February 17, 1995
PCT PCT/US95/02024 Pressure Transducer Positioning System February 17, 1995
</TABLE>
FEDERALLY REGISTERED
--------------------
U.S. TRADEMARKS AND APPLICATIONS
--------------------------------
<TABLE>
<CAPTION>
REGISTRATION NO. MARK REGISTRATION DATE
- ---------------- ---- -----------------
<S> <C> <C>
2,O33,989 ADVANCIT January 28, 1997
1,721,714 WALRUS October 6, 1992
LEVELIT Intend to use application filed on 7/28/98
</TABLE>
COMMON LAW TRADEMARKS
MARK FIRST USE
---- ---------
HI-FLO 3/1984/3/
- -------------------------
3 An application for Federal registration of the Trademark "HIFLO" was filed
bY NYCOMED IMAGING of Oslo, Norway for Int'l Class 10 (For needles for
injection for medical purposes) on November 25, 1996. A request to extend
time for filing Notice of Opposition was filed on July 15, 1998 and expires
August 14, 1998.
<PAGE>
SCHEDULE 4.1(h)
Page 3
U.S. REGISTERED COPYRIGHTS
--------------------------
REGISTRATION NO. TITLE DATE OF REGISTRATION
---------------- ----- --------------------
Txu 706-611 CUSTOMER PROFILE August 30,1995
Customer Information System
<PAGE>
Schedule 4.1(i)-Contracts
* Employment agreement with Richard M. Housman, Director of Operations
* Paychex Section 125 Plan Premium Only Plan Service Agreement
* Cost Management Corporation Standard Service Agreement (Unemployment Insurance
Claims)
* First Bank National Association Merchant Member Agreement (VISA)
* Summit Financial Corporation Service Agreement for Medical Parameters 401(k)
Plan
* Distribution Agreement with CardioDynamics
* Distributor's Agreement with HDC
* Indemnity Agreement for Gary MacEachern egarding the Distribution Rights and
Asset Transfer Agreement with Stapic Corporation.
* Charter Systems Hardware Support Agreement (Server)
* Charter Systems Master Network Support agreement
* Great Plains Software Customer Support
* Micro-MRP Customer Support Plan
* Laserstar-PM Service Agreement
* Royalty Agreement with Daniel Herr, MD regarding the Herr CAVII
* Building Lease with DIV Woburn. LI.C
* Hanover Insurance Company (Policy No. AMN 5069807 02)-- Automobile
* Hanover Insurance Company (Policy No. 7DN 3665428 07)--Property/General
Liability/ Inland Marine
* Hanover Insurance Company (Policy No. U423 67 71) -- Umbrella
* MEDMARC Casualty Insurance Company (Policy No. 98MA38005)-- Product Liability
* Eastern Casualty Insurance Company ( Policy No. WC93605001)--Workmans'
Compensation-MA
* Hanover Insurance Company ( Policy No. WHN 5746704)-- Workmans' Compensation
GA/IL/VI/MI/CT
* Bureau of Worker's Compensation (Policy No. 1 132741-O)-Workmans Compensation-
OH
* Texas Workers Compensation Insurance Fund (Policy No. 0001019017)- Workmans
Compensation-TX
* Hanover lnsurance Company ( Policy No. BON-1621815) 401(k) Employee Dishonesty
* Woburn National Bank $633312 Term Loan
* Woburn National Bank $3050000 subordinated loan
<PAGE>
Schedule 4.1(j)--Litigation; Compliance with Laws
In the matter referred to as California Proposition 65 MPI is a member of an
industry task force trying to reach a negotiated settlement with The Working
Group on Carcinogens and Immune Suppressing Chemicals (CISC). CISC has filed
suit in California regarding this matter. Medical Parameters is not a named
defendant in this matter. It would be as a John Doe defendant. As a member of
the industry task force MPI would be entitled to be an part of the opt-in
settlement.
<PAGE>
Schedule 4.l(k)-Benefits
Health Insurance-HMO Blue sponsored by Blue Cross/Blue Shield
Long Term Disability- Reliance standard Life
401(k) Retirement Plan
Life Insurance (optional benefit)--American Pharmaceutical
Ten paid holidays
Vacation pay two weeks; after 7 years three weeks; after 12 years four weeks.
Five paid sick days per year
President's discretionary bonus plan
<PAGE>
Schedule 4.1(l)-Absence of Changes
The Company borrowed $3050000 in July and distributed the loan proceeds to the
shareholders, which equaled the AAA account in retained earnings. This
essentially eliminates the balance in the retained earnings.
<PAGE>
Schedule 4.1(m)--Licenses; Permits
The company has FDA registration number 1220565.
<PAGE>
Schedule 4.1(n)--Environmental Matters
None
<PAGE>
Schedule 4.1(o)--Employee and Labor Relations
None
<PAGE>
Schedule 4.1(q) Accounts; Safe Deposit Boxes; Powers of Attorney; Officers and
Directors
<TABLE>
<CAPTION>
<S> <C> <C>
Medical Parameters Inc. (Checking Account) Northern Bank and Trust (01-00-0002848058)
Medical Parameters Inc. (Checking Account) Woburn National Bank (143669)
Medical Parameters Inc. (Checking Account) Woburn National Bank (143677)
Gatron Corporation (Checking Account) Nothern Bank and Trust (01-00-02848112)
Fidelity Cash Reserves (Investment) Fidelity (055/0006384325)
Spartan MA Muni Income (Investment) Fidelity (070/0260796222)
Spartan MA Muni Money Mkt (Investment) Fidelity (426/0484870688)
</TABLE>
Borrowing Authority; A. Walter MacEachern, Michael Russell
Signatures: A. Walter MacEachern; Michael Russell; Mary MacEachern; Gary
MacEachern; Richard Housman (Note: Two signatures required for
amounts greater than $5000)
Wire Transfer Authority: A. Walter MacEachern; Michael Russell; Mary Eachern;
Gary MacEachern; Richard Houseman; Mary Paiva (limited
to transfers less than $10000)
<PAGE>
Schedule 4.1(r)--Regulatory Matters
None
<PAGE>
Schedule 4.1(s)--Agreements
None
<PAGE>
Schedule 4.1(t)--Facility Lease
See attached lease.
<PAGE>
Schedule 5.1(b)
At the closing the $3050000 subordinated loan will be outstanding. The parties
agree that the proceeds of the Newly Issued Securities Purchase Price will be
used on the closing date to repay this loan.
<PAGE>
Schedule 5.2 (d)(1)--Employee Listing
AllEmpSalaries _T_A 7/29/98
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Last First Hire Date Position Temp Desc. MaxOfHourly MaxOfWeekly
- -------------- ----------- --------- --------------------- ----------- -----------
Accardi Caterina 10/4/93 Assembler $8.00
Allen Dorothy 4/6/88 Assembler $7.75
Andreson Linda 4/4/98 Receptionist $9.00
Ardizzoni Lisa 8/3/92 Bookkeeper $10.71
Avelino Joseph 7/15/92 Salesperson $625.00
Avilies Migdalia 8/10/94 Assembler $7.65
Bach Vanna 3/20/97 Assembler $7.01
Bardelti Elisa 6/9/97 Accounting Clerk $11.06
Barron Steven 10/1/92 Sales Person $576.92
Barry Helen 1/8/91 Assembler $6.94
Bartel Ann 5/4/87 Job Leader $10.10
Bottari Maria 8/22/95 Assembler $6.85
Bourgeons Julietta 10/24/94 Assembler $7.00
Bradley Julia 1/18/88 Supervisor $11.30
Brennan Rose 11/30/87 Assembler $7.42
Caldwell Muriel 1/20/92 Assembler $7.10
Canada Juanita 5/1/95 Assembler $6.75
Cao Dung 9/19/97 Assembler $7.40
Capone Angelica 5/3/95 Assembler $7.40
Carmen Brenda 1/7/91 Assembler $9.83
Caso Lori 11/1/95 Assembler $7.25
Catania Angela 11/17/97 Assembler $6.65
Catania Cynthia 5/28/95 Assembler $6.65
Catania Mariko 10/31/84 Assembler $11.61
Catania Martin 8/30/82 Prod. Foreman $13.15
Chaddock Beverly 5/8/95 Assembler $8.00
Chase Gayle 6/1/92 Dir. of Sales/Marketing $1,634.61
Ciampa Antonietta 12/17/92 Assembler $9.45
Ciriello Dora 7/24/95 Assembler $6.80
Colarusso Ersilia 1/14/93 Assembler $7.70
Coluccicilo Josephine 2/25/98 Assembler $8.25
Costa Elisangela 3/30/98 Assembler $6.40
Coyle Hal 5/9/97 Sales Coordinator $442.31
D'Ampolo Grace 10/1/97 Assembler $6.94
De Amorim Fido 10/23/97 Assembler $6.25
De Amorim Sandra 6/20/97 Assembler $7.55
DeCosta Ulrike 1/8/97 Assembler $6.73
DeJesus Delia 4/8/96 Assembler $6.80
Deming Alba 11/23/92 Assembler $9.50
Diaz Roberto 4/15/97 Assembler $6.95
Diaz Tomasa 12/26/95 Assembler $6.75
Doto Caterina 4/22/96 Assembler $6.95
Duong Hon 6/24/96 Assembler $7.15
Dupont Carol 6/16/97 Assembler $6.99
Duquette Dennis 4/17/98 Maintenance $8.50
Durant Susan 11/30/93 Assembler $7.38
Federico Anna 9/20/95 Assembler $6.80
Fields, Jr. Elwyn 2/2/93 Salesperson $769.24
Fitzmeyer Ann 2/4/93 Assembler $7.00
Fitzpatrick Valerie 5/27/97 Assembler $6.50
Fierra Louis 4/10/95 Salesperson $0.00 $730.76
Florentino Helen 2/12/85 Assembler $8.34
Folk Sandra 8/29/88 Cust. Service Mngr. $672.01
Fucia Frances 8/14/95 Assembler $8.35
Gatta Maria 6/9/97 Assembler $6.50
Girardi Nancy 7/2/96 Assembler $6.80
Gonzalez Rose 11/15/93 Assembler $7.44
Gorman Evelyn 6/1/92 Assembler $7.57
Harrington Geraldine 3/23/93 Assembler $7.50
Haskell Joann 1/17/90 Assembler $10.52
</TABLE>
Page 1
<PAGE>
AllEmpSalaries_T_A 7/29/98
<TABLE>
<CAPTION>
Last First Hire Date Position Temp Desc. MaxOfHourly MaxOfWeekly
- -------------- ----------- --------- --------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Hernandez Lucia 11/23/92 Assembler $10.08
Hill, Jr. Donald 5/1/96 Salesperson $480.77
Hoang Thuy Thuy 1/12/97 Assembler $7.05
Housman Richard 5/1/97 Dir. of Operations $1,730.76
Huynh Son 6/25/98 Assembler $8.86
Huynh Tiien 6/16/97 Assembler $6.50
Ioshua Mary 11/16/83 Assembler $8.06
Larn Lisa 10/6/97 Assembler $7.40
Lanucha Peter 12/22/97 QA Manager $1,182.69
LaPointe Paula 5/9/97 Marketing Coordinator $504.79
Lauziene Kelly 4/15/96 Prod. Scheduler $9.00
Lukaris Joshua 6/8/98 Shipping/Rec. $8.50
Lynch Arthur 6/3/92 Nat'l Sales Manager $1,538.43
MacEachern A. Gary 11/16/83 Dir. of Prod. $1,826.92
MacEachern A. Walter 1/1/73 Pres/CEO $2,884.51
MacEachern Matthew 8/20/88 Graphics Illustrator $461.53
Martello Constance 3/28/84 Supervisor $10.21
Martinez Cristina 12/26/96 Assembler $7.25
Martini Dean 12/22/97 Salesperson $384.61
McDonagh Patrick 4/15/92 Maintenance $7.10
Medeiros Felizmina 4/9/98 Assembler $6.76
Mena Maria 6/23/97 Assembler $6.89
Merry Eileen 11/20/89 Assembler $7.69
Miller Deon 4/1/94 Salesperson $673.07
Mustene Incoronata 5/19/97 Assembler $6.40
O'Neil Linda 7/22/97 Assembler $6.76
Ori Tran 6/30/97 Assembler $6.05
Otero Cheryl 7/1/94 Admin. Ass't. $538.46
Paiva Manuel 3/1/95 MIS Consultant $769.23
Paiva Mary 11/16/75 Adm. Ass't. $738.75
Parker Julie 10/30/97 Assembler $6.55
Penta Connie 7/15/96 Assembler $7.65
Perez Jorge 1/24/94 Shipper/Rec. $10.80
Phann Dann 3/18/98 Assembler $6.65
Pottle Vera 1/20/92 Assembler $7.10
Power Mary 1/13/88 Assembler $7.09
Pulson Genevieve 8/31/92 Assembler $7.50
Quintero Maria 1/9/98 Assembler $7.02
Rayjada Kumud 11/3/97 Assembler $6.76
Riley Frances 10/3/94 Assembler $7.10
Rivas Ana 9/9/90 Assembler $7.30
Robinson Joan 1/7/91 Assembler $8.14
Rolli Jennifer 6/8/92 Assembler $10.92
Ronayne Pamela 8/17/97 Customer Serv. Rep. $11.25
Rosenfield Gil 2/1/88 Salesperson $1,180.00
Rosette Janice 3/1/93 Assembler $10.14
Russell, Jr Michael 12/22/88 Assembler
Russell, Sr. Michael 1/2/91 VP/COO $2,307.69
Sherry Rosemary 3/23/88 Assembler $8.70
Slater Dianne 4/18/84 Supervisor $11.09
Sorenson Lynne 1/4/89 Assembler $8.34
St. Germaine Rosemarie 6/17/92 Assembler $7.68
Sullivan Jennette 11//28/88 Assembler $7.26
Totorella Mildred 11/19/86 Assembler $9.23
Totorella Patricia 4/2/86 Assembler $9.75
Tran Cham 5/6/96 Assembler $7.25
Trau Robert 4/1/97 Salesperson $334.61
Treadaway Christopher 5/9/97 Salesperson $423.07
Turner Anna 10/3/94 Assembler $7.25
Vega Irma 11/6/95 Assembler $6.95
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
Last First Hire Date Position Temp Desc. MaxOfHourly MaxOfWeekly
- -------------- ----------- --------- --------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Viveros Moe 3/7/90 Purchasing Mgr. $881.68
Waterman Lee 2/14/93 Assembler $7.15
</TABLE>
Page 3
<PAGE>
Exhibit 10.50
-------------
LINE OF CREDIT NOTE
-------------------
$75,000,000 October 7_, 1998
Reading, Pennsylvania
FOR VALUE RECEIVED, ARROW INTERNATIONAL, INC. (the "Borrower") promises
to pay to the order of FIRST UNION NATIONAL BANK (the "Bank"), a national
banking association, at its address at 600 Penn Street, Reading, Pennsylvania
19601 or at such other place as Bank may from time to time designate in writing,
the principal sum of Seventy-Five Million Dollars ($75,000,000) or such greater
or lesser amount as shall be shown on the records of Bank as the unpaid
principal balance of this Note, on the sooner to occur of (a) February 28, 1999
(the "Maturity Date"), or (b) immediately upon demand by Bank following an Event
of Default (as defined below), on the terms and conditions described below.
1. Interest. (a) Rate; Payment. Interest shall accrue on the unpaid
-------- -------------
principal balance of this Note at a floating annual rate equal to the lower of
(i) the Prime Rate or (ii) an overnight rate as Bank quotes and Borrower accepts
from time to time. Borrower shall pay accrued interest on the first day of each
month commencing on November 1, 1998 and continuing on the same day of each
month thereafter until the principal amount of, and all accrued interest on,
this Note have been paid in full. Interest shall be calculated on the basis of
the actual number of days elapsed and a year of three hundred sixty (360) days.
Accrued interest also shall be payable on demand as and when the entire
principal balance of this Note is paid to Bank. Interest shall accrue on each
disbursement hereunder from the date such disbursement is made by Bank;
provided, however, that to the extent this Note represents a replacement,
substitution, renewal or refinancing of existing indebtedness, interest shall
accrue from the date hereof.
(b) Interest Rate Options. Borrower shall have the option of
---------------------
choosing a fixed rate of interest from time to time, as quoted by the Bank,
which fixed rate of interest will apply for a period from 7 to 180 days, in 7 or
30 day increments, for any portion of the unpaid principal balance of this Note,
so long as such portion exceeds One Million Dollars ($1,000,000). Any
outstanding principal balance for which a fixed rate of interest option is in
effect will be subject to the principal payment penalty set forth in Section
1(c) below.
(c) Principal Payment Penalty. If the Borrower pays any portion
-------------------------
of the principal balance of this Note at a time when interest accrues on such
principal portion at a fixed rate in accordance with Section 1(b) above,
Borrower shall indemnify Bank against Bank's loss or expense in employing
deposits as a consequence of such payment ("Indemnified Loss or Expense"). The
amount of such Indemnified Loss or Expense shall be determined by Bank based
upon the assumption that Bank funded 100% of such principal portion in the
London Interbank Market.
1
<PAGE>
Any such payment will also be accompanied by payment of all accrued and unpaid
interest due to the date of payment on the principal amount paid and all other
fees, expenses and other sums due and owing under this Note.
(d) Prime Rate. "Prime Rate" means a floating annual rate of
----------
interest that is designated from time to time by Bank as the Prime Rate and is
used by Bank as a reference base with respect to different interest rates
charged to borrowers generally. The interest rate payable hereunder shall change
simultaneously with and automatically upon Bank's designation of any change in
such reference rate. Bank's determination and designation from time to time of
the reference rate shall not in any way preclude Bank from making loans to other
borrowers at a rate which is higher or lower than or different from the
reference rate.
2. Maximum Legal Rate. Borrower shall not be obligated to pay and
------------------
Bank shall not collect interest at a rate in excess of the maximum permitted by
law or the maximum that will not subject Bank to any civil or criminal
penalties. If Borrower is required to pay interest at a rate in excess of such
maximum rate, the rate of interest shall immediately and automatically be
reduced to such maximum rate, and any payment made in excess of such maximum
rate, together with interest thereon at the rate provided herein from the date
of such payment, shall be immediately and automatically applied to the reduction
of the unpaid principal balance of this Note as of the date on which such excess
payment was made.
3. Loan Records. The actual amounts due and owing from time to time
------------
under this Note shall be evidenced by Bank's books and records of receipts and
disbursements hereunder. Bank shall set up and establish an account on the books
of Bank on which will be recorded advances under this Note and evidenced hereby,
payments on such advances and other appropriate debits and credits as provided
herein. Bank shall also record, in accordance with customary accounting
practice, all other interest, charges, expenses and other items properly
chargeable to Borrower hereunder, and other appropriate debits and credits. Such
books and records of Bank shall be presumed to be complete and accurate and
shall be deemed correct, except to the extent shown by Borrower to be manifestly
erroneous. The proceeds of any advance may be credited by Bank to a deposit
account of any Borrower or disbursed in any other manner requested by Borrower
and approved by Bank. All payments due under this Note are to be made in
immediately available funds. If Bank accepts payment in any other form, such
payment shall not be deemed to have been made until the funds comprising such
payment have actually been received or made available to Bank.
4. Collateral. As security for all indebtedness to Bank now or
----------
hereafter incurred by Borrower, under this Note or otherwise, Borrower grants
Bank a lien upon and security interest
2
<PAGE>
in any securities, instruments or other personal property of Borrower now or
hereafter in Bank's possession and in any deposit balances now or hereafter held
by Bank for Borrower's account and all proceeds of any such personal property or
deposit balances. Such liens and security interests shall be independent of
Bank's right of setoff. This Note and the indebtedness evidenced hereby shall be
additionally secured by any lien or security interest evidenced by a writing
(whether now existing or hereafter executed) which contains a provision to the
effect that such lien or security interest is intended to secure (a) this Note
or the indebtedness evidenced hereby, or (b) any category of liabilities,
obligations or the indebtedness of Borrower to Bank which includes this Note or
the indebtedness evidenced hereby, and all property subject to any such lien or
security interest shall be collateral for this Note.
5. Replacement. Borrower acknowledges and agrees that this Note
-----------
replaces and supersedes the two (2) promissory notes previously executed (a) by
Borrower dated January 29, 1996 in favor of Bank, and (b) by Borrower, Arrow
Medical Products, Inc., and Arrow International Export Corporation dated July
17, 1996 in favor of Bank in the principal amount of $45,000,000.
6. Application of Payments. All payments shall be applied first to
-----------------------
the payment in full of any costs incurred in the collection of any sum due under
this Note, including (without limitation) reasonable attorneys' fees, then to
the payment in full of any late charges, then to the payment in full of accrued,
unpaid interest and finally to the reduction of the unpaid principal balance of
this Note.
7. Default: Rights, Remedies.
-------------------------
(a) Events of Default. The following shall constitute Events of
-----------------
Default under this Note:
(i) Non-Payment. Failure by the Borrower to pay the
-----------
principal of or accrued interest on this Note when due.
(ii) Default Under Other Obligations. The Borrower:
-------------------------------
(A) defaults in any payment of principal of or interest
on any obligations for borrowed money (other than under the Note) or
for the deferred purchase price of property beyond any period of grace
provided with respect thereto; or
(B) defaults in the performance of any other agreement,
term or condition contained in any such obligation or in any agreement
relating thereto, if the effect of such default is to cause, or to
permit the holder or holders of such obligation (or a trustee
3
<PAGE>
on behalf of such holder or holders) to then cause, such obligation to
become due prior to its stated maturity.
(iii) Default Under Other Documents. An "Event of Default"
-----------------------------
or similar event shall have occurred and be continuing under any other note,
loan agreement or loan document regarding credit facilities extended to Borrower
by Bank.
(iv) Voluntary Bankruptcy, Etc. The commencement by the
-------------------------
Borrower of a voluntary case under the United States Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency, reorganization, rehabilitation or other similar law, or
the consent by it to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower or for any substantial part of its property, or the
making by it of any assignment for the benefit of creditors, or the failure of
the Borrower generally to pay its debts as such debts become due, or the taking
of corporate action by the Borrower in furtherance of any of the foregoing.
(v) Involuntary Bankruptcy, Etc. The entry of a decree or
---------------------------
order for relief by a court having jurisdiction in the premises in respect of
the Borrower in an involuntary case under the United States Bankruptcy Code, as
now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Borrower or for any substantial part of its property, or ordering the
winding-up or liquidation of its affairs and the continuance of any such decree
or order unstayed and in effect for a period of thirty (30) days.
(b) Acceleration.
------------
(i) Upon the occurrence of an Event of Default specified
in Sections 7(a)(i) through 7.1(a)(iii), Bank may, by written notice to
Borrower, terminate immediately and irrevocably the credit facility evidenced by
this Note and declare this Note to be due and payable, whereupon the principal
amount of this Note, together with accrued interest hereon and all other amounts
payable hereunder, shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the documents evidencing the same to the
contrary notwithstanding.
4
<PAGE>
(ii) Upon the occurrence of an Event of Default specified
in Sections 7(a)(iv) and 7(a)(v), the credit facility evidenced by this Note
shall automatically and immediately terminate and the unpaid principal balance
of, all accrued, unpaid interest on, and all other sums payable with regard to,
this Note shall automatically and immediately become due and payable, in all
cases without any action on the part of the Bank.
(c) Remedies. Upon the occurrence of an Event of Default,
--------
Bank may, immediately or at any time thereafter, exercise any or all of its
rights hereunder or under any agreement or otherwise under applicable law
against Borrower, against any person liable, either absolutely or contingently,
for payment of any indebtedness evidenced hereby, and in any collateral, and
such rights may be exercised in any order and shall not be prejudiced by any
delay in Bank's exercise thereof. At any time after an Event of Default, Bank
may, at its option and upon five (5) days written notice to Borrower, begin
accruing interest on this Note at a rate not to exceed three percent (3%) per
annum in excess of the rate of interest provided for above on the unpaid
principal balance hereof. All such additional interest shall be payable upon
demand. In addition, Borrower shall be liable and responsible for any and all
costs and expenses incurred by Bank in connection with the enforcement of this
Note and the collection of sums due under this Note, including attorneys, fees
incurred by Bank (which shall include any such fees incurred by Bank in any
bankruptcy proceeding of Borrower).
THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF ATTORNEY
TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER HEREBY KNOWINGLY,
INTELLIGENTLY AND VOLUNTARILY, AND, ON THE ADVICE OF SEPARATE COUNSEL OF
THE BORROWER, UNCONDITIONALLY WAIVES, ANY AND ALL RIGHTS THE BORROWER HAS
OR May HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE
RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH
OF PENNSYLVANIA.
(d) Confession of Judgement. Borrower authorizes and
-------------------------------------------------
empowers any attorney of any court of record of Pennsylvania or elsewhere to
- ----------------------------------------------------------------------------
appear for and enter judgment against it for the then unpaid principal amount
- ------------------------------------------------------------------------------
of this Note, together with all accrued, unpaid interest and late charges, costs
- --------------------------------------------------------------------------------
of suit and reasonable attorneys' fees of five percent (5%) of the unpaid
- -------------------------------------------------------------------------
balance hereof, with or without declaration or stay of execution, and with
- --------------------------------------------------------------------------
release of errors, for which this Note or a copy hereof shall serve as a
- ------------------------------------------------------------------------
sufficient warrant. This power to enter judgment against Borrower shall not be
- -------------------------------------------------------------------------------
exhausted by any exercise of the power and shall continue from time to time and
- -------------------------------------------------------------------------------
at all times until full payment of all amounts due under this Note.
- ------------------------------------------------------------------
5
<PAGE>
(e) Remedies Cumulative. The remedies of Bank shall be
-------------------
cumulative and concurrent, and may be pursued singly, successively, or together,
at its sole discretion, and may be exercised as often as the occasion therefor
shall occur; and the failure to exercise any such right or remedy shall in no
event be construed as a waiver or release thereof.
8. Year 2000 Compatibility. Borrower shall take all action
-----------------------
necessary to ensure that Borrower's computer-based systems are able to operate
and effectively process data including dates on and after January 1, 2000. At
the request of Bank, Borrower shall provide Bank assurance acceptable to Bank of
Borrower's Year 2000 compatibility.
9. Waivers. Borrower and all guarantors of and sureties for this
-------
Note waive presentment for payment, demand, notice of dishonor, protest, and
notice of protest with regard to this Note, all errors, defects and
imperfections in any proceedings instituted by Bank under the terms of this
Note, and all benefit that might accrue to Borrower by virtue of any present or
future laws exempting any property, real or personal, or any part of the
proceeds arising from any sale of any such property, from attachment, levy, or
sale under execution, or providing for any stay of execution, exemption from
civil process, or extension of time for payment; and Borrower agrees that any
real estate that may be levied upon pursuant to a judgment obtained by virtue
hereof, on any writ of execution issued thereon, may be sold upon any such writ
in whole or in part in any order desired by Bank.
10. Unconditional Liability. Borrower and all endorsers, sureties
-----------------------
and guarantors hereby jointly and severally waive all other notices in
connection with the delivery, acceptance, performance, default, or enforcement
of the payment of this Note, and they agree that the liability of each of them
shall be unconditional, without regard to the liability of any other party, and
shall not be affected in any manner by any indulgence, extension of time,
renewal, waiver or modification granted or consented to by Bank, and consent to
any and all extensions of time, renewals, waivers, or modifications that may be
granted by Bank with respect to the payment or other provisions of this Note,
and to the release of any part of any collateral, with or without substitution,
and agree that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to them or affecting their liability hereunder.
11. Construction. This Note shall be construed and enforced in
------------
accordance with the domestic, internal law, but not the law of conflict of laws,
of the Commonwealth of Pennsylvania. The captions preceding the text of the
paragraphs of this Note are inserted only for convenience of reference and shall
not constitute a part of this Note, nor shall they in any way affect its
meaning, construction or effect.
6
<PAGE>
12. Severabilitv. Any provision contained in this Note which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Arbitration.
-----------
(a) Upon demand of Borrower or Bank, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and any advances made
hereunder ("Disputes") shall be resolved by binding arbitration as provided
herein. Institution of a judicial proceeding does not waive the right of the
party instituting the proceeding to demand arbitration hereunder. Disputes may
include, without limitation, tort claims, counterclaims, disputes as to whether
a matter is subject to arbitration, claims brought as class actions, claims
arising from documents executed in the future, or claims arising out of or in
connection with the transactions reflected by this Note.
(b) Arbitration shall be conducted under and governed by the
Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the City of Philadelphia. The
expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall
-- ---
be applicable to claims of less than $1,000,000. All applicable statutes of
limitation shall apply to any Dispute. A judgment upon the award may be entered
in any court having jurisdiction. The panel from which all arbitrators are
selected shall be comprised of licensed attorneys. The single arbitrator
selected for expedited procedure shall be a retired judge from the highest court
of general jurisdiction, state or federal, of the state where the hearing will
be conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney. Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related to swap agreements.
(c) Notwithstanding the preceding binding arbitration
provisions, Borrower and Bank agree to preserve, without diminution, certain
remedies that Borrower and Bank shall employ or exercise freely, independently
or in connection with an arbitration proceeding or after an arbitration action
is brought. Bank and Borrower shall have the right to proceed in any court of
proper jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale granted under
the Note or any other
7
<PAGE>
documents or under applicable law or by judicial foreclosure and sale, including
a proceeding to confirm the sale; (ii) all rights of self-help including
peaceful occupation of real property and collection of rents, set-off, and
peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
(d) Borrower agrees that it shall not have a remedy of punitive
or exemplary damages against Bank in any Dispute and hereby waives any right or
claim to punitive or exemplary damages it has now or which may arise in the
future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
14. Successors and Assigns. The provisions of this Note shall bind
----------------------
and inure to the benefit of Borrower and Bank and their respective successors
and permitted assigns.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby,
has caused this Note to be duly executed by its authorized officers the day and
year first above written.
ARROW INTERNATIONAL, INC.
By Marlin Miller, Jr.
-----------------------------------------
Name: Marlin Miller, Jr.
Title: President and Chief Executive Officer
By Frederick J. Hirt
-----------------------------------------
Name: Frederick J. Hirt
Title: Vice President Finance and Treasurer
8
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 7th day of October, 1998, before me, a notary public the
---
undersigned officer, personally appeared Marlin Miller, Jr. & Frederick J. Hirt,
---------------------------------
who acknowledged himself to be the President & CEO/VP Finance & Treasurer of
--------------------------------------
ARROW INTERNATIONAL, INC. a Pennsylvania corporation, and that he as such
officer, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation by himself as
such officer.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
Carol A. Nolf
------------------------
Notary Public
Notarial Seal
Carole A. Nolf, Notary Public
Bern Twp., Berks County
My Commission Expires Feb. 26, 2001
Member, Pennsylvania Association of Notaries
9
<PAGE>
NOTICE OF WAIVER OF RIGHTS
--------------------------
Creditor: FIRST UNION NATIONAL BANK
Borrower: ARROW INTERNATIONAL, INC.
Transaction: LINE OF CREDIT LOAN OF $75,000,000 BY CREDITOR
Closing Date: OCTOBER 7, 1998
--
- --------------------------------------------------------------------------------
THIS NOTICE OF WAIVER OF RIGHTS IS MADE BY ARROW INTERNATIONAL, INC.
(THE "BORROWER"), AND GIVEN TO FIRST UNION NATIONAL BANK (THE "CREDITOR"), IN
CONNECTION WITH THE ABOVE DESCRIBED LOAN. IT IS IMPORTANT THAT THE BORROWER
CAREFULLY READS AND UNDERSTANDS THIS DOCUMENT. WHEN THE BORROWER SIGNS ITS NAME
BELOW THE BORROWER IS ACKNOWLEDGING AND REPRESENTING TO THE CREDITOR THAT THE
BORROWER HAS READ AND UNDERSTAND THE CONTENTS OF THE DOCUMENTS DESCRIBED BELOW
AND THIS DOCUMENT.
The Borrower acknowledges and represents that the Loan is for business
purposes.
The Borrower will be signing a Note and/or other loan documents
(collectively, the "Loan Documents") which give the Creditor, among other
things, the power and authority to enter JUDGMENT BY CONFESSION against the
Borrower and to exercise rights of execution, levy, garnishment, seizure of the
Borrower's property and the like. Other than notices required under the Loan
Documents, these rights and powers may be exercised by the Creditor without
giving the Borrower any prior notice of its intention to do so. In addition,
certain of these powers and rights may be exercised in Pennsylvania (regardless
where the Borrower resides) without a prior hearing of any kind, and without a
jury trial.
1
<PAGE>
The Borrower acknowledges that the Borrower has knowingly, voluntarily
and intelligently waived the Borrower's right to a jury trial or other hearing
or other judicial proceedings to determine the Borrower's rights and liabilities
in connection with the Loan Documents.
The Borrower acknowledges that the Borrower understands the Creditor
may obtain a judgment against the Borrower and execute upon and immediately
seize the Borrower's property and assets without the prior opportunity to raise
any defense, set-off, counterclaim, or other claim that the Borrower may have.
The Borrower acknowledges that the Borrower has knowingly,
voluntarily, and intelligently waived the Borrower's rights to any prior notice
(except for notices required under the specific terms of the Loan Documents) or
judicial determination.
The Borrower acknowledges that the Borrower's waiver of these rights
is a material part of the consideration for this transaction and that the
Borrower waives these rights in order to induce the Creditor to make the Loan.
The Borrower acknowledges and represents that the Borrower has
consulted with legal counsel of the Borrower's choice, and such other experts
and advisors as the Borrower
2
<PAGE>
considered necessary, about the Loan and the Loan Documents, and the waivers
described above.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
has executed this Notice of Waiver of Rights as Borrower this 7th day of October
---
___, 1998.
ARROW INTERNATIONAL, INC.
By Marlin Miller, Jr.
--------------------------
Name: Marlin Miller, Jr.
Title: President and Chief Executive Officer
By Frederick J. Hirt
---------------------------
Name: Frederick J. Hirt
Title: Vice President Finance and Treasurer
3
<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 7th day of October, 1998, before me, a notary public, the
---
undersigned officer, personally appeared Marlin Miller Jr./Frederick J. Hirt,
-----------------------------------
who acknowledged himself to be the President & CEO/VP Finance & Treasurer of
--------------------------------------
Arrow International, Inc., a Pennsylvania corporation, and that he in such
capacity, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing the name of the corporation, by himself in
such capacity.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
Carole A. Nolf
-----------------------
Notary Public
Notarial Seal
Carole A. Nolf, Notary Public
Bern Twp., Berks County
My Commission Expires Feb. 26,2001
Member Pennsylvania Association of Notaries
4
<PAGE>
RESOLUTION TO BORROW
I, the undersigned, hereby certify to FIRST UNION NATIONAL BANK ("Bank") that I
am the Secretary of Arrow International, Inc. ("Corporation"), a Corporation
duly organized and existing under the laws of the Commonwealth of Pennsylvania;
that the following is a true copy of the Resolution duly adopted by the Board of
Directors on October 7, 1998; and that such Resolution is in full force and
--------- -
effect and has not been amended or rescinded, and that there is no provision in
the Articles of Incorporation, Charter or By-laws of Corporation, limiting the
power of the Board of Directors to pass the following Resolution, which is in
full conformity with the provisions of the Articles of Incorporation, Charter or
By-laws of Corporation.
1. RESOLVED, that 2 of the present holder(s) of the following office(s)
-----
and/or positions) of Corporation and his successors) in office, membership
or position:
President and Chief Executive Officer
-------------------------------------
Vice President Finance and Treasurer
-------------------------------------
Secretary
-------------------------------------
-------------------------------------
-------------------------------------
is hereby authorized, on behalf of, in the name of and for the account of
Corporation to:
a. borrow money and/or obtain or continue credit (with or without security)
from Bank, upon such terms and conditions and in such amounts as such
officer(s), member(s) or position-holder(s) may deem desirable;
b. execute and/or endorse all documents necessary or required by Bank to
evidence or consummate any loan to Corporation;
c. guarantee the obligations of others to Bank;
d. engage in business transactions of all nature and kind and/or to enter
into all manner of contractual relationships with Bank;
e. grant a security interest of any kind in, assign, mortgage, or otherwise
encumber property, whether real, personal, tangible, intangible and/or
mixed, (including securities of all types and in whatever form), of
Corporation as collateral securing payment or any performance relative to
any loan to or guaranteed by Corporation;
f. sell, purchase and/or lease real, personal, tangible, intangible, and/or
mixed property to/from Bank;
g. enter into, execute and deliver, and perform Corporation's obligations
under any swap agreement with Bank as defined in 11 USC (S)101,
derivative agreement or foreign exchange agreement, and execute any and
all documents relative thereto as may be necessary or required by Bank;
<PAGE>
2. RESOLVED FURTHER, that the foregoing authority shall not be limited to the
above-identified or described officer(s), member(s), position-holder(s) or
other representative(s) of Corporation but shall extend to such additional
or different individuals as are named as being so authorized in any letter,
form or other written or oral notice by any officer, member, position-holder
or other representative of Corporation identified or described above;
3. RESOLVED FURTHER, that the Secretary of Corporation shall furnish Bank a
certified copy of this Resolution, and Bank is hereby authorized to deal
with the present holder(s) of the above-identified or described office(s),
membership(s) or position(s) under the authority of this Resolution unless
and until it shall be expressly notified in WRITING to the contrary by
Corporation;
4. RESOLVED FURTHER, that the Secretary of Corporation, shall, from time to
time hereafter, as changes in the personnel of the above-identified or
described office(s), membership(s) or position(s) of Corporation, are made,
immediately certify such changes to Bank, and that Bank shall be fully
protected in relying upon such certifications of the Secretary of
Corporation, and shall be indemnified and saved harmless from any claims,
demands, expenses, losses and/or damages resulting from, or growing out of,
honoring the signature of any officer(s), member(s), position-holder(s),
representative(s), agent(s), or employee(s) so certified, or refusing to
honor any signature not so certified which is not described or stated in the
foregoing Resolution;
5. RESOLVED FURTHER, that the Secretary of Corporation is authorized and
directed to certify to Bank that the foregoing Resolution was duly adopted,
and that the provisions thereof are in full conformity with the Articles of
Incorporation, Charter or By-laws of Corporation;
6. RESOLVED FURTHER, that all transactions by any officer(s), member(s),
position-holder(s), representative(s), agent(s), or employee(s) of
Corporation on its behalf and in its name with Bank prior to delivery of a
certified copy of the foregoing Resolution is, in all respects, hereby
ratified, confirmed and adopted;
7. RESOLVED FURTHER, that the present holder(s) of the above-identified or
described office(s), membership(s) or position(s), are expressly authorized
and directed to affix the seal, if any, of Corporation on any instrument and
to adopt any facsimile seal for any occasion and purpose on any instrument
as the seal, if any, of Corporation, and that this Resolution supersedes any
By-law or other organizational document of Corporation to the contrary; and
8. RESOLVED FURTHER, that any person(s) authorized to act on behalf of
Corporation pursuant to the terms of this Resolution is fully authorized to
take any action or exercise any powers as set out or granted by those terms
in relation to any subsidiary, parent or affiliate of Corporation.
Page 2
<PAGE>
I, finally, certify that the following is the person(s) who now hold(s) the
office(s), membership(s), and/or position(s) referred to in this Resolution
above and that their bona fide signature(s) is set forth below:
Marlin Miller, Jr.
-------------------------
Name: Marlin Miller, Jr.
------------------
Title: President and Chief Executive Officer
------------------
Frederick H. Hirt
-------------------------
Name: Frederick J. Hirt
------------------
Title: Vice President Finance and Treasurer
------------------
T. Jerome Holleran
-------------------------
Name: T. Jerome Holleran
------------------
Title: Secretary
------------------
-------------------------
Name:
------------------
Title:
------------------
-------------------------
Name:
------------------
Title:
------------------
IN WITNESS WHEREOF, I have hereunto subscribed my name(s) and affixed the seal,
if any, of Corporation on October 7, 1998.
---------
Arrow International Inc.
CORPORATE By: T. Jerome Holleran
-----------------------------
SEAL T. Jerome Holleran
------------------------, Secretary
Page 3
<PAGE>
CoreStates Bank, N.A.
CoreStates Capital Markets and
Funding Operations EXHIBIT 10.51
PO Box 8590 -------------
Philadelphia PA 19101-8590
INTEREST RATE SWAP CONFIRMATION
CORESTATES
BANK
ARROW INTERNATIONAL
Attention: JOHN LONG, ASSISTANT TREASURER
P.O. BOX 12888
READING, PA 19612
Dear Customer:
The purpose of this document is to confirm the terms and conditions of the
of the Rate Swap Transaction entered into between CoreStates Bank, N.A.
and ARROW INTERNATIONAL, on the contract date specified below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swap Dealers Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern.
This confirmation supplements, forms part of, and is subject to, the Interest
Rate Agreement dated as of 06APR98, as amended and supplemented from time to
time (the "Agreement"), between you and us. All provisions contained or
incorporated by reference in the Agreement shall govern this Confirmation except
as expressly modified below:
<TABLE>
<CAPTION>
<S> <C>
Notional Amount: 5,000,000.00 USD
Our Transaction No: 129510
Trade Date: 06APR98
Effective Date: 06APR98
Termination Date: 01MAY03
FLOATING Rate Payer: CoreStates Bank. N.A.
FIXED Rate Payer: ARROW INTERNATIONAL
Fixed Rate: 5.6200
Day Count Fraction: ACTUAL/360
</TABLE>
Payment Dates:
01MAY98,01JUN98,01JUL98,03AUG98,01SEP98,01OCT98,02NOV98,01DEC98.
04JAN99,01FEB99,01MAR99,01APR99,03MAY99,01JUN99,01JUL99,02AUG99,
01SEP99,01OCT99,01NOV99,01DEC99,03JAN00,01FEB00,01MAR00,03APR00.
<PAGE>
01MAY00,01JUN00,03JUL00,01AUG00,01SEP00,02OCT00,01NOV00,01DEC00,
02JAN01,01FEB01,01MAR01,02APR01,01MAY01,01JUN01,02JUL01,01AUG01,
04SEP01,01OCT01,01NOV01,03DEC01,02JAN02,01FEB02,01MAR02,01APR02,
01MAY02,03JUN02,01JUL02,01AUG02,03SEP02,01OCT02,01NOV02,02DEC02,
02JAN03,03FEB03,03MAR03,01APR03,01MAY03.
Business Day Convention: MODIFIED FOLLOWING BANK DAY
Floating Rate Option: OBR (as defined In Apendix A)
Spread: NONE%
Averaging Method: WEIGHTED
Day Count Fraction: ACTUAL/360
Reset Dates: Daily
Payment Dates:
01MAY98,01JUN98,01JUL98,03AUG98,01SEP98,01OCT98,02NOV98,01DEC98,
04JAN99,01FEB99,01MAR99,01APR99,03MAY99,01JUN99,01JUL99,02AUG99,
01SEP99,01OCT99,01NOV99,01DEC99,03JAN00,01FEB00,01MAR00,03APR00,
01MAY00,01JUN00,03JUL00,01AUG00,01SEP00,02OCT00,01NOVO0,01DEC00,
02JAN01,01FEB01,01MAR01,02APR01,01MAY01,01JUN01,02JUL01,01AUG01,
04SEP01,01OCT01,01NOV01,03DEC01,02JAN02,01FEB02,01MAR02,01APR02,
01MAY02,03JUN02,01JUL02,01AUG02,03SEP02,01OCT02,01NOV02,02DEC02,
02JAN03,03FEB03,03MAR03,01APR03,01MAY03.
Business Day Convention: MODIFIED FOLLOWING BANK DAY
Compounding: INAPPLICABLE
Amortizing: INAPPLICABLE
Business Days for Payments:
NEW YORK
Our Instructions
CORESTATES BANK, N.A.
ABA 031000011
A/C# 0132-0313
ATTN: INVESTMENT OPERATIONS
ARROW INTERNATIONAL PAYMENT INSTRUCTIONS
PLEASE CONFIRM THAT THE FOREGOING CORRECTLY SETS FORTH THE TERMS OF THE
TRANSACTION BY SIGNING AND RETURNING IT TO US.
<PAGE>
CORESTATES BANK, N.A. ACCEPTED AND CONFIRMED:
BY: LISA A. LUNNY BY: JOHN H. BROADBENT, JR.
------------- ----------------------
NAME: LISA A. LUNNY NAME: JOHN H. BROADBENT, JR.
------------- -----------------------
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT - FINANCE
-------------- ------------------------
TRANSACTION INTRODUCED BY
CORESTATES SECURITIES CORP
<PAGE>
APPENDIX A
OVERNIGHT BASE RATE DEFINED
The Overnight Base Rate("OBR") is the per annum rate of interest quoted by the
bank on each banking day as its overnight base rate, as said rate shall change
from time to time, with such changes to be immediately effective, it being
understood that said rate is determined by the bank in its sole discretion on
the basis of its assessment of money market conditions.
<PAGE>
(LOCAL CURRENCY--SINGLE JURISDICTION)
ISDA
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of ...................................
.......................................and......................................
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:
1. INTERPRETATION
(a) Definitions. The terms defined in Section 12 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the, parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
Copyright @ 1992 by lnternational Swap Dealers Association, Inc.
<PAGE>
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be
made in the Schedule or a Confirmation by specifying that subparagraph (ii)
above will not apply to the Transactions identified as being subject to the
election, together with the starting date (in which case subparagraph (ii) above
will not, or will cease to, apply to such Transactions from such date). This
election may be made separately for different groups of Transactions and will
apply separately to each pairing of branches or offices through which the
parties make and receive payments or deliveries.
(d) Default Interests; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence of effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered
into) that:
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if relevant
under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets:
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(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar affecting creditors' rights generally and subject, as
to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or
at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement or any
Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement of any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:
(a) Furnish Specified Information. It will deliver to the other party any
forms, documents or certificates specified in the Schedule or any Confirmation
by the date specified in the Schedule or such Confirmation or, if none is
specified, as soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) Events of Default. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(d)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) Breach of Agreement. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(d) or to give
notice of a Termination Event) to be complied with or performed
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by the party in accordance with this Agreement if such failure is not
remedied on or before the thirtieth day after notice of such failure is
given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party
to comply with or perform any agreement or obligation to be complied
with or performed by it in accordance with any Credit Support
Document if such failure is continuing after any applicable grace
period has elapsed;
(2) the expiration or termination of such Credit Support Document or
the failing or ceasing of such Credit Support Document to be in full
force and effect for the purpose of this Agreement (in either case
other than in accordance with its terms) prior to the satisfaction of
all obligations of such party under each Transaction to which such
Credit Support Document relates without the written consent of the
other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects, in whole or in part, or challenges the
validity of, such Credit Support Document;
(iv) Misrepresentation. A representation made or repeated or deemed to
have been made or repeated by the party or any Credit Support Provider of
such party in this Agreement or any Credit Support Document proves to have
been incorrect or misleading in any material respect when made or repeated
or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party (1)
defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery due
on the last payment, delivery or exchange date of, or any payment on early
termination of, a Specified Transaction (or such default continues for at
least three Local Business Days if there is no applicable notice
requirement or grace period) or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction (or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however described) in
respect of such party, any Credit Support Provider of such party or any
applicable Specified Entity of such party under one or more agreements or
instruments relating to Specified Indebtedness of any of them (individually
or collectively) in an aggregate amount of not less than the applicable
Threshold Amount (as specified in the Schedule),which has resulted in such
Specified Indebtedness becoming, or becoming capable at such time of being
declared, due and payable under such agreements or instruments, before it
would otherwise have been due and payable or (2) a default by such party,
such Credit Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof in an
aggregate amount of not less than the applicable Threshold Amount under
such agreements or instruments (after giving effect to any applicable
notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or
any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its creditors;
(4) institutes or has instituted against it a proceeding seeking a
judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting
creditors' rights, or a petition is presented for its
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winding-up or liquidation, and, in the case of any such proceeding or
petition instituted or presented against it, such proceeding or
petition (A) results in a judgment of insolvency or bankruptcy or the
entry of an order for relief or the making of an order for its
winding-up or liquidation or (B) is not dismissed, discharged, stayed
or restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its winding-up,
official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes subject
to the appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official
for it or for all or substantially all its assets; (7) has a secured
party take possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal process
levied, enforced or sued on or against all or substantially all its
assets and such secured party maintains possession, or any such
process is not dismissed, discharged, stayed or restrained, in each
case within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events specified
in clauses (1) to (7) (inclusive); or (9) takes any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts; or
(viii)Merger Without Assumption. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at
the time of such consolidation, amalgamation, merger or transfer:
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it or
its predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by such
resulting, surviving, or transferee entity of its obligations under
this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, and, if specified to be applicable, a Credit
Event Upon Merger if the event is specified pursuant to (ii) below or an
Additional Termination Event if the event is specified pursuant to (iii) below:
(i) Illegality. Due to the adoption of, or any change in, any applicable
law after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court,
tribunal or regulatory authority with competent jurisdiction of any
applicable law after such date, it becomes unlawful (other than as a result
of a breach by the party of Section 4(b)) for such party (which will be the
Affected Party):
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect of
such Transaction or to comply with any other material provision of
this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to
perform, any contingent or other obligation which the party (or such
Credit Support Provider) has under any Credit Support Document
relating to such Transaction;
(ii) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified
in the Schedule as applying to the party, such party ("X"), any Credit
Support Provider of X or any applicable Specified Entity of X consolidates
or amalgamates with, or merges with or into, or transfers all or
substantially all its assets to, another entity and such action does not
constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such events X or its successor or transferee, as appropriate, will
be the Affected Party); or
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(iii) Additional Termination Event. If any "Additional Termination Event"
is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default.
6. EARLY TERMINATION
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying the
nature of that Termination Event and each Affected Transaction and will
also give such other information about that Termination Event as the other
party may reasonably require.
(ii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1)
occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof
is given under Section 6(b)(i) on action to avoid that Termination Event.
(iii) Right to Terminate. If:--
(1) an agreement under Section 6(b)(ii) has not been effected with
respect to all Affected Transactions within 30 days after an Affected
Party gives notice under Section 6(b)(1); or
(2) an Illegality other than that referred to in Section 6(b)(ii), a
Credit Event Upon Merger or an Additional Termination Event occurs.
either party in the case of an Illegality, any Affected Party in the case
of an Additional Termination Event if there is more than one Affected
Party, or the party which is not the Affected Party in the case of a Credit
Event Upon Merger or an Additional Termination Event if there is only one
Affected Party may, by not more than 20 days notice to the party and
provided that the relevant Termination Event is then continuing, designate
a day not earlier than the day such notice is effective as an Early
Termination Date in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date so
designated, whether or not the relevant Event of Default or Termination
Event is then continuing.
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(ii) Upon the occurrence or effective designation of an Early Termination
Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in
respect of the Terminated Transactions will be required to be made, but
without prejudice to the other provisions of this Agreement. The amount, if
any, payable in respect of an Early Termination Date shall be determined
pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (1) showing, in reasonable detail,
such calculations (including all relevant quotations and specifying any
amount payable under Section 6(e)) and (2) giving details of the relevant
account to which any amount payable to it is to be paid. In the absence of
written confirmation from the source of a quotation obtained in determining
a Market Quotation, the records of the party obtaining such quotation will
be conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day that
notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event of
Default) and on the day which is two Local Business Days after the day on
which notice of the amount payable is effective (in the case of an Early
Termination Date which is designated as a result of a Termination Event).
Such amount will be paid together with (to the extent permitted under
applicable law) interest thereon (before as well as after judgment), from
(and including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an
Event of Default:--
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the Non-
defaulting Party the excess, if a positive number, of (A) the sum of
the Settlement Amount (determined by the Non-defaulting Party) in
respect of the Terminated Transactions and the Unpaid Amounts owing
to the Non-defaulting Party over (B) the Unpaid Amounts owing to the
Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-Defaulting Party, if a positive
number, the Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the Non-defaulting Party)
in respect of the Terminated Transactions and the Unpaid Amounts
owing to the Non-defaulting Party less (B) the Unpaid Amounts owing
to the Defaulting Party. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative
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number, the Non-defaulting Party will pay the absolute value of that
amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and
to the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in
respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half
of the difference between the Settlement Amount of the party
with the higher Settlement Amount ("X") and the Settlement
Amount of the party with the lower Settlement Amount ("Y") and
(b) the Unpaid Amounts owing to X less (II) the Unpaid Amounts
owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the
Transactions are being terminated, in respect of all Terminated
Transactions) and an amount will be payable equal to one-half of
the difference between the Loss of the party with the higher
Loss ("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to
Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under
this Agreement (and retained by such other party) during the period from
the relevant Early Termination Date to the date for payment determined
under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise
provided in this Agreement neither party will be entitled to recover any
additional damages as a consequence of such losses.
7. TRANSFER
Neither this Agreement nor any interest or obligation in or under this Agreement
may be transferred (whether by way of security or otherwise) by either party
without the prior written consent of the other party , except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
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8. MISCELLANEOUS
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and
may be executed and delivered in counterparts (including by facsimile
transmission) or be created by an exchange of telexes or by an exchange of
electronic messages on an electronic messaging system, which in each case
will be sufficient for all purposes to evidence a binding supplement to
this Agreement. The parties will specify therein or through another
effective means that any such counterpart, telex or electronic message
constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
9. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees,
incurred by such other party by reason of the enforcement and protection of its
rights under this Agreement or any Credit Support Document to which the
Defaulting Party is a party or by reason of the early termination of any
Transaction, including, but not limited to, costs of collection.
10. NOTICES
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number of in
accordance with electronic messaging system details provided (see the Schedule)
and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date it
is delivered;
(ii) if sent by telex, on the date the recipient's answer back is
received;
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(iii) if sent by facsimile transmission on the date that transmission is
received by a responsible employee of the recipient in legible form (it
being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sending facsimile
machine):
(iv) if sent by certified or registered mail (airmail, if overseas) of the
equivalent (return receipt; requested), on the date that mail is delivered
or its delivery is attempted or
(v) if sent by electronic messaging system, on the date that electronic
message is received, unless the date of that delivery (or attempted
delivery) or that receipt, as applicable, is not a Local Business Day or
that communication is delivered (or attempted) or received, as applicable,
after the close of business on a Local Business Day, in which case that
communication shall be deemed given and effective on the first following
day that is a Local Business Day.
(b) Change of addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
11. GOVERNING LAW AND JURISDICTION
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdictions of the English courts, if this Agreements
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United States
District Court located in the Borough of Manhattan in New York City, if
this Agreement is expressed to be governed by the laws of the State of New
York; and
(ii) waives any objection which it may have at any time to the laying of
venue of any Proceedings brought in any such court, waives any claim that
such Proceedings have been brought in an inconvenient forum and further
waives the right to object with respect to such Proceedings, that such
court does riot have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or re-
enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the, bringing of
Proceedings in any other jurisdiction.
(c) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
12. DEFINITIONS
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
10
<PAGE>
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, all Transactions affected by the occurrence of such
Termination Event and (b) with respect to any other Termination Event, all
Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iii).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"law" includes any treaty, law, rule or regulation and "lawful" and "unlawful"
will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located, (c) in
relation to any notice or other communication, including notice contemplated
under Section 5(a)(i), in the city specified in the address for notice provided
by the recipient and, in the case of a notice contemplated by Section 2(b), in
the place where the relevant new account is to be located and (d) in relation to
Section 5(a)(v)(2), in the relevant locations for performance with respect to
such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, an amount that party reasonably
determines in good faith to be its total losses and costs (or gain, in which
case expressed as a negative number) in connection with this Agreement or that
Terminated Transaction or group of Terminated Transactions, as the case may be,
including any loss of bargain. cost of funding or, at the election of such party
but without duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading position
(or any gain
11
<PAGE>
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 9. A
party will determine its Loss as of the relevant Early Termination Date, or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference Market-
maker to enter into a transaction (the "Replacement Transaction") that would
have the effect of preserving for such party the economic equivalent of any
payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction would
be subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the extent
reasonably practicable as of the same day and time (without regard to different
time zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if more
than one quotation has the same highest value or lowest value, then one of such
quotations shall be disregarded. If fewer than three quotations are provided,
it will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers haying an office in the same city.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(1) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under
12
<PAGE>
this Agreement, another contract, applicable law or otherwise) that is exercised
by, or imposed on. such payer.
"Settlement Amount" means, with respect to a Party and any Early Termination
Date, the sum of:
(a) the Market Quotations (whether positive or negative) for each Terminated
Transaction or group of Terminated Transactions for which a Market Quotation is
determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specifted Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction. collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Event" means an Illegality or, if specified to be applicable, a
Credit Event Upon Merger or an Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as emitted by
such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined
13
<PAGE>
by the party obliged to make the determination under Section 6(e) or, if each
party is so obliged, it shall be the average of the fair market values
reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
Arrow International, Inc.
................................ ................................
(Name of Party) Name of Party
By: John H. Broadbent Jr. By:
............................. .............................
Name: John H. Broadbent, Jr. Name:
Title: Vice President Finance & Treasurer Title:
Date: April 7, 1998 Date:
By: Marlin Miller Jr.
-----------------------------
Name: Marlin Miller, Jr.
Title: President and Chief Executive Officer
Date: April 7, 1998
14
<PAGE>
(Local Currency-Single Jurisdiction)
ISDA
International Swap Dealers Association, Inc.
SCHEDULE
to the
MASTER AGREEMENT
dated as of ________________
between CoreStates Bank, N.A. and ________________________
("Party A") ("Party B")
Part 1. TERMINATION PROVISIONS.
(a) "Specified Entity" means in relation to Party A for the
purpose of: --
Section 5 (a) (v), none
Section 5 (a) (vi), none
Section 5(b) (ii), none
and in relation to Party B for the purpose of:--
Section 5(a) (v), Affiliates
Section 5 (a) (vi), Affiliates
Section 5 (a) (vii), Affiliates
Section 5 (b) (ii), none
(b) "Specified Transactions" will have the meaning specified in Section 12
of this Agreement.
(c) The "Cross Default" provisions of Section 5 (a) (vi)
will apply to Party A
will apply to Party B
If such provisions apply:--
- 1 -
<PAGE>
"Specified Indebtedness" will have the meaning specified in Section 12
of this Agreement except that such term shall not include obligations
in respect of deposits received in the ordinary course of a party `s
banking business.
"Threshold Amount" means, with respect to Party A, an amount
(including its equivalent in another currency) equal to the higher of
$10,000,000 or 2% of its stockholder's equity as reflected on its most
recent financial statements or call reports, and with respect to Party
B, any amount of Specified Indebtedness.
(d) The "Credit Event Upon Merger" provisions of Section 5 (b) (ii)
will apply to Party A
will apply to Party B
(e) The "Automatic Early Termination" provision of Section 6 (a)
will not apply to Party A
will not apply to Party B
(f) Payments by Early Termination. For purpose of Section 6 (e) of this
Agreement:--
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) Additional Termination Event will not apply.
Part 2. Agreement to Deliver Documents.
For the purpose of Section 4 (a) of this Agreement, each party agrees to deliver
the following documents, as applicable:--
<TABLE>
<CAPTION>
Party required to Form/Document/ Date by which Covered by
deliver document Certificate to be delivered Section 3(d)
Representation
<S> <C> <C> <C>
Party B Certificate Upon Execution Yes
substantially in of this Agreement
The form of
Exhibit II
Party B Opinion of Counsel Upon Execution No
substantially in the of this Agreement
form of Exhibit III
Party B Financial Statements As Requested Yes
</TABLE>
Part 3. Miscellaneous
(a) Addresses for Notices. For the purpose of Section 10(a) of this
Agreement:--
Address for notices or communications to Party A:--
- 2 -
<PAGE>
Street Address: 1500 Market Street, Centre Square West
Mailing Address: P.0. Box 7618, Philadelphia, PA 19101-7618
Attention: Investment Operations, F.C. 1-3-91-8
Attention: Ms. Wendy Fasbinder
FAX: (215) 973-8388
Phone: (215) 973-2335
Address for notices or communications to Party B:--
Address:______________________________________________________________
Attention:____________________________________________________________
Telex No.:........N/A............. Answerback:............N/A........
Facsimile No.:________________ Telephone No.:_______________________
Electronic Messaging System Details:............N/A...................
(b) Calculation Agent. The Calculation Agent is Party A unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(c) Credit Support Document. Credit Support Document means in relation
to Party A and to Party B. None.
(d) Credit Support Provider. Credit Support Provider means in relation to
Party A. None.
Credit Support Provider. Credit Support Provider means in relation to
Party B. None.
(e) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference
to choice of law doctrine).
2(f) Netting of Payments. Subparagraph (ii) of Section 2 (c) of this
Agreement will not apply to any Transaction unless otherwise specified
in a Confirmation in relation to the relevant Transaction.
(g) "Affiliate" will have the meaning specified in Section 12 of this
Agreement.
Part 4. Other Provisions.
(a) Confirmations. Notwithstanding anything to the contrary in this
Agreement:
(i) The parties hereto agree that with respect to each Transaction
hereunder a legally binding agreement shall exist from the moment that
the parties hereto agree on the essential terms of such Transaction,
which the parties anticipate will occur by telephone.
(ii) For each Transaction Party A and Party B agree to enter into
- 3 -
<PAGE>
hereunder, Party A shall promptly send to Party B a Confirmation,
substantially in the form of Exhibit I setting forth the terms of such
Transaction. Party B shall execute and return the Confirmation to
Party A or request correction of any error within three Business Days
of receipt. Failure of Party B to respond within such period shall not
affect the validity or enforceability of such Transaction and shall be
deemed to be an affirmation of such terms.
(b) Additional Agreements.
(i) Each party agrees, upon learning of the occurrence of any event
or commencement of any condition that constitutes (or that with the
giving of notice or passage of time or both would constitute) an Event
of Default or Termination Event with respect to the party, promptly to
give the other party notice of such event or condition (or, in lieu of
giving notice of such event or condition in the case of an event or
condition that with the giving of notice or passage of time or both
would constitute an Event of Default or Termination Event with respect
to the party, to cause such event or condition to cease to exist
before becoming an Event of Default or Termination Event).
(ii) Party B agrees to give all notices described in (b) (i) of this
Part 4 with respect to any Credit Support Provider.
(c) Additional Representations. Section 3 of the Agreement is hereby
amended by adding a: the end thereof the following subsections (e) and
(f):
"(e) Eligible Swap Participant. It is an "eligible swap
participant" as that term is defined by the Commodity Futures
Trading Commission at 17 C.F.R. (S) 35.1(b) (2)."
"(f) Line of Business. It has entered into this Agreement
(including each Transaction evidenced hereby) in conjunction
with its line of business (including financial intermediation
services) or the financing of its business."
(d) FDIC Requirements. The following Additional Representations and
Agreements will apply to Party A and will not apply to Party B:
(i) The necessary action to authorize referred to in the
representation in Section 3 (a) (ii) of this Agreement includes
all authorizations required under the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 and any
regulations and guidelines thereunder.
(ii) At all times during the term of this Agreement, it will
continuously include and maintain as part of its official
written books and records, this Agreement, this Schedule and all
other exhibits, supplements, and attachments hereto and
documents incorporated by reference herein, all Confirmations
and evidence of all necessary approvals. In addition to any
other remedies which the other party may have under this
Agreement or otherwise, if it breaches or defaults on any of its
obligations set forth in this subparagraph (ii), the other party
shall be entitled to apply to any court of competent
jurisdiction for an order requiring specific performance of such
obligations, and it shall not contest
- 4 -
<PAGE>
any such application and shall comply with any such order.
(e) Set-Off. Section 6 of the Agreement is amended by adding the
following new subsection 6 (f):
"(f) Set-off. Without affecting the provisions of this
Agreement requiring calculation of certain net payment amounts,
all payments under this Agreement shall be made without set-off
or counterclaim and will not be subject to any conditions except
as provided in Section 2 of this Agreement and except as
provided in this Section 6 (f). Any amount (the `Early
Termination Amount') payable to one party (the 'Payee') by the
other party (the 'Payer') under Section 6(e), in circumstances
where there is a Defaulting Party or one Affected Party in the
case where a Termination Event under Section 5(b) has occurred,
will, at the option of the party ('X') other than the Defaulting
Party or the Affected Party (and without prior notice to the
Defaulting Party or the Affected Party), be reduced by its set-
off against any amount(s) (the 'Other Agreement Amount') payable
(whether at such time or in the future or upon the occurrence of
a contingency) by the Payee to the Payer (irrespective of the
currency, place of payment or booking office of the obligation)
under any other agreement(s) between the Payee and the Payer or
instrument(s) or undertaking(s) issued or executed by one party
to, or in favor of, the other party (and the Other Agreement
Amount will be discharged promptly and in all respects to the
extent it is so set-off). X will give notice to the other party
of any set-off effected under this Section 6(f).
"For this purpose, either the Early Termination Amount or the
Other Agreement Amount (or the relevant portion of such amounts)
may be converted by X into the currency in which the other is
denominated at the rate of exchange at which such party would be
able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency.
"If an obligation is unascertained, X may in good faith estimate
that obligation and set-off in respect of the estimate, subject
to the relevant party accounting to the other when the
obligation is ascertained.
"Nothing in this Section 6(f) shall be effective to create a
charge or other security interest. This Section 6(f) shall be
without prejudice and in addition to any right of set-off,
combination of accounts, lien or other right to which any party
is at any time otherwise entitled (whether by operation of law,
contract or otherwise),"
(f) Consent to Recording. Each Party (i) consents to the recording of the
telephone conversations of trading and marketing personnel of the
Parties and their Affiliates in connection with this Agreement or any
potential Transaction and (ii) agrees to obtain any necessary consent
of, and give notice of such recording to, such personnel of it and its
Affiliates.
(g) No Reliance. In connection with the negotiation of, the entering
- 5 -
<PAGE>
into, and the confirming of the execution of this Agreement, any
Credit Support Document to which it is a party, each Transaction, and
any other documentation relating to this Agreement that it is required
by this Agreement to deliver, each party agrees and confirms that: (i)
the other party hereto or thereto is not acting as a fiduciary or
financial, investment, or commodity trading advisor for it; (ii) it is
not relying (for purposes of making any investment decision or
otherwise) upon any advice, counsel or representations (whether
written or oral) of the other party hereto or thereto other than the
representations expressly set forth in this Agreement, in such Credit
Support Document, and in any Conformation; (iii) the other party
hereto or thereto has not given to it (directly or indirectly through
any other person) any assurance or guaranty whatsoever as to the
merits (either legal, regulatory, tax, financial, accounting or
otherwise) of this Agreement, such Credit Support Document, such
Transaction or such other documentation; (iv) it has consulted with
its own legal, regulatory, tax, business, investment, financial and
accounting advisors to the extent deemed necessary, and it has made
its own judgment and upon any advice as it has deemed necessary and
not upon any view expressed by the other party hereto or thereto; (v)
it has determined that all trading decisions have been the result of
arm's length negotiations between the parties; (vi) it is entering
into this Agreement, such Credit Support Document, such Transaction
and such other documentation with a full understanding of all of the
terms, conditions and risks hereof and thereof (economic and
otherwise), and it is capable of assuming and willing to assume
(financially and otherwise) those risks; and (vii) it is a
sophisticated investor.
(h) Interest Rate Caps, Collars, Floors and Options. The condition
precedent in Section 2(a) (iii) (1) of the Agreement does not apply to
a payment and delivery owing by a party if the other party shall have
satisfied in full all its payments and delivery obligations under
Section 2(a) (i) of this Agreement and shall at the relevant time have
no future payment delivery obligations, whether absolute or
contingent, under Section 2 (a) (i).
(i) WAIVER OF JURY TRAIL. EACH PARTY HERETO HEREBY WAIVES ANY AND ALL
RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR, INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR ANY
TRANSACTION CONTEMPLATED HEREBY.
- 6 -
<PAGE>
EXHIBIT 10.52
-------------
ASSET PURCHASE AGREEMENT
November 5, 1997
--
by and among
Arrow Interventional, Inc.,
Boston Scientific Corporation,
and
IABP Corporation
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. PURCHASE AND SALE OF ACQUIRED ASSETS................................... 1
1.1. ACQUIRED ASSETS.................................................... 1
1.2. EXCLUDED ASSETS.................................................... 3
2. PURCHASE PRICE......................................................... 3
2.1. PURCHASE PRICE..................................................... 3
2.2. ALLOCATION OF PURCHASE PRICE....................................... 3
3. ASSUMPTION OF CERTAIN OBLIGATIONS...................................... 4
3.1. ASSUMED OBLIGATIONS................................................ 4
3.2. OBLIGATIONS NOT ASSUMED............................................ 4
4. CLOSING................................................................ 4
5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.......................... 5
5.1. ORGANIZATION OF SELLERS; AUTHORITY................................. 5
5.2. APPROVALS OF SELLERS; BINDING EFFECT............................... 5
5.3. NON-CONTRAVENTION.................................................. 5
5.4. GOVERNMENTAL CONSENTS; TRANSFERABILITY OF PERMITS.................. 6
5.5. LITIGATION......................................................... 6
5.6. EQUIPMENT.......................................................... 6
5.7. INVENTORIES........................................................ 6
5.8. CONTRACTS.......................................................... 6
5.9. TRADEMARKS, PATENTS, ETC........................................... 7
5.10. TITLE TO ACQUIRED ASSETS........................................... 7
5.11. CUSTOMERS, DISTRIBUTORS AND SUPPLIERS.............................. 7
5.12. SALES OF FINISHED GOODS INVENTORY.................................. 7
5.13. BROKERS............................................................ 8
5.14. NO OTHER WARRANTIES................................................ 8
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER............................ 8
6.1. ORGANIZATION AND STANDING OF THE COMPANIES......................... 8
6.2. APPROVAL OF THE BUYER; BINDING EFFECT.............................. 8
6.3. NON-CONTRAVENTION.................................................. 8
6.4. LITIGATION......................................................... 9
6.5. BROKERS............................................................ 9
6.6. NO OTHER WARRANTIES................................................ 9
7. CONDITIONS PRECEDENT TO THE COMPANIES' OBLIGATIONS..................... 9
7.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING..................... 9
7.2. COMPLIANCE WITH AGREEMENT.......................................... 9
7.3. LICENSE AGREEMENT.................................................. 9
7.4. INTERIM SUPPLY AGREEMENT........................................... 9
7.5. NO RESTRAlNING ORDER............................................... 9
7.6. PROCEEDINGS AND DOCUMENTS SATISFACTORY............................. 9
7.7. INSURANCE CERTIFICATION............................................ 10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS.......................... 10
8.1. REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING..................... 10
8.2. COMPLIANCE WITH AGREEMENT.......................................... 10
8.3. ASSUMPTION OF LIABILITIES.......................................... 10
8.4. LICENSE AGREEMENT.................................................. 10
8.5. INTERIM SUPPLY AGREEMENT........................................... 10
8.6. NO RESTRAINING ORDER............................................... 10
8.7. PROCEEDINGS AND DOCUMENTS SATISFACTORY............................. 10
8.8. APPROVAL OF BSC AND IABP BOARDS AND IABP STOCKHOLDERS.............. 11
8.9. INSURANCE CERTIFICATION............................................ 11
9. POST-CLOSING COVENANTS................................................ 11
9.1. CONFIDENTIAL INFORMATION........................................... 11
9.2. RISK OF LOSS....................................................... 12
9.3. RELABELLING OF CARDIAC ASSIST PRODUCTS MANUFACTURED PRE-CLOSING.... 12
9.4. MAINTENANCE OF PRODUCT COMPLAINT FILES............................. 12
9.5. MAINTENANCE OF INSURANCE........................................... 12
9.6. REMOVAL OF ASSETS.................................................. 12
9.7. NO SOLICITATION.................................................... 12
9.8. EMPLOYEE MATTERS................................................... 12
9.9. NON-COMPETITION.................................................... 13
9.10. DISTRIBUTION CONTRACTS............................................. 13
10. INDEMNIFICATION....................................................... 13
10.1. INDEMNITY BY THE SELLERS........................................... 13
10.2. INDEMNITY BY THE BUYER............................................. 14
10.3. CLAIMS............................................................. 14
11. USE OF NAME........................................................... 15
12. GENERAL............................................................... 15
12.1. SURVIVAL........................................................... 15
12.2. EXPENSES........................................................... 15
12.3. FURTHER ASSURANCES................................................. 16
12.4. SATISFACTION OF CONDITIONS PRECEDENT............................... 16
12.5. NO IMPLIED RIGHTS OR REMEDIES...................................... 16
12.6. PUBLIC STATEMENTS OR RELEASES...................................... 16
12.7. NOTICES............................................................ 16
12.8. ENTIRE AGREEMENT................................................... 17
12.9. ASSIGNS............................................................ 17
12.10. SECTIONS AND SECTION HEADINGS...................................... 17
12.11. COUNTERPARTS....................................................... 17
12.12. GOVERNING LAW...................................................... 18
</TABLE>
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SCHEDULES
SCHEDULE 1.1(a) EQUIPMENT TRANSFERRED TO BUYER
SCHEDULE 1.1(b) IABP INTANGIBLES TRANSFERRED TO BUYER
SCHEDULE 1.1(c) INVENTORIES TRANSFERRED TO BUYER
SCHEDULE 1.1(d) PREPAID AMOUNTS TRANSFERRED TO BUYER
SCHEDULE 1.1(f) PERMITS TRANSFERRED TO BUYER
SCHEDULE 1.1(g) BSC INTANGIBLES TRANSFERRED TO BUYER
SCHEDULE 1.1(h) BSC PATENTS LICENSED TO BUYER
SCHEDULE 5.4 REPRESENTATIONS AND WARRANTIES OF SELLERS - GOVERNMENTAL
CONSENTS; TRANSFERABILITY OF PERMITS
SCHEDULE 5.5 REPRESENTATIONS AND WARRANTIES OF SELLERS - LITIGATION
SCHEDULE 5.6 REPRESENTATIONS AND WARRANTIES OF SELLERS - EQUIPMENT
SCHEDULE 5.7 REPRESENTATIONS AND WARRANTIES OF SELLERS - INVENTORIES
SCHEDULE 5.8 REPRESENTATIONS AND WARRANTIES OF SELLERS - CONTRACTS
SCHEDULE 5.9 REPRESENTATIONS AND WARRANTIES OF SELLERS - TRADEMARKS,
PATENTS, ETC.
SCHEDULE 5.10 ENCUMBRANCES
SCHEDULE 5.11 REPRESENTATIONS AND WARRANTIES OF SELLERS - CUSTOMERS,
DISTRIBUTORS & SUPPLIERS
SCHEDULE 6.5 REPRESENTATIONS AND WARRANTIES OF THE BUYER - LITIGATION
SCHEDULE 6.6 REPRESENTATIONS AND WARRANTIES OF THE BUYER - BROKERS
SCHEDULE 9.8 EMPLOYEES HIRED BY THE BUYER
SCHEDULE 9.10 DISTRIBUTION CONTRACTS TO BE TERMINATED BY BSC
EXHIBITS
EXHIBIT A LICENSE AGREEMENT
EXHIBIT B ASSUMPTION OF LIABILITIES AGREEMENT
EXHIBIT C INTERIM SUPPLY AGREEMENT
2
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT, dated as of the 5th day of November, 1997, is by and among
Arrow Interventional, Inc., a Delaware corporation (the "Buyer"), Boston
Scientific Corporation, a Delaware corporation ("BSC"), and IABP Corporation, a
Delaware corporation ("IABP") (BSC and IABP being hereinafter referred to
collectively as the "Sellers", and each individually as a "Seller").
WITNESSETH:
-----------
WHEREAS, BSC desires to sell and the Buyer desires to purchase certain
assets currently owned by BSC constituting BSC's Cardiac Assist Division (the
"Cardiac Assist Division"), and IABP desires to sell and the Buyer desires to
purchase certain patents and trademarks currently licensed by IABP to BSC for
use by the Cardiac Assist Division; and
WHEREAS, the parties wish to enter into this Agreement to set forth their
rights and obligations in relation to the sale of assets described herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Buyer and the Sellers agree as follows:
1. PURCHASE AND SALE OF ACQUIRED ASSETS.
-------------------------------------
1.1. Acquired Assets. Subject to the terms and conditions set forth in
---------------
this Agreement, the Sellers hereby sell, assign, convey and transfer
to the Buyer, and the Buyer hereby purchases and, subject to the
provisions of an Interim Supply Agreement dated of even date
herewith, takes delivery of, all of the following assets (the
"Acquired Assets"):
(a) All machinery, equipment, furniture, tools, spare parts,
supplies, materials and other personal property described on
Schedule 1.1 (a) hereto, together with all other items of
personal property materially necessary to operate the Cardiac
Assist Division as it is conducted on the date hereof, except
such items listed on Schedule 5.6 hereto (collectively, the
"Equipment");
(b) All of IABP's right, title, and interest in and to (i) the
patents and patent applications described on Schedule 1.1 (b)
hereto, (ii) the trademarks and trademark applications set
forth in Schedule 1.1 (b) hereto, and (iii) all continuations,
substitutions, renewals, reissuances, and divisions of any of
the foregoing patents, trademarks and patent and trademark
applications (collectively, the "IABP Intangibles");
(c) All of the Cardiac Assist Division's inventories of intraaortic
balloon catheters and balloon pumps, including raw materials,
work in process and finished goods, described on Schedule 1.1
(c) hereto, which includes all of the finished goods inventory
of such Cardiac Assist Division products,
1
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wherever located, owned by BSC or any of its subsidiaries or
affiliates as of the Closing Date (the "Inventories");
(d) All of BSC's right, title, and interest in and to the deposits
and prepaid expenses described on Schedule 1.1 (d) hereto (the
"Prepaid Amounts");
(e) All of BSC's transferable rights under the purchase orders,
contracts and agreements for the purchase or sale of utilities,
goods (including, without limitation, for the purchase or sale
of catheters and catheter-related inventory), materials and
services relating solely to the Cardiac Assist Division, and
under all other contracts, commitments and agreements of the
Cardiac Assist Division entered into in the ordinary course of
business prior to the Closing, IN EACH CASE WHICH RELATE OR
PERTAIN EXCLUSIVELY TO THE CARDIAC ASSIST DIVISION (the
contracts and agreements referred to in this Section 1.1 (e)
are referred to collectively as the "Other Contracts");
(f) All of BSC's and its subsidiaries' and affiliates' transferable
rights under the licenses and permits relating exclusively to
BSC's operations constituting the Cardiac Assist Division,
including, without limitation, those licenses, permits, import
licenses and product registrations described on Schedule 1.1
(f) hereto (the "Permits");
(g) All of BSC's right, title and interest in and to (i) the
trademarks and trademark applications set forth in Schedule 1.1
(g) hereto, (ii) all continuations, substitutions, renewals,
reissuances and divisions of any of the foregoing trademarks
and trademark applications, and (iii) all other intangible
assets of BSC, other than the patents and patent applications
set forth in Schedule 1.1 (h) hereto, necessary to the
operation of the Cardiac Assist Division as it is conducted as
of the date hereof, IN EACH CASE WHICH RELATE OR PERTAIN
EXCLUSIVELY TO THE CARDIAC ASSIST DIVISION (the "BSC
Intangibles");
(h) An exclusive worldwide license in the field of intraaortic
balloon catheters in and to that patent application set forth
in Schedule 1.1 (h) hereto, together with all continuation,
divisional, substitution, continuation-in-part, or reissue
patent applications with respect to such patent application,
all unexpired patents issued on any such patent application,
all extensions or renewals of any such patents and all foreign
counterparts thereof, pursuant to the terms and conditions of a
license agreement (the "License Agreement") in the form
attached hereto as Exhibit A; and
--------------
(i) Copies of all of the Sellers' documentation which relates or
pertains exclusively to the Cardiac Assist Division, including
without limitation, all regulatory files pertaining exclusively
to Cardiac Assist Division products.
2
<PAGE>
1.2. Excluded Assets. The Sellers shall not sell and the Buyer shall not
---------------
purchase any tangible or intangible properties, assets or rights of
either of the Sellers not specifically included in the Acquired
Assets. Without limiting the foregoing, there shall not be sold or
transferred hereunder any of the following assets of the Sellers,
and the term "Acquired Assets" shall not include:
(a) Except as provided in the Interim Supply Agreement (as defined
below) or in Schedule 1.1 (a) hereto, any of the Sellers'
interests in real estate owned or leased by them, or any
buildings, plants and other structures and improvements
thereon, any rights and privileges pertaining thereto or to any
of such buildings, plants or other structures or improvements,
or, to the extent constituting real property, any fixtures,
machinery, installations, equipment and other property attached
thereto or located thereon;
(b) Those items of machinery and equipment set forth on Schedule
5.6 hereof,
(c) Except as provided in the License Agreement, all of BSC's
right, title and interest in and to Nitinol technology and the
supply of Nitinol tubing, including without limitation its
rights to the patents and patent applications set forth in
Schedule 1.1 (h) hereof,
(d) Any assets of BSC not exclusively related to the Cardiac Assist
Division and any assets of IABP other than the IABP
Intangibles;
(e) Any cash on hand or in banks or marketable securities owned by
the Sellers;
(f) Any trade accounts receivable, notes receivable or
miscellaneous receivables of the Sellers;
(g) All of the Sellers' right, title and interest in and to their
respective corporate names; and
(h) All of BSC's right, title and interest in and to the names
"Mansfield" and "Boston Scientific" and the Mansfield heart
logo.
2. PURCHASE PRICE.
--------------
2.1. Purchase Price. The Buyer shall pay to the Sellers, as the
--------------
aggregate cash purchase price for the Acquired Assets, an amount
equal to Seven Million Three Hundred Thousand Dollars
($7,300,000.00) (the "Purchase Price"). The Purchase Price shall be
payable by wire transfer of immediately available funds at Closing
to the Sellers at The First National Bank of Boston, Account No.
54857896, ABA No. 011-000-390, Reference: Boston Scientific
Corporation.
2.2. Allocation of Purchase Price. Within sixty (60) days of the
----------------------------
Closing, Seller shall allocate the Purchase Price (and all other
capitalized costs) among the Acquired
3
<PAGE>
Assets. Such allocation shall be made in accordance with the
provisions of Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"), and shall be binding upon the Buyer and the
Sellers for all purposes (including financial accounting purposes,
financial and regulatory reporting purposes and tax purposes). The
Buyer and the Sellers each also agree to file IRS Form 8594
consistently with the foregoing and in accordance with Section 1060
of the Code.
3. ASSUMPTION OF CERTAIN OBLIGATIONS.
---------------------------------
3.1. Assumed Obligations. At the Closing, as further consideration for
-------------------
the sale and transfer of the Acquired Assets, the Buyer shall assume
and agree to pay, perform, fulfill and discharge, (a) any and all of
the Seller's outstanding warranty, repair and service obligations
under the Other Contracts, (b) those obligations of the Sellers that
accrue after the Closing and that relate to events that transpire
subsequent to the Closing under the Other Contracts and the
Distribution Contracts, and (c) any and all other liabilities and
obligations relating to the Acquired Assets that arise after the
Closing. For purposes of this Agreement, the term "Assumed
Obligations" shall mean all of the obligations which the Buyer has
agreed to assume, pay, perform, fulfill and discharge pursuant to
this Section 3.1. In connection with this obligation, Buyer shall
execute an assumption of liabilities agreement in the form attached
hereto as Exhibit B (the "Assumption of Liabilities Agreement").
3.2. Obligations Not Assumed. Anything in this Agreement to the contrary
-----------------------
notwithstanding, the Buyer shall not assume, and shall not be deemed
to have assumed, any liability of the Sellers whatsoever other than
as specifically set forth in Section 3.1 hereof, including without
limitation liabilities relating to litigation now pending or
hereafter instituted against the Sellers concerning matters arising
prior to the Closing Date. Without limiting the foregoing, the Buyer
shall not assume any liability for product liability claims with
respect to finished products manufactured by BSC prior to the
Closing Date or after the Closing Date pursuant to the terms of the
Interim Services Agreement, except to the extent such claims relate
to finished products ready for sale which were (i) shipped by Buyer
or its agents or affiliates to customers on or after the Closing
Date, to the extent that the sterile packaging of such products was
broken by Buyer or its agents or affiliates at any time prior to
delivery to such customers, (ii) altered by Buyer or its agents or
affiliates in any way, including without limitation, repackaged
(other than relabeled, except if such relabeling alters the product
in any manner), following the Closing Date, or (iii) sold or
promoted for use by Buyer or its agents or affiliates in violation
of applicable labeling and use instructions, including without
limitation, applicable expiration dates.
4. CLOSING.
-------
The closing of the transactions contemplated hereunder (the "Closing")
shall be held at 10:00 a.m. on the date hereof or at such other time as the
parties may agree, not to be later than November 7, 1997. The date on which
the Closing is actually held hereunder is referred to herein as the
"Closing Date". The Buyer and Sellers agree that all Cardiac
4
<PAGE>
Assist Division sales and other transactions made on the Closing Date shall
be deemed to be made for the benefit of the Buyer.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
---------------------------------------------
BSC and IABP jointly and severally represent and warrant to the Buyer as
follows:
5.1. Organization of Sellers, Authority. Each of the Sellers is a
----------------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Sellers have all
requisite power and authority to own and hold the Acquired Assets,
to carry on the business applicable to the Acquired Assets, and, as
of the Closing Date, to execute and deliver this Agreement and carry
out all actions required of them pursuant to the terms of this
Agreement.
5.2. Approvals of Sellers; Binding Effect. The Sellers have obtained all
------------------------------------
necessary authorizations and approvals from their respective Boards
of Directors and stockholders (if any) required for the execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of the Sellers and constitutes the
legal, valid and binding obligation of each Seller, enforceable
against each such Seller in accordance with its terms, subject only
to the effects of bankruptcy, insolvency, moratorium, reorganization
or other laws of general applicability relating to or affecting the
enforcement of creditors' rights and general principles of equity.
5.3. Non-Contravention. Subject to such exceptions, the effect of which
-----------------
in the aggregate would not be materially adverse to the Acquired
Assets or the business conducted with such Acquired Assets by the
Sellers, taken as a whole (a "Materially Adverse Effect"), neither
the execution and delivery of this Agreement by either Seller nor
the consummation by each Seller of the transactions contemplated
hereby will constitute a violation of, or be in conflict with, or
constitute or create a default under, or result in the creation or
imposition of any Encumbrance upon any of the Acquired Assets
pursuant to (a) the Certificate of Incorporation or By-Laws of
either Seller, each as amended to date, (b) any agreement or
commitment to which either Seller is a party or by which either
Seller or any of its Acquired Assets is bound or to which either
Seller or any of such properties is subject, or (c) any statute or
any judgment, decree, order, regulation or rule of any court or
governmental authority.
5.4. Governmental Consents; Transferability of Permits. Except as set
-------------------------------------------------
forth on Schedule 5.4 hereto, and subject to such further exceptions
which, in the aggregate, would not have a Materially Adverse Effect,
no consent, approval or authorization of, or registration,
qualification or filing with any governmental agency or authority is
required for the execution and delivery of this Agreement by either
Seller or for the consummation by either Seller of the transactions
contemplated hereby. BSC's rights under all of its respective
Permits, both governmental and private, related to the operation of
the Acquired Assets are
5
<PAGE>
freely transferable to the Buyer, except as set forth in Schedule
5.4 and except where the failure to transfer the same would not have
a Materially Adverse Effect.
5.5. Litigation. Except as set forth on Schedule 5.5 hereto, and subject
----------
to such further exceptions which, in the aggregate, would not have a
Materially Adverse Effect, no action, suit, proceeding or
investigation is pending or, to the knowledge of any Seller,
threatened, except by the Buyer or its affiliates, (a) relating to
or affecting any of the Acquired Assets, (b) relating to or
affecting the activities of any Seller carried on with any of the
Acquired Assets, or (c) that questions the validity of this
Agreement or challenges any of the transactions contemplated hereby.
5.6. Equipment. Except as set forth on Schedule 5.6 hereto, and subject
---------
to such further exceptions which, in the aggregate, would not have a
Materially Adverse Effect, (a) Schedule 1.1 (a) hereto sets forth a
complete and accurate list of all of the Equipment necessary to the
operation of the Cardiac Assist Division as it is conducted as of
the date hereof, other than items having a value individually of
less than $5,000, and (b) all such Equipment is in good repair and
working order and has been well maintained.
5.7. Inventories. Except as set forth on Schedule 5.7 hereto, and
-----------
subject to such further exceptions which, in the aggregate, would
not have a Materially Adverse Effect, the raw material and work in
process Inventories to be transferred to the Buyer hereunder are of
a quality and quantity consistent with the Cardiac Assist Division's
normal requirements. BSC further warrants that the finished goods
Inventories to be transferred to the Buyer hereunder shall be free
from defects in materials and workmanship for a period of one (1)
year following the Closing Date under normal use and service. During
the first month of the Interim Supply Agreement, BSC's obligation
under this warranty shall be limited to replacement of any finished
goods which are determined to be defective. Thereafter, BSC's
obligation under this warranty shall be limited to the replacement
cost of any defective product.
5.8. Contracts. Schedule 5.8 hereto sets forth a complete and accurate
---------
list of all contracts ("Contracts") to which BSC or its subsidiaries
(in respect of its Cardiac Assist Division) or IABP (in respect of
the IABP Intangibles) is a party or by which either (in respect of
its Cardiac Assist Division or the IABP Intangibles, as applicable)
is bound or to which BSC (in respect of the Cardiac Assist
Division), IABP (in respect of the IABP Intangibles) or the Acquired
Assets are subject, except (a) any purchase order or other contract
entered into in the ordinary course of business by either of the
Sellers which does not in any case involve payment by or to either
Seller of more than $25,000, (b) contracts listed in other Schedules
hereto, and (c) contracts which do not relate or pertain exclusively
to the Cardiac Assist Division and which are not being assumed by
Buyer. As used in this Section 5.8, the word "Contract" means and
includes every written agreement or understanding of any kind that
is legally enforceable by or against either of the Sellers in
respect of the matters referred to above, and specifically includes
the Other Contracts and the Distribution Contracts. The Sellers have
provided the Buyer access to true, correct and complete copies of
all such Contracts, together
6
<PAGE>
with all modifications and supplements thereto. Each of the
Contracts listed on Schedule 5.8 hereto is in full force and effect,
and the Sellers have no reason to believe that any Contract is
invalid or that any breach or default, or event or condition that
with notice or the passage of time or both would constitute such a
breach or default, exists with respect thereto.
5.9. Trademarks, Patents, Etc. Except as set forth in Schedule 5.9
------------------------
hereto, and subject to such further exceptions which, in the
aggregate, would not have a Materially Adverse Effect, Schedule 1.1
(g) hereto sets forth a complete and accurate list of all trademarks
and trade names registered in the name of BSC or used or proposed to
be used by BSC, IN EACH CASE RELATING SOLELY TO THE CARDIAC ASSIST
DIVISION. Except as set forth in Schedule 5.9 hereto, and subject to
such further exceptions which, in the aggregate, would not have a
Materially Adverse Effect, Schedule 1.1 (i) hereto sets forth a
complete and accurate list of all patents and patent applications
registered in the name of BSC, IN EACH CASE WHICH RELATE TO THE
CARDIAC ASSIST DIVISION. Except as set forth in Schedule 5.9 hereto,
and subject to such further exceptions which, in the aggregate,
would not have a Materially Adverse Effect, Schedule 1.1 (b) hereto
sets forth a complete and accurate list of all patents, trademarks
and patent and trademark applications registered in the name of IABP
and licensed to BSC for use or proposed use only by its Cardiac
Assist Division. To the best knowledge of BSC or IABP, as
applicable, except as set forth in Schedule 5.9 hereto and except
for claims threatened or asserted by the Buyer and its affiliates,
no claims have been asserted, and Sellers have received no notice of
claims pending, by any person regarding the use of any such patents,
trademarks, trade names, technology, know-how or processes, or
challenging or questioning the validity or effectiveness of any
license or agreement.
5.10. Title to Acquired Assets. Except as described in Schedule 5.10, the
------------------------
Sellers own all right, title and interest in and to the Acquired
Assets, free and clear of all liens, licenses, security interests,
options, mortgages, or other encumbrances. Without limiting the
foregoing, any license of technology or trademarks between BSC and
IABP relating to the Cardiac Assist Division shall terminate as of
the Closing Date.
5.11. Customers, Distributors and Suppliers. Schedule 5.11 hereto sets
-------------------------------------
forth a complete and accurate list of those customers or
distributors (whether pursuant to a commission, royalty or other
arrangement) each of whom accounted for more than ten percent (10%)
of the gross sales of the Cardiac Assist Division for the fiscal
year ended December 31, 1996 (the "Customers and Distributors").
Schedule 5.11 hereto also sets forth a complete and accurate list of
the suppliers of the Cardiac Assist Division to whom, during the
fiscal year ended December 31, 1996, the Cardiac Assist Division
made payments aggregating $25,000 or more, showing with respect to
each, the name, address and dollar volume involved (the
"Suppliers").
5.12. Sales of Finished Goods Inventory. BSC's sales of Cardiac Assist
---------------------------------
Division finished goods to independent distributors during the
period commencing
7
<PAGE>
September 1, 1997 through the Closing Date (but not including the
Closing Date) did not exceed the average sales volume to such
distributors during the comparable period ending August 31, 1997
5.13. Brokers. The Sellers have not retained, used, or been represented
-------
by any broker or finder in connection with the transactions
contemplated by this Agreement.
5.14. No Other Warranties. Except as otherwise expressly set forth in
-------------------
this Agreement or in the certificates or other written statements
furnished by or on behalf of the Sellers to the Buyer pursuant to
this Agreement, (a) THE SELLERS HEREBY EXPRESSLY DISCLAIM ALL
REPRESENTATIONS AND WARRANTIES EXPRESS OR IMPLIED WITH RESPECT TO
ANY AND ALL OF THE ACQUIRED ASSETS OR THE ASSUMED OBLIGATIONS,
INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS OF ANY ACQUIRED
ASSET FOR A PARTICULAR PURPOSE, AND (b) THE ACQUIRED ASSETS ARE
BEING SOLD "AS IS" AND "WHERE IS".
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
-------------------------------------------
The Buyer represents and warrants to each of the Sellers as follows:
6.1. Organization and Standing of the Companies. The Buyer is a
------------------------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has all requisite power
and authority to own or lease and operate its properties and carry
on its business as now conducted. The Buyer has delivered to the
Sellers true, complete and correct copies of its Certificate of
Incorporation and By-Laws. The Buyer has all requisite power and
authority to execute and deliver this Agreement and to carry out all
actions required of it pursuant to the terms of this Agreement.
6.2. Approval of the Buyer, Binding Effect. The Buyer has obtained all
-------------------------------------
necessary authorizations and approvals from its Board of Directors
and stockholders required for the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the
Buyer and constitutes the legal, valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms,
subject only to the effects of bankruptcy, insolvency, moratorium,
reorganization or other laws of general applicability relating to or
affecting the enforcement of creditors' rights and general
principles of equity.
6.3. Non-Contravention. Subject to such exceptions, the effect of which
-----------------
in the aggregate would not have a material adverse effect on the
ability of the Buyer to purchase the Acquired Assets or consummate
the transactions contemplated hereby, neither the execution and
delivery of this Agreement by the Buyer nor the consummation by the
Buyer of the transactions contemplated hereby will constitute a
violation of, or be in conflict with, or constitute or create a
default under, or result in the creation or imposition of any liens
or other encumbrances upon any property of the Buyer pursuant to (a)
the Certificate of Incorporation or
8
<PAGE>
By-Laws of the Buyer, each as amended to date, (b) any agreement or
commitment to which the Buyer or any of its material properties is
bound or to which the Buyer or any of its material properties is
subject, or (c) any statute or any judgment, decree, order,
regulation or rule of any court or governmental authority.
6.4. Litigation. Except as set forth on Schedule 6.5 hereto, no action,
----------
suit, proceeding or investigation is pending or, to the knowledge of
the Buyer, threatened (a) against the Buyer or its subsidiaries,
which could have a material adverse effect on the Buyer's ability to
purchase the Acquired Assets or consummate the transactions
contemplated by this Agreement, or (b) that questions the validity
of this Agreement or that challenges any of the transactions
contemplated hereby.
6.5. Brokers. Except as set forth in Schedule 6.6 hereto, Buyer has not
-------
retained, used, or been represented by any broker or finder in
connection with the by this Agreement.
6.6. No Other Warranties. Except as otherwise expressly set forth in
-------------------
this Agreement or other written statements furnished by or on behalf
of the Buyer to the Sellers pursuant to this Agreement, the Buyer
makes no representations or warranties to the Sellers.
7. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.
-----------------------------------------------
The obligation of the Buyer to consummate the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (to the extent noncompliance is not waived in writing
by the Buyer):
7.1. Representations and Warranties True at Closing. The representations
----------------------------------------------
and warranties made by the Sellers in or pursuant to this Agreement
shall be true and correct at and as of the Closing.
7.2. Compliance With Agreement. Each of the Sellers shall have performed
-------------------------
and complied in all material respects with all of its obligations
under this Agreement to be performed or complied with by it on or
prior to the Closing.
7.3. License Agreement. BSC shall have duly executed and delivered to
-----------------
the Buyer the License Agreement.
7.4. Interim Supply Agreement. BSC shall have duly executed and
------------------------
delivered to the Buyer the Interim Supply Agreement.
7.5. No Restraining Order. No restraining order or injunction shall
--------------------
prevent the transactions contemplated by this Agreement.
7.6. Proceedings and Documents Satisfactory. All proceedings in
--------------------------------------
connection with the transactions contemplated by this Agreement and
all certificates and documents delivered to the Buyer or to be
executed in connection with the transactions
9
<PAGE>
contemplated by this Agreement (including, without limitation, a
bill of sale, an assignment of patents and an assignment of
trademarks) shall be reasonably satisfactory in all respects to the
Buyer and the Buyer's counsel; all Schedules and Exhibits required
by this Agreement (whether prepared by Buyer or the Seller) shall
have been prepared and/or completed to the entire satisfaction of
the Buyer and the Buyer's counsel; and the Buyer shall have received
the originals or certified or other copies of all such records and
documents as the Buyer may reasonably request.
7.7. Insurance Certification. BSC shall have delivered to the Buyer
-----------------------
certificates of insurance from reputable nationally recognized
insurance carriers evidencing coverage for personal injury, property
damage and products liability with limits of at least $2,000,000 per
occurrence and $5,000,000 in the aggregate (with self-insured
retention not to exceed $500,000 per occurrence and $1,000,000 in
the aggregate) naming the Buyer as an additional insured and
providing for notice to the Buyer of at least thirty (30) days prior
to cancellation or modification.
8. CONDITIONS PRECEDENT TO SELLERS'OBLIGATIONS.
-------------------------------------------
The obligation of the Sellers to consummate the Closing shall be
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (to the extent noncompliance is not waived in writing
by each of the Sellers):
8.1. Representations and Warranties True at Closing. The representations
----------------------------------------------
and warranties made by the Buyer in or pursuant to this Agreement
shall be true and correct in all material respects at and as of the
Closing.
8.2. Compliance with Agreement. The Buyer shall have performed and
-------------------------
complied in all material respects with all of its obligations under
this Agreement to be performed or complied with by it on or prior to
the Closing.
8.3. Assumption of Liabilities. The Buyer shall have duly executed and
-------------------------
delivered to the Sellers the Assumption of Liabilities Agreement.
8.4. License Agreement. The Buyer shall have duly executed and delivered
-----------------
to BSC the License Agreement.
8.5. Interim Supply Agreement. The Buyer shall have duly executed and
------------------------
delivered to BSC the Interim Supply Agreement.
8.6. No Restraining Order. No restraining order or injunction shall
--------------------
prevent the transactions contemplated by this Agreement.
8.7. Proceedings and Documents Satisfactory. All proceedings in
--------------------------------------
connection with the transactions contemplated by this Agreement and
all certificates and documents delivered to the Sellers or to be
executed in connection with the transactions contemplated by this
Agreement (including without limitation, a bill of sale, an
assignment of patents and an assignment of trademarks) shall be
reasonably
10
<PAGE>
satisfactory in all respects to the Sellers and the Sellers'
counsel; all Schedules and Exhibits required by this Agreement
(whether prepared by the Buyer or the Sellers) shall have been
prepared and/or completed to the entire satisfaction of each Seller
and the Sellers' counsel; and the Sellers shall have received the
originals or certified or other copies of all such records and
documents as the Sellers may reasonably request.
8.8. Approval of BSC and IABP Boards and IABP Stockholders. BSC and IABP
-----------------------------------------------------
shall have received from their respective Boards of Directors, and
IABP shall have also received from its Stockholders, written
consents to the consummation of the transaction.
8.9. Insurance Certification. The Buyer shall have delivered to the
-----------------------
Sellers certificates of insurance from reputable nationally
recognized insurance carriers evidencing coverage for personal
injury, property damage and products liability with limits of at
least $2,000,000 per occurrence and $5,000,000 in the aggregate
(with self insured retention not to exceed $500,000 per occurrence
and $1,000,000 in the aggregate) naming the Sellers as additional
insureds and providing for notice to the Sellers of at least thirty
(30) days prior to cancellation or modification.
9. POST-CLOSING COVENANTS.
----------------------
9.1. Confidential Information. Any and all information disclosed by the
------------------------
Buyer to either Seller or by either Seller to the Buyer as a result
of the negotiations leading to the execution of this Agreement, or
in furtherance thereof ("Confidential Information"), shall remain
confidential to the Sellers and the Buyer and their respective
employees and agents for five (5) years after the Closing Date;
provided, that the foregoing confidentiality obligation shall not
apply as to any information that (a) can be shown by documentary
evidence to have been known to the recipient prior to its disclosure
by the disclosing party, (b) becomes part of the public domain
through no action (or failure to act) of the party subject to such
obligation, (c) can be shown by documentary evidence to have been
disclosed to the recipient by a third party who did not derive such
information, directly or indirectly, from the disclosing party, or
(d) was independently developed by the recipient without access to
such information. Confidential Information disclosed to a party
shall be used by such party only in connection with the transactions
contemplated hereby or by the License or Interim Supply Agreements.
Confidential Information intended to be protected hereby shall
include, but not be limited to, financial information, customer
lists, lists of sales representatives, intellectual property, know-
how, trade secrets and anything else having an economic or pecuniary
benefit to the Buyer or the Sellers, respectively.
9.2. Risk of Loss. The entire risk of loss or damage to all of the
------------
Acquired Assets shall belong to the Buyer from and after Sellers'
receipt of the Purchase Price from the Buyer, including, without
limitation, during any period of time in which such Acquired Assets
remain on BSC's premises pursuant to the Interim Supply Agreement.
BSC shall have no obligation to insure any of the Acquired Assets
from and after such time. The Buyer agrees to indemnify and hold
harmless BSC
11
<PAGE>
from and against any liability, cost or damage suffered or incurred
by BSC as a result of the physical removal of the Acquired Assets,
except to the extent such liability, cost or damage is caused by the
negligence or willful misconduct of BSC or its agents, employees or
representatives.
9.3. Relabelling of Cardiac Assist Products Manufactured Pre-Closing.
---------------------------------------------------------------
Buyer agrees that it will not manufacture products labeled with the
names "Mansfield" or "Boston Scientific". Buyer further agrees that
it shall relabel all unsold Cardiac Assist Division Inventories and
Inventories supplied to Buyer pursuant to the Interim Supply
Agreement (which are labeled with the names "Mansfield" or "Boston
Scientific") on or before the expiration of thirty (30) days
following the Closing Date, or, in the case of Inventories supplied
to Buyer pursuant to the Interim Supply Agreement, on or before
selling such Inventories to customers or other third parties. Buyer
agrees that it shall be responsible for assuring that such new
labels comply with applicable FDA and other requirements.
9.4. Maintenance of Product Complaint Files. From and after the Closing
--------------------------------------
Date, the Buyer agrees to inform BSC promptly in writing of all
product complaints relating to Cardiac Assist Division products
manufactured by BSC prior to the Closing or after the Closing
pursuant to the Interim Supply Agreement.
9.5. Maintenance of Insurance. BSC and the Buyer shall each maintain the
------------------------
insurance coverage described in Sections 7.8 and 8.10 hereof,
respectively, (or similar coverage reasonably satisfactory to the
other) in full force and effect for five (5) years following the
Closing Date.
9.6. Removal of Assets. Subject to the terms of the Interim Supply
-----------------
Agreement, BSC shall allow Buyer access, during normal business
hours and upon reasonable notice, to its facilities at 135 Forbes
Boulevard in Mansfield, Massachusetts in order to remove the
Acquired Assets; provided that all such assets must be removed from
BSC's premises on or prior to May 1, 1998. BSC acknowledges that
nothing in the lease agreement covering 135 Forbes Boulevard in
Mansfield, Massachusetts bars or otherwise prohibits the removal of
the Acquired Assets.
9.7. No Solicitation. Except with respect to those BSC employees
---------------
dedicated exclusively to the Cardiac Assist Division, the Buyer
shall not, without the prior written consent of BSC, solicit or hire
any BSC employees to work for the Buyer, or its affiliates, for one
(1) year after the Closing Date, except that the Buyer may hire a
BSC employee who responds to a bona fide general solicitation for
employment not directed toward one or more BSC employees.
9.8. Employment Matters. The Buyer has agreed to employ those employees
------------------
of BSC's Cardiac Assist Division listed on Schedule 9.8 hereof,
effective as of such time as the parties may mutually agree, subject
to such employees agreeing to such employment. BSC shall be
responsible for all compensation and other benefits (including,
without limitation, any unpaid pension liabilities) earned by such
employees prior to such date and the Buyer shall be responsible for
such compensation and other benefits earned on and following such
date. BSC shall be
<PAGE>
solely responsible for all compensation and other benefits
(including, without limitation, any unpaid pension liabilities)
earned, or to be earned, by, and (except as provided in the Interim
Supply Agreements) all other liabilities relating to the employment
of, all other employees of BSC's Cardiac Assist Division prior, and
subsequent, to the Closing Date.
9.9. Non-Competition. Except as otherwise provided in the Interim Supply
---------------
Agreement, the Sellers agree, and shall cause their subsidiaries to
agree, not to manufacture or sell intraaortic balloon catheters and
pumps which are competitive with those manufactured or sold by BSC's
Cardiac Assist Division as of the Closing Date ("Competitive
Products") for a period of two (2) years following the Closing Date.
Notwithstanding the foregoing, BSC may acquire businesses which,
among other things, manufacture or sell Competitive Products
("Competitive Businesses") so long as less than forty percent (40%)
of any such Competitive Business' revenues (measured as of the most
recent fiscal year-end of the Competitive Business) are derived from
sales of Competitive Products.
9.10. Distribution Contracts. On or promptly after the Closing Date, BSC
----------------------
shall send letters seeking the termination of each of the
Distribution Contracts listed on Schedule 9.10. BSC shall send
letters terminating such contracts, or where applicable giving
notice of termination, as promptly as practicable and shall, upon
Buyer's request, provide copies of all such letters to Buyer.
10. INDEMNIFICATION.
---------------
10.1. Indemnity by the Sellers. Each of the Sellers agrees, jointly and
------------------------
severally, to indemnify and hold the Buyer and its officers, directors,
shareholders, employees, affiliates, agents, successors and assigns, harmless
from and with respect to any and all claims, liabilities, losses, damages, costs
and expenses, including without limitation reasonable attorneys' fees and court
costs, related to or arising directly or indirectly out of (a) any material
inaccuracies or omissions in any representation or warranty made by any Seller
in or pursuant to this Agreement or the agreements related hereto, (b) any
material failure or breach by any Seller of any covenant, agreement, obligation,
or undertaking made by such Seller in this Agreement or the agreements related
hereto, or (c) in the case of BSC, any product liability claims made with
respect to (i) products manufactured and sold by or for BSC prior to the Closing
Date and (ii) finished products ready for sale and manufactured by BSC (prior to
the Closing Date or pursuant to the terms of the Interim Supply Agreement) which
are shipped to customers on or after the Closing Date; provided, however, that
BSC shall have no obligation hereunder to indemnify the Buyer for any product
liability claims with respect to finished products ready for sale and
manufactured by BSC (prior to the Closing Date or pursuant to the terms of the
Interim Supply Agreement) which are (A) shipped to customers by Buyer or its
agents or representatives on or after the Closing Date, to the extent that the
sterile packaging of any such products has been broken at any time prior to
delivery to such customers, (B) altered by Buyer or its agents or
representatives or damaged in any way, including without limitation, repackaged
(other than relabeled, except if such relabeling alters the product in any
manner), following the Closing Date, or (C) sold or promoted for use by Buyer or
its agents or representatives in violation of applicable labeling and use
instructions, including without limitation, applicable expiration dates. The
collective liability of the Sellers under this Section 10.1(a) and (b) shall not
exceed One Million Five Hundred
13
<PAGE>
Thousand Dollars ($1,500,000) and with respect to Section 10.1 (c) shall be
unlimited. Except as otherwise provided in Section 12.1, the Sellers'
obligations under Section 10.1 (a) and (b) shall expire one (1) year following
the Closing Date and under Section 10.1 (c) shall expire four (4) years
following the Closing Date.
10.2. Indemnity by the Buyer. The Buyer agrees to indemnify and hold each
----------------------
of the Sellers and their officers, directors, shareholders,
employees, affiliates, agents, successors and assigns, harmless from
and with respect to any and all claims, liabilities, losses,
damages, costs and expenses, including without limitation reasonable
attorneys' fees and court costs, related to or arising directly or
indirectly out of (a) any material inaccuracies or omissions in any
representation or warranty made by the Buyer in or pursuant to this
Agreement or the agreements related hereto, (b) any material failure
or breach by the Buyer of any covenant, agreement, obligation, or
undertaking made by the Buyer in this Agreement or the agreements
related hereto, or (c) any product liability claims made with
respect to (i) products and components manufactured by the Buyer on
or after the Closing Date, (ii) finished products ready for sale and
manufactured by BSC (prior to the Closing Date or pursuant to the
terms of the Interim Supply Agreement) which are shipped to
customers on or after the Closing Date, to the extent that the
sterile packaging of any such products has been broken at any time
prior to delivery to such customers, (iii) finished products ready
for sale and manufactured by BSC (prior to the Closing Date or
pursuant to the terms of the Interim Supply Agreement) which are
altered by Buyer or its agents or representatives or damaged in any
way, including without limitation repackaged (other than relabeled,
except if such relabeling alters the product in any manner),
following the Closing Date, or (iv) products sold or promoted for
use by Buyer or its agents or representatives in violation of
applicable labeling and use instructions, including without
limitation, applicable expiration dates. The collective liability of
the Buyer under this Section 10.2 (a) and (b) shall not exceed One
Million Five Hundred Thousand Dollars ($1,500,000) and with respect
to Section 10.2(c) shall be unlimited. Except as otherwise provided
in Section 12.1, the Buyer's obligations under Section 10.2 (a) and
(b) shall expire one (1) year following the Closing Date and under
Section 10.2 (c) shall expire four (4) years following the Closing
Date.
10.3. Claims. In the event that the Buyer or any Seller, as the case may
------
be (an "Indemnified Party") desires to make a claim against a Seller
or the Buyer, respectively (an "Indemnifying Party"), under this
Section 10 in connection with any action, suit, proceeding or demand
at any time instituted against or made upon an Indemnified Party for
which such Indemnified Party may seek indemnification hereunder (a
"Claim"), such Indemnified Party shall notify promptly the proper
Indemnifying Parties of such Claim and of such Indemnified Party's
claim of indemnification with respect thereto. Upon receipt of such
notice from such Indemnified Party, the appropriate Indemnifying
Party shall be entitled to defend against such Claim; provided that
such Indemnifying Party shall not have the authority to negotiate,
compromise and settle such Claim without the prior written consent
of the Indemnified Party, which consent shall not be unreasonably
withheld. The Indemnified Party shall retain the right to employ its
own counsel
14
<PAGE>
and to participate in the defense of any Claim, the defense of which
has been assumed by one or more Indemnifying Parties pursuant
hereto, but such Indemnified Party shall bear and shall be solely
responsible for its own costs and expenses in connection with such
participation.
11. USE OF NAME.
-----------
Except as provided in this Section 11, neither the Buyer nor any of its
nominees shall be permitted to use the business and corporate names of
either Seller or variations thereof as corporate and business names, trade
names or titles at any time. From and after the Closing Date, the Buyer
and/or its nominee(s) may use the trade names of BSC, other than
"Mansfield" and "Boston Scientific", only to the extent that such names
relate solely to the Cardiac Assist Division of BSC, and BSC agrees that
from and after the Closing Date BSC will discontinue its use of all such
names, except as contemplated under the Interim Supply Agreement.
12. GENERAL.
--------
12.1. Survival. Unless otherwise expressly provided herein, the
--------
representations, warranties, covenants and agreements of the parties
hereto contained in this Agreement or otherwise made in writing in
connection with the transactions contemplated hereby shall survive
the Closing Date and the consummation of such transactions for a
period of one (1) year; provided, that if, prior to the expiration
of such one (1) year period, the Buyer or any Seller shall have
given notice of an indemnifiable claim relating to such
representations, warranties, covenants or agreements to any Seller
or the Buyer, respectively, then the rights of the Buyer or that
Seller to indemnification with respect to that liability shall
continue until the liability has been finally determined and
disposed of, and provided, further, that the foregoing one (1) year
limitation shall not apply in instances of fraud. Notwithstanding
the foregoing, the consummation of the Closing shall not terminate
the rights and obligations of the parties hereunder which by their
express terms are intended to survive for a longer period of time.
12.2. Expenses. All expenses of the preparation, execution and
--------
consummation of this Agreement and of the transactions contemplated
hereby, including, without limitation, attorneys', accountants' and
outside advisers' fees and disbursements, shall be borne by the
party incurring such expenses.
12.3. Further Assurances. From time to time, at the request of the Buyer
------------------
and without further consideration, the Sellers shall execute and
deliver such further instruments of conveyance and transfer and take
such other actions as the Buyer may reasonably require to more
effectively convey and transfer any of the Acquired Assets to the
Buyer. The Sellers and the Buyer shall also execute and deliver to
the appropriate other party such other instruments as may be
reasonably required in connection with the performance of this
Agreement and each shall take all such further actions as may be
reasonably required to carry out the transactions contemplated by
this Agreement.
15
<PAGE>
12.4. Satisfaction of Conditions Precedent. The Sellers and the Buyer
------------------------------------
will each use their reasonable best efforts to cause the
satisfaction of the conditions precedent contained in this
Agreement; provided, however, that nothing contained in this Section
12.4 shall obligate any party hereto to waive any right or condition
under this Agreement.
12.5. No Implied Rights or Remedies. Except as otherwise expressly
-----------------------------
provided herein, nothing herein expressed or implied is intended or
shall be construed to confer upon or to give any person, firm or
corporation, other than the Sellers and the Buyer, any rights or
remedies under or by reason of this Agreement.
12.6. Public Statements or Releases. The parties hereto each agree that
-----------------------------
no party to this Agreement will make, issue or release any public
announcement, statement or acknowledgment of the existence of, or
reveal the status of, this Agreement or the transactions provided
for herein, without first obtaining the written consent of the other
parties hereto. Nothing contained in this Section 12.6 shall prevent
any party from making such public announcements as such party may
reasonably consider necessary, in order to satisfy such party's
legal obligations; provided that reasonable notice is given to the
other parties prior to the making of any such public announcement.
12.7. Notices. All notices, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if
delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid, or sent by overnight courier (e.g.,
Federal Express), or facsimile (upon transmission and receipt of a
standard electronic facsimile confirmation) to the following
addresses, or to such other addresses as either party may specify by
notice to the other party pursuant hereto:
16
<PAGE>
If to the Sellers, to:
Boston Scientific Corporation
One Boston Scientific Place
Natick, MA 01760-1537
Attention: President, with a copy to General Counsel
Fax#: (508) 650-8960
If to the Buyer, to:
Arrow Interventional, Inc
2400 Bernville Road
P.O. Box 12888
Reading, Pennsylvania 19612
Attention: John H. Broadbent, Jr.
Vice President, Finance
Fax #: (610) 478-3177
with a copy to:
Robert H. Kauffman, Esq.
Rhoda, Stoudt & Bradley
501 Washington Street, P.O. Box 877
Reading, PA 19603
Fax #: (610) 374-6061
12.8. Entire Agreement. This Agreement, together with all other
----------------
agreements referred to herein, contains the entire understanding of
the parties, supersedes all prior agreements and understandings
relating to the subject matter hereof and shall not be amended
except by a written instrument signed by all of the parties hereto.
12.9. Assigns. This Agreement shall be binding upon and inure to the
-------
benefit of the parties hereto and their respective heirs, successors
and permitted assigns. Neither this Agreement nor the obligations of
any party hereunder shall be assignable or transferable by such
party without the prior written consent of the other parties hereto.
12.10. Sections and Section Headings. All enumerated subdivisions of this
-----------------------------
Agreement are herein referred to as "Sections" or "Subsections." The
headings of Sections and Subsections are for reference only and
shall not limit or control the meaning thereof.
12.11. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17
<PAGE>
12.12. Governing Law. The validity and construction of this Agreement
-------------
shall be governed by the internal laws (and not the choice-of-law
rules) of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers as of the date and year first above written.
BSC:
----
BOSTON SCIENTIFIC CORPORATION
By: /s/Peter M. Nicholas
--------------------------------
Name:
Title:
IABP:
-----
IABP CORPORATION
By: /s/Peter M. Nicholas
--------------------------------
Name:
Title:
Buyer:
------
ARROW INTERVENTIONAL, INC.
By: /s/John H. Broadbent, Jr.
--------------------------------
Name: John H. Broadbent, Jr.
Title: VP - Finance
18
<PAGE>
SCHEDULE 1.1(A)
EQUIPMENT TRANSFERRED TO BUYER
CARDIAC ASSIST FIXED ASSETS
- ---------------------------
ASSET # DESCRIPTION
- ------- -----------
20045 Balloon Dipping Machine modifactions
20056 (1) Refrigerator, (1) Storage cabinet, (4) Mandrel racks, (4) Crock
pots, (6) Freon vessels
20059 Blood cuff mold. At vendor.
20062 Packaging molds at Universal Plastics. Packaging vendor.
20063 New production tools
20066 IABP fixtures at ThermoFab Plastics.
20244 Tooling - Packaging for 3800 series at Crystal Thermoplastics.
20286 IABP Misc. parts
20326 Dipping Machine and 10 Cavity Molds @ Transform Plastics
20375 Ice Cube Chiller
20411 Gelatin Mold Frame
20565 Gelatin Cooker
20566 RO Marker Tooling
20568 Reverse Osmosis Unit
20569 Nanopurel Unit
20805 Mold Modification
21156 IABC Dipping Machine Software
21159 IABC Kontron Adaptor Mold
21174 IABC Mold Frame
21361 Moldmasters
21369 Portable Air Conditioner
21370 Auto Elec Steam Boiler
21371 UV Curing System
21372 Adhesive Dispenser
21432 IABC Introducer Tray Tooling (in service at vendor Crystal Therm.)
21433 IABC Introducer Tray Cover Tooling (in service at vendor Crystal
Therm.)
21546 Digital Dispenser
21547 Digital Dispenser
21548 UV Curing System
21549 UV Curing System
21550 Radio/Photo Meter
21551 Radio/Photo Meter
21552 UV Attach Station
21553 Temperature Controller
- --- Bar Sealer
- --- Label Making System
- --- CPU
- --- Printer
- --- Monitor
- --- Nitrogen Flushing System
- --- Laminar Flow Hood
Miscellaneous tools, spare parts, materials
<PAGE>
R&D FIXED ASSETS
- ----------------
ASSET # DESCRIPTION
- ------- -----------
20285 R&D Workstations. (1) Plug in Adapter, (4) 60x30 Electric
workstations, (8) 41 x20x5 Tier drawers, (8) cylinder locks.
20251 Recording System-Vetter
20563 Vectra 486/33N w/SVGA Monitor
20564 Laserjet 4 Printer
20567 Ductless Filtering Hood
20809 Z-445 Fast memory card, Zenith Z-416-C Coprocessor, 13" Color monitor.
Viscometer- 1/4 RVTD Brookfield SN#AO9331, Spindle Set, Viscocel
Spindle, 3" extension. Digital Storage Oscilloscope SN#87743, model
125MHZ, Waveform proc Firmwr, 8 pen digital plotter.
Zenith 248 Computer System SN#73944, Toshiba 3.5" 1.44 Floppy Disk,
Zenith
20819 Vectra 486/33N w/SVGA Monitor (Marketing)
20820 Misc. Software
21057 Laserjet 4 Printer (Marketing)
21059 Vectra 486/33N w/SVGA Monitor
21060 Super VGA 17" Monitor
21061 Vectra 486/33M
21062 Misc. Software
21063 AutoCad R12 for Windows
21066 Abrasion Tester
21067 Wheel Refacer
21068 Balance Scale
<PAGE>
SCHEDULE 1.1(B)
IABP INTANGIBLES TRANSFERRED TO BUYER
<TABLE>
<CAPTION>
PATENTS
- -------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
TITLE OF INVENTION COUNTRY PATENT ISSUE DATE STATUS EXPIRES
------------------ ------- ------ ---------- ------ -------
- ------------------------------------------------------------------------------------------
Instrument for Direct US 3,455,298 15-Jul-69 Expired
Mechanical Cardiac Massage
Mechanical Ventricular US 3,587,567 28-Jun-71 Expired
Assistance Assembly
Portable Mechanical Ventricular US 3,590,815 06-Jul-71 Expired
Assist Device
Mechanical Ventricular US 3,613,672 19-Oct-71 Expired
Assistance Cup
Pulsatile By-Pass Blood Pump US 3,656,873 18-Apr-72 Expired
Portable Mechanical Ventricular US 3,674,381 04-Jul-72 Expired
Assistance Device
Electronic Synchronizer-Monitor US 4,016,871 12-Apr-77 Expired
System For Controlling the Timing
of Mechanical Assistance and
Pacing of the Heart
Adapter for Intra-Aortic Balloons US 4,122,858 31-Oct-78 Expired
and the like
Electronic Synchronizer-Monitor US 4,175,264 20-Nov-79 Expired
System for Controlling the Timing
of Mechanical Assistance and
Pacing of the Heart
Cannula for Intra-Aortic Balloon US 4,287,892 08-Sep-81 Issued 3/3/2000
Devices and the like
Switching Apparatus for Closed US 4,308,559 29-Dec-81 Issued 5/14/99
Circuit Television Monitoring
Systems
Apparatus for Left Heart Assist US 4,407,271 04-Oct-83 Issued 10/4/2000
- ------------------------------------------------------------------------------------------
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
TITLE OF INVENTION COUNTRY PATENT ISSUE DATE STATUS EXPIRES
------------------ ------- ------ ---------- ------ -------
- ------------------------------------------------------------------------------------------
Percutaneous Balloon US 4,422,447 27-Dec-83 Issued 4/13/2001
Percutaneous Balloon US 4,467,790 28-Aug-84 Issued 8/28/2001
Introducer Assembly for Intra- US 4,473,067 25-Sep-84 Abandoned
Aortic Balloons and the Like
IAB Having Apparatus for US 4,515,587 07-May-85 Issued 2/14/2003
Assuring Proper Balloon Inflation
and Deflation
Apparatus for Left Heart Assist US 4,522,195 11-Jun-85 Issued 6/11/2002
Percutaneous Intra-Aortic Balloon US 4,522,127 12-Nov-85 Issued 4/l/2003
Having an EKG Electrode and a
Twisting Stylet for Coupling the
EKG Electrode to Monitoring
and/or Pacing Instrumentation
External to the Body
Method and Apparatus for US 4,569,332 11-Feb-86 Issued 4/13/2003
Treating a Heart Patient Through
the Coordinating Efforts of
Balloon Pumping and Dispensing
Catheters
Percutaneous Intra-Aortic Balloon US 4,576,142 18-Mar-86 Issued 3/18/2003
and Method for Using Same
Percutaneous Intra-Aortic Balloon US 4,644,936 24-Feb-87 Issued 2/24/2004
and Method for Using Same
Percutaneous Intra-Aortic Balloon US 4,697,573 06-Oct-87 Issued 3/18/2003
and Method for Using Same
Prepackaged Intra-Aortic Balloon US 4,901,707 20-Feb-90 Issued 2/20/2007
Assembly with Holder, and
Method of Using Same
Percutaneous Intra-Aortic Balloon CA 1291685 05-Nov-91 Issued 11/05/2008
and Method for Using Same
- ------------------------------------------------------------------------------------------
2
</TABLE>
<PAGE>
TRADEMARKS
Trademark Goods
--------- -----
SIDEWINDER/TM/ Intraaortic Balloon Catheter
TELEWIRE/TM/ Intraaortic Balloon Pump Accessory. Reg. No. 1,242,683,
June 21, 1983.
<PAGE>
SCHEDULE 1.1(C)
INVENTORIES TRANSFERRED TO BUYER
<TABLE>
<CAPTION>
As of September 1, 1997
-----------------------
<S> <C>
European Finished Goods $ 45,652
Domestic Finished Goods $196,068
Raw Material $698,691
Work in Process $110,773
--------
TOTAL INVENTORY $1,051,184*
</TABLE>
*Inventory amounts actually transferred to the Buyer may differ from the above
amounts due to normal additions and deletions made in the ordinary course of
business.
<PAGE>
SCHEDULE 1.1(D)
PREPAID AMOUNTS TRANSFERRED TO BUYER
TRADE SHOWS VENDOR AMOUNT DATE TO AMORTIZE
- ----------- ------ ------ ----------------
AHA American Heart Association $8,900.00 Nov-97
<PAGE>
SCHEDULE 1.1 (F)
PERMITS TRANSFERRED TO BUYER
Technology Transfer Agreement dated as of July 31, 1985 by and among Peter
Schiff, Dr. Carl Almond, IABP Corporation and Boston Scientific Corporation.
Listing of 510(k)'s attached hereto.
All of BSC's and its subsidiaries' and affiliates' transferable rights under
those import licenses and product registrations relating exclusively to the
Cardiac Assist Division.
<PAGE>
BOSTON SCIENTIFIC/ CARDIAC ASSIST
510 (k) CURRENT LISTING
As of October 21, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
K SUBMISSION CLEARANCE
NUMBER DIVISION PRODUCT NAME DATE DATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
K971673 CA 40 cc SUMO (marketed as 5/7/97 8/5/97
40 cc Grande (NT/TM/)
- ------------------------------------------------------------------------------------------
K972113 CA 30 cc and 40 cc SUB-9 NT 6/5/97 9/2/97
30 cc and 40 cc SUB-9 SL
- ------------------------------------------------------------------------------------------
K963197 CA Modified labeling of Cardiac Assist 8/13/96 11/4/96
Intra-Aortic Balloon Catheters, Volume
I & Volume 2
AMENDMENT 1 Additional Information Requested 10/18/96
- ------------------------------------------------------------------------------------------
K954431 CA Modified 940 & 930 Intra-Aortic 9/19/95 1/11/96
Balloon Catheters, Volume I & 2
- ------------------------------------------------------------------------------------------
K952221 30cc Sensation/TM/, 40cc Sensation/TM/, 5/1/95 8/11/95
Model 930 & 940 on Bard H-8000
Final Labeling 9/26/95 9/26/95
- ------------------------------------------------------------------------------------------
K943919 CA 40cc Sensation Intra-Aortic Balloon 8/l/94 3/23/95
Catheter
AMENDMENT 12/23/94
ADDENDUM 4/12/95
- ------------------------------------------------------------------------------------------
K940298 CA Model 940 Intra-Aortic, Balloon Catheter 1/14/94 4/6/95
K940298/Al 6/28/94
K940298/A2 12/30/94
A2-
ADDENDUM 1 2/1/95
A2-
ADDENDUM 2 3/30/95
- ------------------------------------------------------------------------------------------
K936232 CA Model 930 & 30 cc Sidewire DL Intra- 12/29/93 10/14/94
K936232/Al Aortic Balloon Catheters 1/24/94
6/20/94
ADDENDUM 4/12/95
- ------------------------------------------------------------------------------------------
K926000 CA Modifieid Percutaneous Double-Lumen 11/27/92 8/30/93
Intra-aortic Balloon Catheter
K926000/Al 6/16/93
- ------------------------------------------------------------------------------------------
K914285 CA Series 3001 Intra-Aortic Balloon Pump 9/24/91 withdrawn
Addition of Patient Pressure Values,
Balloon Tirning Indicator, Messages &
Alarms
K914285/Al 3/10/94
K914285/A2 4/12/95
- ------------------------------------------------------------------------------------------
K904556 CA Mansfield Cardiac Assist Model 940 10/5/90 12/18/91
K904556/Al Percutaneous Double-Lumen Intra- 1/25/91
K904556/A2 Aortic Balloon catheter 9/27/91
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
K SUBMISSION CLEARANCE
NUMBER DIVISION PRODUCT NAME DATE DATE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
K900291 CA Model 3001 Intra-Aortic Balloon Pump 1/22/90 4/19/90
with Conventional Timing Mode
- ------------------------------------------------------------------------------------------
K896920 CA Intra-aortic Balloon Catheter, 9.5.F 40cc 12/12/89 3/6/90
Double Lumen Sidewinder
- ------------------------------------------------------------------------------------------
K896597 CA Intra-aortic Balloon Catheter 40cc 11/21/89 2/12/90
Double Lumen Arics-Sidewinder
- ------------------------------------------------------------------------------------------
K894942 CA Sidewinder 40cc double Lumen Intra- 8/3/89 9/26/89
Aortic Balloon
- ------------------------------------------------------------------------------------------
K871893 Sidewinder Percutaneous IABC 5/8/87 withdrawn
- ------------------------------------------------------------------------------------------
K862245 Sidewinder Percutaneous IABC 6/9/86
- ------------------------------------------------------------------------------------------
K853306 SMEC Modification of Percutaneous Intra- 6/17/95 withdrawn
Artic Balloon Catheter
- ------------------------------------------------------------------------------------------
K852769 SMEC Intra-Aortic Ball on Datascope 6/27/85 withdrawn
- ------------------------------------------------------------------------------------------
K843526 SMEC SMEC Balloon Sys.Pacemaker - A&V 9/7/84
- ------------------------------------------------------------------------------------------
K840367 SMEC Pressure Trigger Modification SMEC 1/22/84 12/11/85
Intra-aortic Balloon Catheter System
- ------------------------------------------------------------------------------------------
K840037 SMEC Modified SMEC Percutaneous 1/5/84 2/l/85
Introducer
- ------------------------------------------------------------------------------------------
K832753 SMEC Improved Percutaneous Intra-Aortic 8/17/84 10/15/84
Balloon
- ------------------------------------------------------------------------------------------
K831035 SMEC SMEC Balloon Pacemaker 3/28/83
- ------------------------------------------------------------------------------------------
K823739 Intra-Aortic Balloon System 11/3/82 2/18/83
- ------------------------------------------------------------------------------------------
K823177 SMEC Balloon System 10/20/82 12/15/82
- ------------------------------------------------------------------------------------------
K822488 SMEC Modification of SMEC Balloon System
- ------------------------------------------------------------------------------------------
K813355 SMEC Modification of the SMEC Percutaneous 11/3/81 7/21/82
Balloon
- ------------------------------------------------------------------------------------------
K803112 SMEC SMEC Percutaneous Balloon
- ------------------------------------------------------------------------------------------
K790755 SMEC SMEC Balloon Cannula 4/17/79 5/14/80
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.1 (G)
BSC INTANGIBLES TRANSFERRED TO BUYER
Trademarks
- ----------
Trademark Goods
--------- -----
SENSATION/TM/ intraaortic balloon catheter and accessories
SENSATION 30/TM/ intraaortic balloon catheter
94O/TM/ intraaortic balloon catheter
93O/TM/ intraaortic balloon catheter
SERIES 3001/TM/ intraaortic balloon pumps
The following names were also filed in the U.S. as intent-to-use
applications:
Mark Goods Serial No. Filing Date
---- ----- ---------- -----------
NICATH/TM/ intraaortic balloon catheter 75/013,763 11-1-95
SUB 9/TM/ intraaortic balloon catheter 75/013,674 11-1-95
SUMO/TM/ intraaortic balloon catheter 75/013,686 11-1-95
Tradenames
- ----------
Cardiac Assist
Cardiac Assist Heart Logo
- -------------------------
<PAGE>
SCHEDULE 1.1 (H)
LICENSED TECHNOLOGY
TITLE APPLICATION/PUBLICATION NUMBER
- ----- ------------------------------
Intra-Aortic Balloon Catheter US SN 08/816,200 which is a FWC of
US SN 08/556,533 filed Nov. 13, 1995
Intra-Aortic Balloon Catheter US SN 08/819,879 which is a Cont. of
US SN 08/556,533 filed Nov. 13, 1995
Intra-Aortic Balloon Catheter PCT WO 97/18005 which claims priority to
US SN 08/556,533 filed Nov. 13, 1995
<PAGE>
SCHEDULE 5.4
REPRESENTATIONS AND WARRANTIES OF SELLERS - GOVERNMENTAL CONSENTS;
TRANSFERABILITY OF PERMITS
Permits Not Transferrable by Sellers
- ------------------------------------
1. Seller's FDA Establishment Registration is not transferrable to Buyer.
A separate FDA Establishment Registration will need to be filed by
Buyer.
2. Seller's FDA Owner/Operation number is not transferrable to Buyer.
Buyer will need to obtain its own FDA Owner/Operator number in the
event it does not already have one.
3. Buyer will need to initiate a Device Listing with the FDA. Seller's
Device Listing is not transferrable to Buyer.
4. Buyer may need to obtain a BACT permit from the Massachusetts
Department of Environmental Protection, depending upon the levels of
its hazardous materials usage. Seller's BACT permit with the
Massachusetts Department of Environmental Protection is not
transferrable to Buyer.
5. Buyer will need to obtain an LIC number from the Health Industry Bar
Code Commission.
<PAGE>
SCHEDULE 5.5
REPRESENTATIONS AND WARRANTIES OF SELLERS - LITIGATION
None.
<PAGE>
SCHEDULE 5.6
REPRESENTATIONS AND WARRANTIES OF SELLERS - EQUIPMENT
Tubing Extruder
- ---------------
Compressed Air Gun
- ------------------
Information Services Systems and Equipment
- ------------------------------------------
<PAGE>
SCHEDULE 5.7
REPRESENTATIONS AND WARRANTIES OF SELLERS - INVENTORIES
None.
<PAGE>
SCHEDULE 5.8
REPRESENTATIONS AND WARRANTIES OF SELLERS - CONTRACTS
Technology Transfer Agreement dated as of July 31, 1985 by and between Peter
Schiff, Dr. Carl Almond, IABP Corporation and Boston Scientific Corporation.
International Distributorship Agreement between Boston Scientific International
B.V. and Heiwa Bussan Co., Ltd. dated as of July 1, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Ryan Medical Distributors dated as of [July 1, 1996], and as amended by
that certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific Far East B.V.
and Hsin Tung Medical Ltd. dated as of [July 1, 1996], and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific Medizintechnik
GmbH and MEDOS Medizenische Produkte GmbH dated as of January 1, 1993.
International Distributorship Agreement between Boston Scientific International
B.V. and Vickers Medical Italia dated as of January 1, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Charles de Giorgio Ltd. dated as of July 1, 1997, and as amended by
that certain letter agreement dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Bin Naeem Hospital Supplies Co. dated as of July 1, 1997, and as
amended by that certain letter agreement between the parties dated June 24,
1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Hemoportugal LDA8 dated as of July 1, [ 1996], and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Elektra Biomedikal Engineering Ltd. dated as of July 1, 1997, and as
amended by that certain letter agreement between the parties dated June 24,
1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Gulf Medical Co. Ltd. dated as of July 1, 1997, and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and ADM for Medical Services dated as of [July 1, 1997], and as amended by
that certain letter agreement between the parties dated June 24, 1997.
<PAGE>
SCHEDULE 5.9
REPRESENTATIONS AND WARRANTIES OF SELLERS - TRADEMARKS, PATENTS, ETC.
Sellers are not transferring to Buyer the names "Boston Scientific" and
"Mansfield" or the Mansfield heart logo.
<PAGE>
SCHEDULE 5.10
ENCUMBRANCES
The patents and patent applications transferred to Buyer by IABP are subject to
the provisions of that certain Technology Transfer Agreement dated as of July
31, 1985 by and among Peter Schiff, Dr. Carl Almond, IABP Corporation and Boston
Scientific Corporation. The Sellers have no obligation to make payments to any
one other than Peter Schiff under the agreement, and no rights were exercised by
the Sellers under Section 3 of the agreement.
<PAGE>
SCHEDULE 5.11
CUSTOMERS, DISTRIBUTORS AND SUPPLIERS
CUSTOMERS AND DISTRIBUTORS WHO ACCOUNTED FOR MORE THAN TEN PERCENT OF THE GROSS
SALES OF THE CARDIAC ASSIST DIVISION FOR THE YEAR ENDED DECEMBER 31, 1996.
Heiwa Bussan
SUPPLIERS TO WHOM THE CARDIAC ASSIST DIVISION PAID IN EXCESS of $25,000 DURING
THE PERIOD FROM JANUARY 1, 1997 THROUGH OCTOBER 31, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Address Amount Paid Amount
---- ------- ----------- ------
Paid
- ----
Fiscal Year 1996 YTD
- ----------------------------------------------------------- -------------------
1997
B. Braun Medical, Inc. 824 Twelfth Ave. Bethlehem, PA 18018 $ 2,350 $ 0
Poly Medica 581 Conference Place Golden, CO 80401 69,900 23,353
Argon Medical Corporation 1445 Flatcreek Road Athens, TX 75751 30,290 22,800
Jordi Associates 4 Mill St. Bellingham, MA 02019 8,400 27,550
Mansfield Machinery Co. 27 Rock Street Mansfield, MA 02048 78,101 56,105
Lake Region Mfg. Co., Inc. 340 Lake Hazeltine Dr. Chaska, MN 55318-1029 66,324 74,497
Merit Medical 2906 Route 9 Ballston Spa, NY 12020 106,640 119,131
Thermotech, Inc. Palmer Road Monson, MA 01057-9500 22,727 17,360
Crystal Thermoplastics P.O. Box 7007 Cumberland Industrial Park 18,325 16,230
Cumberland, RI 02864
</TABLE>
* The Cardiac Assist Division also paid $93,828 to BSC's supplier of
Nitinol tubing during the year ended December 31, 1996, and $77,657 YTD 1997.
<PAGE>
SCHEDULE 6.5
REPRESENTATIONS AND WARRANTIES OF THE BUYER - LITIGATION
None.
<PAGE>
SCHEDULE 6.6
REPRESENTATIONS AND WARRANTIES OF THE BUYER - BROKERS
None.
<PAGE>
SCHEDULE 9.8
EMPLOYEES TO BE HIRED BY BUYER
Tom Richardson
David Benoit
<PAGE>
SCHEDULE 9.10
DISTRIBUTION CONTRACTS TO BE TERMINATED BY BSC
International Distributorship Agreement between Boston Scientific International
B.V. and Heiwa Bussan Co., Ltd. dated as of July 1, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Ryan Medical Distributors dated as of [July 1, 1996], and as amended by
that certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific Far East B.V.
and Hsin Tung Medical Ltd. dated as of July 1, 1996], and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific Medizintechnik
GmbH and MEDOS Medizenische Produkte GmbH dated as of January 1, 1993.
International Distributorship Agreement between Boston Scientific International
B.V. and Vickers Medical Italia dated as of January 1, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Charles de Giorgio Ltd. dated as of July 1, 1997, and as amended by
that certain letter agreement dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Bin Naeem Hospital Supplies Co. dated as of July 1, 1997, and as
amended by that certain letter agreement between the parties dated June 24,
1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Hemoportugal LDA8 dated as of July 1, [1996], and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Elektra Biomedikal Engineering Ltd. dated as of July 1, 1997, and as
amended by that certain letter agreement between the parties dated June 24,
1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Gulf Medical Co. Ltd. dated as of July 1, 1997, and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and ADM for Medical Services dated as of [July 1, 1997], and as amended by
that certain letter agreement between the parties dated June 24, 1997.
<PAGE>
SCHEDULE 9.8
EMPLOYEES TO BE HIRED BY BUYER
Tom Richardson
David Benoit
<PAGE>
SCHEDULE 9.10
DISTRIBUTION CONTRACTS TO BE TERMINATED BY BSC
International Distributorship Agreement between Boston Scientific International
B.V. and Heiwa Bussan Co., Ltd. dated as of July 1, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Ryan Medical Distributors dated as of [July 1, 1996], and as amended by
that certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific Far East B.V.
and Hsin Tung Medical Ltd. dated as of [July 1, 1996], and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific Medizintechnik
GmbH and MEDOS Medizenische Produkte GmbH dated as of January 1, 1993.
International Distributorship Agreement between Boston Scientific International
B.V. and Vickers Medical Italia dated as of January 1, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Charles de Giorgio Ltd. dated as of July 1, 1997, and as amended by
that certain letter agreement dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Bin Naeem Hospital Supplies Co. dated as of July 1, 1997, and as
amended by that certain letter agreement between the parties dated June 24,
1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Hemoportugal LDA8 dated as of July 1, [1996], and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Elektra Biomedikal Engineering Ltd. dated as of July 1, 1997, and as
amended by that certain letter agreement between the parties dated June 24,
1997.
International Distributorship Agreement between Boston Scientific International
B.V. and Gulf Medical Co. Ltd. dated as of July 1, 1997, and as amended by that
certain letter agreement between the parties dated June 24, 1997.
International Distributorship Agreement between Boston Scientific International
B.V. and ADM for Medical Services dated as of [July 1, 1997], and as amended by
that certain letter agreement between the parties dated June 24, 1997.
<PAGE>
ASSUMPTION OF LIABILITIES AGREEMENT
-----------------------------------
KNOW ALL MEN BY THESE PRESENTS:
That pursuant to the terms of the Asset Purchase Agreement, dated as of
November 5, 1997 (the "Asset Purchase Agreement"), by and among Arrow
-
Interventional, Inc., a Massachusetts corporation (the "Buyer"), Boston
Scientific Corporation, a Delaware corporation ("BSC"), and IABP Corporation, a
Delaware corporation ("IABP") (BSC and IABP being hereinafter referred to
collectively as the "Sellers") and for good and valuable consideration as
recited in the Asset Purchase Agreement, the receipt and adequacy of which are
hereby acknowledged, the Buyer does hereby assume and agree to assume, pay,
perform, fulfill and discharge all of the Assumed Obligations (as defined in
Section 3.1 of the Asset Purchase Agreement). Anything in the Asset Purchase
Agreement or this Assumption of Liabilities Agreement to the contrary
notwithstanding, the Buyer is not assuming, and shall not be deemed to have
assumed, any liabilities of the Sellers, other than those set forth in Section
3.1 of the Asset Purchase Agreement.
This Assumption of Liabilities Agreement shall be subject to the terms and
conditions set forth in the Asset Purchase Agreement and nothing in this
Assumption of Liabilities Agreement shall be construed to limit, terminate or
expand the representations, warranties and covenants set forth in the Asset
Purchase Agreement.
IN WITNESS WHEREOF, the Buyer has caused this Assumption of Liabilities
Agreement to be duly executed by its officer this 5th day of November, 1997.
---
ARROW INTERVENTIONAL, INC.
By: John H. Broadbent, Jr.
---------------------------
Name: John H. Broadbent, Jr.
Title: VP - Finance
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement"), effective as of November 5, 1997,
-----------
is entered into by and between ARROW INTERVENTIONAL, INC., a Delaware
corporation, having its principal place of business at 9 Plymouth Street,
------------------
Everett, MA 02149 ("Licensee") and BOSTON SCIENTIFIC CORPORATION, a Delaware
- -------------------
corporation, having its principal place of business at One Boston Scientific
Place, Natick, MA 01760-1537 ("Licensor").
WHEREAS, Licensee, Licensor and IABP Corporation entered into an Asset
Purchase Agreement, dated as of November 5, 1997 (the "Asset Purchase
----------------
Agreement"); and
WHEREAS, as set out in the Asset Purchase Agreement, Licensee desires to
obtain from Licensor, and Licensor desires to grant to Licensee an exclusive,
worldwide, royalty-free license to make, use and sell the invention(s) disclosed
in the patent application set out in Schedule A solely for use in the field of
----------
intraaortic balloon catheters.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and the Asset Purchase Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the parties mutually covenant and agree as follows:
1. DEFINITIONS.
-----------
(a) "Affiliate" means any corporation or other business entity which,
directly or indirectly, controls or is controlled by, or is under common control
with a person or entity.
(b) "License Field" means the field of intraaortic balloon catheters.
(c) "License Rights" mean all rights to Patent Rights for use in the
License Field.
(d) "Patent Rights" mean all rights in the patent applications set
forth on Schedule A attached hereto, together with all continuation, divisional,
substitution, continuation-in-part, or reissue patent applications with respect
to any such patent applications, all unexpired patents issued on any such patent
applications, all extensions or renewals of any such patents, and all foreign
counterparts thereof.
(e) "Products" mean Nicath catheters and other intraaortic balloon
catheters that fall within the License Rights.
1
<PAGE>
2. GRANT OF RIGHTS.
---------------
(a) Licensor grants to Licensee the sole and exclusive right, license,
and privilege to use (and to grant sublicenses to others to use) the License
Rights in the License Field including the right to make and manufacture, have
made and manufactured, use, sell, distribute and otherwise dispose of the
Products anywhere in the world. Licensor expressly retains the right to make,
have made, use, sell and license others to make, have made, use, sell and
sublicense the Patent Rights outside of the License Field.
(b) Licensee shall market and advertise the Products under Licensee's
name, trademarks, trade names, labels and other designations which shall remain
and be the sole property of Licensee.
3. ROYALTIES.
---------
Licensee shall not pay any further royalties or other fees to Licensor with
respect to the rights granted pursuant to this Agreement, except as set out in
the Asset Purchase Agreement. Licensor expressly acknowledges the receipt and
sufficiency of the consideration received from Licensee under the Asset Purchase
Agreement, that no further consideration is required hereunder, and that the
rights granted under Section 2 are irrevocable.
4. CONFIDENTIAL INFORMATION.
------------------------
It is contemplated that Licensor and Licensee may, from time to time in the
performance of this Agreement, disclose to each other certain confidential
information including technical information, and other know how, techniques and
processes, and trade secrets. To the extent it is deemed confidential, all such
information, know-how, techniques, processes and trade secrets shall remain
proprietary to Licensor and Licensee, as the case may be. Licensor and Licensee
mutually agree to keep such information in confidence to the same degree and
with the same protection by which they maintain their own proprietary
information confidential for five (5) years following the date hereof. Licensee,
subject to the above confidentiality requirements, and to the extent such
information relates directly to the License Field, may use such information
royalty-free during the term of this Agreement for any purpose in the
furtherance of the intent of this Agreement. For purposes of this Agreement,
information shall not be deemed confidential if (i) the receiving party can show
by its written records that, at the time of disclosure or thereafter, the
information is available in the public domain by publication or otherwise
through no breach of the receiving party; (ii) the receiving party can show, by
its written records, that the information was already in its possession at the
time of disclosure by the other party; (iii) the receiving party can show by its
written records that such information was independently developed without access
to such information; or (iv) the receiving party can show by its written records
that it acquired the information from a third party who had the legal right to
disclose it.
2
<PAGE>
The termination of this Agreement shall not relieve Licensor or Licensee from
the obligation of maintaining the confidentiality of such information.
5. REPRESENTATIONS AND WARRANTIES OF LICENSOR.
------------------------------------------
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR MAKES NO
REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR
PURPOSE OR WITH RESPECT TO: (1) THE SCOPE OR VALIDITY OF THE PATENT RIGHTS; (2)
WHETHER THE PATENT RIGHTS MAY BE EXPLOITED BY LICENSEE WITHOUT INFRINGING THE
RIGHTS (INCLUDING PATENT RIGHTS) OF OTHERS; OR (3) THE RESULTS TO BE OBTAINED BY
USE OF THE PATENT RIGHTS OR THE PRODUCTS. THE RIGHTS GRANTED PURSUANT TO THIS
AGREEMENT ARE GRANTED "AS IS" IN EVERY RESPECT.
6. INDEMNIFICATION.
---------------
Subject to the indemnification limitations set forth in the Asset Purchase
Agreement, Licensee will indemnify and hold Licensor, its Affiliates, parent
companies, subsidiaries, divisions, officers, directors, shareholders,
employees, agents, successors and assigns harmless against all liabilities,
demands, claims, damages, expenses or losses (including reasonable attorneys'
fees and costs) arising out of any use, sale or other disposition by Licensee,
vendees or other transferees of Products manufactured or sold by or for Licensee
following the Closing Date (as defined in the Asset Purchase Agreement)
incorporating or made by use of any License Rights, including without limitation
third party infringement claims.
7. PATENT APPLICATIONS AND FOREIGN FILING.
--------------------------------------
(a) Licensor may, in its sole and absolute discretion, file,
prosecute, and maintain in force any and all patents and applications for
patents falling within the Patent Rights. All patent applications shall be
filed, prosecuted and maintained in the name of Licensor or such other applicant
designated by Licensor. In the event that Licensor elects to abandon the
prosecution or maintenance or filing (in Europe, Japan and Canada) of the
patents or patent applications falling within the Patent Rights, Licensor shall
promptly notify Licensee. Licensee may, but shall not be obligated to, file,
prosecute or maintain such patents or patent applications in Licensor's name and
at Licensee's sole expense; provided that Licensee must provide Licensor thirty
--------
(30) days prior written notice of its intent to file, prosecute or maintain any
of such patents or patent applications and that Licensor shall have the right to
file, prosecute or maintain such patents or patent applications in the event
that Licensor notifies Licensee of its intent to do so within such thirty (30)
day period. Licensor shall have the right to review all patent filings proposed
to be made by Licensee in connection with the Patent Rights at least ten (10)
days in advance of
3
<PAGE>
their filing with the applicable patent office, and Licensee agrees to consider
in good faith all comments made thereto by Licensor.
(b) In the event that Licensor elects not to renew any of the patents
falling within the Patent Rights, Licensor shall promptly notify Licensee and
Licensee may, but shall not be obligated to, renew such patents in Licensor's
name and at Licensee's sole expense.
(c) Licensor shall provide Licensee the opportunity to review, on a
confidential basis, the patent prosecution history through the date hereof of
those patent applications set forth in Schedule A.
8. THIRD PARTY INFRINGEMENT.
------------------------
(a) If either party shall become aware of any infringement or
threatened infringement of any Patent Rights, the party having such knowledge
shall promptly give notice to the other of such infringement or threatened
infringement.
(b) In the event of any such infringement or threatened infringement,
Licensor may in the first instance, but shall not be obligated to, institute and
prosecute, at its own expense, any action in its name necessary to protect the
rights of Licensor and Licensee under this Agreement. In any such action, any
monetary settlement shall accrue solely to the benefit of Licensor. In any such
action, Licensee shall reasonably cooperate with Licensor and, at its own
expense, be entitled to noncontrolling participation through counsel of its own
selection.
(c) In the event that Licensor elects not to institute and prosecute
any such action, or fails to institute action within three (3) months of receipt
of notice of infringement from Licensee, Licensee may, but shall not be
obligated to, prosecute any action, at its own expense, for Licensee's benefit.
In any such action, any monetary settlement shall accrue solely to the benefit
of Licensee. In such action, Licensor shall reasonably cooperate with Licensee
and, at its own expense, be entitled to non-controlling participation through
counsel of its own selection.
9. THIRD PARTY RIGHTS.
-------------------
(a) If either party shall become aware of any action or suit, or
threat of action or suit, by a third party alleging that the manufacture, use or
sale of any Product infringes a patent, or violates any other proprietary rights
of such third party, the party aware shall promptly notify the other party of
the same.
(b) In such event, Licensee may in the first instance, but shall not
be obligated to, defend, at its own expense, any action in its name necessary to
protect the rights of Licensee under this Agreement. In any such action,
Licensor shall reasonably cooperate with Licensee and, at its own expense, be
entitled to noncontrolling participation through counsel of its own selection.
4
<PAGE>
(c) In the event that Licensee elects not to defend any such action,
Licensor may, but shall not be obligated to, defend any action, at its own
expense, for Licensor's benefit. In any such action, Licensee shall reasonably
cooperate with Licensor and, at its own expense, be entitled to non-controlling
participation through counsel of its own selection.
10. TERM AND TERMINATION.
--------------------
(a) This Agreement shall remain in full force and effect until the
last to expire of the Patent Rights or the abandonment of the patent
application(s) set out in Schedule A. This Agreement may also be terminated by
----------
the parties by their mutual consent.
(b) In addition to any other right of termination, either party may
terminate this entire Agreement (i) for breach by the other party, upon sixty
(60) days' prior written notice to the breaching party of such breach, provided
the breach is not cured within such sixty (60) day period or the breaching party
has not taken reasonable steps during such sixty (60) day period to cure the
breach as promptly as possible; or (ii) upon five (5) days prior written notice,
if the other party becomes insolvent or a receiver is appointed for its business
or properties, or if a petition is filed by or against such party under any
provisions of any bankruptcy, insolvency or similar laws (and such petition
remains undismissed for thirty (30) days, in the case of a petition filed
involuntarily against a party).
11. ASSIGNMENT.
----------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns. This
Agreement may be freely assigned by Licensor without the consent of, but upon
notice to Licensee of, such assignment; provided that such assignee agree in
writing to be bound by the terms hereof and deliver proof of same to license.
This Agreement shall not be assigned by Licensee without the prior written
consent of Licensor, except to a parent corporation, affiliate or subsidiary of
Licensee or to a successor to substantially all of the business of Licensee in
the License Field.
12. MISCELLANEOUS.
-------------
(a) This Agreement shall be deemed to have been made in and shall be
construed under the laws of The Commonwealth of Massachusetts, without regard to
its principles on conflicts of law.
(b) This Agreement shall not be construed as creating the relationship
of master and servant, principal and agent, or a co-partnership or joint venture
between the parties.
(c) This instrument contains the entire Agreement between the parties
respecting the subject matter covered and supersedes any prior understanding
5
<PAGE>
concerning such subject matter, except to the extent that any term or condition
hereof conflicts with a term or condition of the Asset Purchase Agreement, in
which case the Asset Purchase Agreement shall control.
(d) Any notice required to be given hereunder shall be given by
registered mail, return receipt requested, postage prepaid, by facsimile or by
overnight delivery through a nationally recognized courier, and if intended for
Licensor shall be addressed to Boston Scientific Corporation, One Boston
Scientific Place, Natick, Massachusetts, 01760, Attn: General Counsel, fax no.
(508) 650-8960; or if intended for Licensee, addressed to Arrow Interventional,
Inc., 2400 Bernville Road, P.O. Box 12888, Reading, Pennsylvania 19612, fax
no.(610) 478-3177 with a copy to Robert Kauffman, Esq., Rhoda, Stoudt & Bradley,
501 Washington Street, 6th Floor, P.O. Box 877, Reading, Pennsylvania, 19603,
fax no. 610-374-6061 or at such other address as the parties hereto shall
designate by notice given as herein provided. The notice given, as aforesaid,
shall be deemed to be received by the party to whom it is addressed within the
time that would ordinarily be required for the receipt of registered or
overnight mail.
(e) No provision of or right under this Agreement shall be deemed to
have been waived by any act or acquiescence on the part of either party, its
agents or employees, except by an instrument in writing, signed by an authorized
officer of such party. No waiver by either party of any breach of this Agreement
by the other party shall be effective as to any other beach, whether of the same
or any other term or condition and whether occurring before or after the date of
such waiver.
(f) All of the provisions in this Agreement will be considered as
separate terms and conditions, and in the event that any one is held to be
illegal, invalid or unenforceable, that provision shall be interpreted to the
maximum extent enforceable and the other provisions hereof shall remain in full
force and effect.
(g) This Agreement may be executed and delivered in one or more
counterparts, each of which when executed and delivered shall be deemed to be an
original, but all of which when taken together shall constitute one and the same
Agreement.
(h) Captions and headings of the sections of this Agreement are for
reference purposes only and do not constitute terms or conditions of the
Agreement, and shall not limit or affect the terms and conditions hereof.
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
ARROW INTERVENTIONAL, INC.
By: John H. Broadbent, Jr.
-----------------------------
Name: John H. Broadbent, Jr.
---------------------------
Title: VP - Finance
--------------------------
BOSTON SCIENTIFIC CORPORATION
By: Peter M. Nicholas
-----------------------------
Name:
---------------------------
Title:
--------------------------
7
<PAGE>
SCHEDULE A
----------
Patent Applications
-------------------
Title Application/Publication Number
- ----- ------------------------------
Intra-Aortic Balloon Catheter US SN 08/816,200 which is a FWC of
US SN 08/556,533 filed Nov. 13, 1995
Intra-Aortic Balloon Catheter US SN 08/819,879 which is a Cont. of
US SN 08/556,533 filed Nov. 13, 1995
Intra-Aortic Balloon Catheter PCT WO 97/18005 which claims priority to
US SN 08/556,533 filed Nov. 13, 1995
8
<PAGE>
EXHIBIT 10.53
-------------
MUTUAL RELEASE AGREEMENT
------------------------
This Mutual Release Agreement ("Agreement"), entered into as of the 30th
day of April, 1998 ("Effective Date"), between DALTEX MEDICAL SCIENCES, INC., a
corporation of the State of Delaware, having a place of business at 7777 Glades
Road, Suite 214, Boca Raton, Florida 33434 ("Daltex"), and ARROW INTERNATIONAL
INC., a corporation of the State of Pennsylvania, having a place of business at
3000 Bernville Road, Reading, PA 19605 ("Arrow").
RECITALS
--------
WHEREAS, Daltex was the exclusive licensee of certain patent and
proprietary rights pursuant to License Agreements with the Trustees of Columbia
University in the City of New York ("Columbia"); and
WHEREAS, Daltex, pursuant to a Settlement and Mutual Release Agreement
("SMRA") effective April 30, 1998, which SMRA is attached hereto, and redacted
of its financial terms, is incorporated as part of this Mutual Release
Agreement, has reassigned and granted back to Columbia all rights it had in said
License Agreements; and
WHEREAS, Daltex was a party to, and had certain rights and obligations
under Agreements with Arrow dated March 28, 1991, as modified by a First License
Modification dated
<PAGE>
March 28, 1991, and modified by a Second License Modification dated May 30, 1997
("Arrow Agreement); and
WHEREAS, Daltex, as part of its reassignment and grant-back of rights to
Columbia desires the consent of Arrow for such reassignment and grant-back of
rights; and
WHEREAS, the parties hereto desire to mutually release each other from all
rights and obligations they may have had regarding any prior agreements to which
they were a party;
NOW, THEREFORE, in consideration of the premises and of the promises and
conditions hereinafter contained, the parties hereto agree as follows:
1. Daltex hereby releases, remits, acquits and forever discharges Arrow,
together with its former, present or future officers, directors, shareholders,
agents and employees, as well as its predecessors, successors and assigns, from
all obligations, actions, causes of actions, demands, liabilities, losses, costs
and expenses, or suits relating to, or in any way connected with claims which
were or could have been made in conjunction with the Arrow Agreement. This
release pertains only to the parties hereto, and is not meant to effect any
right or obligation of any third party.
- 2 -
<PAGE>
2. Arrow hereby consents to the reassignment and grant-back of rights by
Daltex to Columbia, pursuant to the terms of the SMRA, including Section A(3)
and Section A(4) of the SMRA, and further hereby releases, remits, acquits and
forever discharges Daltex, together with its former, present or future officers,
directors, shareholders, agents and employees, as well as their predecessors,
successors, and assigns, from all obligations, actions, causes of action,
claims, demands, liabilities, losses, costs and expenses, or suits relating to,
or in any way connected with claims which were, or could have been made, in
conjunction with the Arrow Agreement. This release pertains only to the parties
hereto, and is not meant to effect any right or obligation of any third party.
3. This Agreement constitutes the entire agreement between the parties
regarding the subject matter hereof, and supersedes all prior or contemporaneous
understandings or agreements, whether oral or written. This Agreement shall be
modified or amended only by a writing signed by both parties hereto.
4. This Agreement shall be construed, interpreted and applied in
accordance with the laws of the State of New York.
5. This Agreement shall inure to the benefit of, and bind both parties
hereto respectively, and their successors and assigns.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties have, through their duly authorized
representatives, executed this Agreement on the date set forth above.
DALTEX MEDICAL SCIENCES, INC.
By: /s/ Bruce Hausman
---------------------------------
Bruce Hausman
Title: President & CEO
---------------------------------
Date: 5/25/98
---------------------------------
ARROW INTERNATIONAL INC.
By: /s/ Marlin Miller
---------------------------------
Title: President
---------------------------------
Date: 6/12/98
---------------------------------
ACCEPTED AND AGREED:
The Trustees of Columbia University
In the City of New York
By: /s/ Jack M. Granowitz
---------------------------------
Title: Exe. Dir C/E
---------------------------------
Date: 7/20/98
---------------------------------
- 4 -
<PAGE>
EXHIBIT 10.54
-------------
EXCLUSIVE LICENSE AGREEMENT
---------------------------
THIS AGREEMENT (the "Agreement") is made this 14th day of February, 1996
----
by and between ISRAEL SCHUR, M.D., an individual residing at Ten Amsterdam
Avenue, Apartment 309, New York, New York 10023 ("Licensor")
and
ARROW INTERNATIONAL, INC., a Pennsylvania corporation having its principal
office located at 3000 Bernville Road, Reading, Berks County, Pennsylvania 19605
("Licensee").
BACKGROUND
Licensor has developed a concept for an unscrewing hub luer for radial
artery catheters and other types of over-the-needle catheters (the "Product").
Licensor has filed an application for a patent for said concept and subsequently
filed a continuation-in-part application (collectively, together with any future
application or amendment, the "Patent Application") which is now pending in the
United States Patent and Trademark Office (the "Patent Office"). Licensor has
also filed a patent application pertaining to the Product pursuant to the Patent
Cooperation Treaty (the "PCT Application"). Licensor desires Licensee to
develop and produce prototypes of the Product and to test market the Product,
and Licensee is willing to undertake such prototype development and test
marketing under the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and mutual covenants
and conditions herein contained, and INTENDING TO BE LEGALLY BOUND HEREBY, the
parties hereto agree as follows:
<PAGE>
1. Background. The parties hereto acknowledge the accuracy of the
----------
statements hereinabove set forth in the Background, and said Background is
incorporated into this Agreement by reference thereto.
2. Licensor's Representations. Licensor represents to Licensee that he
--------------------------
has developed an idea and concept for the Product, and has filed the Patent
Application and the PCT Application which are presently pending in the Patent
Office. Attached hereto, marked Exhibits "A" and "B" respectively and
incorporated herein by reference thereto are true and correct copies of the
Patent Application and the PCT Application filed by Licensor and presently
pending in the Patent Office.
3. Grant of License. Licensor hereby grants, and Licensee hereby accepts,
----------------
upon the terms and conditions herein set forth, the right (i) to use world-wide
Licensor's Know-How (hereinafter defined), (ii) a world-wide exclusive license
to make, have made, use, sell and put into use the Product and any other product
developed by Licensor that is similar to the Product, and (iii) a world-wide
exclusive license to make use of any and all U.S. and foreign patents issued to
Licensor pertaining in any manner to the Product or any other product similar to
the Product, and any know-how related to the Product or any similar product.
4. Reimbursement of Certain Expenses. Licensee agrees, within thirty (30)
---------------------------------
days after both of (i) the execution and delivery of this Agreement by the
parties hereto and (ii) the delivery to Licensee of Licensor's Know-How, to
reimburse Licensor for Licensor's reasonable expenses, documented to Licensee's
reasonable satisfaction, incurred to date pertaining to the preparation and
filing of the Patent Application and the PCT Application; provided, however,
that the aggregate amount of such reimbursement by Licensee to Licensor shall
not exceed the maximum sum of
2
<PAGE>
$20,000.00, and provided further such reimbursement shall be made by Licensee to
Licensor no later than sixty (60) days after the execution of this Agreement if
Licensee has not requested Licensor's Know-How pursuant to Paragraph 6 below by
such date. In addition, Licensee shall be responsible for all expenses incurred
subsequent to the date of this Agreement pertaining to the Patent Application
and the PCT Application. Licensee, in its sole discretion, shall also have the
right to file patent applications in any country in the world other than the
United States on Licensor's behalf and Licensee shall be responsible for all
reasonable expenses incurred in any such filing, the approximate amount of which
shall be subject to Licensee's pre-approval. Any such filing shall, in
Licensor's discretion, be made by an attorney selected by Licensor. In any
event, Licensor shall cooperate with Licensee in the preparation and/or any
execution of any documents, including patent applications which, in the opinion
of counsel, is necessary to file such patent application.
5. Prototypes. Licensee agrees that following the execution and delivery
----------
of this Agreement, Licensee will use its best efforts to develop the tooling for
the production of a sufficient number of prototypes of the Product (the
"Prototypes") to enable Licensee to conduct a wide-spread field/market
evaluation (the "Evaluation") of the Product. Licensee shall have a period of
six (6) months after the execution and delivery of this Agreement to develop and
manufacture the Prototypes, and thereafter Licensee shall have an additional
period of three (3) months to conduct the Evaluation, all of which shall be at
the sole expense of Licensee; provided, however, if all FDA required approvals
are not received by Licensor or Licensee within the aforesaid six (6) month
period, then the time that Licensee shall have to conduct the Evaluation shall
be extended for such period of
3
<PAGE>
time as may be necessary for Licensee to have a period of time of three (3)
months following the receipt of such FDA approvals, to conduct the Evaluation.
6. Licensor's Know-How. At such time as Licensee shall request, Licensor
-------------------
shall deliver to Licensee all of Licensor's trade secrets, technical know-how
and other knowledge, information, instructions and engineering advice
("Licensor's Know-How") relating to the Patent Application and the Product to
assist Licensee in the development of the tooling necessary to produce the
Prototypes (as well as a commercial version of the Product if Licensee decides
to produce and market the Product pursuant to Paragraph 8 below); and Licensor's
Know-How shall be received and maintained in strict confidence by Licensee and
shall not be disclosed by Licensee without the prior written permission of
Licensor; provided, however, that Licensee shall be permitted to disclose
Licensor's Know-How to a third party who is engaged by Licensee to make the
Product for Licensee so long as said third party shall agree in writing to be
bound by the provisions of this Paragraph.
7. Licensee's Right to Withdraw. In the event that Licensee concludes,
----------------------------
after producing such Prototypes and conducting the Evaluation of the Product
(or, after reasonable efforts, concludes that such Prototypes can not be
produced), that the Product can not perform its intended function or use, or in
the event that Licensee or Licensor shall receive notice of a claim that any
patent issued pursuant to the Patent Application infringes upon a patent issued
to a third party, then in any such event Licensee may notify Licensor to such
effect; and upon such notice being given, this Agreement shall automatically
terminate, and thereafter neither the Licensor nor the Licensee shall have any
further rights, obligations, liabilities or responsibilities under this
Agreement and neither shall have any further claims against or liabilities to
the other.
4
<PAGE>
8. Royalties. In the event Licensee proceeds to manufacture the Product
---------
for commercial purposes, then so long as this Agreement is in effect Licensee
shall pay to Licensor royalties ("Royalty" or "Royalties") on the following
basis:
(a) A Royalty of $0.025 per Product unit used with each existing type
of product currently manufactured by Licensee or any variation thereof or any
such product that may hereafter be changed or modified, on which Licensee
incorporates the Licensor's Product ("Licensee's Existing Product Unit"), said
existing products to include, without limitation, existing radial artery
catheters and existing spring-wire introducer catheters, as any such catheter
may hereafter be changed or modified; and $0.05 per Product unit used with (i)
new (i.e. not currently manufactured and excluding any subsequent change,
modification or variation of an existing product currently being manufactured by
Licensee) radial artery catheters not containing a spring-wire guide, or (ii)
other new (i.e. not currently manufactured and excluding any subsequent change,
modification or variation of an existing product currently being manufactured by
Licensee) "stand-alone" over-the-needle catheter devices ("Licensee's Other Use
Unit"); ("Licensee's Other Use Units" and "Licensee's Existing Product Units"
hereinafter collectively the "Units"), concerning which the Product has been
incorporated.
(b) Royalties hereinabove provided for shall become payable
commencing with the first commercial sale for which a Royalty is due to Licensor
pursuant to the within Paragraph 8.
(c) Licensee agrees to pay Licensor minimum Royalties on an annual
basis (the first such year to commence on the earlier of (i) the date occurring
six (6) months after the expiration of the applicable (3) three month period to
conduct the Evaluation referred to in Paragraph 5 above, or (ii) the date of
Licensee's first commercial sale of any of its products incorporating the
Product
5
<PAGE>
for which a Royalty is provided for in subparagraph (a) of this Paragraph, and
continue until the first anniversary of such date; and each subsequent year to
be calculated from any anniversary date to the immediately following anniversary
date). Following the date that Royalties shall first become payable, the
minimum annual Royalties to be paid to Licensor shall be as follows:
(1) for the first year for which Royalties are to be paid, the
minimum sum of $25,000.00;
(2) for the second year for which Royalties are to be paid, the
minimum sum of $37,500.00; ;
(3) for the third year for which Royalties are to be paid, the
minimum sum of $50,000.00; and
(4) for the fourth year and for each year thereafter that this
Agreement is in effect, $50,000.00.
The aforesaid minimum annual Royalties shall be paid by Licensee to Licensor
whether or not such quantity or quantities of the products incorporating the
Product are manufactured and/or sold by Licensee during the appropriate annual
period, which, when multiplied by the applicable Royalty or Royalties provided
for in Paragraph 10(a) above, results in such minimum annual Royalties. In the
event this Agreement is in effect for only a portion of any such annual period,
then the minimum Royalties to be paid for such annual period shall be
apportioned on a per diem basis, or pro rata basis.
(d) Notwithstanding the aforesaid, in the event that Licensee or
Licensor shall receive notice of a claim that any patent issued pursuant to the
Patent Application infringes upon a
6
<PAGE>
patent issued to a third party, then the annual minimum Royalties hereinabove
provided for shall be fifty percent (50%) of the amount thereof until such time
as it is established to Licensee's satisfaction that any such infringement no
longer exists
(e) At the conclusion of the first year for which Royalties are to be
paid, and at the conclusion of each such year thereafter, the amount of each
Royalty to be paid by Licensee to Licensor pursuant to Subparagraph (a) above
shall be adjusted by applying fluctuations in the Consumer Price Index to the
amount of each Royalty as follows: (i) the Consumer Price Index for the purposes
of this Agreement shall be the Consumer Price Index for All Urban Consumers
(CPI-U) published by the Bureau of Labor Statistics of the United States
Department of Labor for the United States. If the Consumer Price Index ceases
to be published by the United States Department of Labor, Bureau of Labor
Statistics, then the calculations shall be based on the closest successor index
as identified by the United States Department of Labor. If no such successor
index exists, then the calculation shall be based on an index as mutually agreed
to by the Licensor and Licensee; (ii) the base date shall be the calendar month
preceding the date of the commencement of the first yearly period for which
Royalties are payable by the Licensee to Licensor; (iii) commencing with the
second year for which Royalties are payable, the adjusted amount of each Royalty
shall be determined by multiplying the amount of such Royalty for the immediate
preceding year by a fraction, the numerator of which shall be the Consumer Price
Index hereinabove referred to for the last month of the immediately preceding
year during which such Royalty was payable, and the denominator of which shall
be the Consumer Price Index for the base date. The resulting sum, if greater
than the amount of each Royalty set forth in Subparagraph (a) above, shall be
the amount of the adjusted Royalty.
7
<PAGE>
(f) If no patent has been issued to Licensor pursuant to the Patent
Application by the time Licensee is ready to market the Product on a commercial
basis, then for the first five (5) years that this Agreement is in effect (or
until such time as such a patent shall issue within the aforesaid five (5) year
time period), the annual minimum Royalties hereinabove provided for shall be
fifty percent (50%) of the amount thereof.
(g) Within ninety (90) days after the date this Agreement is
terminated, Licensee shall provide Licensor with a final accounting of the
Product made and sold through the effective date of termination and pay
Royalties to Licensor then due hereunder.
9. Payment of Royalties. So long as this Agreement is in effect, the
--------------------
royalties to be paid by Licensee to Licensor shall be paid in accordance with
the following terms and conditions:
(a) Royalties payable to Licensor pursuant to Paragraph 8 above shall
be paid quarterly within thirty (30) days following the end of each calendar
quarter. Licensee shall compute each payment showing in reasonable detail the
computation of the royalty payment.
(b) Licensee shall keep and maintain accurate and complete books and
records relating to all matters affecting the Royalties payable hereunder.
Licensor shall have the right, at reasonable times and on reasonable notice, to
inspect such books at Licensee's offices. Licensee shall be required to retain
records relating to the Product for which payment of Royalties has been made no
more than three (3) years after payment in accordance with subparagraph (a) of
this Paragraph 9 above. Except as may be required in connection with the
resolution of any dispute arising out of this Agreement, Licensor shall keep in
confidence all information furnished to it, either in the form of a statement of
Royalties delivered by Licensee or any information which it might gain or gather
from
8
<PAGE>
the inspection of Licensee's books, except as must be disclosed by Licensor in
compliance with applicable law or regulation. If any inspection discloses any
error, the parties shall by appropriate payment forthwith adjust the same.
10. Improvements.
------------
(a) Licensee may, in such manner as it deems fit at its sole cost and
expense, modify, alter, change or improve (the "Improvement") any part of the
Product and use any Improvement by itself or in combination with any other
product component or assembly of components; provided, however, that any such
Improvement shall not excuse Licensee from its obligations to pay Royalties
hereunder. Any such Improvement shall remain the sole property of the Licensee,
and Licensee reserves the right to apply for patent protection with respect
thereto; provided, however, that in the event Licensee advises Licensor in
writing that Licensee has elected not to apply for such patent protection, then
Licensor shall have the right to apply for such patent protection in his own
name and at his own cost, in which event Licensee shall have a non-exclusive
royalty-free license in accordance with the terms of this Agreement under any
such patent. 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 interest in any
Improvement.
(b) Licensee agrees that, so long as this Agreement is then in effect,
Licensee will, within one (1) year after it commercially markets a product
incorporating the Product, develop and market a radial artery catheter, usable
for arterial and intravenous applications, without a wire guide that
incorporates the Product. If Licensee elects not to market such a product as
aforesaid, then, in
9
<PAGE>
such event, Licensee's license provided for in Paragraph 3 above shall no longer
apply to a radial artery catheter usable for arterial and intravenous
applications, and Licensor shall have the right to license another party for the
sole purpose of developing and marketing such a product (i.e., a radial artery
catheter usable for arterial and intravenous applications), without further
obligation or liability on the part of Licensee.
11. Term. Unless sooner terminated as provided for in Paragraph 7 above
----
or in Paragraph 12 below, this Agreement shall remain in effect for a period of
time that shall commence on the date hereof and end on the date that any patent
issued pursuant to the Patent Application shall expire, and thereafter shall no
longer be in effect, shall terminate and become null and void.
12. Termination.
-----------
(a) Lack of FDA Approval. Notwithstanding the provisions of Paragraph
--------------------
11 above, this Agreement shall automatically terminate on the date FDA denies
such approval, if any, as may be necessary to market the Product commercially
(b) Termination by Licensor. In addition to any other right of
-----------------------
termination provided for in this Agreement, in the event Licensee does not
commercially market the licensed Product within one (1) year after FDA approval,
or after having commercially marketed, ceases to commercially market the Product
for a continuous period of two (2) years during the term of this Agreement,
Licensor may terminate this Agreement at any time upon giving at least thirty
(30) days prior written notice of such termination to Licensee.
(c) Termination by Licensee. In addition to any other right of
-----------------------
termination provided for in this Agreement, at any time after the first
anniversary date of this Agreement,
10
<PAGE>
Licensee, in its sole discretion and/or determination, shall have the right to
terminate this Agreement upon giving the Licensor not less than three (3) months
prior written notice. In addition, Licensee shall have the right to terminate
this Agreement if any action is instituted against Licensee claiming
infringement of a third party patent and Licensor does not defend Licensee in
such action.
(d) 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. Subject to clause (f) below, if the party in breach
or default fails to cure or remedy its breach or default within thirty (30)
days, the other party may, while such breach or default continues, terminate
this Agreement forthwith upon prior written notice of such termination to the
other party.
(e) Reversion of Rights. Upon any termination pursuant to the within
-------------------
Paragraph 12 or Paragraph 7 above, except a termination caused by Licensor's
breach, all rights of Licensee under this Agreement shall terminate and
thereafter Licensee shall not have any right to manufacture the Product or to
use any of Licensor's Know-How or to disclose any such information to any third
party.
(f) Limitation of Remedies. In the event Licensee shall fail for any
----------------------
calendar year to pay to Licensor the minimum Royalties provided for in Paragraph
8(c) above, then Licensor's sole remedy shall be (i) to terminate this Agreement
upon giving Licensee fifteen (15) days prior written notice of such termination
and said minimum Royalties are not paid within said fifteen (15) day time
period, and (ii) to seek to recover from Licensee an amount which together with
such Royalties
11
<PAGE>
received by Licensor for the calendar year in question, will equal the minimum
Royalties to which Licensor would be entitled to pursuant to Paragraph 8 above.
13. 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 hereto is that of Licensor and Licensee.
14. Assignment. Except as hereinafter provided, this Agreement shall not
----------
be assignable by either party without the prior written approval of the other
party. Notwithstanding the aforesaid, (i) Licensee shall have the right to
assign its interest in this Agreement to any parent corporation, subsidiary or
affiliate of Licensee, although in such instance Licensee shall not be relieved
of its obligation to pay minimum Royalties as hereinabove provided, and (ii)
Licensor shall have the right to assign his interest, or any portion thereof, in
this Agreement and the Royalties payable to Licensor hereunder to any member of
his immediate family (which, for the purposes of this provision, shall be
limited to spouse, children and/or grandchildren, parents, brothers and/or
sisters of Licensor) so long as Licensor retains his ownership of any patent
issued pursuant to the Patent Application and/or the PCT Application or a pro
rata interest therein is assigned by Licensor to the member of the Licensor's
immediate family to whom an interest in this Agreement and the Royalties is
assigned. To the extent assignable, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their heirs, executors,
administrators, successors and assigns.
15. Infringement.
------------
12
<PAGE>
(a) Infringement by Third Parties. In the event that any patent
-----------------------------
issued pursuant to the Patent Application, the PCT Application and/or any other
foreign application shall be infringed or appear to be infringed by a third
party so as to subject the 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 does not initiate such legal proceedings
within four (4) months after becoming aware of the infringement, then Licensee
may initiate such infringement proceedings on its own behalf and thereafter
Licensor may elect to join in those proceedings. Any recovery of 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 patent will be infringed by
Licensee's activities pursuant to this Agreement. In the event Licensee's
activities pursuant to this Agreement result in an action for infringement
against Licensee, based on an adversely owned patent, Licensor shall have the
right to defend Licensee in any such action at Licensor's sole cost and expense.
Licensee may elect to join in any such action at its own expense and may
undertake the defense of any such action if Licensor does not elect to defend
Licensee. Licensee may defer payment of Royalties due under Paragraph 8 above
to the extent of Licensee's legal expenses as concerns any such action until
either the withdrawal of the claim of infringement or the termination of such
action with the determination that Licensee's activities do not infringe upon
such third party's patent.
13
<PAGE>
16. Warranty of Title. Licensor warrants that he is the owner of all
-----------------
right, title and interest in and to the Patent Application and the PCT
Application and will be the owner of any patent issued pursuant to the Patent
Application or the PCT Application and has the right to grant the rights
provided Licensee under this Agreement.
17. Entire Agreement. This Agreement and the Exhibits attached hereto
----------------
constitute the entire agreement between the parties with respect to the subject
matter hereof. The parties acknowledge that there are no representations,
promises, warranties, covenants or undertakings other than those contained in
this Agreement.
18. Section Headings. All section headings herein are inserted for
----------------
convenience of reference only and shall not control, affect or modify the
meaning or construction of any of the terms or provisions hereof.
19. Notices. All notices and other documents required by this Agreement
-------
to be given to either party hereto shall be in writing and shall be deemed to
have been given or made three (3) days after being sent by certified mail,
return receipt requested, addressed to the other party at such party's
respective address set forth above or such other address as either of the
parties hereto may designate in writing to the other from time to time for such
purpose. A notice can also be given by telecopier to either party at a
telecopier number specified in writing so long as the party sending such notice
by telecopier receives a printed confirmation of the transmission. As of the
date of this Agreement, the telecopier or facsimile number of Licensor is
212/523-2433, and the telecopier or facsimile number of Licensee is 610/478-
3179.
14
<PAGE>
20. 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.
21. Construction. The operation and interpretation of this Agreement shall
------------
be governed by the laws of the Commonwealth of Pennsylvania, without reference
to any conflict of law principles; provided, however, that the law of the United
States shall govern any question or interpretation of the Patent Application and
of any patent issued pursuant to the Patent Application and the Patent
Cooperation Treaty, as approved by the United States, shall govern any question
or interpretation of the PCT Application and any foreign patent issued pursuant
to the PCT Application.
22. Modification or Amendment. Any modification or amendment to this
-------------------------
Agreement shall be in writing and signed by both Licensor and Licensee. Any
attempt to modify this Agreement orally or in a writing not executed by both
parties hereto shall be void.
23. Waiver. The failure of either party at any time or from time to time
------
to exercise any right under this Agreement shall not be deemed a waiver of such
right nor shall it prevent the party from subsequently asserting or exercising
such right.
24. Severability. This Agreement shall be severable. In the event any
------------
provision of this Agreement shall be determined by a court of competent
jurisdiction to be unenforceable, illegal or contrary to public policy, the
provision found to be unenforceable, illegal or contrary to public policy shall
be stricken and the remainder of this Agreement shall remain in full force and
effect.
15
<PAGE>
IN WITNESS WHEREOF, the Licensor has executed this Agreement and the
Licensee has caused this Agreement to be executed by its duly authorized officer
or officers the day and year first above written.
/s/ Israel Schur (SEAL)
---------------------------
Israel Schur, M.D.
ARROW INTERNATIONAL, INC.
By: /s/ Philip B. Fleck
----------------------------------
(Vice President)
CORPORATE SEAL Attest: /s/ Ray Neag
----------------------------------
(Assistant) Secretary
16
<PAGE>
EXHIBIT 21
Subsidiaries of the Company
1. Arrow International Export Corporation, a U.S. Virgin Islands corporation.
2. Arrow International Investment Corp., a Delaware corporation.
3. Arrow Medical Products, Ltd., a Pennsylvania corporation, qualified to do
business in Canada.
4. Kontron Instruments, Inc., a California corporation.
5. Arrow-Japan K.K. (Arrow-Japan, Ltd., English translation), a company
organized under the laws of Japan.
6. Arrow Deutschland, Gmbh., a limited liability corporation organized under
the laws of Germany.
7. Arrow France S.A., a corporation organized under the laws of France.
8. Arrow Africa (Pty) Ltd., a corporation organized under the laws of South
Africa.
9. AMH (Arrow Medical Holdings) B.V., a corporation organized under the laws of
the Netherlands.
10. Arrow Holland Medical Products B.V., a corporation organized under the laws
of the Netherlands.
11. Arrow Iberia, S.A., a corporation organized under the laws of Spain.
12. Arrow Hellas A.E.E., a corporation organized under the laws of Greece.
13. Arrow Internacional de Mexico, S.A. de C.V., a corporation organized under
the laws of Mexico.
14. Arrow Internacional de Chihuahua, S.A. de C.V., a corporation organized
under the laws of Mexico.
15. Arrow International CR, a.s., a corporation organized under the laws of the
Czech Republic.
16. Therex Limited Partnership, a Delaware limited partnership.
17. Arrow Infusion, Inc., a Massachusetts corporation.
18. Arrow-Therex Corporation, a Delaware corporation.
19. Arrow Interventional, Inc., a Delaware corporation.
20. Arrow Slovensko s.r.o., a corporation organized under the laws of Slovakia
(68)
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Arrow International, Inc. on Forms S-8 (Registration Nos. 333-15215 and 33-
71568) of our reports dated October 5, 1998, on our audits of the consolidated
financial statements and financial statement schedule of Arrow International,
Inc. as of August 31, 1998 and 1997, and for the three years in the period ended
August 31, 1998, which reports are included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 24, 1998
(69)
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ARROW INTERNATIONAL, INC. FOR THE YEAR ENDED AUGUST 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 4,652
<SECURITIES> 0
<RECEIVABLES> 64,640
<ALLOWANCES> 768
<INVENTORY> 70,592
<CURRENT-ASSETS> 154,617
<PP&E> 184,121
<DEPRECIATION> 72,753
<TOTAL-ASSETS> 322,881
<CURRENT-LIABILITIES> 54,361
<BONDS> 0
0
0
<COMMON> 45,661
<OTHER-SE> 202,207
<TOTAL-LIABILITY-AND-EQUITY> 322,881
<SALES> 260,890
<TOTAL-REVENUES> 260,890
<CGS> 114,072
<TOTAL-COSTS> 117,598
<OTHER-EXPENSES> 1,638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 27,582
<INCOME-TAX> 19,010
<INCOME-CONTINUING> 8,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, in both written reports and in oral statements by our
senior management, expectations and other statements are expressed regarding our
future performance. These forward-looking statements are inherently uncertain
and investors must recognize that events could turn out to be different than
such expectations and statements. Key factors impacting our current and future
performance are discussed in our Annual Report on Form 10-K with which this
Exhibit is filed and other filings with the Securities and Exchange Commission
(the "Commission"). In addition to such information in our Annual Report on
Form 10-K and our other filings with the Commission, investors should consider
the following risk factors in evaluating us and our business, as well as in
reviewing forward-looking statements contained in our periodic reports filed
with the Commission and in oral statements made by our senior management. Our
actual results could differ materially from such forward-looking statements due
to material risks, uncertainties and contingencies, including, without
limitation, those set forth below.
STRINGENT GOVERNMENT REGULATION
Our products are subject to extensive regulation by the Food and Drug
Administration (the "FDA") and, in some jurisdictions, by state, local and
foreign governmental authorities. In particular, we must obtain specific
clearance or approval from the FDA before we can market new products or certain
modified products in the United States. With the exception of one product, we
have, to date, obtained FDA marketing clearance for our products only through
the 510(k) premarket notification process. Certain of our products under
development and future applications, however, will require approval through the
more vigorous Premarket Approval application ("PMA") process. The process of
obtaining such clearances or approvals can be time consuming and expensive. We
cannot assure that the FDA will grant all clearances or approvals sought by us
or that FDA review will not involve delays adversely affecting the marketing and
sale of our products. We are also required to adhere to applicable regulations
setting forth current Good Manufacturing Practices ("GMP") which require that we
manufacture our products and maintain our records in a prescribed manner with
respect to manufacturing, testing and control activities. In addition, we are
required to comply with FDA requirements for labeling and promotion of our
products. Failure to comply with applicable federal, state, local or foreign
laws or regulations could subject us 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 our
business, financial condition and results of operations. Many of the foreign
countries where we conduct business have adopted medical device laws and
regulations with similar substantive and enforcement provisions. Federal,
state, local and foreign laws and regulations regarding the development,
manufacture and sale of medical devices are subject to future changes. We
cannot assure that such changes will not have a material adverse effect on our
business, financial condition and results of operations.
SIGNIFICANT COMPETITION AND CONTINUAL TECHNOLOGICAL CHANGE
The markets for medical devices are highly competitive. We currently
compete with many companies in the development and marketing of catheters and
related medical devices. Some of our competitors have access to greater
financial and other resources than us.
(70)
<PAGE>
Furthermore, the markets for medical devices are characterized by rapid
product development and technological change. Technological advances by one or
more of our current or future competitors could render our present or future
products obsolete or uneconomical. Our future success will depend upon our
ability to develop new products and technology to remain competitive with other
developers of catheters and related medical devices. Our 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. We cannot assure that we 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 our products.
COST PRESSURES ON MEDICAL TECHNOLOGY AND PROPOSED HEALTH CARE REFORM
Our products are purchased principally by hospitals, hospital networks and
hospital buying groups. Although our products are used primarily for non-
optional medical procedures, we believe 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. 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. We cannot assure 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 our products.
In recent years, several comprehensive health care reform proposals have
been introduced in the U.S. Congress. While none of these proposals have to
date been adopted, the intent of these proposals was, generally, to expand
health care coverage for the uninsured and reduce the rate of growth of total
health care expenditures. In addition, certain states have made significant
changes to their Medicaid programs and have adopted various measures to expand
coverage and limit costs. Implementation of government health care reform and
other efforts to control costs may limit the price of, or the level at which
reimbursement is provided for, our products. Several foreign countries have
recently considered, and in some countries adopted, similar reforms to limit the
growth of health care costs, including price regulation. We anticipate that
Congress, state legislatures, foreign governments and the private sector will
continue to review and assess alternative health care delivery and payment
systems. We 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 our business. We cannot assure that any
such reforms will not have a material adverse effect on the medical device
industry in general, or on our business, in particular.
(71)
<PAGE>
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
We own numerous U.S. and foreign patents and have several U.S. and foreign
patent applications pending. We also have exclusive license rights to certain
patents held by third parties. These patents relate to aspects of the
technology used in certain of our products. From time to time, we are subject
to legal actions involving patent and other intellectual property claims.
Successful litigation against us regarding our patents or infringement of the
patent rights of others could have a material adverse effect on our business,
financial condition and results of operations. In addition, we cannot assure
that pending patent applications will result in issued patents or that patents
issued to or licensed-in by us will not be challenged or circumvented by
competitors or found to be valid or sufficiently broad to protect our technology
or to provide it with any competitive advantage. We also rely on trade secrets
and proprietary technology that we seek to protect, in part, through
confidentiality agreements with employees, consultants and other parties. We
cannot assure that these agreements will not be breached, that we 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 our trade secrets.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. Historically,
litigation has been necessary to enforce certain patent and trademark rights
held by us. Future litigation may be necessary to enforce patent and other
intellectual property rights belonging to us, to protect our trade secrets or
other know-how owned by us, or to defend ourself against claimed infringement of
the rights of others and to determine the scope and validity of our and others'
proprietary rights. Any such litigation could result in substantial cost to and
diversion of effort by us. Adverse determinations in any such litigation could
subject us to significant liabilities to third parties, require us to seek
licenses from third parties and prevent us from manufacturing, selling or using
certain of our products, any one or more of which could have a material adverse
effect on our business, financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We generate significant sales outside the United States and are 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, any one or more of which could materially
adversely impact the success of our international operations. As our revenues
from international operations increase, an increasing portion of our revenues
and expenses will be denominated in currencies other than U.S. dollars and,
consequently, changes in exchange rates could have a greater effect on our
future operations. We cannot assure that such factors will not have a material
adverse effect on our business, financial condition and results of operations.
In addition, we cannot assure that laws or administrative practices relating to
regulation of medical devices, taxation, foreign exchange or other matters of
countries within which we operate will not change. Any such change could also
have a material adverse effect on our business, financial condition and results
of operations.
(72)
<PAGE>
POTENTIAL PRODUCT LIABILITY
Our business exposes us to potential product liability risks which are
inherent in the testing and marketing of catheters and related medical devices.
Our products are often used in intensive care settings with seriously ill
patients. In addition, many of the medical devices manufactured and sold by us
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 us 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 our
products. We cannot assure that the product liability insurance maintained by
us will be available or sufficient to satisfy all claims made against us or that
we 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 our business or reputation or on our
ability to attract and retain customers for our products.
RISKS ASSOCIATED WITH DERIVATIVE FINANCIAL INSTRUMENTS
As a partial hedge against adverse fluctuations in exchange rates, we
periodically enter 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 our
business, financial condition and results of operations. Our policy prohibits
the use of derivative instruments for speculative purposes.
DEPENDENCE ON KEY MANAGEMENT
Our success depends upon the continued contributions of key members of our
senior management team, certain of whom have been with us since our 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 our business. None of these
individuals has an employment agreement with us.
RISKS ASSOCIATED WITH YEAR 2000
We are actively addressing the Year 2000 problem as it relates to our
business operations and regulation by the FDA. The following disclosure
describes our progress toward our objective of ensuring that our business
systems will operate satisfactorily on or after January 1, 2000.
Our Central Venous Catheters and other catheter products are unaffected by
the Year 2000 problem. Early in 1998, we responded to the FDA concerning the
effect of the Year 2000 problem on our Intra-Aortic Balloon Pumps (IABPs). The
software in the more recent models of our IABPs has taken the change of century
issues into account. The operating range for the clock calendar in these IABPs
spans a 100 year period from the years 1988 through 2087. The clock calendar on
certain older models advances as high as 1999. However, none of our IABPs
depend on the year information for any calculations or in communicating with
other electronic devices and will function as intended or expected, regardless
of the date. We provide our customers requesting certifications with specific
IABP model numbers that have or do not have the updated clock calendars.
(73)
<PAGE>
Therefore, our major Year 2000 concerns relate to business systems that
support the continuity of our business operations and the delivery of products
and support services to our customers.
For business applications relating to sales order processing, billing,
disbursements, marketing and manufacturing management, we have completed the
necessary software code modifications in the development version of the
applications. During the remainder of 1998, we will test the modified versions
by advancing the date beyond December 31, 1999. The validated software will
then be moved to our production machines. We plan to test and validate our U.S.
payroll and general ledger systems in the above manner in the spring of 1999.
We estimate our cost of software upgrades to be approximately $30,000 for all
U.S. systems and $120,000 for foreign systems. Our internal resources devoted
to these efforts are estimated at 500 man-days. In the event that our
production systems malfunction due to the change to the year 2000, we plan to
move the affected software and data back to the machines on which validation was
completed so that our business processes can continue.
We plan to test and make Year 2000 compliant our engineering documentation
systems which are critical for our manufacturing operations by the spring of
1999.
We upgraded our personal computer systems in fiscal 1998 at a cost of
$700,000. We estimate spending an additional $500,000 in fiscal 1999 to upgrade
our servers and replace our e-mail system.
Our computer controlled equipment includes programmable controllers on
production equipment and systems for time and attendance recording, building
management, life safety, security, elevators, air compressors and high purity
water. For equipment or systems controlled by computer chips or programs, we
plan to contact the manufacturer to determine that these systems or equipment
are Year 2000 compliant. We expect that these efforts will be completed by the
end of 1998.
The status of Year 2000 compliance by our key suppliers of products and
services will be determined by using a compliance survey, which we expect to
mail to such suppliers prior to the end of 1998. We plan to contact by telephone
organizations who do not respond to our survey or who report a lack of Year 2000
compliance in their critical business processes.
We increased our available domestic revolving credit facility to $75
million in October 1998. This additional borrowing capacity could be utilized
to support our cash flow requirements in the event that health care providers
are unable to pay amounts owed to us on a timely basis due to system
malfunctions related to the Year 2000 change.
If we are able to fulfill our plans to secure our business systems as
described above, then any adverse Year 2000 effects we may experience will arise
from circumstances outside our control. Because we cannot reasonably anticipate
such circumstances at this time, we have not developed a Year 2000 worst case
scenario. While we believe that we are adequately addressing the Year 2000
problem, we cannot assure that the cost and liabilities associated with the Year
2000 problem will not materially adversely impact our business, financial
condition and results of operations.
(74)
