-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TiD3hLF8xHPsGH4m6qX1Qhte+SuOJ5Km9NDYYre9hkLJK1cic/cPz2hep3oTbn5X hht6g37mGev6VCs2RzAe+Q== 0000950123-97-008180.txt : 19970930 0000950123-97-008180.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950123-97-008180 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATASCOPE CORP CENTRAL INDEX KEY: 0000027096 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 132529596 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-06516 FILM NUMBER: 97687526 BUSINESS ADDRESS: STREET 1: 14 PHILLIPS PKWY CITY: MONTVALE STATE: NJ ZIP: 07645-9998 BUSINESS PHONE: 2013918100 MAIL ADDRESS: STREET 1: 14 PHILIPS PARKWAY CITY: MONTVALE STATE: NJ ZIP: 07645 10-K 1 FORM 10-K / DATASCOPE CORP. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-6516
------------------------ DATASCOPE CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-2529596 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 14 PHILIPS PARKWAY MONTVALE, NEW JERSEY 07645 (ADDRESS OF PRINCIPAL (ZIP CODE) EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 391-8100 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: (Title of Class) Common Stock, par value $.01 per share ------------------------ 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 at least the past 90 days. Yes [X] [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (sec.229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the common stock held by persons other than affiliates of the registrant, as of September 15, 1997, is approximately $292,000,000. The number of shares outstanding of each of the registrant's classes of common stock, as of September 15, 1997, is as follows:
CLASS NUMBER OF SHARES - ------------------------------------------ ---------------- Common Stock, par value $.01 per share 16,028,883
------------------------ DOCUMENTS INCORPORATED BY REFERENCE The registrant's proxy statement in connection with its 1997 annual meeting of shareholders (the "Proxy Statement") is incorporated by reference into Part III. ================================================================================ 2 PART I This Report on Form 10-K contains statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "estimate," "anticipate," "believe," "target," "plan," "project" or "continue" or the negatives thereof or other variations thereon or similar terminology. These statements appear in a number of places in this Report on Form 10-K and include statements regarding the intent, belief or current expectations of Datascope Corp. (the "Company"), that relate to, among other things, trends affecting the Company's financial condition or results of operations and the Company's business and strategies. Readers are cautioned that any such forward-looking statement is not a guarantee of future performance and involves risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statement as a result of many important factors. Many of these important factors are outside of the Company's control, including competitive factors and changes in government regulation. The accompanying information contained in this Report on Form 10-K, including, without limitation, the information set forth below under Item 1 regarding the description of the business of the Company and under Item 7 concerning "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies additional important factors that could cause such differences. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. ITEM 1. BUSINESS. The Company manufactures proprietary products for clinical health care markets in interventional cardiology, radiology, anesthesiology, cardiovascular and vascular surgery and for use in emergency rooms and intensive care units. The Company's products are distributed worldwide by direct sales personnel and independent distributors. The Company was organized as a New York corporation in 1964 and was reincorporated in Delaware in 1989. The Company's business is primarily conducted through its four operating divisions, Cardiac Assist, Patient Monitoring, Collagen Products and InterVascular. The Company's core businesses are cardiac assist systems (intra-aortic balloon pump, or "IABP", systems) and multi-function patient monitoring devices. The Company's Collagen Products Division manufactures and sells the VasoSeal(R) Vascular Hemostasis Device ("VHD"). On September 29, 1995, the Food and Drug Administration (the "FDA") approved the VasoSeal Pre-Market Approval Application, making it the first device of its kind to be approved in the United States. The VasoSeal device can rapidly seal arterial punctures after procedures requiring femoral arterial catheterization, including balloon angioplasty, diagnostic angiography and the use of stents, and can result in reduced time to hemostasis, reduced time to ambulation and increased patient satisfaction. The Collagen Products Division also manufactures other hemostatic products that are utilized during surgical procedures. See " -- Collagen Products". InterVascular manufactures and sells a proprietary line of knitted and woven polyester vascular grafts and patches for reconstructive vascular and cardiovascular surgery. The following table sets forth the relative contribution of the Company's principal classes of products to total sales for the periods indicated:
FISCAL YEAR ENDED JUNE 30, -------------------------- 1997 1996 1995 ---- ---- ---- Cardiac Assist..................................... 46% 51% 52% Patient Monitoring................................. 39% 37% 38% Collagen Products.................................. 8% 4% 3% Vascular Grafts.................................... 7% 8% 7%
Cardiac Assist. The Company is widely recognized as the leading manufacturer and distributor of IABP systems. IABP therapy increases the heart's output and the supply of oxygen-rich blood to the heart, while reducing the heart muscle's workload and its oxygen demand. IABP therapy is used to stabilize heart function 3 in instances of cardiogenic shock, before and after open heart surgery and in the management of heart failure. IABP also plays an important role in supporting acute angioplasty intervention, especially in the high risk patient. It is also used to relieve refractory unstable angina and to correct certain instances of medically resistant cardiac arrhythmias. The Company, a pioneer in IABP technology, introduced the first balloon catheter capable of percutaneous insertion (by arterial puncture through the skin), an innovation which eliminated the need for surgical insertion and expanded the market for IABP products from cardiac surgery to the interventional cardiology market. The Company has continued to refine its IABP technology and to introduce new designs. The Company manufactures a broad line of disposable intra-aortic balloon ("IAB") catheters for use with balloon pumps. The Company offers IAB catheters that permit sheathless insertion. Sheathless insertion results in a 30% reduction of the cross-sectional-indwelling area occupied by the catheter compared to insertion using a 10Fr. Sheath. This means less obstruction to blood flow and better peripheral circulation. In May 1997, the Company introduced in both the United States and Europe a new 25cc IAB specifically designed for use with patients who are 5 feet or less in height. In fiscal 1994, the Company began shipping the System 97 "Small Wonder"(TM), a compact IABP designed for use either at bedside or in transport. The System 97 has the most advanced features and performance of any console balloon pump now being sold, including a built-in computer modem that provides telephone transmission of data for remote diagnosis. In addition, the System 97 has been designed in a compact form to utilize less floor space than competing systems. The Company believes that the market for small IABPs accounts for more than two-thirds of the total IABP market. In August 1996, Datascope introduced the System 96 intra-aortic balloon pump at the European Society of Cardiology conference. The System 96 was designed to address the need for a simple, yet cost-effective pump in markets outside the United States. The System 96 incorporates many of the advanced features seen in earlier pumps and provides the performance and flexibility hospitals expect in a variety of clinical situations. In September 1997, Datascope introduced the new System 97e with CardioSync software at the European Society of Cardiology conference. CardioSync software is designed to assist as many beats as possible in the presence of complex cardiac rhythms in both ECG and pressure trigger modes. System 97e users can optimize beat-to-beat support with minimal user intervention. Worldwide shipments are expected to begin in late October 1997. In September 1997, Datascope introduced the new FlexiSheath(TM) Percutaneous Catheter Introducer in Japan and in the European Community. FDA approval is pending. The FlexiSheath has exceptional kink resistence, allowing it to easily navigate tortuous vessels. In addition, the transition of the FlexiSheath from the dilator to the sheath is very smooth, allowing easy insertion. The FlexiSheath has the same diameter as Datascope's standard introducer sheath, providing the same insertion profile. Patient Monitoring. The Company manufactures and markets a broad line of physiological monitors designed to provide for patient safety and management of patient care. The Company's monitors are capable of continuous and simultaneous measurement of multiple parameters, and are used in operating rooms, emergency rooms, critical care units, post-anesthesia care units and recovery rooms, intensive care units, and labor and delivery rooms. The Company manufactures the PASSPORT(R) monitor, a portable, battery-powered, multi-parameter patient monitor that offers the features of a traditional bedside monitor, including measurement of electrocardiogram ("ECG"), blood pressure, temperature, respiration and pulse oximetry, in a transportable unit that can move with the patient to different settings in the hospital. The Company's Passport(R) XG monitor features a larger and brighter screen than competitive portable monitors. In January 1997, the Company introduced the Passport(R) XG-CD monitor with a color display. The Company also offers the PASSPORT EL monitor, with a large electroluminescent display panel providing a wide viewing angle. The Passport has five lead ECG capability for better detection of the onset of cardiac ischemia. A basic version of the Passport is also available containing only ECG, temperature, and pressure. The basic Passport is 2 4 designed to allow customers to purchase the monitor at a lower price, and upgrade as their needs warrant. In addition, a remote color display option was added to the Passport, which permits the remote viewing of patient information in operating rooms and other environments. The Company plans to continue introducing upgrades to its Passport monitors, subject to FDA 510(k) registration. These upgrades include a new five-agent, automatic-identification gas module. In addition, the Company offers the VISA(TM) central station monitor, which can be connected with up to eight Passport monitors. The VISA central station can communicate using hard wire, or a mix of ambulatory and telemetry communication, simultaneously. In ambulatory communication, information is transmitted from the Passport monitor attached to the patient. These various communications options allow the patient to receive continuous care in the appropriate facility location (bedside or other location, for example, the X-ray suite). In addition, a clinical or hospital information interface capability was added to the VISA, providing the user with the capability of communicating patient demographic and clinical information from the VISA to their clinical or hospital information system. In fiscal 1996, the Company began selling the new Accutorr(R) Plus non-invasive blood pressure ("NIBP") monitor in international markets. The Accutorr Plus measures NIBP, pulse oximetry and temperature. The Accutorr Plus is the first NIBP monitor with an integrated patient database that provides automatic record keeping on up to 100 measures. The Accutorr Plus is expected to be introduced in the U.S. after the requisite 510(k) clearance is obtained. All of the monitoring product lines offered by the Company include versions that can monitor blood oxygen saturation. This feature uses the proprietary FLEXISENSOR(R) sensor and SENSOR GUARD(R) sensor, which offer a low cost disposable sensor system for pulse oximetry. Collagen Products. The Company's Collagen Products Division manufactures and sells two principal product lines: (1) the VasoSeal(R) VHD device, which can rapidly seal femoral arterial punctures after catheterization procedures, including balloon angioplasty and diagnostic angiography, and (2) other hemostatic products that are utilized during surgery. In 1997, physicians will perform approximately 3,200,000 angiography and 700,000 balloon angioplasty procedures in both interventional cardiology and radiology in the United States, according to industry estimates. Based on currently approved indications for use, the above procedures represent the potential market for VasoSeal in the United States and are growing at an estimated 12% and 6% annual rate for balloon angioplasty and diagnostic angiography, respectively. On September 29, 1995, the VasoSeal device was approved by the FDA for sale in the United States for coronary procedures, making it the first device of its kind to be approved in the United States. The Company believes that the VasoSeal device has created an entirely new market for improved management of arterial puncture wounds made for catheterization procedures. The initial FDA approval for the VasoSeal device covered the claims of reduced time to hemostasis and immediate removal of the sheath used during certain coronary procedures, which is now left in place for around 4 hours. In August 1996, the FDA approved revised VasoSeal labeling that includes the claim that patients can be ambulated significantly earlier when using the VasoSeal device, rather than under conventional clinical practice using manual or mechanical compression. As an example, in the clinical study submitted to support the new labeling, 80% of angiography patients receiving the VasoSeal device were able to ambulate within 1 hour following removal of the catheter sheath, compared with 4 to 6 hours under standard clinical practice. Early ambulation made possible by the VasoSeal device should result, the Company believes, in significant potential cost savings for hospitals because patients can be moved to lower, potentially less costly levels of care. In addition, human and material resources are reduced, which results in improved hospital efficiencies. At present, upon removal of the catheterization sheath, the patient typically requires prolonged manual compression at the arterial puncture site followed by the application of a pressure dressing, sand bag or other mechanical compression device. In addition, the patient is required to remain in bed for several hours or even overnight. Clinical studies have shown that the VasoSeal device can cause rapid sealing at the arterial puncture site, eliminating the need for prolonged compression, which allows the patient to get out of bed more 3 5 quickly. The ability to claim early ambulation and its potential to lower cost and increase revenue should accelerate the VasoSeal device's penetration of the vascular sealing market in the United States. In December 1996, the FDA approved the VasoSeal device for use in diagnostic and interventional radiology procedures. In April 1997, the Company received FDA approval to market the VasoSeal device for use following stent implantation. Stents, which are devices that support the arterial wall, are implanted in conjunction with approximately 45-50% of the 700,000 coronary and peripheral balloon angioplasty procedures performed annually in the United States. The VasoSeal device was the first vascular closure device approved in the United States for use after stent implantation. In September 1997, the FDA approved deployment of the VasoSeal device by health care professionals other than physicians. In addition to physicians, the VasoSeal device may now be deployed by nurses and technicians who have participated in a VasoSeal training program. The Company believes that this latest approval will further enhance the market penetration of the VasoSeal device. The Company has had extensive experience with the VasoSeal device in Europe since 1992. During calendar years 1993 through 1995, the Company received regulatory approvals to market the VasoSeal device in Canada, Australia, Italy, Spain and the Netherlands. In September 1994, the Company received regulatory approval to market the VasoSeal device in Japan. However, the Company is awaiting approval for insurance reimbursement in Japan. Until such time, market penetration may be limited. In addition, registration activity (CE Mark) is proceeding for distribution throughout Europe. The Collagen Products Division also manufactures a collagen hemostatic pad and a fibrillar collagen hemostat which are sold in the United States and abroad. These products are used to control bleeding during surgery. InterVascular. The Company's InterVascular subsidiary manufactures and distributes a proprietary line of knitted and woven polyester vascular grafts and patches for reconstructive vascular and cardiovascular surgery. InterGard(TM) is InterVascular's collagen coated graft. With the recent approval of InterGard in both the U.S. and Japan, InterGard is now sold in all major world markets. InterVascular continues to market its FDA approved uncoated grafts, including the ULP, in the U.S. and Japan. The ULP is the first graft of its kind to be approved with the claim that preclotting is not necessary. In Europe, InterVascular also produces a small caliber, collagen coated graft, InterGard(TM) Ultra Thin, specifically for the peripheral market, which together with the rest of the InterGard coated products is gaining acceptance as an effective alternative to the market leader, PTFE (Teflon(R)), in this clinical application. In November 1996, the French Government imposed a 40% price reduction on vascular graft products; international sales currently account for the bulk of InterVascular sales and France is its single largest market. Sales growth is expected to resume from a lower sales base created by the price reduction and favorable sales comparisons are anticipated later in fiscal 1998 now that the InterGard(TM) collagen-coated grafts have received marketing clearance in Japan and the United States. RESEARCH AND DEVELOPMENT For the three years ended June 30, 1997, 1996 and 1995 the Company spent approximately $26,815,000, $24,275,000 and $19,400,000, respectively, on research and development relating to the development of new products and the improvement of existing products. The increase in research and development expenditures reflects the Company's continuing efforts to develop new products such as the VasoSeal device and to expand existing product lines. The Company has established relationships with several teaching hospitals for the purpose of clinically evaluating new products, and also has consulting arrangements with physicians and scientists in the areas of research, product development and clinical evaluation. MARKETS AND SALES The Company's products are sold throughout the world through its own direct sales organization and through independent distributors. The Company's worldwide sales organization employs over 300 people 4 6 consisting of sales representatives, sales managers, clinical education specialists and sales support personnel. The Company's worldwide clinical education staff, most of whom are critical care and catheterization lab nurses, conducts seminars and provides in-service training to nurses and physicians on a continuing basis. The Company provides support services, including warranty service, invoicing and inventory support, to its worldwide sales organization. The Company's cardiac assist products are sold primarily to major hospitals with open-heart surgery and balloon angioplasty facilities and to community hospitals with cardiac catheterization laboratories. More recently sales have been made, to a growing degree, to a broader range of hospitals, where IABP is used for temporary support to the patient's heart prior to transport to a major hospital center where definitive procedures, such as balloon angioplasty or open heart surgery, can be conducted. The Company's monitors are used in hospital operating rooms, emergency rooms, critical care units, post-anesthesia care units and recovery rooms, intensive care units, and labor and delivery rooms. The Company's collagen products are sold to both interventional cardiology and radiology labs, both in the hospital and within freestanding diagnostic facilities. The Company provides service and maintenance to purchasers of its products under warranty, and thereafter on a contract basis. The Company employs service representatives in the United States and Europe and maintains service facilities in the United States, the Netherlands, France, Germany and the United Kingdom. Service revenues accounted for approximately 7% of the Company's revenues in fiscal 1997. The Company conducts regional service seminars throughout the United States for its customers and their biomedical engineers and service technicians. During the three fiscal years ended June 30, 1997, 1996 and 1995, foreign sales represented approximately 31%, 36% and 34%, respectively, of the Company's total sales. The Company is continuing to actively expand its international presence. The Company has subsidiaries in the United Kingdom, France, Germany and the Netherlands, and InterVascular has subsidiaries in France, Italy and Germany. Because a portion of the Company's foreign sales are made in foreign currencies, the Company bears the risk of adverse changes in exchange rates for such sales. Reference is made to Notes 2 and 8 to the Financial Statements for additional information with respect to the Company's foreign operations. The Company's sales are broadly based and no customer accounts for more than 10% of its total sales. COMPETITION The Company believes that the choice among competing products is generally made on the basis of product performance, features, price and service. In general, price has become an important factor in hospital purchasing patterns as a result of cost containment pressures on the health care industry, including Federal and State regulations limiting reimbursement for services provided to Medicare and Medicaid patients. Many companies, some of which are substantially larger than the Company, are engaged in manufacturing competing products. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" for a discussion of the impact of competition on the Company's sales in the last fiscal year. SUPPLIERS The Company's products are made of components which it fabricates or which are usually available from existing and alternate sources of supply. Certain components are purchased from single or preferred sources of supply. The use of single or preferred sources of supply by the Company increases its exposure to price increases and production delays. In addition, certain suppliers have been contemplating, and in a few cases have begun, reducing or eliminating sales of their products to medical device manufacturers. The Company is unable to predict whether or not additional suppliers will withhold their products from medical device manufacturers. The Company has not thus far experienced any material disruption or delay in processing its components. A small number of the Company's monitoring products are manufactured by unaffiliated companies. 5 7 PATENTS The Company holds a number of United States and foreign patents. In addition, various patent applications have been filed and are pending. The Company does not believe the expiration or invalidity of any of its patents would have a material adverse effect on its business as currently conducted. See "Legal Proceedings." EMPLOYEES The Company currently employs approximately 1,200 persons. The Company believes its relationship with its employees is satisfactory. REGULATION The medical devices manufactured and marketed by the Company are subject to regulation by the FDA and, in some instances, by state and foreign governmental authorities. The Medical Device Amendment of 1976 and the Safe Medical Device Act of 1990, amendments to the Federal Food, Drug and Cosmetics Act of 1938 (the "Act"), require manufacturers of medical devices to comply with certain controls that regulate the composition, labeling, testing, manufacturing and distribution of medical devices. FDA regulations known as "Current Good Manufacturing Practices for Medical Devices" provide standards for the designing, manufacturing, packaging, labeling, storing, installing and servicing of medical devices. Facilities used by the Company to manufacture or assemble the Company's products are subject to routine FDA inspections. The FDA may also conduct investigations and evaluations of the Company's products at its own initiative or in response to customer complaints or reports of malfunctions. The FDA also has the authority to require manufacturers to recall or correct marketed products which it believes do not comply with the requirements of the Act. Under the Act, all medical devices are classified as Class I, Class II, or Class III devices. In addition to the above requirements, Class II devices must comply with pre-market notification (510(k)) regulations and with performance standards or special controls established by the FDA. Subject to certain exceptions, a Class III device must receive pre-market approval ("PMA") from the FDA before it can be commercially distributed in the United States. The Company's principal products are designated as Class II and Class III devices. The Company believes that the trend is toward increasing regulation of device manufacturers. The process of obtaining requisite FDA approvals for new products and improvements to existing products is taking longer. The FDA has also intensified its surveillance and enforcement activities related to medical device manufacturers. In the normal course of business, the Company conducts regulatory audits of its operations. In December 1993 the Company informed the FDA that in the course of a regulatory audit conducted by the Company, certain irregularities were found in the HEMAGUARD PMA. Following that disclosure, the FDA inspected certain clinical facilities which were involved in developing the data used in the HEMAGUARD PMA and, in connection therewith, issued warning letters to two of those facilities. See "Business -- InterVascular." In October 1994, the Company put a U.S. shipment hold on the Point of View monitor after an internal audit disclosed a regulatory issue concerning data submitted to the FDA and, in the fourth quarter of fiscal 1995, the Company commenced a voluntary recall of the Point of View monitor. The Company met with the FDA to discuss the issues and to present additional relevant data. In April 1995, the FDA decided to apply the provisions of the Application Integrity Policy ("AIP") to products manufactured by the Company's Patient Monitoring Division and InterVascular, Inc. The AIP generally provides that substantive review of marketing applications are suspended pending an assessment by the FDA of the validity of the data contained in such applications. The AIP resulted in longer time frames for product approvals for the affected business units. In October 1996 the FDA advised the Company that it has satisfied the requirements of the AIP. As a result, the FDA resumed its review of all pending and future marketing submissions for products manufactured by the Company's Patient Monitoring Division and InterVascular subsidiary. 6 8 In April 1995, the FDA also requested verification by an independent auditor of certain data relating to the PMA for the VasoSeal device, which has been provided. The Company also receives inquiries from the FDA and other agencies and from time to time it may disagree with positions of members of the staffs of those agencies. To date the resolutions of such disagreements with the staffs of the FDA and other agencies have not resulted in material expenditures by the Company. The Company is also subject to certain federal, state and local environmental regulations. The cost of complying with these regulations has not been, and the Company does not expect them to be, material to the Company's operations. HEALTH CARE REFORM The U.S. Congress is currently considering a number of different proposals for health care reform. The Company believes that concerns about potential health care reform legislation have slowed the domestic sales of medical devices generally. Management of the Company cannot predict at this time what impact, if any, the adoption by the United States Congress of health care reform legislation would have on the business of the Company. ITEM 2. PROPERTIES. The following table sets forth information with respect to the real property owned or leased by the Company and its subsidiaries which the Company considers material to its business.
OWNERSHIP OR EXPIRATION LOCATION GENERAL CHARACTER AND USE OF PROPERTY DATE OF LEASE - ------------------------- -------------------------------------- --------------------- Montvale, New Jersey..... 38,000 sq. feet, used as the Company's Owned corporate headquarters and as offices for the Collagen Products Division Paramus, New Jersey...... 35,600 sq. feet, used for offices by December 31, 1998 the Patient Monitoring Division and with option to renew for the corporate service facility Paramus, New Jersey...... 72,700 sq. feet, used for research and December 31, 1998 development and the manufacture of with option to renew instrumentation systems Fairfield, New Jersey.... 75,000 sq. feet, used for offices by Owned the Cardiac Assist Division and in the manufacture of disposable products Clearwater, Florida...... 25,000 sq. feet, used by InterVascular Leased until October for offices and in the manufacture of 31, 2000 with an vascular grafts option to purchase La Ciotat, France........ 18,000 sq. feet, used by InterVascular Owned for the production of vascular grafts Vaals, The Netherlands... 17,500 sq. feet, used in the Owned manufacture of, and for research and development relating to, collagen products Hoevelaken, The 12,700 sq. feet, used for sales and Owned Netherlands............ service offices
The Company also leases space for offices in various locations in the United States and for its offices in England, France and Germany. The Company believes that its facilities and the equipment located therein are in good working condition and are adequate for its needs. 7 9 ITEM 3. LEGAL PROCEEDINGS. On December 22, 1981, the Company instituted patent infringement litigation relating to an intra-aortic balloon catheter against SMEC, Inc. ("SMEC") in the United States District Court for the District of New Jersey (the "Court"). The Court rendered a decision on September 24, 1984 that one of the Company's patents for the percutaneous intra-aortic balloon catheter is valid and was infringed by SMEC. Certain claims of a second patent for the intra-aortic balloon catheter system were held to be invalid. After the United States Court of Appeals for the Federal Circuit upheld the lower court's decision, a separate trial was held on the amount to which the Company was entitled as damages from SMEC, and damages were awarded to the Company. In August 1990, SMEC filed for protection under Chapter 11 of the Federal Bankruptcy Code. In that bankruptcy proceeding, at the request of the Company, a trustee was appointed for SMEC so that the debtor, SMEC, would no longer be in possession of its assets. The trustee then filed an action in the Tennessee Bankruptcy Court against Peter Schiff, principal stockholder and officer of SMEC, to recover from him assets belonging to SMEC. The bankruptcy proceeding was thereafter converted to a case under Chapter 7. In July 1991, the Company and the SMEC trustee initiated litigation in State Court in Massachusetts against Boston Scientific Corporation and IABP Corp. for the wrongful acquisition of SMEC assets. Datascope settled the Massachusetts action in the fourth quarter of fiscal 1993. In addition, in the fourth quarter of fiscal 1993, the trustee settled the Massachusetts action and the trustee's settlement was approved by the Bankruptcy Court in Tennessee. In connection with the settlement by the trustee, Boston Scientific Corporation and IABP Corp. made a payment to the trustee for the benefit of the bankruptcy estate of SMEC. A complaint was filed on June 7, 1995 by the Trustee in Bankruptcy for SMEC in the United States Bankruptcy Court for the Middle District of Tennessee seeking a judgment against the Company, Boston Scientific Corporation and IABP Corp. for actual damages in the amount of $6 million. The suit also seeks recovery of treble damages, punitive damages, pre and post judgment interest and attorney fees. The suit accuses the Company and Boston Scientific Corporation of entering into an elaborate scheme to defraud the trustee in the SMEC bankruptcy case and seeks recovery under theories of breach of fiduciary duty, fraud, conversion, RICO, and an impermissible postpetition transfer of property by the bankruptcy estate. In effect, the suit is a collateral attack on the order of dismissal entered in the Massachusetts case. The Company denies the Trustee's charges and intends to vigorously defend the lawsuit. On November 5, 1993, plaintiff Merrill Rotter commenced an action in the United States District Court for the District of New Jersey against the Company and Lawrence Saper, its Chief Executive Officer. That action was consolidated with subsequent related litigation, and culminated in the filing of a First Consolidated and Amended Class Action Complaint on March 31, 1994 (hereinafter referred to as the "First Consolidated Complaint"). The Company and Mr. Saper moved to dismiss the First Consolidated Complaint on May 16, 1994. While the motion to dismiss was pending, a related class action lawsuit was filed and consolidated on June 13, 1994 in the United States District Court for the District of New Jersey. Plaintiffs filed a Second Consolidated and Amended Class Action Complaint, superseding the First Consolidated Complaint, on August 30, 1994 (hereinafter referred to as the "Second Consolidated Complaint"). The plaintiffs alleged, in substance, that Datascope and Lawrence Saper made material misrepresentations and omissions concerning the VasoSeal device's safety, efficacy, potential profitability and likelihood of FDA approval, in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. Plaintiffs also alleged securities laws violations relating to alleged insider trading by Mr. Saper. The plaintiffs sought unspecified damages plus interest and costs and expenses incurred in the litigation, including reasonable attorneys' fees and experts' fees and other costs and disbursements. The Company and Mr. Saper moved to dismiss the Second Consolidated Complaint on October 11, 1994. The motion was granted in part, and denied in part on April 10, 1995. On January 22, 1996, the Court granted plaintiffs' motion for certifying a class consisting of all purchasers of Datascope common stock during the period from November 6, 1991 through and including September 1, 1993. In November 1996, the parties entered into a settlement, subject to court approval, which has cost the Company approximately $5.6 million, plus legal expenses. The class action settlement was approved by the court in February 1997. 8 10 On March 4, 1996, the Company announced that Quinton Instrument Company and Sherwood Medical Company had filed a complaint in the United States District Court for the Eastern District of Virginia alleging that the VasoSeal device infringes on certain patents owned by Quinton. The complaint sought a permanent injunction as well as an unspecified amount of monetary damages. The matter was settled by allowing all parties to market their respective vascular hemostasis products with covenants against future litigation. The Company is subject, in the ordinary course of its business, to product liability litigation. The Company believes it has meritorious defenses in all material pending lawsuits and that it maintains adequate insurance against any potential liability. The Company receives comments and recommendations with respect to its products from the staff of the FDA and from other agencies on an on-going basis. The Company may or may not agree with such comments and recommendations; however, the Company is not a party to any formal regulatory administrative proceedings. See "Business -- Regulation." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of Security Holders in the fourth quarter of fiscal 1997. ITEM 4a. EXECUTIVE OFFICERS OF THE COMPANY. The following table sets forth the names, ages and positions and offices with the Company held by the Company's present executive officers:
POSITIONS AND OFFICES NAME AGE PRESENTLY HELD ------------------------------------- ------- -------------------------------------- Lawrence Saper....................... 69 Chairman of the Board, President and Chief Executive Officer Murray Pitkowsky..................... 66 Senior Vice President, Chief Financial Officer, Secretary and Treasurer John Gilbert......................... 40 Vice President; President, Collagen Products Division Timothy J. Haines.................... 40 Vice President, International Distribution and Markets Stanton Rowe......................... 46 Vice President, Business Development Jason Sholder........................ 52 Vice President; President, Cardiac Assist Division Donald Southard...................... 51 Division Vice President; President, Patient Monitoring Division Donald Southard...................... 51 Vice President; President, Patient Monitoring Division Russell D. Van Zandt................. 56 Vice President; President, InterVascular, Inc. S. Arieh Zak, Esq.................... 36 Vice President, Regulatory Affairs and Corporate Counsel
9 11 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The Company's common stock is traded over-the-counter and is listed on the NASDAQ National Market. (NASDAQ symbol: DSCP). The following table sets forth, for each quarter period during the last two fiscal years, the high and low sale prices as reported by NASDAQ.
FISCAL YEAR HIGH LOW ----------------------------------------------------------------------- ---- --- 1996 First Quarter.......................................................... 21 1/2 15 3/4 Second Quarter......................................................... 27 1/4 19 1/2 Third Quarter.......................................................... 25 1/2 20 1/2 Fourth Quarter......................................................... 24 17 1997 First Quarter.......................................................... 18 3/8 15 1/4 Second Quarter......................................................... 21 1/2 15 1/4 Third Quarter.......................................................... 24 3/4 17 5/8 Fourth Quarter......................................................... 21 1/4 17 1/2
As of September 15, 1997, there were approximately 930 holders of record of the Company's common stock. DIVIDEND POLICY The Company has never paid any cash dividends to its shareholders and presently intends to continue its policy of retaining its earnings for facility expansion, acquisitions and working capital purposes. RECENT SALES OF UNREGISTERED SECURITIES On May 20, 1997 the Compensation Committee of the Board of Directors of the Company authorized the grant pursuant to the Datascope Corp. 1995 Stock Option Plan, to 22 employees of the Company, of options to purchase an aggregate of 85,000 shares of Common Stock at an exercise price of not less than the average of the high and low sale price of the Common Stock as quoted on the NASDAQ National Market on such date. On May 20, 1997 the Board of Directors of the Company also authorized the grant to two consultants to the Company of options to purchase an aggregate of 3,600 shares of Common Stock at an exercise price of not less than the average of the high and low sale price of the Common Stock as quoted on the NASDAQ National Market on such date. ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial information for the fiscal years 1993 through 1997 has been derived from the consolidated financial statements of the Company for those years, which have been audited by Deloitte & Touche, LLP, independent certified public accountants, whose report for fiscal years 1995 through 1997 is included elsewhere herein. All such information is qualified by reference to the financial statements included elsewhere herein. 10 12 SELECTED FINANCIAL INFORMATION EARNINGS STATEMENT DATA: (in thousands, except per share data)
YEAR ENDED JUNE 30, ------------------------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net sales........................... $225,600 $211,300 $195,700 $182,800 $166,000 -------- -------- -------- -------- -------- Cost of sales....................... 80,606 75,000 69,506 64,953 59,023 Cost of sales, point of view charge............................ -- 9,600 -- -- -- Research and development............ 26,815 24,275 19,400 18,765 16,704 Selling, general and administrative.................... 96,151 89,708 84,249 78,208 72,205 Settlements of litigation........... 8,554 (10,691) -- -- -- Gain on sale of assets of Angioplasty Division.............. -- -- -- -- (3,152) -------- -------- -------- -------- -------- 212,126 187,892 173,155 161,926 144,780 -------- -------- -------- -------- -------- Operating earnings.................. 13,474 23,408 22,545 20,874 21,220 Other (income) expense: Interest income................... (4,744) (4,226) (2,855) (1,608) (1,376) Interest expense.................. 18 50 55 24 19 Other, net........................ 380 743 366 353 500 -------- -------- -------- -------- -------- (4,346) (3,433) (2,434) (1,231) (857) -------- -------- -------- -------- -------- Earnings before taxes on income..... 17,820 26,841 24,979 22,105 22,077 Taxes on income..................... 3,716 6,424 7,640 6,437 6,337 -------- -------- -------- -------- -------- Net earnings........................ $ 14,104 $ 20,417 $ 17,339 $ 15,668 $ 15,740 ======== ======== ======== ======== ======== Earnings per share: Primary and fully diluted......... $ 0.86 $ 1.24 $ 1.07 $ 0.97 $ 0.97
BALANCE SHEET DATA: (in thousands)
JUNE 30, ------------------------------------------------------------ 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Total assets........................ $237,862 $234,464 $206,863 $185,421 $158,001 Long-term debt...................... -- -- -- -- -- Working capital..................... 123,716 121,359 110,744 102,943 96,475 Stockholders' equity................ 192,243 181,680 163,319 144,062 127,777 Cash dividends...................... -- -- -- -- --
11 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS. DATASCOPE CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Excluding special items, net earnings for fiscal 1997 were $19.2 million compared to $18.1 million last year, equivalent to $1.17 per share versus $1.10 per share, respectively. Net earnings for fiscal 1997 including special charges of $5.1 million after tax or $0.31 per share amounted to $14.1 million or $0.86 per share, compared to $20.4 million or $1.24 per share in fiscal 1996 which included special income of $2.3 million after tax or $0.14 per share. Fiscal 1995 net earnings were $17.3 million or $1.07 per share. The special items included in fiscal 1997 and 1996 earnings were as follows: FY 1997 1) Shareholder class action securities lawsuit settlement expense of $5.6M or $3.3M after tax, equivalent to $0.20 per share. 2) Quinton patent infringement lawsuit settlement expense of $3.0M or $1.8M after tax, equivalent to $0.11 per share. FY 1996 1) Income of $10.7 million or $7.9 million after tax, equivalent to $0.47 per share, from the settlement of litigation against several former InterVascular employees and certain other defendants. 2) A write-off of $9.6 million or $5.6 million after tax, equivalent to $0.34 per share, for excess and obsolete inventory and other costs related to the point of view(R) (POV) monitor. COMPARISON OF RESULTS -- FISCAL 1997 VS. FISCAL 1996 Net sales in fiscal 1997 were $225.6 million, an increase of 7% compared to sales of $211.3 million in fiscal 1996. The following table shows the comparison of sales by product line over the past three fiscal years.
SALES BY PRODUCT LINE (DOLLARS IN MILLIONS) YEAR ENDED JUNE 30, ---------------------------- 1997 1996 1995 ------ ------ ------ Cardiac Assist................................... $103.0 $107.8 $101.2 % change from prior year....................... (4)% 7% 17% % of total sales............................... 46% 51% 52% Patient Monitoring............................... $ 87.8 $ 77.6 $ 74.8 % change from prior year....................... 13% 4% (8)% % of total sales............................... 39% 37% 38% Vascular Grafts.................................. $ 15.9 $ 17.8 $ 14.7 % change from prior year....................... (11)% 21% 37% % of total sales............................... 7% 8% 7% Collagen Products................................ $ 18.9 $ 8.1 $ 5.0 % change from prior year....................... 131% 62% 38% % of total sales............................... 8% 4% 3% Total Sales...................................... $225.6 $211.3 $195.7 % change from prior year....................... 7% 8% 7%
12 14 Cardiac Assist product sales decreased in fiscal 1997 reflecting the intensified worldwide competitive environment. Increased unit shipments of both intra-aortic balloons and pumps were offset by lower prices required to maintain the Company's dominant market position. Although the Company expects the competitive environment to continue, it expects to strengthen its position with new product introductions in fiscal 1998. Sales of Patient Monitoring products grew in fiscal 1997, reflecting strong domestic sales growth of the Passport(R)XG line of portable monitors, introduced in June 1996, and higher sales of VISA(TM) central station monitors. The Company believes that its Passport monitors continued to gain market share throughout fiscal 1997 and has expanded its product line further with the introduction of the Passport XG-CD model, with a color display screen for better viewing and acuity, in the third quarter of fiscal 1997. Sales of vascular grafts declined in fiscal 1997 despite higher unit graft shipments due to a price reduction of 40% imposed by the French Government on vascular grafts in November 1996, an unfavorable foreign exchange impact and lower sales to the Japanese distributor which reduced its inventory of uncoated grafts while awaiting approval for InterGard(TM)collagen-coated grafts. Japanese regulatory approval for InterGard was received in August 1997. Higher U.S. graft sales were attributable to sales of InterGard grafts to Impra, the new U.S. distributor, in the fourth quarter of fiscal 1997, upon receiving Food and Drug Administration (FDA) approval in May of 1997. In August 1996, the FDA approved revised VasoSeal(R) labeling that includes the claim that patients who receive the VasoSeal device can be ambulated significantly earlier, rather than under conventional clinical practice using manual or mechanical compression. The Company believes that early ambulation made possible by the VasoSeal device should result in significant potential cost savings for hospitals because patients can be moved to lower, less costly levels of care. In addition, human and material resources are reduced, which results in improved hospital efficiencies. The ability to claim early ambulation and its potential to lower cost and increase revenue should assist the VasoSeal device in the vascular sealing market in the U.S. In December 1996, the FDA approved the VasoSeal device for use in diagnostic and interventional radiology procedures. In April 1997, the Company received FDA approval to market the VasoSeal device for use following stent implantation. Stents, which are devices that support the arterial wall, are implanted in conjunction with approximately 45-50% of the 700,000 coronary and peripheral balloon angioplasty procedures performed annually in the United States. The VasoSeal device was the first vascular closure device approved in the United States for use after stent implantation. Sales of the VasoSeal device in fiscal 1997, predominately in the U.S., grew to $17.9 million in the first full year of sales. The annualized rate of U.S. sales of the VasoSeal device was $23 million in the fourth quarter of 1997. The Company continues to expand its direct U.S. sales and marketing organization to meet the growing demand for vascular sealing devices. The Company also anticipates receiving approval (CE Mark) to sell the VasoSeal device in the European common market in fiscal 1998. The foreign exchange rate effect of the stronger U.S. dollar compared to major European currencies decreased total sales by approximately $1.6 million in fiscal 1997 compared to fiscal 1996. Cost of Sales was 35.7% of sales in fiscal 1997 compared to 35.5% in fiscal 1996 (excluding the special charge applicable to the POV monitor) with the slight increase primarily attributable to lower selling prices for cardiac assist and vascular graft products partially offset by improved manufacturing efficiencies for the VasoSeal device. Fiscal 1996 cost of sales was 40.0% including the POV special charge. Higher research and development expenses of 11% in fiscal 1997 resulted primarily from increased staffing and increased use of outside technical resources to accelerate new product development in all businesses. Selling, general and administrative expenses (SG&A) increased 7% primarily as a result of the buildup of the U.S. marketing and selling organization for the VasoSeal device and increased staffing of the Patient Monitoring field sales force. Partially offsetting the above increases were lower legal fees in fiscal 1997 as fiscal 1996 included legal fees for the Quinton patent suit. 13 15 The strengthening of the U.S. dollar compared to major European currencies decreased SG&A expenses by approximately $1.1 million in fiscal 1997 compared to fiscal 1996. The higher interest income in fiscal 1997 compared to fiscal 1996 was attributable to an increase in the investment portfolio from cash generated by operations and an increase in interest rates. The Company enters into foreign exchange forward contracts to hedge a major portion of its foreign currency exposures, primarily related to certain receivables denominated in foreign currencies. The hedging has reduced the Company's exposure to fluctuations in foreign currencies. The net foreign exchange transaction gain or loss is reported in other income and expense. Foreign exchange forward contracts outstanding at June 30, 1997 totaled $612 thousand, all of which were in European currencies, with maturities that do not exceed twelve months. The consolidated effective tax rate for fiscal 1997 was 20.9% compared to 23.9% for fiscal 1996. The tax rate in both years was lower than the federal statutory tax rate primarily as a result of the tax benefit from the Foreign Sales Corporation, earnings in an international tax exempt industrial zone and interest income exempt from federal income tax. The lower tax rate in fiscal 1997 compared to fiscal 1996 was primarily attributable to the reinstatement of the federal R&D tax credit in July 1996 and higher state R&D tax credits as a result of increased R&D spending in fiscal 1997. Excluding special items in both years, net earnings in fiscal 1997 were 6% higher compared to fiscal 1996 primarily as a result of increased earnings from higher U.S. sales of the VasoSeal device, lower corporate legal expenses and increased interest income earned on investments. COMPARISON OF RESULTS -- FISCAL 1996 VS. FISCAL 1995 Net earnings for fiscal 1996 amounted to $20.4 million or $1.24 per share, compared to $17.3 million or $1.07 per share in fiscal 1995. Excluding the two special items in fiscal 1996 noted earlier, net earnings for fiscal 1996 were $18.1 million compared to $17.3 million in fiscal 1995, equivalent to $1.10 per share versus $1.07 per share, respectively. In 1996, net sales were $211.3 million, an increase of 8% compared to sales of $195.7 million in 1995. Cardiac Assist product sales increased in fiscal 1996 due to higher worldwide unit shipments of intra-aortic balloons. The rate of sales growth of intra-aortic balloons slowed during fiscal 1996, reflecting the general pressure on physicians and hospital managers to reduce cost, increasing competitive pressure primarily in the form of free intra-aortic balloons for evaluation offered by competitors and somewhat lower prices. Sales of balloon pumps were flat in fiscal 1996 compared to fiscal 1995, as a result of the increased competition and constraints on medical costs causing price reductions, increased sales of lower priced reconditioned pumps and increased shipments of balloon pumps under terms that result in future revenues. Patient Monitoring product sales reflected a 4% increase in fiscal 1996. However, despite strong international sales growth, excluding the negative effect of the U.S. POV monitor recall in fiscal 1995, patient monitoring sales declined 1% in fiscal 1996 primarily because of the lack of new products. The Company devoted significant resources to regulatory issues and independent regulatory audits during fiscal 1996 and made substantial progress with respect to the Application Integrity Policy (AIP) that was imposed by the Food and Drug Administration in April 1995, and subsequently lifted in October 1996, removing a key constraint to the introduction of new products and consequent sales growth in the U.S. for both the Patient Monitoring Division and InterVascular, Inc. In the fourth quarter of fiscal 1996 the Company recorded a write-off of $9.6 million, or $5.6 million after tax, for excess and obsolete inventory and other costs related to the POV monitor, since it was unlikely the product would be reintroduced because of the time and cost required to make the POV competitive in the U.S. market. 14 16 Sales of vascular grafts increased in fiscal 1996 due to international sales growth of InterVascular's collagen coated vascular graft, InterGard. The Company continued its efforts to obtain regulatory approval for the InterGard in Japan and the U.S. The growth in Collagen Product sales in fiscal 1996 was attributable to sales of the VasoSeal device in the U.S. which reached an annualized sales rate in excess of $8 million based upon fourth quarter sales of the VasoSeal device, which represented the second full quarter of sales in the U.S. The Company expanded the U.S. direct marketing organization in fiscal 1996 to meet expected demand. The foreign exchange rate effect of the weaker U.S. dollar compared to major European currencies increased total sales by approximately $0.7 million in fiscal 1996 compared to fiscal 1995. Cost of Sales (excluding the impact of the POV charge) was 35.5% of sales in fiscal 1996 and fiscal 1995. In fiscal 1996 a more favorable sales mix resulting from greater sales of higher margin disposable products was offset by the effect of lower average selling prices for cardiac assist and patient monitoring products. Including the POV charge in fiscal 1996, cost of sales was 40.0%. R&D expenses increased 25%, attributable to increased activity to accelerate the introduction of new products. Cardiac Assist R&D expense increased primarily due to the development of the System 96 intra-aortic balloon pump for the international market and new balloon catheter developments. Higher R&D in the Patient Monitoring Division was primarily attributable to development expenses for enhanced versions of the Accutorr(R) and Passport monitors and expenditures for outside technical resources to augment the internal R&D staff. InterVascular R&D expenses increased primarily as a result of expenditures for French International Organization for Standardization validation, increased staffing and expenses in the U.S. for Good Manufacturing Practices validation. Selling, general and administrative expenses increased 7%, primarily due to start-up costs associated with the market introduction of the VasoSeal device, including the buildup of the U.S. field sales and training organization, and higher international sales and marketing expenses in the Cardiac Assist Division and InterVascular, Inc. The weakening of the U.S. dollar compared to major European currencies increased SG&A expenses by approximately $550 thousand in fiscal 1996 compared to fiscal 1995. The higher interest income in fiscal 1996 compared to fiscal 1995 was attributable to an increase in the investment portfolio, as cash was generated from operations, and an increase in interest rates. Foreign exchange forward contracts outstanding at June 30, 1996 totaled $419 thousand, all of which were in European currencies, with maturities that do not exceed 12 months. The consolidated effective tax rate for fiscal 1996 was 23.9% compared to 30.6% for fiscal 1995. The lower tax rate in fiscal 1996 was primarily attributable to the favorable tax effect of higher operating earnings in an international tax exempt industrial zone, including income from settlement of litigation. Excluding the special charge of $5.6 million applicable to the POV write-off and the $7.9 million income from the settlement of litigation, net earnings in fiscal 1996 exceeded fiscal 1995 by 5%. Results of operations for fiscal 1996 reflect the impact of competitive pressures in the Company's core businesses, Patient Monitoring and Cardiac Assist, and increased R&D expenses in all businesses to accelerate the introduction of new products. LIQUIDITY AND CAPITAL RESOURCES The Company continued its strong financial position in fiscal 1997. Working capital at June 30, 1997 was $123.7 million or $2.4 million higher than at June 30, 1996. At June 30, 1997 the current ratio was 4.8:1 compared to 3.9:1 last year, with the increase primarily attributable to the reduction of accrued expenses related to both the POV write-off and payment of Quinton patent suit legal fees incurred in fiscal 1996, partially offset by a $7.5 million reduction in short-term investments, as more funds were invested long-term (up to 5 years). 15 17 In May 1996 the Company announced a stock repurchase program of up to $20 million to buy shares of its common stock from time to time subject to market conditions and other relevant factors affecting the Company. Through June 30, 1997, the Company purchased $4.2 million of stock under the repurchase program. Cash provided by operations was $8.3 million in fiscal 1997. Cash was used to purchase $5.3 million of equipment and to purchase $2.5 million of Company stock under the stock repurchase program, with the balance invested in short- and long-term investments. Cash provided by operations was $25.0 million in fiscal 1996. Cash was used to purchase $5.0 million of equipment and to purchase $1.7 million of Company stock under the stock repurchase program, with the balance invested in short- and long-term investments. Cash provided by operations was $26.4 million in fiscal 1995. Cash was used to purchase $6.2 million of equipment, with the balance invested in short- and long-term investments. Management believes that the Company's financial resources are sufficient to meet its projected cash requirements. The moderate rate of U.S. inflation during the past three fiscal years has not significantly affected the Company. This Management's Discussion includes forward-looking statements that are subject to uncertainty because of the possibility that market conditions may change, particularly as a result of the introduction of new cardiac assist products by competitors and because the timing of regulatory approvals is uncertain. Furthermore, there can be no assurance that recent sales and earnings growth trends will continue. RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128) and Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" (SFAS No. 129) specify guidelines as to the method of computation as well as presentation and disclosure requirements for earnings per share (EPS). The objective of these statements is to simplify the calculation and to make the U.S. standard for computing EPS more compatible with the EPS standards of other countries and with that of the International Accounting Standards Committee. These statements will apply to fiscal years 1998 and 1999, respectively. SFAS Nos. 128 and 129 will have an impact on the Company's EPS calculation and disclosure requirements but management cannot predict the outcome at this time. Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) will apply to fiscal year 1999 and establishes standards for reporting, classifying and displaying comprehensive income and its components in a full set of financial statements. Comprehensive income items include all nonowner changes in equity during a period. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) will apply to fiscal year 1999 and requires additional reporting on revenues, expenses, profit or loss and assets on the operating segments of a business. Adoption of SFAS Nos. 130 and 131 will expand the Company's current disclosure requirements. PART III ITEMS 10, 11, 12 AND 13. Except for the information included in Item 4a of this report, the information called for by Items 10, 11, 12 and 13 of this Form 10-K is incorporated by reference to those portions of the Company's 1997 Proxy Statement which contain such information. 16 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements The following consolidated financial statements of the Company and its subsidiaries are filed on the pages listed below, as part of Part II, Item 8 of this report:
PAGE --------- Report of Independent Auditors................................................... F-1 Consolidated balance sheets -- June 30, 1997 and 1996............................ F-2 Statements of consolidated earnings -- Years ended June 30, 1997, 1996 and 1995........................................................................... F-3 Statements of consolidated stockholders' equity -- Years ended June 30, 1997, 1996 and 1995.................................................................. F-4 Statements of consolidated cash flows -- Years ended June 30, 1997, 1996 and 1995........................................................................... F-5 Notes to consolidated financial statements....................................... F-6-F-19
2. Financial Statement Schedules II -- Valuation and Qualifying Accounts......................................... S-1
All other schedules have been omitted because they are inapplicable, or not required, or the information is included in the financial statements or notes thereto. 3. Exhibits 2. Agreement and Plan of Merger, dated as of October 25, 1989, by and between the registrant and Datascope New York (incorporated by reference to Exhibit 2 to the registrant's Registration Statement on Form 8-B, filed with the Commission on January 4, 1990 (the "Form 8-B")). 3.1 Restated Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on October 30, 1989 (incorporated by reference as Exhibit 3.1 to the Form 8-B). 3.2 By-Laws, as currently in effect (incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K for fiscal year ended June 30, 1993 (the "1993 10-K")). 4.1 Specimen of certificate of Common Stock (incorporated by reference to Exhibit 4.2 to the Form 8-B). 4.2 Form of Certificate of Designations of the Registrant's Series A Preferred Stock (incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form 8-A, filed with the Commission on May 31, 1991 (the "May 31, 1991 Form 8-A")). 4.3 Form of Rights Agreement, dated as of May 22, 1991, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 2.1 to the May 31, 1991 Form 8-A). 10.1* 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2.1 to the Form 8-B). 10.2* Stock Option Agreements, dated November 30, 1982, between David Altschiller, William Asmundson, Alan Patricof and Norman Schneider, respectively, and the registrant (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the fiscal year ended June 30, 1989 (the "1989 10-K")). 10.3* Stock Option Agreement, dated December 7, 1988 between Joseph Grayzel, M.D. and the registrant (incorporated by reference to Exhibit 10.6 to the 1989 10-K). 10.4* Stock Option Agreements, dated as of March 1, 1990, between David Altschiller, William Asmundson, Joseph Grayzel, Alan Patricof and Norman Schneider, respectively, and the registrant (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended June 30, 1990). 10.5* Stock Option Agreement, dated as of September 28, 1990, between David Altschiller and the registrant (incorporated by reference to Exhibit 10.8 to the 1991 10-K). 10.6* Datascope Corp. 1995 Stock Option Plan (incorporated by reference to Exhibit 4 to Registration Statement on Form S-8 (File No. 333-00537) filed January 30, 1996 with the Commission).
17 19 10.7* Amendment No. 1 to Datascope Corp. 1995 Stock Option Plan (incorporated by reference to Exhibit 4 to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (File No. 333-00537) filed February 21, 1996 with the Commission). 10.8* Agreement, dated as of July 1, 1996, by and between Datascope Corp. and Lawrence Saper. 10.9* Split-Dollar Agreement made as of July 25, 1994 by and among Datascope Corp., Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 (incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for fiscal year ended June 30, 1996 (the "1996 10-K")). 10.10* Modification Agreement made as of July 25, 1994 by and among Datascope Corp., Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dated 6/28/94 (incorporated by reference to Exhibit 10.16 to 1996 10-K). 10.11* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Metropolitan Life Insurance Company Insurance Policy No. 940 750 122UM in favor of Datascope Corp. (incorporated by reference to Exhibit 10.17 to 1996 10-K). 10.12* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Security Mutual Life Insurance Company of New York Insurance Policy No. 11047711 in favor of Datascope Corp. (incorporated by reference to Exhibit 10.18 to 1996 10-K). 21. Subsidiaries. 23. Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K N/A (c) Management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) are denoted by an (*) 18 20 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. DATASCOPE CORP. By: /s/ LAWRENCE SAPER ------------------------------------ Lawrence Saper Chairman of the Board and President Date: September 29, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE - ---------------------------------------- -------------------------------- ------------------- /s/ LAWRENCE SAPER Chairman of the Board, President September 29, 1997 - ---------------------------------------- and Director (Principal Lawrence Saper Executive Officer) /s/ MURRAY PITKOWSKY Senior Vice President, Chief September 29, 1997 - ---------------------------------------- Financial Officer, Secretary Murray Pitkowsky and Treasurer /s/ ALAN ABRAMSON Director September 29, 1997 - ---------------------------------------- Alan Abramson /s/ DAVID ALTSCHILLER Director September 29, 1997 - ---------------------------------------- David Altschiller /s/ WILLIAM ASMUNDSON Director September 29, 1997 - ---------------------------------------- William Asmundson /s/ JOSEPH GRAYZEL Director September 29, 1997 - ---------------------------------------- Joseph Grayzel, M.D. /s/ GEORGE HELLER Director September 29, 1997 - ---------------------------------------- George Heller /s/ ARNO NASH Director September 29, 1997 - ---------------------------------------- Arno Nash
19 21 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Datascope Corp. Montvale, New Jersey We have audited the accompanying consolidated balance sheets of Datascope Corp. and its subsidiaries (the "Company") as of June 30, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1997. Our audits also included the financial statement schedule listed in the index at Item 14(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Datascope Corp. and its subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considering in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ DELOITTE & TOUCHE LLP - --------------------------------------------------------- New York, New York July 29, 1997 F-1 22 DATASCOPE CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, --------------------- 1997 1996 -------- -------- ASSETS Current Assets: Cash and cash equivalents............................................ $ 2,597 $ 2,574 Short-term investments (Note 2)...................................... 57,338 64,805 Accounts receivable, less allowance for doubtful accounts of $922 and $1,198............................................................ 52,240 50,559 Inventories (Note 3)................................................. 34,604 34,757 Prepaid expenses and other current assets............................ 9,485 10,743 -------- -------- Total Current Assets......................................... 156,264 163,438 Property, Plant and Equipment, net (Note 4)............................ 44,742 43,973 Non-Current Marketable Securities (Note 2)............................. 25,902 17,364 Other Assets........................................................... 10,954 9,689 -------- -------- $237,862 $234,464 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable..................................................... $ 6,650 $ 6,664 Accrued expenses (Note 6)............................................ 15,755 23,372 Accrued compensation................................................. 9,336 9,946 Taxes on income (Note 5)............................................. 807 2,097 -------- -------- Total Current Liabilities.................................... 32,548 42,079 Other Liabilities (Note 9)............................................. 13,071 10,705 Commitments and Contingencies (Notes 2, 7, 9 and 10) Stockholders' Equity (Note 7): Preferred stock, par value $1.00 per share: Authorized 5,000,000 shares; Issued, none......................... -- -- Common stock, par value $.01 per share: Authorized, 45,000,000 shares; Issued and outstanding, 16,245,732 and 16,135,427 shares............................................ 162 161 Additional paid-in capital........................................... 44,266 42,548 Treasury stock at cost, 223,300 and 94,000 shares.................... (4,151) (1,671) Retained earnings.................................................... 155,868 141,764 Cumulative translation adjustments................................... (3,902) (1,122) -------- -------- 192,243 181,680 -------- -------- $237,862 $234,464 ======== ========
See notes to consolidated financial statements F-2 23 DATASCOPE CORP. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED JUNE 30, ---------------------------------- 1997 1996 1995 -------- -------- -------- Net Sales.................................................. $225,600 $211,300 $195,700 -------- -------- -------- Costs and Expenses: Cost of sales............................................ 80,606 75,000 69,506 Cost of sales, point of view charge (Note 12)............ -- 9,600 -- Research and development expenses........................ 26,815 24,275 19,400 Selling, general and administrative expenses............. 96,151 89,708 84,249 Settlements of litigation (Note 12)...................... 8,554 (10,691) -- -------- -------- -------- 212,126 187,892 173,155 -------- -------- -------- Operating Earnings......................................... 13,474 23,408 22,545 Other (Income) Expense: Interest income.......................................... (4,744) (4,226) (2,855) Interest expense......................................... 18 50 55 Other, net............................................... 380 743 366 -------- -------- -------- (4,346) (3,433) (2,434) -------- -------- -------- Earnings Before Taxes on Income............................ 17,820 26,841 24,979 Taxes on Income (Note 5)................................... 3,716 6,424 7,640 -------- -------- -------- Net Earnings............................................... $ 14,104 $ 20,417 $ 17,339 ======== ======== ======== Earnings Per Share......................................... $ 0.86 $ 1.24 $ 1.07 ======== ======== ======== Weighted Average Number of Common and Common Equivalent Shares Outstanding....................................... 16,367 16,516 16,233 ======== ======== ========
See notes to consolidated financial statements F-3 24 DATASCOPE CORP. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
COMMON STOCK ------------------- ADDITIONAL TREASURY CUMULATIVE SHARES PAR PAID-IN RETAINED STOCK TRANSLATION OUTSTANDING VALUE CAPITAL EARNINGS AT COST ADJUSTMENTS TOTAL ----------- ----- ---------- -------- -------- ----------- -------- Balance, June 30, 1994....... 16,043,411 $ 160 $ 41,605 $104,008 $ -- $(1,711) $144,062 Exercise of stock options................. 32,445 1 305 306 Tax benefit relating to exercise of stock options................. 22 22 Treasury shares acquired upon exercise of stock options................. (5,167) (95) (95) Cancellation of treasury stock................... (95) 95 -- Currency translation....... 1,685 1,685 Net earnings............... 17,339 17,339 ---------- ---- ------- -------- ------- ------- ------- Balance, June 30, 1995....... 16,070,689 161 41,837 121,347 -- (26) 163,319 Exercise of stock options................. 79,346 1 793 794 Tax benefit relating to exercise of stock options................. 226 226 Treasury shares acquired upon exercise of stock options................. (14,608) (309) (309) Cancellation of treasury stock................... (1) (308) 309 -- Treasury shares acquired under repurchase program................. (94,000) (1,671) (1,671) Currency translation....... (1,096) (1,096) Net earnings............... 20,417 20,417 ---------- ---- ------- -------- ------- ------- ------- Balance, June 30, 1996....... 16,041,427 161 42,548 141,764 (1,671) (1,122) 181,680 Exercise of stock options................. 113,310 1 1,647 1,648 Tax benefit relating to exercise of stock options................. 131 131 Treasury shares acquired upon exercise of stock options................. (3,005) (60) (60) Cancellation of treasury stock................... (60) 60 -- Treasury shares acquired under repurchase program................. (129,300) (2,480) (2,480) Currency translation....... (2,780) (2,780) Net earnings............... 14,104 14,104 ---------- ---- ------- -------- ------- ------- ------- Balance, June 30, 1997....... 16,022,432 $ 162 $ 44,266 $155,868 $ (4,151) $(3,902) $192,243 ========== ==== ======= ======== ======= ======= =======
See notes to consolidated financial statements F-4 25 DATASCOPE CORP. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED JUNE 30, ----------------------------------- 1997 1996 1995 -------- --------- -------- OPERATING ACTIVITIES: Net Earnings............................................ $ 14,104 $ 20,417 $ 17,339 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization........................ 9,576 8,638 8,246 Provision for supplemental pension................... 897 844 835 Provision for losses on accounts receivable.......... 255 350 494 Deferred income tax (benefit)........................ 1,763 (5,121) (809) Tax benefit relating to stock options exercised...... 131 226 22 Changes in operating assets and liabilities: Accounts receivable.................................. (2,603) (5,890) 6,079 Inventories.......................................... (6,271) (2,557) (6,653) Other assets......................................... (2,090) (748) 225 Accounts payable..................................... 100 (868) (2,085) Income taxes payable................................. (1,290) (212) (153) Accrued and other liabilities........................ (6,263) 9,963 2,861 -------- --------- -------- Net cash provided by operating activities....... 8,309 25,042 26,401 -------- --------- -------- INVESTING ACTIVITIES: Purchases of property, plant and equipment.............. (5,310) (4,967) (6,166) Purchases of marketable securities...................... (98,877) (149,698) (86,649) Maturities of marketable securities..................... 97,806 130,048 67,469 -------- --------- -------- Net cash used in investing activities........... (6,381) (24,617) (25,346) -------- --------- -------- FINANCING ACTIVITIES: Exercise of stock options, net.......................... 1,588 485 211 Treasury shares acquired under repurchase program....... (2,480) (1,671) -- -------- --------- -------- Net cash (used in) provided by financing activities.................................... (892) (1,186) 211 -------- --------- -------- Effect of exchange rates on cash........................ (1,013) 239 (252) -------- --------- -------- Increase (decrease) in cash and cash equivalents.......... 23 (522) 1,014 Cash and cash equivalents, beginning of period............ 2,574 3,096 2,082 -------- --------- -------- Cash and cash equivalents, end of period.................. $ 2,597 $ 2,574 $ 3,096 ======== ========= ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest............................................. $ 18 $ 50 $ 55 -------- --------- -------- Income taxes......................................... $ 3,247 $ 11,530 $ 7,654 -------- --------- -------- Non-cash transactions: Net transfers of inventory to fixed assets for use as demonstration equipment............................ $ 5,745 $ 3,775 $ 4,389 -------- --------- --------
See notes to consolidated financial statements F-5 26 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Datascope Corp. and its subsidiaries (the "Company"). All material intercompany balances and transactions have been eliminated. Cash and Cash Equivalents Cash and cash equivalents consist primarily of highly liquid investments which have original maturities less than 90 days. Inventories Inventories are stated at the lower of cost, determined on a first-in, first-out basis, or market. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. Asset and accumulated depreciation accounts are relieved for dispositions, with resulting gains or losses reflected in earnings. Depreciation of plant and equipment is provided using the straight-line method over the estimated useful lives of the various assets, or for leasehold improvements, over the term of the lease, if shorter. Foreign Currency Translation Assets and liabilities of foreign subsidiaries have been translated at year-end exchange rates, while revenues and expenses have been translated at average exchange rates in effect during the year. Resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity. Taxes on Income The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse. Revenue Recognition The Company recognizes revenue and all related costs, including warranty, upon shipment of its products to customers. Revenue for service contracts is recognized ratably over the term of the contract. Earnings Per Share Earnings per share is computed based on the weighted average number of common shares outstanding during each year after adjustment for the dilutive effect of stock options. Other Assets Goodwill resulting from the purchase of InterVascular, Inc. is being amortized by the straight-line method over 20 years and is included in other assets. Unamortized goodwill as of June 30, 1997 and 1996 amounted to $2,546,000 and $2,779,000, respectively. F-6 27 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications The presentation of certain prior year information has been reclassified to conform with the current year presentation. 2. FINANCIAL INSTRUMENTS The carrying amounts and estimated fair values of the Company's significant financial instruments at June 30, 1997 were as follows:
CARRYING FAIR AMOUNT VALUE -------- ------- (IN THOUSANDS) Cash and short-term investments.......................... $ 59,935 $59,883 ------- ------- Non-current marketable securities........................ $ 25,902 $25,964 ------- -------
The fair value of accounts receivable and payable are assumed to equal their carrying value because of their short maturity. Fair values of short-term investments are based upon quoted market prices, including accrued interest, and approximate their carrying values due to their short maturities. Fair values of non-current marketable securities are also based upon quoted market prices and include accrued interest. The Company has determined that its investment portfolio will be held-to-maturity and is therefore carried at amortized cost. As of June 30, 1997, the Company's marketable securities were classified as follows:
GROSS UNREALIZED AMORTIZED ---------------- SHORT TERM COST GAINS LOSSES FAIR VALUE - ------------------------------------------------------- --------- ----- ------ ---------- (IN THOUSANDS) U.S. Treasury Securities............................... $47,698 $ 77 $129 $ 47,646 Tax-Exempt Securities.................................. 9,640 2 2 9,640 ------- ---- ---- ------- Short-term total............................. $57,338 $ 79 $131 $ 57,286 ======= ==== ==== ======= LONG TERM - ------------------------------------------------------- U.S. Treasury Securities............................... $18,010 $ 72 $ 58 $ 18,024 Tax-Exempt Securities.................................. 7,892 48 -- 7,940 ------- ---- ---- ------- Long-term total.............................. $25,902 $ 120 $ 58 $ 25,964 ======= ==== ==== ======= Totals....................................... $83,240 $ 199 $189 $ 83,250 ======= ==== ==== =======
Off-Balance-Sheet Risk The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into foreign currency forward exchange contracts to hedge foreign F-7 28 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) currency transactions on a continuing basis for periods consistent with its committed foreign currency exposures. The effect of this practice is to minimize the impact of foreign exchange rate movements on the Company's operating results. The Company's hedging activities do not subject the Company to exchange rate risk because gains and losses on these contracts offset losses and gains on the assets, liabilities and transactions being hedged. As of June 30, 1997, the Company had $0.6 million of foreign exchange forward contracts outstanding, all of which were in European currencies. The foreign exchange forward contracts generally have maturities that do not exceed 12 months and require the Company to exchange foreign currencies for U.S. dollars at maturity, at rates agreed to at inception of the contracts. Concentration of Credit Risk The Company invests its excess cash primarily in U.S. Treasury and tax exempt securities. Since the Company holds all short- and long-term securities until maturity, such investments are subject to little market risk. The Company has not incurred losses related to these investments. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. Ongoing credit evaluations of customers' financial condition are performed. The Company maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. 3. INVENTORIES
JUNE 30, ------------------- 1997 1996 ------- ------- (IN THOUSANDS) Materials................................................ $10,917 $15,711 Work in process.......................................... 4,885 7,064 Finished goods........................................... 18,802 11,982 ------- ------- $34,604 $34,757 ======= =======
4. PROPERTY, PLANT AND EQUIPMENT
JUNE 30, ------------------- 1997 1996 ------- ------- (IN THOUSANDS) Land..................................................... $ 4,059 $ 4,059 Buildings................................................ 22,023 22,284 Machinery, furniture and equipment....................... 56,641 49,859 Leasehold improvements................................... 4,098 4,134 ------- ------- 86,821 80,336 Less accumulated depreciation and amortization........... 42,079 36,363 ------- ------- $44,742 $43,973 ======= =======
The Company estimates the useful life of its machinery and equipment at 5 years, furniture at 8 years and buildings at 40 years. F-8 29 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. TAXES ON INCOME The provision (benefit) for income taxes consists of the following:
YEAR ENDED JUNE 30, ----------------------------- 1997 1996 1995 ------ ------- ------ (IN THOUSANDS) Current: Federal....................................................... $ 854 $ 7,402 $6,316 State......................................................... 187 1,696 1,324 Foreign....................................................... 912 2,447 809 ------ ------- ------ Total current.............................................. 1,953 11,545 8,449 Deferred: Federal....................................................... 2,013 (4,021) (695) State......................................................... 111 (1,100) (114) Foreign....................................................... (361) -- -- ------ ------- ------ Total deferred............................................. 1,763 (5,121) (809) ------ ------- ------ Total taxes on income................................. $3,716 $ 6,424 $7,640 ====== ======= ======
The reconciliation of the statutory federal income tax rate to the Company's effective tax rate is as follows:
YEAR ENDED JUNE 30, -------------------------------------------------------------- 1997 1996 1995 ------------------- ------------------- ------------------ (IN THOUSANDS) EFFECTIVE EFFECTIVE EFFECTIVE AMOUNT RATE AMOUNT RATE AMOUNT RATE ------- --------- ------- --------- ------ --------- Tax computed at federal statutory rate...... $ 6,237 35.0% $ 9,394 35.0% $8,743 35.0% (Decrease) increase resulting from: Benefit attributable to foreign sales corp. .................................... (787) (4.4) (911) (3.4) (871) (3.5) State taxes on income, net of federal income tax benefit............................... 194 1.1 387 1.4 673 2.7 Research and development credit, net........ (414) (2.3) -- -- (221) (0.9) Income exempt from foreign corporate taxes..................................... (1,194) (6.7) (2,672) (10.0) (790) (3.1) Rate differential on foreign income......... 167 0.9 70 0.3 99 0.4 Interest income exempt from federal income tax....................................... (204) (1.1) (282) (1.0) (267) (1.1) Other....................................... (283) (1.6) 438 1.6 274 1.1 ------- ---- ------- ----- ------ ---- Total taxes on income............. $ 3,716 20.9% $ 6,424 23.9% $7,640 30.6% ======= ==== ======= ===== ====== ====
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. F-9 30 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax assets and liabilities as of June 30, 1997 and 1996 were as follows:
YEAR ENDED JUNE 30, ----------------------------------------------------------------------------- 1997 1996 ------------------------------------ ------------------------------------ (IN THOUSANDS) DEFERRED DEFERRED DEFERRED DEFERRED TAX TAX TAX TAX ASSETS LIABILITIES NET ASSETS LIABILITIES NET -------- ----------- ------- -------- ----------- ------- Inventories................... $ 3,401 $ -- $ 3,401 $ 4,591 $ -- $ 4,591 Warranty...................... 593 -- 593 451 -- 451 Sales returns & allowances.... 424 -- 424 1,255 -- 1,255 Accrued expenses.............. 609 -- 609 637 -- 637 ------- ------ ------- ------- ------ ------- Current.................. 5,027 -- 5,027 6,934 -- 6,934 ------- ------ ------- ------- ------ ------- Supplemental pension.......... 4,080 -- 4,080 3,728 -- 3,728 Tax loss carryforwards........ 1,893 -- 1,893 1,838 -- 1,838 Accelerated depreciation...... -- 2,064 (2,064) -- 1,770 (1,770) Accrued pension expense....... -- 346 (346) -- 323 (323) Other, net.................... 333 -- 333 224 -- 224 Less: Valuation allowance..... (1,893) -- (1,893) (1,838) -- (1,838) ------- ------ ------- ------- ------ ------- Non-current.............. 4,413 2,410 2,003 3,952 2,093 1,859 ------- ------ ------- ------- ------ ------- Total............... $ 9,440 $ 2,410 $ 7,030 $ 10,886 $ 2,093 $ 8,793 ======= ====== ======= ======= ====== =======
The net current deferred tax assets have been included in prepaid expenses and other current assets and the net non-current deferred tax assets have been included in other assets on the accompanying consolidated balance sheet. The valuation allowance increased by $55,000 during fiscal 1997 due to the net increase of foreign and state tax loss carryforwards. The valuation allowance of $1,893,000 at June 30, 1997 was comprised of tax benefits of $183,000 of foreign tax loss carryforwards and $1,710,000 of state tax loss carryforwards. Benefits from foreign tax loss carryforwards of $151,000 expire during the period 1998 through 2002 and $32,000 may be carried forward indefinitely. The benefits of state tax loss carryforwards expire during the period 1998 through 2012. The valuation allowance reduces the deferred tax assets to managements' best estimate of net deferred tax assets which more likely than not will be realized. It has not been necessary to provide for income taxes on cumulative undistributed earnings of international subsidiaries. These earnings will be either indefinitely reinvested or remitted substantially free of additional tax. The Company has a subsidiary in an industrial development zone in Europe. Profits from manufacturing activities in this zone are exempt from corporation taxes until August 1999. F-10 31 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCRUED EXPENSES Accrued expenses at June 30, 1997 and 1996 were comprised of the following:
YEAR ENDED JUNE 30, ------------------- 1997 1996 ------- ------- (IN THOUSANDS) Deferred revenue......................................... $ 3,644 $ 4,487 Point of View accrued expenses........................... 1,905 5,500 General expense accruals................................. 10,206 13,385 ------- ------- $15,755 $23,372 ======= =======
7. STOCK OPTIONS, SHAREHOLDER RIGHTS AND STOCK REPURCHASE PLANS Stock Option Plans The Company has two employee stock option plans covering 3,825,000 shares of common stock and option agreements with certain consultants and members of the Board of Directors. The plans provide that options may be granted at a price of 100% of fair market value on date of grant, may be exercised in full or in installments, at the discretion of the Board of Directors, and must be exercised within ten years from date of grant. A summary of activity under the stock option plans is as follows:
YEAR ENDED JUNE 30, ------------------------------------------------------------------------------- 1997 1996 1995 ----------------------- ----------------------- ----------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- -------- ---------- -------- ---------- -------- Outstanding at July 1.................... 1,739,844 $16.63 1,434,016 $15.20 1,221,287 $14.49 Granted.............. 492,100 17.88 469,950 19.85 354,750 16.91 Exercised............ (112,625) 14.51 (78,036) 9.74 (37,690) 9.09 Canceled............. (180,825) 18.35 (86,086) 16.70 (104,331) 14.87 --------- --------- --------- Outstanding at June 30................... 1,938,494 16.92 1,739,844 16.63 1,434,016 15.20 ========= ========= ========= Exercisable at June 30................... 1,141,830 $15.88 1,000,654 $15.21 951,831 $14.44 --------- --------- ---------
At June 30, 1997 there were 1,972,344 shares of common stock reserved for the exercise of stock options. The Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS No. 123) for fiscal 1997. The Company continued to account for its stock-based awards using the intrinsic value method in accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees." Under APB Opinion No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. In accordance with FAS No. 123 the fair value of option grants is estimated on the date of grant using an option-pricing model for pro forma footnote purposes. Had the fair value method of accounting been F-11 32 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) applied to the Company's stock option plans, net income and earnings per share would have been reported as the following pro forma amounts:
YEAR ENDED JUNE 30, ------------------- 1997 1996 ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income as reported................................... $14,104 $20,417 ------- ------- Net income pro forma..................................... $12,517 $19,950 ------- ------- Earnings per share as reported........................... $ 0.86 $ 1.24 ------- ------- Earnings per share pro forma............................. $ 0.76 $ 1.21 ------- -------
This pro forma impact only takes into account options granted since July 1, 1996 and is likely to increase in future years as additional options are granted and amortized ratably over the vesting period. The fair values for both years were determined using the Black-Scholes option-pricing model with the following assumptions:
YEAR ENDED JUNE 30, ------------------- 1997 1996 ------- ------- Dividend yield........................................... None None Volatility............................................... 33% 33% Risk-free interest rate.................................. 6.33% 6.42% Expected life............................................ 4 Years 4 Years
The following table summarizes information concerning outstanding and exercisable stock options at June 30, 1997.
STOCK OPTIONS STOCK OPTIONS OUTSTANDING EXERCISABLE ------------------------------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE RANGE OF EXERCISE REMAINING EXERCISE EXERCISE PRICES OPTIONS CONTRACTUAL LIFE PRICE OPTIONS PRICE - ------------------ --------- ---------------- -------- --------- -------- $ 7.375 -- $13.875 179,144 3.71 $11.51 159,561 $11.22 $14.000 -- $14.000 500,000 6.09 $14.00 500,000 $14.00 $14.250 -- $17.750 650,025 8.47 $16.71 230,503 $16.71 $17.875 -- $31.125 609,325 7.87 $21.14 251,766 $21.82 --------- --- ------ --------- ------ 1,938,494 7.23 $16.92 1,141,830 $15.88
Shareholder Rights Plan Under the terms of the Company's Shareholder Rights Plan, all shareholders of common stock were issued for each share owned a preferred stock purchase right entitling them to purchase from the Company one one-thousandth of a share of Series A Preferred Stock, par value $1.00 per share, at an exercise price of $300.00. The rights are not exercisable until after the date on which the Company's right to redeem has expired. The Company may redeem rights for $.01 per right at any time until the 10th business day after the date of a public announcement (the "Stock Acquisition Date") that a person (the "Acquiring Person") has acquired ownership of stock having 15 percent or more of the Company's general voting power. The plan provides that, after a Stock Acquisition Date, generally each holder of a right will be entitled to purchase, at the exercise price, a number of the Company's shares having a market value of twice the exercise price. The plan also provides that in the event of certain other business combinations, generally each holder of a right will be entitled to purchase, at the exercise price, a number of shares of the acquiring company's F-12 33 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) common stock having a market value of twice the exercise price. Prior to the acquisition by the Acquiring Person of 50% or more of the Common Stock outstanding, the Company may exchange the Rights (other than Rights owned by the Acquiring Person and its affiliates and associates, which will be null and void), in whole or in part, for Common Stock on the basis of an exchange ratio of one share of Common Stock for each Right (subject to adjustment). The rights will expire on June 2, 2001. Stock Repurchase Plan On May 3, 1996, the Company announced a stock repurchase program whereby the Company's Board of Directors authorized the use of up to $20 million to buy shares of its common stock from time to time, subject to market conditions and other relevant factors affecting the Company. Share repurchases are planned when market and business conditions are deemed favorable. As of June 30, 1997, the Company had repurchased 223,300 shares at a cost of approximately $4,151,000. F-13 34 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES The Company develops, manufactures and markets medical systems and devices which constitute a single business segment. The following information sets forth geographic information on the Company's sales, profits and assets:
UNITED EUROPEAN STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------ ------------ (IN THOUSANDS) YEAR ENDED JUNE 30, 1997: Sales to unaffiliated customers........... $192,039 $ 33,561 $ -- $225,600 Transfers between geographic areas........ 14,397 8,683 (23,080) -- -------- ------- -------- -------- Total sales....................... $206,436 $ 42,244 $(23,080) $225,600 ======== ======= ======== ======== Operating earnings.......................... $ 9,344 $ 3,998 $ 132 $ 13,474 ======== ======= ======== Other income, net........................... 4,346 -------- Earnings before taxes on income............. $ 17,820 ======== Assets at June 30, 1997..................... $210,447 $ 30,769 $ (3,354) $237,862 ======== ======= ======== ======== YEAR ENDED JUNE 30, 1996: Sales to unaffiliated customers........... $174,914 $ 36,386 $ -- $211,300 Transfers between geographic areas........ 12,757 8,395 (21,152) -- -------- ------- -------- -------- Total sales....................... $187,671 $ 44,781 $(21,152) $211,300 ======== ======= ======== ======== Operating earnings.......................... $ 17,919 $ 4,999 $ 490 $ 23,408 ======== ======= ======== Other income, net........................... 3,433 -------- Earnings before taxes on income............. $ 26,841 ======== Assets at June 30, 1996..................... $207,553 $ 30,288 $ (3,377) $234,464 ======== ======= ======== ======== YEAR ENDED JUNE 30, 1995: Sales to unaffiliated customers........... $161,534 $ 34,166 $ -- $195,700 Transfers between geographic areas........ 12,714 6,177 (18,891) -- -------- ------- -------- -------- Total sales....................... $174,248 $ 40,343 $(18,891) $195,700 ======== ======= ======== ======== Operating earnings.......................... $ 18,235 $ 4,653 $ (343) $ 22,545 ======== ======= ======== Other income, net........................... 2,434 -------- Earnings before taxes on income............. $ 24,979 ======== Assets at June 30, 1995..................... $181,954 $ 28,265 $ (3,356) $206,863 ======== ======= ======== ========
In determining operating earnings, interest income and expense, other income and expense, and income taxes were excluded. The Company had export sales, principally to Europe, Canada, Latin America and the Far East, of $37,471,000, $40,524,000 and $31,951,000 in the years ended June 30, 1997, 1996 and 1995, respectively. F-14 35 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. PENSION AND RETIREMENT PLANS Defined Benefit Plan The Company has both domestic and foreign defined benefit pension plans which cover substantially all employees. Pension benefits are based on years of service, compensation and the primary social security benefits. Funding for the domestic plan is within the range prescribed under the Employee Retirement Income Security Act of 1974. Funding for the foreign plan is accomplished through the purchase of guaranteed insurance contracts. Total pension expense for the domestic and foreign pension plans was $1,458,000 in 1997, $1,577,000 in 1996 and $1,601,000 in 1995. Domestic The components of net pension expense and the funded status of the domestic defined benefit pension plan are set forth below:
YEAR ENDED JUNE 30, ------------------------------ 1997 1996 1995 ------- ------ ------- (IN THOUSANDS) Service cost for benefits earned during the year....... $ 1,304 $1,398 $ 1,444 Interest cost on projected benefit obligation.......... 1,369 1,417 1,339 Actual return on plan assets........................... (1,267) (927) (1,440) Net amortization and deferral.......................... (284) (588) 16 ------- ------ ------- Net periodic pension cost -- domestic................ $ 1,122 $1,300 $ 1,359 ======= ====== =======
The Plan's Funded Status was as follows:
JUNE 30, ------------------- 1997 1996 ------- ------- (IN THOUSANDS) Actuarial present value of accumulated benefit obligation Vested......................................................... $14,251 $12,224 Nonvested...................................................... 1,840 2,286 ------- ------- Accumulated benefit obligation................................. 16,091 14,510 Effects of anticipated future compensation increases........... 5,191 6,674 ------- ------- Projected benefit obligation................................... 21,282 21,184 Plan assets at fair value...................................... 20,460 18,429 ------- ------- Projected benefit obligation in excess of plan assets.......... (822) (2,755) Unamortized net transition obligation.......................... 467 537 Unrecognized prior service cost................................ 73 (99) Unrecognized net actuarial loss................................ 1,182 3,159 ------- ------- Net prepaid pension cost......................................... $ 900 $ 842 ======= =======
The assumptions used to develop the actuarial present value of the projected benefit obligation are as follows:
1997 1996 ---- ---- Weighted average discount rate....................................... 7.25% 7.50% Rate of increase in compensation levels.............................. 6.00% 6.25% Expected long-term rate of return on plan assets..................... 8.00% 8.50%
F-15 36 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Plan assets are invested in U.S. Government and corporate securities and include investments in the Company's common stock of $1,884,000 (96,000 shares) at June 30, 1997. No dividends are paid on the Company's common stock. Foreign Retirement coverage for the foreign employees of the Company is provided, to the extent deemed appropriate, through separate plans. Funding policies are based on local statutes. Retirement benefits are based on years of service, final average earnings and social security benefits. The components of net pension expense and the funded status of the foreign defined benefit pension plans are set forth below:
YEAR ENDED JUNE 30, -------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS) Service cost for benefits earned during the year.......... $142 $132 $ 97 Interest cost on projected benefit obligation............. 92 93 65 Estimated return on plan assets........................... (40) (36) (24) Net amortization and deferral............................. 38 41 27 ---- ---- ---- Net periodic pension cost -- foreign................. $232 $230 $165 ==== ==== ====
The Plan's Funded Status was as follows:
JUNE 30, ------------------- 1997 1996 ------ ------ (IN THOUSANDS) Actuarial present value of accumulated benefit obligation (fully vested)........................................................ $ 450 $ 440 ------ ------ Projected benefit obligation..................................... 1,239 1,223 Plan assets at fair value........................................ 450 440 ------ ------ Projected benefit obligation in excess of plan assets............ (789) (783) Unamortized net transition obligation............................ 117 151 Unrecognized net actuarial loss.................................. 747 748 ------ ------ Net prepaid pension cost.................................... $ 75 $ 116 ====== ======
The assumptions used to develop foreign net pension cost and the actuarial present value of projected benefit obligations are as follows:
1997 1996 ---- ---- Weighted average discount rate................................. 7.5 % 7.5 % Rate of increase in compensation levels........................ 6.0 % 6.0 % Expected long-term rate of return on plan assets............... 9.0 % 9.0 %
The assets of the foreign defined benefit pension plan are invested in guaranteed insurance contracts. Supplemental Retirement Plan The Company has noncontributory, unfunded supplemental retirement plans for Mr. Saper and certain other key officers. Life insurance has been purchased by the Company to recover a substantial portion of the net after tax cost for these supplemental retirement plans. F-16 37 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Under the retirement provision of Mr. Saper's five-year employment agreement with the Company, Mr. Saper is entitled to receive a lifetime pension of up to 60% of his average earnings for the three-year period in which Mr. Saper's compensation was greatest of the ten years immediately preceding his retirement, but not less than the value of the benefit that would have been payable had his retirement occurred at age 65. The plan provides survivor benefits in the form of a $10 million life insurance policy, maintained pursuant to a split-dollar agreement among Mr. Saper, the Corporation and a trust for the benefit of Mr. Sapers's family. The supplemental pension expense for Mr. Saper recognized in the consolidated financial statements was $741,000, $689,000 and $635,000 for 1997, 1996 and 1995, respectively. The supplemental retirement plan covering certain other key officers provides that at age 65, these employees may receive, for a period of up to 15 years, a pension of up to 60% of a predetermined earnings level for the five-year period prior to retirement. The supplemental pension expense for these executives recognized in the consolidated financial statements was $156,000, $155,000 and $200,000 for 1997, 1996 and 1995, respectively. The actuarial present value of both the accumulated benefit obligation and projected benefit obligation for the supplemental retirement plans was $8,328,000 and $7,000,000 for 1997 and 1996, respectively. The components of the total supplemental pension expense are set forth below:
YEAR ENDED JUNE 30, ------------------------- 1997 1996 1995 ----- ----- ----- (IN THOUSANDS) Service cost for benefits earned during the year................... $ 200 $ 277 $ 298 Interest cost on projected benefit obligation...................... 568 624 554 Amortization of prior service cost................................. 841 496 511 Amortization of gain............................................... (712) (553) (528) ----- ----- ----- Total supplemental pension expense....................... $ 897 $ 844 $ 835 ===== ===== =====
Savings and Supplemental Retirement Plan The Company maintains a 401(k) savings and supplemental retirement plan for eligible domestic employees. This 401(k) plan was established to enhance the existing retirement plan and to provide an incentive to employees to save and invest regularly for their retirement. The Company contributions, which were based on matching 50% of participating employees' contributions up to a maximum of 6% of compensation, were $1,084,000 for 1997, $976,000 for 1996 and $880,000 for 1995. 10. COMMITMENTS AND CONTINGENCIES Leases Future minimum rental commitments under noncancellable operating leases are as follows:
YEAR (IN THOUSANDS) ------------------------------------------------------- -------------- 1998................................................... $3,461 1999................................................... 2,371 2000................................................... 1,297 2001................................................... 535 2002................................................... 166 Thereafter............................................. 317 ------ Total future minimum rental payments......... $8,147 ======
F-17 38 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Total rent expense for the years ended June 30, 1997, 1996 and 1995 amounted to approximately $4,266,000, $4,264,000 and $4,241,000, respectively. Litigation The Company is subject to litigation in the ordinary course of its business. The Company believes it has meritorious defenses in all material pending lawsuits and that the outcome will not have a material adverse effect on the Company's financial position or results of operations. See Footnote 12 for further discussion of settlements of litigation. Credit Arrangements The Company has lines of credit totaling $50,500,000, borrowings under which bear interest principally at the lenders' respective prime rates. There were no short-term borrowings under lines of credit at June 30, 1997 and 1996. The lines expire as follows: $25,000,000 in December 1997 and $25,000,000 in March 1998. These lines are renewable annually at the option of the banks. The Company also has $500,000 in lines of credit with no expiration date. 11. QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED JUNE 30, 1997 ---------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales....................... $47,600 $57,600 $57,900 $62,500 $225,600 ------- ------- ------- ------- -------- Gross margin.................... $30,951 $37,633 $37,398 $39,012 $144,994 ------- ------- ------- ------- -------- Net earnings.................... $(3,298)(A) $ 5,051 $ 5,750 $ 6,601 $ 14,104 ------- ------- ------- ------- -------- Earnings per share.............. $ (0.20)(A) $ 0.31 $ 0.35 $ 0.40 $ 0.86 ------- ------- ------- ------- --------
YEAR ENDED JUNE 30, 1996 ---------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- Net sales................... $45,900 $52,300 $54,600 $58,500 $211,300 ------- ------- ------- ------- -------- Gross margin................ $30,039 $34,441 $35,537 $26,683(C) $126,700 ------- ------- ------- ------- -------- Net earnings................ $ 3,102 $12,711(B) $ 5,437 $ (833)(C) $ 20,417 ------- ------- ------- ------- -------- Earnings per share.......... $ 0.19 $ 0.76(B) $ 0.33 $ (0.05)(C) $ 1.24 ------- ------- ------- ------- --------
- --------------- (A) Q1 and FY 1997 earnings includes shareholder class action securities lawsuit settlement expense of $5.6 million before taxes, or $3.3 million after income tax, equivalent to $0.20 per share, and Quinton patent infringement lawsuit settlement expense of $3.0 million before taxes, or $1.8 million after income tax, equivalent to $0.11 per share. (B) Q2 and FY 1996 earnings includes income from settlement of litigation before taxes of $10.7 million, or $7.9 million after income tax, equivalent to $0.47 per share. (C) Q4 and FY 1996 earnings includes charge for point of view write-off before taxes of $9.6 million, or $5.6 million after income tax, equivalent to $0.34 per share. Quarterly and total year earnings per share are calculated independently based on the weighted average number of shares outstanding during each period. F-18 39 DATASCOPE CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. SPECIAL ITEMS Included in fiscal 1997 earnings were two special items as follows: Settlement of Shareholder Class Action Securities Lawsuit The Company settled the shareholder class action securities lawsuit filed in November 1993. The cost of the settlement, including legal fees, was $5.6 million or $3.3 million after tax, equivalent to $0.20 per share. Settlement of Patent Infringement Lawsuit The Company settled the patent infringement lawsuit filed in February 1996 by Quinton Instruments Company and Sherwood Medical Company concerning the VasoSeal Vascular Hemostasis Device. The settlement allows all parties to market their respective vascular hemostasis products and includes covenants against future litigation. The cost of the settlement, including legal fees, was $3.0 million or $1.8 million after tax, equivalent to $0.11 per share. Included in fiscal 1996 earnings were two special items as follows: Income from Settlement of Litigation The Company settled all litigation brought by its wholly-owned subsidiaries, InterVascular, Inc. and InterVascular S.A. (France), against several former employees and certain other defendants. Income from the settlement of litigation, net of related expenses, was $10.7 million or $7.9 million after tax, equivalent to $0.47 per share. Point of View Charge The Company wrote off approximately $9.6 million or $5.6 million after tax, equivalent to $0.34 per share, for excess and obsolete inventory and other costs related to the point of view(R) monitor. F-19 40 DATASCOPE CORP. AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN A COLUMN B COLUMN D COLUMN E - ----------------------------------- ------------ COLUMN C ---------- ---------- ------------------------- ADDITIONS ------------------------- (1) (2) CHARGED TO DEDUCTIONS BALANCE AT CHARGED TO OTHER FROM BALANCE AT BEGINNING OF COSTS AND ACCOUNTS-- RESERVES-- CLOSE OF DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ----------------------------------- ------------ ---------- ---------- ---------- ---------- YEAR ENDED JUNE 30, 1997 Allowance for doubtful accounts.... $1,198 $226 $ -- $502(A) $ 922 ====== ==== ==== ==== ====== Reserve for warranty costs......... 810 -- -- 110(A) 700 ====== ==== ==== ==== ====== YEAR ENDED JUNE 30, 1996 Allowance for doubtful accounts.... $1,273 $357 $ -- $432(A) $1,198 ====== ==== ==== ==== ====== Reserve for warranty costs......... 750 60 -- -- 810 ====== ==== ==== ==== ====== YEAR ENDED JUNE 30, 1995 Allowance for doubtful accounts.... $1,188 $494 $ -- $409(A) $1,273 ====== ==== ==== ==== ====== Reserve for warranty costs......... 450 300 -- -- 750 ====== ==== ==== ==== ======
- --------------- (A) Write-offs S-1 41 EXHIBIT INDEX EXHIBITS 2. Agreement and Plan of Merger, dated as of October 25, 1989, by and between the registrant and Datascope New York (incorporated by reference to Exhibit 2 to the registrant's Registration Statement on Form 8-B, filed with the Commission on January 4, 1990 (the "Form 8-B"))............................................... 3.1 Restated Certificate of Incorporation as filed with the Secretary of State of the State of Delaware on October 30, 1989 (incorporated by reference as Exhibit 3.1 to the Form 8-B)............................................................ 3.2 By-Laws, as currently in effect (incorporated by reference to Exhibit 3.2 to Annual Report on Form 10-K for fiscal year ended June 30, 1993 (the "1993 10-K"))......................................................................... 4.1 Specimen of certificate of Common Stock (incorporated by reference to Exhibit 4.2 to the Form 8-B)............................................................ 4.2 Form of Certificate of Designations of the Registrant's Series A Preferred Stock (incorporated by reference to Exhibit 2.2 to the Company's Registration Statement on Form 8-A, filed with the Commission on May 31, 1991 (the "May 31, 1991 Form 8-A"))................................................................ 4.3 Form of Rights Agreement, dated as of May 22, 1991, between the Company and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 2.1 to the May 31, 1991 Form 8-A)............................................... 10.1* 1981 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.2.1 to the Form 8-B)................................................................... 10.2* Stock Option Agreements, dated November 30, 1982, between David Altschiller, William Asmundson, Alan Patricof and Norman Schneider, respectively, and the registrant (incorporated by reference to Exhibit 10.5 to Annual Report on Form 10-K for the fiscal year ended June 30, 1989 (the "1989 10-K"))................. 10.3* Stock Option Agreement, dated December 7, 1988 between Joseph Grayzel, M.D. and the registrant (incorporated by reference to Exhibit 10.6 to the 1989 10-K)..... 10.4* Stock Option Agreements, dated as of March 1, 1990, between David Altschiller, William Asmundson, Joseph Grayzel, Alan Patricof and Norman Schneider, respectively, and the registrant (incorporated by reference to Exhibit 10.9 to Annual Report on Form 10-K for the fiscal year ended June 30, 1990)............. 10.5* Stock Option Agreement, dated as of September 28, 1990, between David Altschiller and the registrant (incorporated by reference to Exhibit 10.8 to the 1991 10-K)...................................................................... 10.6* Datascope Corp. 1995 Stock Option Plan (incorporated by reference to Exhibit 4 to Registration Statement on Form S-8 (File No. 333-00537) filed January 30, 1996 with the Commission)....................................................... 10.7* Amendment No. 1 to Datascope Corp. 1995 Stock Option Plan (incorporated by reference to Exhibit 4 to Post-Effective Amendment No. 1 to Registration Statement on Form S-8 (File No. 333-00537) filed February 21, 1996 with the Commission)..................................................................... 10.8* Agreement, dated as of July 1, 1996, by and between Datascope Corp. and Lawrence Saper........................................................................... 10.9* Split-Dollar Agreement made as of July 25, 1994 by and among Datascope Corp., Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 (incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K for fiscal year ended June 30, 1996 (the "1996 10-K"))................................................................... 10.10* Modification Agreement made as of July 25, 1994 by and among Datascope Corp., Lawrence Saper and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dated 6/28/94 (incorporated by reference to Exhibit 10.16 to 1996 10-K)............................................................. 10.11* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Metropolitan Life Insurance Company Insurance Policy No. 940 750 122UM in favor of Datascope Corp. (incorporated by reference to Exhibit 10.17 to 1996 10-K)................. 10.12* Assignment made as of July 25, 1994 by Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA. dtd. 6/28/94 of Security Mutual Life Insurance Company of New York Insurance Policy No. 11047711 in favor of Datascope Corp. (incorporated by reference to Exhibit 10.18 to 1996 10-K).... 21. Subsidiaries.................................................................... 23. Consent of Deloitte & Touche LLP................................................
Management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) are denoted by an (*) S-2 EX-10.8 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.8 EMPLOYMENT AGREEMENT AGREEMENT made as of the 1st day of July, 1996, by and between DATASCOPE CORP., a Delaware corporation (the "Corporation"), and LAWRENCE SAPER, an individual residing at 812 Park Avenue, New York, New York (the "Executive"). W I T N E S S E T H WHEREAS, the Executive has been employed by the Corporation for more than 25 years and is currently the Chairman of the Board of Directors, President and Chief Executive Officer of the Corporation; WHEREAS, the Corporation desires to assure itself of the Executive's continued employment in an executive capacity and to compensate him for such employment; and WHEREAS, the Executive desires to continue to serve the Corporation on the terms provided in this Agreement; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties contained in this Agreement, the parties agree as follows: 1. Employment. The Corporation agrees to continue to employ the Executive, and the Executive agrees to continue to serve the Corporation, on the terms and conditions set forth in this Agreement. 2. Term. (a) Subject to paragraphs (b) and (c) of this Section 2 and the provisions for termination hereinafter provided, the term of the Executive's employment hereunder shall be from July 1, 1996 (the "Effective Date") until the close of business on June 30, 2001 (the "Initial Period"). (b) On each anniversary of the Effective Date, the term of this Agreement shall be automatically extended by one additional calendar year (the "Extension Period") unless either party shall have provided notice to the other not less than one hundred eighty days prior to such anniversary that it does not desire to extend the term of this Agreement (in which case no further extension of the term of this Agreement shall occur pursuant hereto but all previous extensions of the term shall continue to be given full force and effect). (c) For purposes of this Agreement, the "Term" of this Agreement means the Initial Period, if the term of this Agreement has not been extended pursuant to paragraph 2(b); otherwise, the period beginning on July 1, 1996, and ending with the last day of the most recently arising Extension Period. 3. Position and Duties. The Executive shall serve as the Chief Executive Officer and President of the Corporation and in such other executive capacities as the Board of Directors of the Corporation designates. The Executive shall have such responsibilities and duties, consistent with his present responsibilities and duties, as the Board of Directors from time to time prescribes. The Executive shall devote substantially all of his working time and efforts to the business and affairs of the Corporation. Nothing herein, however, shall prevent the Executive from engaging in additional activities in connection with personal investments and community affairs which do not interfere or conflict with his duties. 4. Place of Employment. The principal place of employment of the Executive shall be at the principal executive offices of the Corporation. The Corporation shall not, without the written consent of the Executive, relocate or transfer its principal executive offices from their present location in Montvale, New Jersey. If the Corporation relocates its principal executive offices with the Executive's consent, the Corporation shall promptly pay (or reimburse the Executive for) all reasonable moving expenses incurred by the Executive in connection with a change of the Executive's residences due to such relocation and if, within six months of his commencement of full-time employment at the Corporation's relocated executive offices, the Executive requests, shall purchase from the Executive the residences which he is required to vacate. The purchase price of such residences shall be the average of the appraisals rendered by two appraisers retained by the 2 Corporation, one of whom shall be selected by the Executive. The Executive acknowledges and agrees that he may be required to travel on behalf of the Corporation in connection with his employment. 5. Compensation and Related Matters. (a) Salary and Bonuses. (i) Rate of Compensation. The Executive shall receive a base salary (the "Base Salary") at the annual rate of $795,000. The Executive's Base Salary for each fiscal year for the remainder of the Term shall be increased by such amount as shall be determined by the Board of Directors of the Corporation (or its Compensation Committee). Once established at any specified rate, the Executive's Base Salary shall not be reduced. The Base Salary shall be payable to the Executive in installments on the Corporation's normal payroll dates, but not less frequently than monthly. (ii) Performance Based Bonus Compensation. The Executive shall be entitled to an annual bonus based on such criteria as shall be determined by the Compensation Committee. The Executive shall also be entitled to receive bonus compensation in accordance with such long-term and annual incentive compensation plans as may be maintained by the Corporation for the benefit of its executives and to participate in any other bonus plans maintained by the Corporation for its executives. (iii) Salary Not Exclusive. Base Salary and bonus compensation shall not be deemed exclusive, and the Executive shall be entitled to participate in any other compensation or benefit plans maintained by the Corporation for the benefit of its employees including, without limitation, the various stock option plans available to the Corporation's executives. Payments of Base Salary shall not limit or reduce any other obligations of the Corporation or rights of the Executive under this Agreement. (iv) Long-Term Incentive Plan. The Executive shall be entitled to participate in a long term incentive plan, the compensation payable under which shall be based on such criteria as shall be determined by the Compensation Committee. (b) Expenses. Subject to compliance by the Executive with such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Board of Directors of the Corporation with respect to executive employees, the Executive is authorized to incur reasonable business, entertainment and other related expenses (including all travel and living expenses while away from home on business or at the request, and in the service, of the Corporation) in the performance of his duties. The Corporation will promptly reimburse the Executive for all reasonable expenses upon submission to the Corporation of an account of expenses in accordance with the Corporation's regular procedures for executive officers. (c) Additional Retirement Benefits. In addition to and not in lieu of any amounts payable by the Corporation to the Executive under any other subsection of this Section 5, the Corporation shall pay to the Executive additional retirement benefits as follows: (i) Definitions. (A) "Retirement Benefit" shall mean an amount equal to the difference between (A) 60% of Three Year Average Total Compensation and (B) amounts payable to the Executive upon his retirement at or after age 65 under the Corporation's qualified pension plan, as then in effect (the "Pension Plan"), on a 10 year certain basis (as set forth in the Pension Plan at Section 8.4, option 2). (B) "Value" shall mean the lump sum actuarial value of the Retirement Benefit that would have been payable to the Executive had his retirement occurred on his 65th birthday calculated based on the 1983 Group Annuity Mortality Table (male rates) and 5% interest. (C) "Adjusted Value" shall mean the Value increased by 5% per year, compounded annually, to the actual date of the Executive's retirement, and prorated for periods of less than one year based upon completed months. 2 3 (D) "Minimum Retirement Benefit" shall mean the Adjusted Value converted into an annual retirement benefit based on the 1983 Group Annuity Mortality Table (male rates) and 5% interest. The lump sum actuarial factor used in this conversion shall be based upon the Executive's age (to the nearest month) at his actual date of retirement, interpolated linearly if such age is not a whole number. The amounts so determined are shown on the attached Schedule A. (E) Three Year Average Total Compensation. For the purposes hereof, "Three Year Average Total Compensation" shall mean the average total compensation, comprising Base Salary and all bonus compensation, for the three years in which the Executive's compensation was greatest of the ten years immediately preceding the Executive's retirement, disability or death. (F) Retirement. For the purposes hereof, the Executive's retirement shall be deemed to have occurred if, at any time after the date hereof, the Executive elects to retire from his duties with the Corporation. The Executive in his sole discretion may elect to defer the date on which his retirement shall be deemed to occur. In addition, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from his duties on a full time basis for 180 consecutive days, and within thirty (30) days after a written Notice of Termination (as defined in subsection (e) of Section 8 hereto) is given shall not have returned to the performance of his duties on a full time basis, the Executive shall be deemed to have retired from his duties with the Corporation. (ii) Retirement Benefits. The Corporation shall pay to the Executive each year, for life, commencing on the first day of the first fiscal year of the Corporation beginning after the Executive's retirement, the greater of (A) the Retirement Benefit payable under the supplemental executive retirement program, excluding all benefits payable under the Corporation's qualified retirement plan, and (B) the Minimum Retirement Benefit. Payments to the Executive pursuant to this clause (ii) shall be made monthly. (iii) Pre-Retirement Survivor Benefit. Upon the death of the Executive, a trust created for the primary benefit of the spouse and children of the Executive (the "Trust") shall receive ten million ($10,000,000) dollars in proceeds of life insurance payable from one or more policies of insurance on the life of the Executive pursuant to a Split-Dollar Agreement, dated July 25, 1994, between the Executive, the Corporation and the Trust (the "Split-Dollar Agreement"). The premiums for such policies shall be apportioned between the Corporation and the Trust in accordance with the terms of the Split-Dollar Agreement and the Corporation's interest therein shall be secured by collateral assignment of such policy or policies executed by the Trust and the Corporation. In each year during the term of the Split-Dollar Agreement, the Corporation shall reimburse the Executive for the portion of such year's premiums that is a deemed economic benefit to the Executive and payable by the Trust pursuant to the Split-Dollar Agreement (the "Reimbursement"). In addition, following the determination of the Executive's personal city, state and federal income tax liability for such year, the Reimbursement shall be increased by the amount of city, state and federal income taxes, if any, required to be paid by the Executive and directly attributable to such deemed economic benefit in such year. Notwithstanding the foregoing, until the three-year anniversary of the assignment of a certain policy of insurance on the life of the Executive to the Trust, if Carol Saper is living at the death of the Executive and is his surviving spouse as such term is defined in the Trust under Agreement, dated June 28, 1994 (the "Spouse"), such death benefit shall be paid to the Spouse and the Trust in accordance with the terms of the Split-Dollar Agreement. (d) Automobile. In lieu of providing the Executive an automobile, during the Term, the Corporation shall continue to pay additional amounts to the Executive. The amounts payable each year shall be as determined by the Board of Directors (or its Compensation Committee). (e) Services Furnished. The Corporation shall furnish the Executive with office space suitable for a chief executive officer, stenographic assistance and such other facilities and services as shall be suitable to the Executive's position and for the performance of his duties. 3 4 6. Insurance. The Executive agrees that the Corporation may at any time and for the Corporation's own benefit, apply for and take out life, health, accident, and/or other insurance covering the Executive either independently or together with others in any amount which the Corporation deems to be in its best interests and the Corporation may maintain any existing insurance policies on the life of the Executive owned by the Corporation. The Corporation shall own all rights in any such insurance policies and in the cash values and proceeds thereof and, except as otherwise provided, the Executive shall not have any right, title or interest therein. The Executive agrees to assist the Corporation at the Corporation's expense in obtaining any such insurance by, among other things, submitting to the customary examinations and correctly preparing, signing and delivering such applications and other documents as may be required by insurers. 7. Unauthorized Disclosure; Inventions. (a) Confidentiality. During the Term, the Executive shall not, without the written consent of the Board of Directors, disclose to any person, other than an employee of the Corporation or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties, any material confidential information obtained by the Executive while employed by the Corporation, with respect to any of the Corporation's products, improvements, formulae, designs or styles, processes, customers, methods of distribution or methods of manufacture, the disclosure of which the Executive knows will be materially damaging to the Corporation; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Corporation. For the period ending two years following the termination of the Executive's employment, the Executive shall not disclose any confidential information of the type described above except as determined by him to be reasonably necessary in connection with any business or activity in which he is then engaged. (b) Inventions. The Executive shall promptly and fully disclose to an appropriate executive officer of the Corporation any and all inventions or formulae made, developed or created by the Executive (whether at the request or suggestion of the Corporation or otherwise, whether alone or in conjunction with others, and whether during regular work hours or otherwise) during the period of the Executive's employment by the Corporation which may be directly or indirectly useful in, or relate to, the business of or tests being carried out by the Corporation, and shall promptly deliver to an appropriate executive officer of the Corporation all papers, drawings, models, data and other material relating to any such invention or formulae. All such inventions or formulae shall be the Corporation's exclusive property as against the Executive. The Executive shall, upon the Corporation's request and without any payment, execute any documents necessary or advisable in the opinion of the Corporation's counsel to direct issuance of patents to the Corporation with respect to such inventions or to vest in the Corporation title to such inventions as against the Executive. The expense of securing any patent, however, will be borne by the Corporation. (c) Binding Effect. The foregoing provisions of this Section 7 shall be binding upon the Executive's heirs, successors and legal representatives. 8. Termination. The Executive's employment under this Agreement may be terminated without any breach of this Agreement only under the following circumstances: (a) Expiration of Term. The Executive's employment shall terminate upon the expiration of the Term or upon any earlier termination of such term due to the Executive's retirement; provided, that in the event of a termination resulting from the Executive's retirement, the Executive shall be entitled to all retirement and other continuing benefits provided for in this Agreement and the provisions of Section 7 of this Agreement shall remain in full force and effect. (b) Death. The Executive's employment shall terminate upon his death. 4 5 (c) Cause. The Corporation may terminate the Executive's employment for Cause. For purposes of this Agreement, the Corporation shall have "Cause" to terminate the Executive's employment if (i) the Executive willfully and continually fails to substantially perform his duties (other than as a result of the Executive's incapacity due to physical or mental illness) after the Board of Directors of the Corporation has delivered to the Executive a written demand for substantial performance specifically identifying the manner in which it believes the Executive has not substantially performed his duties, or (ii) the Executive willfully engages, in his capacity as an executive of the Corporation, in gross misconduct materially injurious to the Corporation. For purposes of this subsection (c), no act, or failure to act, on the Executive's part shall be considered "willful" if done, or omitted to be done, in good faith and with the reasonable belief that such action or omission was in the best interest of the Corporation. The Executive shall not be deemed to have been terminated for Cause unless and until, after reasonable notice to the Executive and an opportunity for him, together with his counsel, to be heard before the Board of Directors of the Corporation, the Board of Directors has determined based on clear and convincing evidence that the Executive was guilty of the conduct described in clause (i) or (ii) of the preceding sentence, and delivered to the Executive a Notice of Termination stating such determination and specifying the particulars thereof in detail. (d) Termination by the Executive. The Executive may terminate his employment hereunder (i) for Good Reason, or (ii) if his health should become impaired such that his continued performance of his duties hereunder is hazardous to his physical or mental health or his life. For purposes of this Agreement, "Good Reason" shall mean (A) a change in control of the Corporation (as defined below), (B) any assignment to the Executive of any duties inconsistent with his present duties as Chief Executive Officer and President of the Corporation or a change in his present responsibilities without his express written consent, (C) any removal of the Executive without his consent from, or any failure to re-elect the Executive to, the office of President of the Corporation, except in connection with termination of the Executive's employment for Cause or as a result of his death or disability or by him other than for Good Reason, (D) a reduction in the Executive's Base Salary as in effect on the date of this Agreement or as the same may be increased from time to time, or a reduction in the Executive's other benefits or any other failure by the Corporation to comply with Section 5 hereof, (E) failure by the Corporation to comply with Section 4 hereof, or (F) failure of the Corporation to obtain from any successor the assumption of or the agreement to perform this Agreement (as contemplated in Section 10), or (G) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph 8(e). For purposes of this Agreement, a "change in control of the Corporation" shall mean a change in control of a nature that would be required to be reported in a current report on Form 8-K, as in effect on the date of this Agreement, or pursuant to Section 13 or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); including, without limitation, (i) the acquisition of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, by any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation or the Executive or an entity directly or indirectly controlled by the Executive, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities unless the Corporation's Board of Directors, within fifteen (15) business days after having been advised of such acquisition of beneficial ownership, adopts a resolution approving such acquisition, or (ii) the failure, for any reason, of the individuals who presently constitute the Board of Directors (the "Incumbent Board") to constitute at least a majority thereof, provided that any director whose election has been approved in advance by directors representing at least two-thirds ( 2/3) of the directors comprising the Incumbent Board shall be considered, for these purposes, as though such director were a member of the Incumbent Board. (e) Notice of Termination. Any termination of the Executive's employment by the Corporation or by the Executive (other than termination pursuant to subsection (a) or (b) above) shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for 5 6 termination of the Executive's employment under the provision so indicated. Any purported termination not satisfying the requirements of this subsection (e) shall not be effected. (f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to subsection (c) above, the date specified in the Notice of Termination, and (iii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given; provided that if within thirty (30) days after the Notice of Termination is given pursuant to subsections 8(c) or 8(d)(ii), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal having expired and no appeal having been perfected). 9. Compensation Upon Termination. (a) Compensation Upon Termination for Cause. If the Executive's employment is terminated by the Corporation for Cause, the Corporation shall pay the Executive his Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Corporation shall have no further obligations to the Executive under this Agreement. (b) Improper Termination; Good Reason. If (A) in breach of this Agreement, the Corporation shall terminate the Executive's employment other than pursuant to subsection 8(c) (it being understood that a purported termination pursuant to subsection 8(c) which is disputed and finally determined not to have been proper shall be a termination by the Corporation in breach of this Agreement) or (B) the Executive shall terminate his employment for Good Reason, then (i) The Corporation shall pay the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, as well as all accrued bonus compensation through the Date of Termination. (ii) In lieu of all salary and incentive compensation payments which the Executive would have earned under this Agreement but for his termination, the Corporation shall pay to the Executive as liquidated damages a lump sum amount equal to the present value, based on the Applicable Federal Rate (as defined in Section 1274(d) of the Internal Revenue Code of 1986, as amended), of the product of (A) the sum of (1) the Executive's annual Base Salary in effect as of the Date of Termination and (2) all bonus compensation paid or payable to the Executive for the most recent year times (B) the number of years (including partial years) then remaining in the Term. All payments under this Section 9(b) shall be made on or before the fifth day following the Date of Termination. (iii) If termination of the Executive's employment arises out of a breach by the Corporation of this Agreement, the Corporation shall pay all other damages to which the Executive may be entitled as a result of such breach, including damages for any and all loss of benefits which the Executive would have received under the Corporation's employee benefit plans if the Corporation had not breached this Agreement and had the Executive's employment continued for the full Term as then in effect (including without limitation benefits the Executive would have been entitled to receive pursuant to any of the Corporation's pension plans had his employment continued for such Term at the rate of compensation specified herein), and including all legal fees and expenses incurred by him as a result of such termination and in enforcing his rights. (c) Continued Maintenance of Benefit Plans. Unless the Executive is terminated for Cause, the Corporation shall maintain in full force and effect, for the continued benefit of the Executive for the number of years (including partial years) remaining in the Term, all employee benefit plans and programs in which the Executive was entitled to participate immediately prior to the Date of Termination to the extent permissible under the general terms and provisions of such plans and programs. In the event that the Executive's participation in any such plan or program is barred, the Corporation shall arrange to 6 7 provide the Executive with benefits substantially similar to those which the Executive would otherwise have been entitled to receive under such plans and programs. (d) Continuation of Additional Retirement. Notwithstanding any other provision of, and in addition to any other payments required under, this Section 9, the Corporation shall pay to the Executive or his spouse, as the case may be, upon the termination of the Executive's employment, all amounts required to be paid pursuant to Section 5(c) of this Agreement, in the manner and at the times provided for in such section. (e) No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for in this Section 9 by seeking other employment or otherwise. 10. Successor Corporation. The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation in the same amount and on the same terms as if he terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Corporation" shall mean Datascope Corp. and any successor to its business and/or assets. 11. Successors and Assigns of the Executive. This Agreement shall not be assignable by the Executive. All of the terms and provisions hereof shall be binding upon, inure to the benefit of, and be enforceable by the Executive, his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 12. Notice. All notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive to: Lawrence Saper 812 Park Avenue New York, N.Y. 10024 If to the Corporation to: c/o Datascope Corp. 14 Philips Parkway Montvale, New Jersey 07645 Attention: Corporate Counsel or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 13. Waiver; Modification. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board of Directors of the Corporation. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver or similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, have been made by either party with respect to the subject matter of this Agreement, unless set forth expressly in this Agreement. 7 8 14. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 16. Arbitration; Choice of Law. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The expense of such arbitration shall be borne by the Corporation. This Agreement shall be governed by the laws of the State of New Jersey, without reference to such states conflict of law rules. 17. Entire Agreement. This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior agreements between the Company and the Executive, whether written or oral, relating to any or all matters covered by and contained or otherwise dealt with in this Agreement. Notwithstanding the previous sentence, the following agreements will remain in full force and effect: (i) the Split-Dollar Agreement, (ii) the Split-Dollar Life Insurance Agreement and Collateral Assignment for Policy #2993814, dated June 1, 1985, by and between the Company and the Executive, (iii) the Split-Dollar Life Insurance Agreement and Collateral Assignment for Policy #3099257, dated June 1, 1987, by and between the Company and the Executive, (iv) the Modification Agreement, dated as of July 25, 1994, by and among the Company, the Executive and Carol Saper, Daniel Brodsky and Helen Nash, Trustees of the Saper Family 1994 Trust UTA, dtd. June 28, 1994 (collectively with all successors, the "Trustees"), only with regard to its amendment of the Split-Dollar Agreement, (v) the Assignment, dated as of July 25, 1994, by the Trustees of the Saper Family 1994 Trust UTA, dtd. June 28, 1994, as owner and beneficiary of a certain policy of insurance on the life of the Executive, and the Company and (vi) all stock option agreements currently outstanding between the Company and Mr. Saper. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. DATASCOPE CORP. By: /s/ MURRAY PITKOWSKY ------------------------------------ Name: Murray Pitkowsky Title: Senior Vice President /s/ LAWRENCE SAPER ------------------------------------ LAWRENCE SAPER 8 EX-21 3 SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES (DIRECT AND INDIRECT) OF DATASCOPE CORP.* Datascope FSC, Ltd. (Barbados) Datascope Trademark Corp. (Delaware) Datascope Investment Corp. (New Jersey) Datascope B.V. (Netherlands) Datascope Medical Co. Ltd. (U.K.) Datascope S.A.R.L. (France) Datascope GmbH (Germany) InterVascular S.A. (France) InterVascular Italia (Italy) Bioplex Corp. (Delaware) Bioplex Medical B.V. (Netherlands) Datascope Biomaterials Research B.V. (Netherlands) InterVascular Inc. (Texas) InterVascular S.A.R.L. (France) InterVascular Belgium (Belgium Branch) InterVascular GmbH (Germany) *All subsidiaries are owned, directly or indirectly, 100% by Datascope Corp. EX-23 4 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT ----------------------------- We consent to the incorporation by reference in Registration Statements Nos. 333-00537, 33-60169, 33-69922, and 33-33373 of Datascope Corp. on Form S-8 of our report dated July 29, 1997 appearing in this Annual Report on Form 10-K of Datascope Corp. for the year ended June 30, 1997. /s/ Deloitte & Touche LLP New York, New York September 26, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CONSOLIDATED EARNINGS. YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 2,597 57,338 53,162 (922) 34,604 156,264 86,821 (42,079) 237,862 32,548 0 0 0 162 192,081 237,862 225,600 225,600 80,606 80,606 0 0 18 17,820 3,716 14,104 0 0 0 14,104 0.86 0.86
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