AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 11, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRIAD MEDICAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5047
(STATE OR OTHER (PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL 84-1408330
INCORPORATION OR CLASSIFICATION CODE (I.R.S. EMPLOYER
ORGANIZATION) NUMBER) IDENTIFICATION NUMBER)
23161 MILL CREEK DRIVE, SUITE 300
LAGUNA HILLS, CA 92653
PHONE: (714) 770-0292
FAX: (714) 770-0727
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM C. KLINTWORTH, JR.
CHIEF EXECUTIVE OFFICER
TRIAD MEDICAL, INC.
2078 PROSPECTOR AVENUE
PARK CITY, UTAH 84060
PHONE: (801) 645-7200
FAX: (801) 645-9893
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
ROBERT G. REEDY JAMES L. LEADER
PORTER & HEDGES, L.L.P. BAKER & BOTTS, L.L.P.
700 LOUISIANA, 35TH FLOOR 3000 ONE SHELL PLAZA
HOUSTON, TEXAS 77002-2764 HOUSTON, TEXAS 77002-4995
PHONE: (713) 226-0600 PHONE: (713) 229-1234
FAX: (713) 226-0274 FAX: (713) 229-1522
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
PROPOSED
MAXIMUM
OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(1) PRICE(2) FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
per share..................... -- -- $55,200,000 $16,728
================================================================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 11, 1997
4,000,000 SHARES
TRIAD MEDICAL INC.
COMMON STOCK
ALL THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING OFFERED BY TRIAD
MEDICAL INC. ("TRIAD"). PRIOR TO THIS OFFERING (THIS "OFFERING"), THERE HAS BEEN
NO PUBLIC MARKET FOR THE COMMON STOCK. TRIAD AND THE REPRESENTATIVES OF THE
UNDERWRITERS CURRENTLY ESTIMATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $10.00 AND $12.00 PER SHARE. SEE "UNDERWRITING" FOR A DISCUSSION OF THE
FACTORS THEY WILL CONSIDER IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
TRIAD HAS APPLIED TO HAVE THE COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "TRMD."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE............................ $ $ $
TOTAL(3)............................. $ $ $
===================================================================================================================
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING OFFERING EXPENSES PAYABLE BY TRIAD, ESTIMATED AT
$3,800,000.
(3) TRIAD HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO 600,000
ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS, IF ANY.
IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE TOTAL PRICE TO PUBLIC,
UNDERWRITING DISCOUNT AND PROCEEDS TO COMPANY WILL BE $ ,
$ AND $ , RESPECTIVELY. SEE "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR RIGHT TO
REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR AT
THE OFFICES OF MONTGOMERY SECURITIES ON OR ABOUT , 1997.
------------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
WEDBUSH MORGAN SECURITIES
, 1997
<PAGE>
[Graphics to include photos of certain of the
Company's products and facilities.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THIS OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
CONCURRENTLY WITH THE CLOSING OF THE OFFERING MADE HEREBY (THIS
"OFFERING"), TRIAD PLANS TO ACQUIRE, IN SEPARATE TRANSACTIONS (COLLECTIVELY,
THE "ACQUISITIONS"), IN EXCHANGE FOR CONSIDERATION INCLUDING SHARES OF ITS
COMMON STOCK, 11 CONTRACT SALES AND DISTRIBUTION COMPANIES (COLLECTIVELY, THE
"FOUNDING COMPANIES"). SEE "THE COMPANY." UNLESS OTHERWISE INDICATED BY THE
CONTEXT, REFERENCES HEREIN TO (I) "TRIAD" MEAN TRIAD MEDICAL INC., (II) THE
"COMPANY" MEAN TRIAD AND THE FOUNDING COMPANIES, AFTER GIVING EFFECT TO THE
ACQUISITIONS, AND (III) "FISCAL 1994," "FISCAL 1995" AND "FISCAL 1996"
MEAN, RESPECTIVELY, THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 WITH
RESPECT TO TRIAD AND SIX FOUNDING COMPANIES, THE FISCAL YEARS ENDED JUNE 30,
1994, 1995 AND 1996 WITH RESPECT TO TWO FOUNDING COMPANIES, THE FISCAL YEARS
ENDED MARCH 31, 1994, 1995 AND 1996, MAY 31, 1994, 1995 AND 1996 AND OCTOBER 31,
1994, 1995 AND 1996 WITH RESPECT TO THREE FOUNDING COMPANIES, RESPECTIVELY.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS (I) GIVES EFFECT TO THE ACQUISITIONS, (II) ASSUMES THE
UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION AND (III) GIVES EFFECT
TO A SPLIT OF THE COMMON STOCK IN CONNECTION WITH THIS OFFERING.
BUSINESS
The Company was formed to create a national leader in the contract sales
and distribution of specialty medical products designed for the hospital and
alternate-site health care markets (including sub-acute care facilities, home
care companies and specialty physician groups). The Company contracts with
specialty medical product manufacturers to provide outsourcing of the sales,
marketing, distribution and customer service functions for all or certain of
their product lines, thereby eliminating the manufacturers' need to develop and
maintain their own sales force or rely on a number of independent local and
regional distributors to achieve national coverage. The Company provides a broad
range of specialty medical products across the full continuum of patient care,
including products used in the surgical, anesthesiology / pain management,
critical care, cardiovascular / vascular and infusion therapy markets. It
represents over 180 manufacturers and sells products in all 50 states.
According to the Health Industry Distributor Association, the medical
instrument and supply industry (excluding pharmaceuticals) in the United States
represented an estimated annual market in excess of $30 billion in 1996, of
which the hospital and the alternate-site markets represented approximately $16
billion and $14 billion, respectively. The Company estimates that there are over
1,200 companies engaged in the contract sales and distribution of specialty
medical products in the United States, most of which are smaller companies
serving local or regional markets and providing representation for a limited
number of manufacturers and product lines. The Company believes that contract
sales and distribution companies provide manufacturers with the ability to
outsource certain sales and distribution functions and afford them access to an
experienced sales force with established sales channels. Despite the advantages
provided by contract sales and distribution companies, the fragmented network of
such companies is generally not capable of serving multiple manufacturers on a
national basis or satisfying the centralized buying needs of national group
purchasing organizations ("GPOs") and regional integrated delivery networks
("IDNs"). The Company believes that the emergence of a contract sales and
distribution company capable of selling, distributing and servicing a broad
array of specialty medical products nationwide would meet the evolving needs of
both manufacturers and health care providers.
The sale and distribution of specialty medical products require a focused
selling effort by representatives capable of marketing the products' clinical
features and benefits to physicians and other health care professionals and
demonstrating the economic benefits associated with these products to purchasing
departments and operating management of health care providers. To satisfy the
sales and related needs of its represented manufacturers, the Company maintains
a highly qualified and customer-oriented sales staff of over 140
representatives, who average in excess of 15 years' medical product sales
experience. Through this sales staff and other support staff the Company employs
at its 20 sales and distribution facilities located throughout the United
States, the Company provides its represented manufacturers and customers with a
variety of value-added services designed to facilitate access to the marketplace
and product procurement on
3
<PAGE>
a time-efficient and cost-effective basis. These services include product
introduction and support, education and training, equipment maintenance and
repair, manufacturer warranty support and product usage reporting.
The Company's objective is to become the leading national contract sales
and distribution organization focused on specialty medical products. To achieve
this objective, the Company intends to implement an aggressive acquisition
program targeting leading local and regional contract sales and distribution
companies in order to expand its product representation. The Company also will
seek to achieve certain operating efficiencies and cost savings by reducing
facilities, centralizing certain administrative functions and implementing a
"best practices" operating strategy throughout the Company. Centralizing these
functions will enable the local and regional offices to concentrate their
efforts on sales, customer service, inventory management and distribution. A key
component of the Company's business strategy is to accelerate internal growth in
its existing businesses and subsequently acquired businesses by (i) leveraging
its established manufacturer and customer bases, (ii) cross-selling products
between the alternate-site and the hospital markets, (iii) implementing a "best
practices" sales and marketing strategy, (iv) adding qualified sales
representatives and (v) generating ancillary service revenues.
As one of the first national contract sales and distribution companies, the
Company believes it is positioned to obtain expanded relationships with
manufacturers and to satisfy the requirements of GPOs and regional IDNs. To that
end, the Company, through Healthcare Technology Delivery, Inc. ("HTD"), has
enjoyed a supportive relationship with Premier, Inc. ("Premier") and Child
Health Corporation of America ("CHCA"), each of which will directly or through
its affiliates be a stockholder in TRIAD when this Offering closes. Both Premier
and CHCA have been supportive of the development of the Company's "Small Vendor
Corporate Accounts Opportunity Program" in which the Company would represent
small manufacturers in connection with the sale of their products to these and
other alliances. No assurance can be given that manufacturers represented by the
Company will be awarded contracts by either of these alliances.
THIS OFFERING
Common Stock offered by TRIAD................. 4,000,000 shares
Common Stock to be outstanding after this
Offering(1)................................. 9,094,973 shares
Use of Proceeds............................... To pay the cash portion of the
purchase price for the Founding
Companies and to repay
indebtedness of TRIAD and the
Founding Companies. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol........ TRMD
- ------------
(1) The number of shares estimated to be outstanding on completion of this
Offering consists of (i) 997,758 shares issued to the organizers and
management of TRIAD, (ii) 100,000 shares issued in a private placement that
closed on September 8, 1997 (the "Private Placement"), (iii) 3,997,215
shares to be issued as consideration in the Acquisitions and (iv) the
4,000,000 shares being offered hereby. Such share number does not include
(i) an aggregate of 972,987 shares subject to options granted (or to be
granted prior to the closing of this Offering) under TRIAD's 1997 Incentive
Plan (the "Incentive Plan"), 831,200 of which have an exercise price equal
to the initial public offering price per share and 141,787 of which will
have a weighted average exercise price per share of $5.85, (ii) a warrant to
purchase up to 100,000 shares (the "Equus Warrant") issued by TRIAD to
Equus II Incorporated ("Equus II") in connection with TRIAD's start-up
funding and (iii) a warrant to purchase up to 25,000 shares (the "PENMAN
Warrant") issued by TRIAD to PENMAN Private Equity and Mezzanine Fund, L.P.
("PENMAN") in connection with the organization of TRIAD. Each of the Equus
Warrant and the PENMAN Warrant has a purchase price per share equal to the
initial public offering price. See "Management -- Option Grants" and
"Certain Transactions -- Organization of TRIAD."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
4
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
TRIAD will acquire the Founding Companies concurrently with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Triad Holdings, Inc. ("THI"), one of the Founding
Companies, has been identified as the accounting acquirer. The following summary
of unaudited pro forma financial data presents certain data for the Company, as
adjusted for (i) the effects of the Acquisitions on an historical basis, (ii)
the effects of certain pro forma adjustments to the historical financial
statements and (iii) the consummation of this Offering and the application of
the estimated net proceeds therefrom. See "Selected Historical and Pro Forma
Combined Financial Data" and the Unaudited Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA (1):
Revenues................................ $127,886 $ 64,773 $ 64,890
------------ --------- ---------
Gross profit............................ 40,449 20,150 20,133
Selling expenses(2)..................... 16,108 7,605 7,994
General and administrative
expenses(2)(3)........................ 13,746 6,711 7,724
Depreciation and amortization(4)........ 1,996 983 1,273
------------ --------- ---------
Income from operations.................. 8,599 4,851 3,142
Interest income (expense), net(5)....... 106 24 83
Other income (expense), net............. 155 (55) (106)
------------ --------- ---------
Income before provision for income
taxes................................. 8,860 4,820 3,119
Provision for income taxes.............. 3,936 2,116 1,382
------------ --------- ---------
Net income.............................. $ 4,924 $ 2,704 $ 1,737
------------ --------- ---------
Net income per share.................... $ 0.54 $ 0.30 $ 0.19
============ ========= =========
Shares used in computing net income per
share(5).............................. 9,161 9,161 9,161
============ ========= =========
JUNE 30, 1997
-------------
(IN
THOUSANDS)
PRO FORMA COMBINED BALANCE SHEET DATA
(1):
Working capital......................... $17,152
Total assets............................ 76,105
Total debt, including current portion... 1,237
Stockholders' equity.................... 52,857
- ------------
(1) The pro forma combined statement of operations data and the pro forma
combined balance sheet data assume that the following transactions and
events -- (i) the organization of TRIAD and its issuance of shares of Common
Stock and preferred stock; (ii) a split of the outstanding Common Stock;
(iii) the conversion of outstanding TRIAD preferred stock into Common Stock;
(iv) the Acquisitions; and (v) the closing of this Offering and the
application of the estimated net proceeds therefrom -- were closed on
January 1, 1996 and June 30, 1997, respectively, and are not necessarily
indicative of the results the Company would have attained had these events
and transactions actually occurred then or of the Company's future results.
The pro forma combined financial data (i) are based on preliminary
estimates, available information and certain assumptions that management
deems appropriate and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
5
<PAGE>
(2) Selling expenses and general and administrative expenses for the six months
ended June 30, 1997 include costs incurred by THI to (i) increase its sales
force to expand certain marketing efforts and (ii) enhance its
administrative infrastructure to support its expansion efforts.
(3) The pro forma combined statement of operations data include the effect of
(i) the following reductions in compensation and benefits agreed to as part
of the purchase agreements by the owners and key employees of the Founding
Companies on a prospective basis: year ended December 31, 1996, $3.5
million; and the six months ended June 30, 1996 and 1997, $1.8 million and
$1.1 million, respectively; and (ii) the elimination of a $3.9 million
non-cash, non-recurring compensation charge by TRIAD for the six months
ended June 30, 1997. Additionally, the pro forma combined statement of
operations data include the effect of assets to be distributed to owners of
certain of the Founding Companies prior to the closing of the Acquisitions.
The Company cannot currently quantify other potential cost savings it may
achieve through combining and integrating the operations of the Founding
Companies and expects those savings will be offset by incremental costs the
Company expects to incur, but also cannot currently quantify, such as costs
associated with corporate management and being a public company. The pro
forma combined statements of operations reflect neither the unquantifiable
savings nor the unquantifiable incremental costs.
(4) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
Note 5 of Notes to the Unaudited Pro Forma Combined Financial Statements.
(5) Computed on a basis described in Note 5 of Notes to the Unaudited Pro Forma
Combined Financial Statements.
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA FOR ACCOUNTING ACQUIRER
TRIAD will acquire the Founding Companies concurrently with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, THI has been identified as the accounting acquirer. The
following summary historical financial data of THI for the years ended December
31, 1994, 1995 and 1996, and as of December 31, 1995 and 1996, have been derived
from the audited consolidated financial statements of THI included elsewhere in
this Prospectus. The following summary historical financial data of THI as of
December 31, 1994, and as of and for the six months ended June 30, 1996 and
1997, have been derived from consolidated unaudited financial statements of THI,
which have been prepared on the same basis as the audited financial statements
and, in the opinion of the management of THI, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
such data.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- --------------------
1994 1995 1996 1996 1997
----------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
THI STATEMENT OF OPERATIONS DATA:
Revenues................................ $22,223 $ 29,167 $ 35,649 $ 16,894 $ 22,366
----------- --------- --------- --------- ---------
Gross profit............................ 6,043 7,364 8,993 4,031 6,046
Selling expenses(1)..................... 2,518 3,116 3,623 1,652 2,452
General and administrative
expenses(1)........................... 1,813 2,146 3,017 1,215 2,348
Depreciation and amortization........... 531 561 763 313 648
----------- --------- --------- --------- ---------
Income from operations.................. 1,181 1,541 1,590 851 598
Interest income (expense), net.......... (468) (509) (305) (189) (240)
Other income (expense), net............. (22) 15 (114) (36) 14
----------- --------- --------- --------- ---------
Income before provision for income
taxes................................. 691 1,047 1,171 626 372
Provision for income taxes.............. 103 420 465 261 142
----------- --------- --------- --------- ---------
Net income (loss)....................... $ 588 $ 627 $ 706 $ 365 $ 230
=========== ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------------- --------------------
1994 1995 1996 1996 1997
----------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
THI BALANCE SHEET DATA:
Working capital......................... $(1,557) $ (527) $ 5,904 $ (249) $ 3,953
Total assets............................ 9,432 10,753 18,062 11,418 23,128
Total debt, including current portion... 915 3,185 5,442 1,131 7,262
Stockholders' equity (deficit).......... (687) (69) 6,547 128 7,152
</TABLE>
(1) Selling expenses and general and administrative expenses for the six months
ended June 30, 1997 include costs incurred by THI to (i) increase its sales
force to expand certain marketing efforts and (ii) enhance its
administrative infrastructure to support its expansion efforts.
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW.
ABSENCE OF COMBINED OPERATING HISTORY
TRIAD, incorporated in Delaware in April 1997, has conducted no operations
to date other than in connection with this Offering and its pending acquisitions
in separate transactions (the "Acquisitions") of the Founding Companies. See
"The Company." The Founding Companies have operated, and will continue to
operate prior to the closing of the Acquisitions, as separate, independent
businesses, and the Company will use the purchase method of accounting to record
the Acquisitions, except for the acquisition of THI, which will be treated as
the acquirer for accounting purposes. Consequently, the pro forma financial
information herein may not be indicative of the Company's future operating
results and financial condition. Until the Company establishes centralized
accounting and other administrative systems, it will rely on the separate
systems of each of the Founding Companies. The success of the Company will
depend, in part, on the extent to which the Company is able to centralize these
functions, eliminate the unnecessary duplication of other functions and
otherwise integrate the Founding Companies and such additional businesses as the
Company may acquire into a cohesive, efficient enterprise. No assurance can be
given that the Company's management group will be able to manage effectively the
combined entity or implement the Company's acquisition and operating strategies.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The Company intends to grow primarily by acquiring contract sales and
distribution businesses that complement its existing operations. Its acquisition
strategy presents risks that, singly or in any combination, could materially
adversely affect the Company's business and financial performance. These risks
include those inherent in assessing the value, strengths, weaknesses, contingent
or other liabilities and potential profitability of the acquisition candidate,
the possibility of the adverse effect on existing operations of the Company from
the diversion of management attention and resources to acquisitions and the
possible loss of acquired customer and supplier bases and key personnel,
including sales representatives. The success of the Company's acquisition
strategy will depend on the extent to which acquisition candidates continue to
be available and whether the Company will be able to acquire, successfully
integrate and profitably manage additional businesses. The Company believes the
contract sales and distribution business for specialty medical products is
subject to rapid consolidation on both a national and regional scale, and
competition for acquisition candidates could materially increase the cost of
acquiring businesses. The timing, size and success of the Company's acquisition
efforts and the associated capital commitments cannot be readily predicted.
Accordingly, no assurance can be given the Company's strategy will succeed. For
at least the two-year period commencing on the closing of this Offering, the
Company will be required to account for any acquisition it makes under the
purchase method of accounting. Acquisitions accounted for as purchases may
result in substantial annual noncash amortization charges for goodwill and other
intangible assets in the Company's statements of operations. See
"Business -- Business Strategy."
HISTORY OF LOSS OF PRODUCT LINES
The Founding Companies have, from time to time, lost significant product
lines due to, among other factors, manufacturers' decisions to sell the product
lines directly to health care providers, acquisitions of the manufacturers or
their product lines by other entities with existing sales forces or failure to
satisfy sales volume or other performance requirements. The Company's sales and
distribution agreements and agency arrangements are generally for terms of one
to three years, and are terminable if the Company fails to meet negotiated sales
volume or other performance requirements or on prior notice ranging from 30 to
90 days. The loss of any significant product line, for any reason, could have a
material adverse effect on the
8
<PAGE>
Company's financial condition and results of operations. There can be no
assurance the Company will not lose significant product lines in the future.
NEED FOR ADDITIONAL FINANCING
Substantially all the net proceeds of this Offering will be used in
connection with the Acquisitions. See "Use of Proceeds." The Company's
acquisition strategy will require substantial additional capital. The Company
currently intends to use cash and shares of its Common Stock in making future
acquisitions. Using internally generated cash or debt to complete acquisitions
could substantially limit the Company's operational and financial flexibility.
The extent to which the Company will be able or willing to use the Common Stock
for this purpose will depend on its market value from time to time and the
willingness of potential sellers to accept it as full or partial payment. Using
Common Stock for this purpose may result in a significant dilution to then
existing stockholders. To the extent the Company is unable to use Common Stock
to make future acquisitions, its ability to grow may be limited by the extent to
which it is able to raise capital for this purpose, as well as to expand
existing operations, through debt or additional equity financings. No assurance
can be given the Company will be able to obtain the necessary capital to finance
a successful acquisition program and its other cash needs. If the Company is
unable to obtain additional capital on acceptable terms, it may be required to
reduce the scope of its presently anticipated expansion. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RISKS RELATED TO INTERNAL GROWTH AND PROFITABILITY STRATEGY
Key elements of the Company's business strategy are to improve the
profitability and increase the revenues of the Founding Companies and
subsequently acquired businesses. The Company's ability to increase the revenues
of the Founding Companies and any subsequently acquired businesses will be
affected by various factors, including the demand for the Company's products and
the Company's ability to (i) add product lines and retain existing product
lines, (ii) increase its customer base and (iii) attract and retain qualified
management, sales representatives and service personnel. Many of these factors
are beyond the control of the Company, and there can be no assurance the
Company's internal growth and profitability strategy will be successful.
In addition, the Company maintains a significant investment in product
inventory at its warehouse locations. Although the Company plans to minimize its
inventory levels through utilizing its sales and distribution network and
information technology, there can be no assurance that such plans will be
effective or that unforeseen inventory problems from product developments or
price changes will not adversely affect the Company's internal growth and
profitability strategy. See "Business -- Operations."
COMPETITION
The Company competes with manufacturers that sell their medical products
directly to health care providers and, to a lesser extent, with national medical
products suppliers. Some of these manufacturers and national suppliers are
substantially larger and have substantially greater financial and other
resources than the Company to finance acquisition and internal growth
opportunities and may be willing to pay higher prices than the Company for the
same opportunities. The Company also faces competition from many regional and
local distributors in its niche markets, which competitors are generally
relatively small local or regional owner-operated businesses. Barriers to entry
for distribution in the specialty medical products market are relatively low,
and the risk of new competitors entering the market, particularly in local and
regional areas, is high. In response to competitive pressures from any of its
current or future competitors, the Company may be required to lower selling
prices in order to maintain or increase market share, and such measures could
adversely affect the Company's operating results. See
"Business -- Competition."
DEPENDENCE ON INDUSTRY SPENDING
The prospects of the Company depend on the level of expenditures for
specialty medical products by its customers, particularly hospitals,
alternate-site facilities and other institutional health care providers. In
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recent years, cost-containment and competitive pressures existing in the health
care industry, together with government-imposed limits on reimbursement of
hospitals and other health care providers, have significantly impacted spending
budgets in certain markets in the specialty medical products industry. Health
care providers and private third-party reimbursement plans are also exploring
more cost-effective methods of delivering health care and developing
increasingly sophisticated methods of controlling health care costs through
redesign of benefits. Decreases in industry spending for specialty medical
products could adversely affect future sales by the Company.
HEALTH CARE REFORM; MARKET CONDITIONS
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Changes in the law,
new interpretations of existing laws or changes in payment methodologies or
amounts, may have a dramatic effect on the relative costs associated with doing
business and the amount of reimbursement provided by government and other
third-party payors. In addition to specific health care legislation, both the
President and Congress have expressed significant interest in controlling the
escalation of health care expenditures and using health care reimbursement
policies to help control the federal deficit. In recent years, there have been
numerous federal and state legislative initiatives for comprehensive reforms
affecting the payment for and availability of health care services. Due to the
substantial uncertainties regarding the ultimate features of reform initiatives
and their adoption and implementation, the Company cannot predict which, if any,
reform proposals will be adopted, when they may be adopted or what impact they
may have on the Company or its suppliers or customers. There can be no assurance
the adoption of reform proposals will not have a material adverse effect on the
Company's business, financial condition or operating results. In addition, the
announcement of reform proposals and the investment community's reaction to
those proposals, as well as announcements by competitors and third-party payors
of their strategies to respond to any such proposal, could produce volatility in
the trading and market price of the Common Stock.
The primary trend in the United States health care industry is toward cost
containment. In recent years, payors have been able to exercise greater
influence through managed treatment and hospitalization patterns, including a
shift from reimbursement on a cost basis to per capita limits for patient
treatment. Hospitals have been severely impacted by the resulting cost
restraints. The increasing use of managed care, centralized purchasing
decisions, consolidations among hospitals and hospital groups and integration of
health care providers are continuing to affect purchasing patterns in the health
care system. The purchasing functions of hospitals and other health care
providers are increasingly being consolidated into group purchasing
organizations, regional integrated delivery systems and similar organizations
and purchasing decisions are becoming more economically focused, with decision
makers taking into account whether a product reduces the cost of treatment
and/or attracts additional patients to a hospital. All these factors have
contributed to reductions in prices for specialty medical products, an overall
reduction in the volume of purchasing by health care providers and, in the near
term, greater emphasis on reducing costs associated with more advanced medical
products and procedures. While the Company is implementing programs to assist
health care providers in cost containment through more efficient practices and
procedures, there can be no assurance the Company will not be adversely affected
by cost containment measures.
DEPENDENCE ON KEY PERSONNEL
The Company's operations depend on the continuing efforts of its executive
officers and the senior management and sales representatives of the Founding
Companies, and the Company likely will depend on the senior management and sales
representatives of any significant businesses it acquires in the future. The
business or prospects of the Company could be affected adversely if any of these
persons does not continue his or her employment with the Company and the Company
is unable to attract and retain qualified replacements. The success of the
Company's growth strategy, as well as the Company's current operations, will
depend on the extent to which the Company is able to retain, recruit and train
qualified sales representatives and service technicians who meet the Company's
standards of professionalism and service to its customers. See
"Business -- Sales and Marketing" and "-- Employees."
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RELIANCE ON EFFICIENCY OF DISTRIBUTION AND THIRD PARTIES
The Company believes its financial performance is dependent in part on its
ability to provide prompt, accurate and complete service to its customers on a
timely and competitive basis. Accordingly, any disruption in its day-to-day
operations or material increases in its costs of procuring and delivering
products could have an adverse effect on the Company's results of operations.
Any failure of either its computer operating system or its telephone system
could adversely affect its ability to receive and process customer orders and
ship products on a timely basis. Strikes or other service interruptions
affecting Federal Express Corporation, United Parcel Service of America, Inc. or
other common carriers used by the Company to ship its products also could impair
the Company's ability to deliver products on a timely and cost-effective basis.
See "Business -- Operations."
CUSTOMER CREDIT RISKS
Under its sales and distribution agreements, the Company generally pays
manufacturers directly for the products it sells. The Company normally carries
its customers' accounts receivable and assumes the related risk of non-payment
associated with its sales. Although the Company historically has not incurred
significant losses associated with non-payment of its invoices and has controls
in place to avoid extensions of additional credit to delinquent customers, no
assurance can be given the Company will not incur significant losses in the
future resulting from its customers' non-payment.
PROCEEDS OF OFFERING PAYABLE TO AFFILIATES AND ASSOCIATES
TRIAD will use the net proceeds of this Offering and cash available from
the Founding Companies to meet its cash requirements relating to the closing of
the Acquisitions, and a limited portion of the net proceeds of this Offering
should be considered available to meet the Company's cash requirements following
closing of the Acquisitions and this Offering. In connection with the closing of
the Acquisitions, TRIAD will pay approximately $22.2 million in cash for stock
of the Founding Companies, a substantial portion of which is beneficially owned
by individuals who will become directors of the Company and/or executive
officers of subsidiaries of the Company. The Company also will use approximately
$15.3 million to repay indebtedness of or relating to the Founding Companies
($13.1 million) and TRIAD ($2.2 million). See "Use of Proceeds" and "Certain
Transactions."
GOVERNMENT REGULATION
The Company and its customers and suppliers are subject to extensive
federal and state regulation in the United States, and the Company cannot
predict the extent to which future legislative and regulatory developments
concerning their practices and products or the health care industry may affect
the Company. Federal and state laws and regulations govern or influence the
testing, manufacture, safety, labeling, storage, recordkeeping, marketing and
distributing of specialty medical products. In connection with its limited
manufacturing operations, the Company is required to obtain the approval of
federal and state governmental agencies, including the Food and Drug
Administration, prior to manufacturing, marketing and distributing certain
products. Further, the Company's facilities and operations are subject to
reporting to, and review and inspection by, federal, state and local
governmental entities. The Company's suppliers are also subject to similar
governmental requirements. See "Business -- Government Regulation."
POTENTIAL FOR PRODUCT LIABILITY CLAIMS AND INSURANCE
The manufacture, distribution, sale and repair of medical products involves
the risk of product liability claims and adverse publicity. Although the Company
has not been subject to a significant number of such claims or incurred
significant liabilities due to such claims, there can be no assurance
substantial claims or liabilities will not arise in the future. In addition,
while the Company is primarily a seller and distributor of products manufactured
by third parties from whom it has certain rights to indemnification from product
liability claims, it does manufacture a limited number of product lines, provide
repair and maintenance services with respect to certain product lines and
intends to pursue ownership in additional product lines for which rights to
indemnification will be limited or not available. The Company maintains product
liability
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insurance coverage in amounts it considers adequate. No assurance can be given
that claims outside of or exceeding its insurance coverage will not be made,
that the Company will be able to continue to obtain insurance coverage at rates
it considers reasonable or that the Company will be successful in obtaining
indemnification from its suppliers. See "Business -- Litigation and
Insurance."
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their state by out-of-state companies. Complex legal
issues arise in these areas, relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to collect such taxes. Although the Company believes that it has
adequately provided for sales taxes on its sales, there can be no assurance as
to the effect of actions state tax authorities may take on the Company's
financial condition or results of its operations.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
On closing of the Acquisitions and this Offering, the former owners of the
Founding Companies, TRIAD's principal venture capital financing source (Equus
II) and the executive officers of TRIAD will beneficially own in the aggregate
approximately 54.6% of the outstanding Common Stock. If these persons were to
act in concert, they would be able to exercise control over the Company's
affairs, including the election of the entire Board of Directors and (subject to
Section 203 of the Delaware General Corporation Law (the "DGCL")) any matter
submitted to a vote of stockholders. See "Security Ownership of Certain
Beneficial Owners and Management."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
On closing of the Acquisitions and this Offering, 9,094,973 shares of
Common Stock will be outstanding. The 4,000,000 shares sold in this Offering
(other than shares purchased by affiliates of the Company) will be freely
tradable. The remaining shares outstanding may be resold publicly only following
their effective registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from the registration
requirements of that Act, such as provided by Securities Act Rule 144
promulgated by the Securities and Exchange Commission (the "SEC"). Under Rule
144, all those shares will be eligible for Rule 144 sales subject to certain
volume limitations and other requirements, on the day following the first
anniversary of the date this Offering closes. The holders of a substantial
number of those remaining shares have certain registration rights granted by
TRIAD in connection with the Acquisitions, subject to the lockup period
described below.
On closing of this Offering, TRIAD will have options and warrants
outstanding to purchase up to a total of 1,097,987 shares of Common Stock, of
which options to purchase 41,639 shares and warrants to purchase 125,000 shares
will be exercisable immediately after the Closing. TRIAD intends to register all
the shares subject to options granted under the Company's 1997 Incentive Plan
(the "Incentive Plan") under the Securities Act for public resale.
TRIAD and its directors, executive officers and current stockholders
(including Equus II) and all persons who acquire shares of Common Stock in
connection with the Acquisitions have agreed not to offer, sell or otherwise
dispose of any shares for a period of two years following the date of this
Prospectus without the prior written consent of Montgomery Securities, except
that TRIAD may issue, subject to certain conditions, Common Stock in connection
with acquisitions, pursuant to awards under the Incentive Plan (see
"Management -- Incentive Plan") and pursuant to the exercise of warrants
outstanding as of the closing of this Offering.
TRIAD may register additional shares of Common Stock under the Securities
Act in the future for its use in connection with future acquisitions. Pursuant
to Securities Act Rule 145, the volume limitations and certain other
requirements of Rule 144 would apply to resales of these shares by affiliates of
the businesses the Company acquires for a period of one year from the date of
their acquisition, but otherwise these shares would be freely tradable by
persons not affiliated with TRIAD unless TRIAD contractually restricts their
resale.
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Availability for sale, or sale, of the shares of Common Stock eligible for
future sale could adversely affect the market price of the Common Stock
prevailing from time to time. See "Shares Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock has existed,
and the initial public offering price, which TRIAD and the representatives of
the Underwriters will negotiate, may not be indicative of the price at which the
Common Stock will trade after this Offering. See "Underwriting" for the
factors they will consider in determining the initial public offering price.
TRIAD has applied to have the Common Stock approved for listing on the Nasdaq
National Market, but no assurance can be given an active trading market for the
Common Stock will develop or, if developed, will continue after this Offering.
The market price of the Common Stock after this Offering may be subject to
significant fluctuations from time to time in response to numerous factors,
including variations in the reported financial results of the Company and
changing conditions in the economy in general or in the Company's industry in
particular. In addition, the stock markets experience significant price and
volume volatility from time to time which may affect the market price of the
Common Stock for reasons unrelated to the Company's performance.
IMMEDIATE, SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering (i) will experience immediate,
substantial dilution in the net tangible book value of their stock of $8.37 per
share and (ii) may experience further dilution in that value from issuances of
shares of Common Stock in the future. See "Dilution."
PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER EFFECTS
TRIAD's Certificate of Incorporation, as amended (the "Charter"),
authorizes the issuance, without stockholder approval, of one or more series of
preferred stock having such preferences, powers and relative, participating,
optional and other rights (including preferences over the Common Stock
respecting dividends and distributions and voting rights) as the board of
directors of TRIAD (the "Board of Directors") may determine. See "Description
of Capital Stock -- Preferred Stock."
Certain provisions of the Charter, TRIAD's Bylaws and the DGCL may delay,
discourage, inhibit, prevent or render more difficult an attempt to obtain
control of the Company, whether by means of a tender offer, business
combination, proxy contest or otherwise. These provisions include the charter
authorization of "blank check" preferred stock, classification of the board of
directors, a limitation on the removal of directors only for cause, and then
only on approval of holders of two-thirds of the outstanding voting stock, a
restriction on the ability of stockholders to take actions by written consent
and a DGCL restriction on business combinations with certain interested parties.
See "Description of Capital Stock."
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THE COMPANY
TRIAD: TRIAD was founded in April 1997 to create a leading national
contract sales and distribution company providing specialty medical products to
the hospital and alternate-site health care markets (including sub-acute care
facilities, home care companies and specialty physician groups). Concurrently
with and as a condition to the closing of this Offering, TRIAD will acquire the
11 Founding Companies. For a description of the transactions pursuant to which
these businesses will be acquired, see "-- Summary of Terms of the Acquisitions"
and "Certain Transactions -- Organization of TRIAD."
FOUNDING COMPANIES: Each of the Founding Companies is engaged in the
contract sales and distribution of specialty medical products. The Founding
Companies are more fully described below.
THI: Triad Holdings, Inc. (together with its subsidiaries, "THI"), the
successor to a business founded in 1981, maintains its headquarters in Laguna
Hills, California. It represents over 100 manufacturers with product coverage
principally in the infusion therapy market. THI sells its products to
alternate-site health care providers throughout the United States from its nine
distribution centers located in Arizona, California, Florida, Georgia, Illinois,
Minnesota, New York and Texas. During fiscal 1996, THI had consolidated revenues
of approximately $35.6 million. On October 4, 1996, THI acquired the assets and
assumed certain liabilities of PCI Medical, Inc. ("PCI"). Combined pro forma
revenues for THI and PCI for fiscal 1996 were approximately $41.7 million.
HTD: Healthcare Technology Delivery, Inc. (together with its subsidiaries,
"HTD") is the successor to a business founded in 1977 and is headquartered in
Bessemer, Alabama. It represents over 10 manufacturers with product coverage in
the surgical, anesthesiology, critical care and cardiovascular/vascular markets.
HTD sells its products primarily to hospitals in the 10-state territory of
Alabama, Florida, Georgia, Louisiana, Mississippi, Oklahoma, North Carolina,
South Carolina, Tennessee and Texas. Through its recent acquisition of Medical
Companies Alliance, Inc. ("Medical Alliance"), HTD also sells a proprietary
product line used in connection with the anastomosis of blood vessels. For
information concerning the formation of HTD, see "Certain Transactions -- HTD."
During fiscal 1996, HTD had consolidated revenues of approximately $16.5
million.
SUN: Sun Medical, Inc. ("Sun") was founded in 1978 and maintains its
headquarters in Arlington, Texas. It represents over 17 manufacturers with
product coverage in the surgical, pain management, maternal child care, plastic
surgery, dermatology and hospital software information systems markets. Sun
sells its products primarily to hospitals in the five-state territory of
Arizona, Arkansas, New Mexico, Oklahoma and Texas. Sun also has a proprietary
product line of smoke evacuation systems used in minimally invasive surgical
procedures. During fiscal 1996, Sun had revenues of approximately $13.0 million.
CMS: Custom Medical Specialties, Inc. ("CMS") was founded in 1989 and
maintains its head-quarters in Indianapolis, Indiana. It represents over 10
manufacturers with product coverage in the surgical, anesthesiology, critical
care, laboratory, long-term care and infection control markets. CMS sells its
products principally to hospitals in the two-state territory of Indiana and
Kentucky. During fiscal 1996, CMS had revenues of approximately $9.6 million.
KENTEC: Kentec Medical, Inc. ("Kentec") was founded in 1970 and maintains
its headquarters in Irvine, California. It represents over 16 manufacturers with
product coverage in the surgical, critical care, vascular and respiratory
markets. Kentec sells its products principally to hospitals in the four-state
territory of Arizona, California, Nevada and New Mexico. Kentec also distributes
private label disposable perinatal products manufactured under the Kentec name.
During the fiscal year ended June 30, 1997, Kentec had revenues of approximately
$13.6 million.
PRODUCTS FOR SURGERY: Products for Surgery, Inc. (together with its
subsidiaries, "Products for Surgery") was founded in 1979 and maintains its
headquarters in Forest Hills, Texas. It represents over 10 manufacturers with
product coverage in the general surgical, peripheral endoscopy and
cardiovascular markets.. Products for Surgery sells its products primarily to
hospitals in the five-state territory of Arizona,
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Nevada, New Mexico, Oklahoma and Texas. During the fiscal year ended June 30,
1997, Products for Surgery had consolidated revenues of approximately $7.8
million.
MEGATECH: MegaTech Medical, Inc. ("MegaTech") was founded in 1976 and
maintains its headquarters in Baltimore, Maryland. It represents over 20
manufacturers with product coverage in the surgical and critical care markets.
MegaTech sells its products principally to hospitals in the 12-state territory
of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York (other than New York City), Pennsylvania, Rhode Island, Vermont
and Virginia and in Washington D.C. During fiscal 1996, MegaTech had revenues of
approximately $6.8 million.
OMNI MEDICAL: Omni Medical, Inc. ("Omni Medical") was founded in 1986
and maintains its headquarters in Redmond, Washington. It represents over eight
manufacturers with product coverage in the surgical, anesthesiology and critical
care markets. Omni Medical sells its products primarily to hospitals in the
eight-state territory of Alaska, California, Hawaii, Idaho, Montana, Nevada,
Oregon and Washington. During fiscal 1996, Omni Medical had revenues of
approximately $6.1 million.
NEW ENGLAND SPECIALTIES: New England Medical Specialties, Inc. ("New
England Specialties") was founded in 1983 and maintains its headquarters in
Guildford, Connecticut. It represents over nine manufacturers with product
coverage in the surgical, critical care and home care markets. New England
Specialties sells its products primarily to hospitals in the six-state territory
of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.
During fiscal 1996, New England Specialties had revenues of approximately $4.9
million.
PROFESSIONAL EQUIPMENT: Professional Equipment Co., Inc. ("Professional
Equipment") was founded in 1979 and shares its headquarters with New England
Specialties in Guildford, Connecticut. It represents over 10 manufacturers with
product coverage in the medical imaging equipment and radiological supplies and
accessories markets. Professional Equipment sells its products principally to
hospitals in the three-state territory of Connecticut, Massachusetts and New
York. During fiscal 1996, Professional Equipment had revenues of approximately
$3.1 million.
WILSON: Wilson Medical Specialties, Inc. ("Wilson") was founded in 1986
and maintains its headquarters in Bellevue, Washington. It represents over 10
manufacturers with product coverage in the surgical and critical care markets.
Wilson sells its products principally to hospitals in the four-state territory
of Idaho, Montana, Oregon and Washington. During the fiscal year ended May 31,
1997, Wilson had revenues of approximately $3.1 million.
SUMMARY OF TERMS OF THE ACQUISITIONS: Subject to certain adjustments
described below, the aggregate consideration TRIAD will pay to acquire the
Founding Companies consists of (i) approximately $22.2 million in cash, (ii)
3,997,215 shares of Common Stock and (iii) options to purchase 141,787 shares of
Common Stock (to be issued in connection with the THI acquisition), which
options will be in-the-money at the closing of this Offering in the aggregate
amount of approximately $0.7 million.
The Company will also assume all the indebtedness of the Founding Companies
and TRIAD (estimated to be approximately $15.3 million as of closing of this
Offering) and then repay substantially all such indebtedness. Prior to the
closing of the Acquisitions, CMS, MegaTech and Omni Medical, each of which is an
S corporation, are expected to distribute cash to their respective stockholders
in amounts equal to the balance of their respective accumulated adjustment
accounts ("AAA accounts") as of the closing of the Acquisitions (approximately
$4.2 million as of August 31, 1997). The AAA account distributions ("AAA
Distributions") are anticipated to be funded with approximately $3.9 million of
indebtedness, which will be repaid on closing of this Offering as part of the
estimated $15.3 million of aggregate indebtedness of the Founding Companies and
TRIAD. An AAA account generally represents undistributed retained earnings of an
S corporation on which taxes have been paid by the stockholders. In addition,
prior to the closing of the Acquisitions, certain Founding Companies will make
distributions to their stockholders of certain assets and related liabilities
with an aggregate net book value of approximately $0.3 million.
The 141,787 options to be issued in the THI acquisition replace options to
purchase shares of THI common stock currently held by THI employees. The
aggregate purchase price for the THI acquisition which would
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have otherwise been payable has been reduced by $1.2 million as a result of the
grant of these replacement options.
In addition, the purchase price attributable to the THI acquisition is
subject to a $4.4 million adjustment in the event THI fails to consummate the
acquisition of a business prior to the consummation of the Acquisitions.
However, if either (i) the transaction is closed by April 30, 1998 or (ii) by
such date THI otherwise achieves a negotiated annualized earnings target without
that acquisition, the THI stockholders will be entitled to receive $2.6 million
of the previously surrendered purchase price adjustment.
In connection with the Sun acquisition, Sun has identified possible
violations of the Internal Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 ("ERISA") with respect to Sun's Employee Stock
Ownership Plan (the "Sun ESOP"). Sun has voluntarily notified the Internal
Revenue Service ("IRS") regarding these possible violations and will seek
appropriate remedial action under the oversight of the IRS and, if appropriate,
other governmental entities. TRIAD will deposit $1.5 million in cash and 35,715
shares of Common Stock in an escrow account from consideration otherwise payable
to the Sun ESOP or its beneficiaries in connection with the Sun acquisition for
purposes of resolving Sun ESOP compliance issues and to pay any taxes, sanctions
and professional fees incurred to address and resolve these potential violations
to the satisfaction of the appropriate governmental entities.
The consideration being paid by TRIAD for each Founding Company other than
HTD was determined by arm's-length negotiations between TRIAD and a
representative of that Founding Company. The consideration being paid by TRIAD
for HTD was determined using generally the same valuation method TRIAD used to
negotiate the consideration being paid to the stockholders of the other Founding
Companies. See "Certain Transactions."
The closing of each Acquisition is subject to customary conditions. These
conditions include, among others: the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Companies, their principal stockholders and TRIAD; the performance of each of
their respective covenants included in the agreements relating to the
Acquisitions; and the nonexistence of a material adverse change in the results
of operations, financial condition or business of each Founding Company.
Any Founding Company's acquisition agreement may be terminated, under
certain circumstances, prior to the closing of this Offering: (i) by the mutual
consent of the boards of directors of TRIAD and the Founding Company; (ii) by
the Founding Company, its stockholders or TRIAD if this Offering and the
acquisition of that Founding Company are not closed by January 31, 1998; (iii)
by TRIAD if the schedules to the acquisition agreement are amended to reflect a
material adverse change in that Founding Company; or (iv) by the Founding
Company, its stockholders or TRIAD if a material breach or default under the
agreement by one party occurs and is not waived by the other party.
No assurance can be given the conditions to the closing of all the
Acquisitions will be satisfied or waived or that each of the Acquisitions will
close. For information regarding the employment agreements to be entered into by
certain key officers of the Founding Companies, see "Management -- Employment
Agreements."
TRIAD is a Delaware corporation. Its executive offices are located at 23161
Mill Creek Drive, Suite 300, Laguna Hills, California 92653, and its telephone
number at that address is (714) 770-0292.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting the underwriting discount and estimated offering
expenses payable by the Company (including the repayment of $2.2 million of
advances by Equus II to fund a portion of the offering expenses), are estimated
to be approximately $37.0 million (approximately $43.2 million if the
Underwriters exercise their over-allotment option in full), assuming an initial
public offering price of $11.00 per share (the midpoint of the estimated initial
public offering price range). Of those net proceeds, approximately $22.2 million
will be used to pay the cash portion of the purchase prices for the Acquisitions
and the remaining net proceeds will be used, together with available cash
balances, concurrently for the repayment of certain outstanding indebtedness of
the Founding Companies (approximately $13.1 million, excluding the repayment of
the $2.2 million of advances by Equus II referred to above). See "The
Company -- Summary of Terms of the Acquisitions" and "Certain
Transactions -- Organization of TRIAD."
The Company intends to obtain a new credit facility (the "New Credit
Facility") in connection with this Offering. The Company has initiated
conversations with a financial institution to establish the terms of the New
Credit Facility and, on the basis of these discussions, expects the New Credit
Facility will provide an initial credit line of approximately $40.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Combined Liquidity and Capital Resources."
The indebtedness to be repaid from the proceeds of this Offering (some of
which has been guaranteed by stockholders of the Founding Companies) bears
interest at rates ranging from 5.5% to 12.0%. Such indebtedness would otherwise
mature at various dates through December 2001.
DIVIDEND POLICY
It is the Company's current intention to retain earnings to finance the
expansion of its business. Any future dividends will be at the discretion of the
board of directors after taking into account various factors, including, among
others, the Company's financial condition, results of operations, cash flows
from operations, current and anticipated cash needs and expansion plans, the
income tax laws then in effect, the requirements of Delaware law, the
restrictions imposed by the New Credit Facility and any restrictions that may be
imposed by the Company's future credit facilities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Combined
Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term obligations and capitalization as of June 30, 1997 of the Company
on a pro forma combined basis to give effect to the Acquisitions, the other
events and transactions described in Note 2 to the pro forma statement of
operations and balance sheet data included in "Selected Historical and Pro
Forma Combined Financial Data" and this Offering and the application of the
estimated net proceeds therefrom (see "Use of Proceeds") as if all these
events and transactions occurred on June 30, 1997. This table should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements and the
related notes thereto included elsewhere in this Prospectus.
JUNE 30, 1997
PRO FORMA
AS ADJUSTED
--------------
(IN THOUSANDS)
Short-term debt and current maturities
of long-term obligations.............. $ 655
==============
Long-term obligations, less current
maturities............................ $ 582
--------------
Stockholders' equity:
Common Stock: $.001 par value
20,000,000 shares authorized and
9,094,973 shares issued and
outstanding, pro forma as
adjusted(1)....................... 9
Additional paid-in capital......... 52,202
Retained earnings.................. 646
--------------
Total stockholders' equity.... 52,857
--------------
Total capitalization....... $ 53,439
==============
- ------------
(1) Excludes (i) an aggregate of 972,987 shares subject to options granted (or
to be granted prior to the closing of the Offering) pursuant to the
Incentive Plan, 831,200 of which have an exercise price equal to the initial
public offering price per share and 141,787 of which will have a weighted
average exercise price per share of $5.85, (ii) an aggregate of 100,000
shares issuable pursuant to the Equus Warrant and (iii) an aggregate of
25,000 shares issuable pursuant to the PENMAN Warrant. See "Management --
Incentive Plan" and "Certain Transactions -- Organization of TRIAD."
18
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company as
of June 30, 1997 was approximately $12.8 million, or approximately $2.52 per
share, after giving effect to the Acquisitions and the other events and
transactions described in Note 2 to the pro forma statement of operations and
balance sheet data included in "Selected Historical and Pro Forma Combined
Financial Data" (other than this Offering). The deficit in pro forma net
tangible book value per share represents the amount by which the Company's pro
forma total liabilities exceed the Company's pro forma net tangible assets as of
June 30, 1997, divided by the number of shares to be outstanding after giving
effect to (i) the September 5, 1997 conversion of TRIAD's Series A Preferred
Stock into shares of Common Stock (as described in "Certain
Transactions -- Organization of TRIAD"), (ii) the Private Placement and (iii)
the Acquisitions. After giving effect to the sale of the 4,000,000 shares
offered hereby and deducting the estimated underwriting discount and estimated
offering expenses payable by TRIAD, the Company's pro forma net tangible book
value as of June 30, 1997 would have been approximately $23.9 million, or
approximately $2.63 per share, based on an assumed initial public offering price
of $11.00 per share (the midpoint of the estimated initial public offering price
range). This represents an immediate increase in pro forma net tangible book
value of approximately $5.15 per share to existing stockholders and an immediate
dilution of approximately $8.37 per share to new investors purchasing shares in
this Offering. The following table illustrates this per share pro forma
dilution:
Initial public offering price........... $ 11.00
Pro forma net tangible book value
before this Offering............. $ (2.52)
Increase in pro forma tangible
value attributable to new
investors........................ 5.15
---------
Pro forma net tangible book value after
this Offering......................... 2.63
---------
Dilution to new investors............... $ 8.37
=========
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of June 30, 1997, the number of shares of Common Stock purchased
from TRIAD, the total consideration paid to TRIAD and the average price per
share paid to TRIAD by existing stockholders and the new investors purchasing
shares from TRIAD in this Offering (before deducting underwriting discounts and
commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
---------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- --------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 5,094,973 56.0% $ (12,823,303) (41.1)% $ (2.52)
New investors................. 4,000,000 44.0 44,000,000 141.1 11.00
----------- ------- --------------- -------
Total.................... 9,094,973 100.0% $ 31,176,697 100.0%
=========== ======= =============== =======
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the pro forma
stockholders' equity of the Founding Companies before this Offering less pro
forma intangible assets.
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TRIAD will acquire the Founding Companies concurrently with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, THI has been identified as the accounting acquirer. The
following selected historical financial data of THI for the years ended December
31, 1994, 1995 and 1996 and as of December 31, 1995 and 1996, have been derived
from the audited consolidated financial statements of THI included elsewhere in
this Prospectus. The following selected historical financial data for THI as of
and for the years ended December 31, 1992 and 1993, and for the six months ended
June 30, 1996 and 1997 and as of December 31, 1994 have been derived from
unaudited consolidated financial statements of THI, which have been prepared on
the same basis as the audited financial statements and, in the opinion of THI,
reflect all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of such data. The following summary unaudited pro forma
financial data present certain data for the Company, as adjusted for (i) the
effects of the Acquisitions on an historical basis, (ii) the effects of certain
pro forma adjustments to the historical financial statements and (iii) the
consummation of this Offering and application of the estimated net proceeds
therefrom. See the Unaudited Pro Forma Combined Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THI
---------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 13,715 $ 15,556 $ 22,223 $ 29,167 $ 35,649 $ 16,894 $ 22,366
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................ 3,120 3,646 6,043 7,364 8,993 4,031 6,046
Selling expenses(1)................. 1,520 1,533 2,518 3,116 3,623 1,652 2,452
General and administrative
expenses(1)....................... 1,279 1,983 1,813 2,146 3,017 1,215 2,348
Depreciation and amortization....... 51 67 531 561 763 313 648
--------- --------- --------- --------- --------- --------- ---------
Income from operations.............. 270 63 1,181 1,541 1,590 851 598
Interest income (expense), net...... (357) (509) (468) (509) (305) (189) (240)
Other income (expense), net......... -- -- (22) 15 (114) (36) 14
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes...................... (87) (446) 691 1,047 1,171 626 372
Provision for income taxes.......... -- -- 103 420 465 261 142
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ (87) $ (446) $ 588 $ 627 $ 706 $ 365 $ 230
========= ========= ========= ========= ========= ========= =========
<CAPTION>
THE COMPANY
----------------------------------------
SIX MONTHS
ENDED JUNE 30,
YEAR ENDED --------------------
DECEMBER 31, 1996 1996 1997
----------------- --------- ---------
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS DATA(2):
Revenues........................................................................ $ 127,886 $ 64,773 $ 64,890
----------------- --------- ---------
Gross profits................................................................... 40,449 20,150 20,133
Selling expenses(1)............................................................. 16,108 7,605 7,994
General and administrative expenses(1)(3)....................................... 13,746 6,711 7,724
Depreciation and amortization(4)................................................ 1,996 983 1,273
----------------- --------- ---------
Income from operations.......................................................... 8,599 4,851 3,142
Interest income (expense), net(5)............................................... 106 24 83
Other income (expense), net..................................................... 155 (55) (106)
----------------- --------- ---------
Income before provision for income taxes........................................ 8,860 4,820 3,119
Provision for income taxes...................................................... 3,936 2,116 1,382
----------------- --------- ---------
Net income...................................................................... $ 4,924 $ 2,704 $ 1,737
================= ========= =========
Net income per share............................................................ $ 0.54 $ 0.30 $ 0.19
================= ========= =========
Shares used in computing pro forma net income per share(5)...................... 9,161 9,161 9,161
================= ========= =========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
THI COMBINED
----------------------------------------------------- FOUNDING
COMPANIES(2)
YEAR ENDED DECEMBER 31, -------------
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ (850) $ (1,683) $ (1,557) $ (527) $ 5,904 $17,152
Total assets........................ 6,282 7,095 9,432 10,753 18,062 76,105
Total debt, including current
portion........................... 4,998 2,019 915 3,185 5,442 1,237
Stockholders' equity (deficit)...... (918) (1,316) (687) (69) 6,547 52,857
</TABLE>
- ------------
(1) Selling expenses and general and administrative expenses for the six months
ended June 30, 1997 include costs incurred by THI to (i) increase its sales
force to expand certain marketing efforts and (ii) enhance its
administrative infrastructure to support its expansion efforts.
(2) The pro forma combined statement of operations data and the pro forma
combined balance sheet data assume that the following transactions and
events -- (i) the organization of TRIAD and its issuance of shares of Common
Stock and preferred stock; (ii) a split of the outstanding Common Stock;
(iii) the conversion of outstanding TRIAD preferred stock into Common Stock;
(iv) the Acquisitions; and (v) the closing of this Offering and the
application of the estimated net proceeds therefrom -- were closed on
January 1, 1996 and June 30, 1997, respectively, and are not necessarily
indicative of the results the Company would have attained had these events
and transactions actually occurred then or of the Company's future results.
The pro forma combined financial data (i) are based on preliminary
estimates, available information and certain assumptions that management
deems appropriate and (ii) should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this
Prospectus.
(3) The pro forma combined statement of operations data include the effect of
(i) the following reductions in compensation and benefits agreed to as part
of the purchase agreements by the owners and key employees of the Founding
Companies on a prospective basis: year ended December 31, 1996, $3.5
million; and the six months ended June 30, 1996 and 1997, $1.8 million and
$1.1 million, respectively; and (ii) the elimination of the $3.9 million
non-cash compensation charge by TRIAD for the six months ended June 30,
1997. Additionally, the pro forma combined statement of operations data
include the effect of assets to be distributed to owners of certain of the
Founding Companies prior to the closing of the Acquisitions. The Company
cannot currently quantify other potential cost savings it may achieve
through combining and integrating the operations of the Founding Companies
and expects those savings will be offset by incremental costs the Company
expects to incur, but also cannot currently quantify, such as costs
associated with corporate management and being a public company. The pro
forma combined statements of operations reflect neither the unquantifiable
savings nor the unquantifiable incremental costs.
(4) Reflects amortization of the goodwill to be recorded as a result of the
Acquisitions over a 40-year period and computed on the basis described in
Note 5 of Notes to the Unaudited Pro Forma Combined Financial Statements.
(5) Computed on a basis described in Note 5 of Notes to the Unaudited Pro Forma
Combined Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes thereto and "Selected Historical and Pro Forma
Combined Financial Data" appearing elsewhere in this Prospectus.
INTRODUCTION
The Company's revenues are primarily derived from sales of specialty
medical products under sales and distribution agreements and agency arrangements
with various manufacturers. Cost of revenues consists primarily of product
costs, net of rebates, and freight charges. Selling expenses consist primarily
of sales commissions, salaries, travel and entertainment expenses, trade show
expenses and automobile allowances. General and administrative expenses consist
primarily of executive compensation and related benefits, administrative
salaries and benefits, office supplies, rent, utilities, insurance and
professional fees.
The Founding Companies have been managed throughout the periods discussed
below as independent private companies, and their results of operations reflect
different tax structures (S corporations and C corporations), which have
influenced, among other things, their historical levels of owners' compensation.
The owners of the Founding Companies and certain key employees have agreed to
certain reductions in their compensation and benefits in connection with the
Acquisitions.
TRIAD, which has conducted no operations to date other than in connection
with this Offering and the Acquisitions, intends to integrate these businesses
and their operations and administrative functions. This integration process may
present opportunities to reduce costs through the elimination of duplicative
functions and through economies of scale, but will necessitate additional costs
and expenditures for corporate management and administration. The Company will
also incur corporate expenses related to being a public company, implementation
of an acquisition program and systems integration. These various costs and
possible cost-savings may make comparison of historical operating results not
comparable to, nor indicative of, future performance. No such cost savings were
reflected in the pro forma combined statement of operations data, except for the
compensation reductions provided for in the agreements entered into in
connection with certain of the Acquisitions and other known cost eliminations.
During April and May of 1997, TRIAD sold 548,545 shares of Common Stock to
its management. As a result, TRIAD recorded a non-recurring, non-cash
compensation charge of $3.9 million in the second quarter of 1997, representing
the difference between the amount paid for the shares and the value of the
shares on the date of sale as if the companies were combined, estimated based on
the midpoint of the estimated initial public offering price range for the shares
of Common Stock offered hereby. This compensation charge is not included in the
pro forma financial information.
In July 1996, the SEC issued Staff Accounting Bulletin No. 97 ("SAB 97")
relating to business combinations immediately prior to an initial public
offering. SAB 97 requires that these combinations be accounted for using the
purchase method of acquisition accounting. Under the purchase method, the
Founding Company which receives the largest portion of voting rights in the
combined corporation is presumed to be the accounting acquirer. Accordingly, THI
has been designated as the accounting acquirer. For the remaining Founding
Companies, $22.8 million, representing the excess of the fair value of the
merger consideration to be received over the fair value of the net assets to be
acquired, will be recorded as "goodwill" on the Company's balance sheet.
Goodwill will be amortized as a non-cash charge to the Company's statements of
operations over a 40-year period. The pro forma impact of this amortization
expense, which is non-deductible for federal income tax purposes, is $0.6
million per year on an after-tax basis.
22
<PAGE>
TRIAD will acquire the Founding Companies concurrently with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, THI, one of the Founding Companies, has been identified
as the accounting acquirer. The following summary of unaudited pro forma
financial data presents certain data for the Company, as adjusted for (i) the
effects of the Acquisitions on an historical basis, (ii) the effects of certain
pro forma adjustments to the historical financial statements and (iii) the
consummation of this Offering and the application of the estimated net proceeds
therefrom. See "Selected Historical and Pro Forma Combined Financial Data" and
the Unaudited Pro Forma Combined Financial Statements and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------------------------------
1996 1996 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 127,886 100.0% $ 64,773 100.0% $ 64,890 100.0%
Cost of revenues........................ 87,437 68.4 44,623 68.9 44,757 69.0
--------- --------- --------- --------- --------- ---------
Gross profits........................... 40,449 31.6 20,150 31.1 20,133 31.0
Selling expenses........................ 16,108 12.6 7,605 11.7 7,994 12.3
General and administrative expenses..... 13,746 10.7 6,711 10.4 7,724 11.9
Depreciation and amortization........... 1,996 1.6 983 1.5 1,273 2.0
--------- --------- --------- --------- --------- ---------
Income from operations.................. $ 8,599 6.7% $ 4,851 7.5% $ 3,142 4.8%
========= ========= ========= ========= ========= =========
</TABLE>
UNAUDITED INTERIM RESULTS
REVENUES -- Pro forma combined revenues increased $0.1 million from $64.8
million for the six months ended June 30, 1996 to $64.9 million for the six
months ended June 30, 1997. This increase was primarily due to (i) a $1.5
million increase in pro forma combined revenues of THI and PCI primarily due to
an increased sales staff and additional distribution facilities and (ii) a $1.3
million increase in HTD's revenues due to its acquisition of Medical Alliance in
March 1997 and its representation of a new product line. These increases were
partially offset by (i) a $0.7 decrease in Kentec's revenues due to the loss of
certain distribution rights for Pall Biomedical, Inc. blood filters, which
Kentec previously sold to blood centers, (ii) a $1.1 million decrease in
Products for Surgery's revenues due to the loss of the Meadox Medicals, Inc.
("Meadox") product line following a change in ownership of Meadox and (iii) a
$0.3 million decrease in revenues at each of Sun and CMS due to the loss of a
product line and increased market competition, respectively.
COST OF REVENUES -- Pro forma combined cost of revenues increased $0.1
million from $44.6 million for the six months ended June 30, 1996 to $44.7
million for the six months ended June 30, 1997. This increase was primarily due
to (i) a $1.5 million increase in pro forma combined THI and PCI cost of
revenues consistent with the increase in revenues and (ii) a $0.9 million
increase in HTD cost of revenues consistent with the increase in its revenues.
These increases were partially offset by a $1.2 million decrease at Products for
Surgery, a $0.6 million decrease at Kentec, a $0.3 million decrease at Sun, and
a $0.1 million decrease at CMS due primarily to the decreases in their
respective revenues. As a percentage of revenues, cost of revenues remained
constant at approximately 69% for each period.
SELLING EXPENSES -- Pro forma combined selling expenses increased $0.4
million from $7.6 million, or 5.1%, for the six months ended June 30, 1996 to
$8.0 million for the six months ended June 30, 1997. As a percentage of
revenues, selling expenses were 11.7% and 12.3%, respectively. The increase was
primarily due to the addition of national sales management positions at THI.
GENERAL AND ADMINISTRATIVE EXPENSES -- Pro forma combined general and
administrative expenses increased $1.0 million, or 15.1%, from $6.7 million for
the six months ended June 30, 1996 to $7.7 million for the six months ended June
30, 1997. As a percentage of revenues, general and administrative expenses were
10.4% and 11.9%, respectively. The increase reflects (i) additional
administrative expenses at THI to support its expansion efforts and (ii)
administrative expenses relating to the acquisition of Sierra Surgical Products,
Inc. by Products for Surgery in October 1996.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, on a pro forma combined basis, after giving effect to (i)
the estimated AAA Distributions (approximately $4.2 million), (ii) the Private
Placement, (iii) the Acquisitions and (iv) the application of the net proceeds
from this Offering (including the repayment of approximately $15.3 million of
TRIAD and Founding Companies indebtedness, of which $2.2 million consists of
advances by Equus II to fund a portion of the Offering expenses), TRIAD and the
Founding Companies would have had an aggregate of $3.3 million of cash and
short-term investments, $17.2 million of working capital and $1.2 million of
total debt (representing capital lease obligations). Prior to the Acquisitions,
CMS, MegaTech and Omni Medical, will collectively borrow approximately $3.9
million to fund the AAA Distributions.
TRIAD is currently negotiating with a bank to obtain the New Credit
Facility, a revolving facility of approximately $40.0 million which would be
available on the closing of this Offering and the Acquisitions. The New Credit
Facility is intended to be used for acquisitions and general corporate purposes.
It is anticipated that such facility will require the Company to comply with
various loan covenants including (i) maintenance of certain financial ratios,
(ii) restrictions on additional indebtedness and (iii) restrictions on liens,
guarantees, advances and dividends.
The Company intends to pursue acquisition opportunities. The Company
expects to fund future acquisitions through the issuance of additional Common
Stock, borrowings, including amounts available under the New Credit Facility and
cash flow from operations. To the extent the Company funds a significant portion
of the consideration for future acquisitions with cash, it may have to increase
the amount available under the New Credit Facility or obtain other sources of
financing. There can be no assurance such financing will be available at terms
acceptable to the Company. The Company anticipates that its cash flow from
operations will provide cash sufficient to meet the Company's normal working
capital needs, debt service requirements and planned capital expenditures for
property and equipment (exclusive of acquisitions of other businesses for at
least the next several years). On a combined basis, the Founding Companies made
capital expenditures for property and equipment of $1.0 million and $1.4 million
in fiscal 1996 and the six months ended June 30, 1997, respectively.
Due to the relatively low levels of inflation experienced in fiscal 1994,
1995 and 1996, inflation did not have a significant effect on the results of the
combined Founding Companies in those fiscal years.
SEASONALITY
The Founding Companies historically have experienced quarterly fluctuations
in revenues, operating income and cash flows. In recent years, the Company has
experienced greater revenue, operating income and cash flows in the fourth
calendar quarter as compared with the first three calendar quarters, primarily
as a result of (i) increased purchases by the Company's institutional customers
primarily due to available budgeted capital, which often must be used prior to
year end, and (ii) increased elective procedures requested by patients during
that quarter after annual insurance deductible levels have been reached and
favorable tax treatment is available.
24
<PAGE>
THI -- RESULTS OF OPERATIONS
The following table sets forth certain historical financial data of THI and
that data as a percentage of revenues for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
-------------------- -------------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 22,223 100.0% $ 29,167 100.0% $ 35,649 100.0% $ 16,894 100.0%
Cost of revenues........................ 16,180 72.8 21,803 74.7 26,656 74.8 12,863 76.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 6,043 27.2 7,364 25.3 8,993 25.2 4,031 23.9
Selling expenses........................ 2,518 11.3 3,116 10.7 3,623 10.2 1,652 9.8
General and administrative expenses..... 1,813 8.2 2,146 7.4 3,017 8.4 1,215 7.2
Depreciation and amortization........... 531 2.4 561 1.9 763 2.1 313 1.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations.................. $ 1,181 5.3% $ 1,541 5.3% $ 1,590 4.5% $ 851 5.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
--------------------
Revenues................................ $ 22,366 100.0%
Cost of revenues........................ 16,320 73.0
--------- ---------
Gross profit............................ 6,046 27.0
Selling expenses........................ 2,452 11.0
General and administrative expenses..... 2,348 10.5
Depreciation and amortization........... 648 2.8
--------- ---------
Income from operations.................. $ 598 2.7%
========= =========
UNAUDITED INTERIM RESULTS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
REVENUES. -- Revenues increased $5.5 million, or 32.4%, from $16.9 million
for the six months ended June 30, 1996 to $22.4 million for the comparable
period in 1997. This increase was primarily due to (i) an increase in rental and
service revenue as a result of the acquisition of PCI in October 1996 and (ii)
an increase in distribution revenues as a result of an increased sales staff and
additional distribution facilities.
COST OF REVENUES -- Cost of revenues increased $3.4 million, or 26.9%, from
$12.9 million for the six months ended June 30, 1996 to $16.3 million for the
comparable period in 1997. The overall increase was a result of the increase in
revenues, but cost of revenues did not increase consistent with the increase in
revenues due to the higher margins associated with rental and service income
which was attributable primarily to the acquisition of PCI in October 1996.
SELLING EXPENSES -- Selling expenses increased $0.8 million, or 48.4%, from
$1.7 million for the six months ended June 30, 1996 to $2.5 million for the
comparable period in 1997. The increase was primarily due to (i) an increase in
associated revenues of 32.5% and (ii) THI's addition in 1997 of a national
account sales director and a vice president of marketing.
GENERAL AND ADMINISTRATIVE EXPENSES -- General and administrative expenses
increased $1.1 million, or 93.3%, from $1.2 million for the six months ended
June 30, 1996 to $2.3 million for the comparable period in 1997. The increase
was primarily due to THI's planned increase in expenditures on its national
infrastructure to accommodate expected future growth consisting primarily of
administrative salaries and facility expenses such as rent and utilities on new
space occupied.
1996 COMPARED TO 1995
REVENUES. -- Revenues increased $6.4 million, or 21.2%, from $29.2 million
for 1995 to $35.6 million for 1996. This increase was due primarily to an
increase in distribution and service revenues consistent with THI's growth
strategy and also to the acquisition of PCI in October 1996.
COST OF REVENUES -- Cost of revenues increased $4.9 million, or 22.3%, from
$21.8 million in 1995 to $26.7 million in 1996. This increase was consistent
with the increase in revenues.
SELLING EXPENSES -- Selling expenses increased $0.5 million, or 16.3%, from
$3.1 million for 1995 to $3.6 million for 1996. This increase was primarily due
to the increase in associated revenues.
GENERAL AND ADMINISTRATIVE -- General and administrative expenses increased
$.9 million, or 40.6%, from $2.1 million for 1995 to $3.0 million for 1996. This
increase resulted principally from increased expenditures on infrastructure for
the second half of 1996 pursuant to THI's plan to strengthen its national
infrastructure.
25
<PAGE>
1995 COMPARED TO 1994
REVENUES. -- Revenues increased $7.0 million, or 31.3%, from $22.2 million
for 1994 to $29.2 million for 1995. This increase was due primarily to an
increase in distribution revenues of $6.6 million resulting from strong market
performance enhanced by the opening of THI's Chicago, Illinois distribution
facility.
COST OF REVENUES -- Cost of revenues increased $5.6 million, or 34.8%, from
$16.2 million for 1994 to $21.8 million in 1995. This increase was consistent
with the increase in revenue for the same period, but increased as a percentage
of revenues because of a change in the mix of products sold.
SELLING EXPENSES -- Selling expenses increased $0.6 million, or 23.8%, from
$2.5 million for 1994 to $3.1 million for 1995. This increase reflected the
building of a national sales force.
GENERAL AND ADMINISTRATIVE -- General and administrative expenses increased
by $0.3 million, or 18.4%, from $1.8 million for 1994 to $2.1 million for 1995.
This increase was due to the addition of several administrative positions.
THI -- LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth selected information from THI's statements
of cash flows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................ $ 662 $ 597 $ (1,071) $ (464) $ 1,142
Net cash used in investing activities... (91) (21) (4,202) (77) (3,198)
Net cash provided by (used in) financing
activities............................ (587) (570) 6,082 2,700 1,292
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................... $ (16) $ 6 $ 809 $ 2,159 $ (764)
========= ========= ========= ========= =========
</TABLE>
Net cash provided by operating activities is the result of net income
generated during the period, plus depreciation and amortization adjusted for
changes in working capital. The decrease in cash provided by operating
activities for 1996 and the first six months of 1996 was primarily due to the
investment THI made in working capital required to meet its growth objectives
during the periods and to reduce accounts payable.
Net cash used in investing activities is primarily amounts the Company used
to make acquisitions in the fourth quarter of 1996 and the first six months of
1997 and to acquire additional rental equipment in the first six months of 1997.
Net cash provided by financing activities for 1996 and the first six months
ended June 30, 1996 reflects the sale of common stock and borrowings on debt and
capital leases offset by the paydowns on THI's line of credit and repurchase of
common stock. THI made additional borrowings in the first half of 1997 to
finance its expansion.
In September 1996, THI entered into a new credit agreement with a bank. The
agreement, which extends through May 31, 1998, provides a revolving line of
credit facility of up to $1.0 million. Borrowings under the credit agreement
bear interest at the bank's prime rate plus 0.25 percent or, at THI's option, a
LIBOR rate plus 3.25 percent. The credit agreement is collateralized by all of
THI's assets and includes certain restrictive covenants.
In October 1996, THI entered into an agreement with a bank for an
acquisition line of credit. The agreement extends through September 2001 and
provides a facility of up to $5.0 million. Borrowings under the agreement bear
interest at the bank's prime rate plus 0.625 percent. The agreement includes
certain restrictive covenants and provides that all borrowings thereunder are
collateralized by all THI's assets. The outstanding borrowings under the
agreement at June 30, 1997 were $4.7 million. THI is currently in discussions
with the lender to convert this line of credit into an asset-based credit
facility.
Management of THI believes that cash flows from operations, together with
the Company's unused borrowing capacity, will be sufficient to fund THI's
operating needs into the forseeable future.
26
<PAGE>
BUSINESS
GENERAL
The Company was formed to create a national leader in the contract sales
and distribution of specialty medical products designed for the hospital and
alternate-site health care markets (including sub-acute care facilities, home
care companies and specialty physician groups). The Company contracts with
specialty medical product manufacturers to provide outsourcing of the sales,
marketing, distribution and customer service functions for all or certain of
their product lines, thereby eliminating the manufacturers' need to develop and
maintain their own sales force or rely on a number of independent local and
regional distributors to achieve national coverage. The Company provides a broad
range of specialty medical products across the full continuum of patient care,
including products used in the surgical, anesthesiology / pain management,
critical care, cardiovascular / vascular and infusion therapy markets. It
represents over 180 manufacturers and sells products in all 50 states.
The sale and distribution of specialty medical products require a focused
selling effort by representatives capable of marketing the products' clinical
features and benefits to physicians and other health care professionals and
demonstrating the economic benefits associated with these products to purchasing
departments and operating management of health care providers. To satisfy the
sales and related needs of its represented manufacturers, the Company maintains
a highly qualified and customer-oriented sales staff of over 140
representatives, who average in excess of 15 years' medical product sales
experience. Through this sales staff and other support staff the Company employs
at its 20 sales and distribution facilities located throughout the United
States, the Company provides its represented manufacturers and customers with a
variety of value-added services designed to facilitate access to the marketplace
and product procurement on a time-efficient and cost-effective basis. These
services include product introduction and support, education and training,
equipment maintenance and repair, manufacturer warranty support and product
usage reporting.
The Company believes significant external growth opportunities are
available through acquisitions of leading local and regional distributors of
complementary products due to fragmentation of the Company's industry. It also
believes internal growth opportunities can be realized by (i) achieving
operating efficiencies, (ii) adding product lines and territories through the
leveraging of its existing manufacturer and customer relationships, (iii)
cross-selling products between the alternate-site and hospital markets and (iv)
expanding its higher margin service, repair and rental business. In addition, by
establishing one of the first national contract sales and distribution
businesses of specialty medical products, the Company believes it can
aggressively pursue national consolidated supply arrangements with GPOs. In
pursuit of this strategy, the Company, through HTD, has enjoyed a supportive
relationship with Premier and CHCA, each of which will directly or through its
affiliates be a stockholder of TRIAD when this Offering closes. Both Premier and
CHCA have been supportive of the development of the Company's "Small Vendor
Corporate Accounts Opportunity Program" in which the Company would represent
small manufacturers in connection with the sale and distribution of their
products to these and other alliances. No assurance can be given that
manufacturers represented by the Company will be awarded contracts by either of
these alliances.
INDUSTRY OVERVIEW
According to the Health Industry Distributor Association, the medical
instrument and supply industry (excluding pharmaceuticals) in the United States
represented an estimated annual market in excess of $30 billion in 1996, of
which the hospital and the alternate-site markets represented approximately $16
billion and $14 billion, respectively.
Institutional health care providers in the hospital and alternate-site
markets served by the Company purchase medical products from one or more of
three distinct groups: (i) national medical product distributors, such as Owens
& Minor, Inc., Allegiance Corporation and General Medical, Inc., which typically
provide a broad range of high-volume, low-margin, low- and medium-technology
products; (ii) contract sales and distribution companies that focus on specialty
medical products not typically provided by the national medical distributors
because of the complexity of the products and the need for highly trained local
sales and service staffs; and (iii) manufacturers that sell and distribute their
own products directly.
27
<PAGE>
The Company estimates there are over 1,200 companies engaged in the
contract sales and distribution of specialty medical products in the United
States, most of which are smaller companies serving local or regional markets
and providing representation for a limited number of manufacturers and product
lines. Several of the manufacturers represented by these sales and distribution
organizations have highly focused, limited product lines. Accordingly, these
manufacturers typically make large ongoing commitments to their product
development, market research and marketing efforts while relying on the
currently fragmented network of contract sales and distribution companies to
sell, distribute and service their products. The Company believes a national
contract sales and distribution organization focused on specialty medical
products can provide the following advantages to manufacturers and health care
providers:
o PROVIDE MANUFACTURERS WITH BENEFITS OF ECONOMICS OF SCALE AND
ESTABLISHED SALES CHANNELS. By utilizing contract sales and
distribution companies, manufacturers of specialty medical products can
avoid the substantial up-front and ongoing expenses associated with
hiring, training and coordinating their own sales force and related
customer support staff. Contract sales and distribution companies
typically are more efficient because of their ability to spread sales,
distribution and other product-related costs across multiple
complementary product lines produced by different manufacturers. In
addition, because contract sales and distribution companies generally
employ sales representatives who have substantial experience in
individual medical sub-specialties and have developed long-term
relationships with physicians and other health care professionals in
those areas, they can provide manufacturers of new products with access
to established sales channels for those products.
o PROVIDE HEALTH CARE PROVIDERS WITH A CONSOLIDATED SUPPLY SOURCE. In an
effort to increase efficiency and reduce costs, health care providers
are increasingly seeking to reduce and consolidate their vendor
relationships. By consolidating their vendor bases, customers can
reduce the costs and administrative time associated with receiving
individual sales calls and individual product deliveries from a
multitude of manufacturers. The Company believes that contract sales
and distribution companies are attractive to providers because they
consolidate the purchasing and distribution functions.
Despite the advantages that contract sales and distribution companies
provide to both their manufacturers and customers, the fragmented network of
such companies is generally not capable of serving multiple manufacturers on a
national basis. Local or regional contract sales and distribution companies do
not have the distribution infrastructure necessary to efficiently deliver
product on a nationwide basis, nor do they have a product offering that is broad
enough to enable them to service customers across a variety of sub-specialty
markets.
To become more cost-effective, health care providers have created national
GPOs and regional IDNs which aggressively seek to lower product procurement
costs and reduce the number of vendors that service their organizations by
consolidating their purchase contracts. These trends have placed pressure on
manufacturers and contract sales and distribution companies to be more
efficient, provide value added services and obtain sufficient breadth of product
offering and geographic coverage to warrant attention in this changed market
place. As a result, the Company believes that the emergence of a national
contract sales and distribution company capable of selling, distributing and
servicing a broad array of specialty medical products would meet the evolving
needs of both manufacturers and purchasers of specialty medical products. In
addition, the Company believes such a national company would (i) enhance the
manufacturers' access to the national market and reduce cost and administrative
time attributable to dealing with multiple local and regional companies and (ii)
provide it with opportunities to negotiate national or regional contracts with
selected GPOs and IDNs.
BUSINESS STRATEGY
The Company's objective is to become the leading national contract sales
and distribution organization focused on specialty medical products. Due to the
fragmented state of the industry, the Company believes significant opportunities
are available to a contract sales and distribution company employing customer-
oriented sales and service personnel and providing a broad range of specialty
medical products and related
28
<PAGE>
services on a national basis. To achieve its objective, the Company's strategy
emphasizes the following elements:
GROWTH THROUGH ACQUISITIONS. The Company intends to implement an
aggressive acquisition program targeting leading contract sales and distribution
companies serving markets similar to those served by the Company. The Company
intends to pursue acquisitions to expand its product representation. In new and
certain existing markets, the Company will target one or more leading local or
regional contract sales and distribution businesses with sufficient critical
mass to permit the consolidation of other local or regional operations. The
Company will also pursue smaller acquisitions in its existing markets and those
gained through subsequent acquisitions with a view to increasing market share
and expanding the range of products and services offered within those markets
without increasing the Company's existing infrastructure.
PROFITABILITY IMPROVEMENTS. The Company believes it can achieve certain
operating efficiencies and cost savings by reducing facilities, centralizing
certain administrative functions and implementing a "best practices" operating
strategy throughout the Company. The Company intends to consolidate overlapping
warehouse and office facilities in the near term. However, additional facilities
may be acquired as the Company implements its acquisition strategy. The Company
believes as it increases its size and market share, it will achieve cost savings
from its plan to centralize certain functions, including acquisition planning,
marketing, national contracting, financing, accounting, investor relations,
legal and insurance. The Company also believes centralizing these functions will
enable the local and regional offices to concentrate their efforts on sales,
customer service, inventory management and distribution.
INTERNAL GROWTH. A key component of the Company's business strategy is to
accelerate internal growth in its existing businesses and subsequently acquired
companies by leveraging its established manufacturer and customer bases,
cross-selling products between the alternate-site and hospital markets,
implementing a "best practices" sales and marketing strategy, adding qualified
sales representatives and generating ancillary service revenues. The Company
believes it will be able to leverage its existing manufacturer and customer
relationships to gain representation of additional territories and product lines
and expand its product offerings. The Company will pursue cross-selling
opportunities between the alternate-site and hospital markets. The Company will
review its sales and marketing procedures at the local and regional levels to
identify practices that will be uniformly implemented throughout its operations
to enhance its sales and marketing programs in an effort to obtain new product
lines, stimulate sales of existing products and improve customer service. The
Company will seek to continue to attract high-quality sales representatives by
offering them a broader range of products concentrated in their area of
specialization, with a view to gaining and improving product representation in
certain specialty areas and achieving greater productivity from the Company's
sales force. The Company also believes an opportunity exists to increase
revenues by expanding its business of repairing and servicing certain medical
equipment.
STRATEGIC RELATIONSHIPS. As one of the first national contract sales and
distribution companies, the Company believes it is positioned to obtain expanded
relationships with manufacturers and customers and to selectively pursue limited
proprietary interests in certain product lines. The Company will pursue
arrangements with certain manufacturers on a national basis, negotiate to obtain
longer term contracts with manufacturers and seek to satisfy the demands of
GPOs, IDNs and other customers desiring to reduce their vendor base. The Company
also intends to selectively pursue ownership interests in, or otherwise obtain
long-term exclusive marketing rights to, noncompetitive domestic and
international emerging product technologies which compliment its existing
product lines. The Company may also pursue private label relationships with
certain manufacturers whereby a product line would be manufactured and marketed
through the Company's national sales and distribution network.
ACQUISITION STRATEGY
The Company intends to implement an aggressive acquisition program
targeting leading contract sales and distribution companies serving markets
similar to those served by the Company. Certain acquisitions will be large
enough to warrant their own operating and management structure while other
smaller acquisitions will be folded into an existing operation without
significantly increasing the Company's infrastructure. Of the over 1,200
contract sales and distribution companies estimated to be serving local and
regional markets in the United States, the Company believes there are numerous
candidates that meet the
29
<PAGE>
Company's acquisition criteria. The Company will evaluate certain
characteristics of acquisition candidates, including their profitability,
potential for revenue growth, reputations in their respective geographic
regions, the size and other characteristics of customer bases, the quality and
experience levels of operational management and sales personnel, the prospects
and nature of their product mixes and their operating histories.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. The consideration for
each future acquisition will vary on a case-by-case basis, with the major
factors expected to be historical operating results, the future prospects of the
business to be acquired and the ability of that business to complement the
products and services offered by the Company. The Company believes it will be
regarded as an attractive acquirer to owners of contract sales and distribution
companies because of: (i) the Company's potential access to large national
purchasing contracts; (ii) the Company's strategy for creating a large,
professionally managed company with national name recognition; (iii)
management's industry experience; (iv) the Company's increased visibility and
access to financial resources as a public company; (v) access to new products;
and (vi) the ability of the acquired business to participate in the Company's
growth and expansion, while the owner realizes improved liquidity.
The Company currently has no binding agreements to effect any acquisition
other than in connection with the Founding Companies. The timing, size and
success of the Company's acquisition efforts and the associated potential
capital commitments cannot be readily predicted. (See "Risk
Factors -- Dependence on Acquisitions for Growth," "-- Need for Additional
Financing" and "-- Potential Effect of Shares Eligible for Future Sale on
Price of Common Stock.")
PRODUCTS AND SERVICES
The Company sells and distributes a broad array of specialty medical
products. These products require significant value-added support services, such
as product introduction and support, education and training, equipment
maintenance and repair, manufacturer warranty support and product usage
reporting. The following chart sets forth the five principal product categories
offered by the Company and the top selling products in fiscal 1996 in each
category:
SURGICAL PRODUCTS
SURGICAL INSTRUMENTS
BOVINE PERICARDIUM PATCHING
AESTHETIC AND SURGICAL LASERS
FIBER OPTIC LIGHT SOURCES
ENDOSCOPY INSTRUMENTATION
IMPLANTABLE PORTS AND CATHETERS
CRITICAL CARE PRODUCTS
NEEDLELESS IV CONNECTORS
BLOOD/IV FILTERS AND RELATED PRODUCTS
HEPARIN MONITORING EQUIPMENT
CENTRAL VENOUS CATHETERS
CARDIAC FUNCTION MONITORS
NON-INVASIVE BLOOD PRESSURE MONITORS
ANESTHESIOLOGY/PAIN MANAGEMENT PRODUCTS
BLOOD/IV FILTERS AND RELATED PRODUCTS
HEPARIN MONITORING EQUIPMENT
IMPLANTABLE SPINAL CORD STIMULATORS
HYPOTHERMIA PRODUCTS
DISPOSABLE PRESSURE TRANSDUCERS
NON-INVASIVE CARDIAC FUNCTION MONITORS
CARDIOVASCULAR/VASCULAR PRODUCTS
HEPARIN MONITORING EQUIPMENT
PTFE VASCULAR GRAFTS
VASCULAR ACCESS PRODUCTS
BLOOD/IV FILTERS AND RELATED PRODUCTS
BOVINE PERICARDIUM PATCHING
SURGICAL INSTRUMENTS
IV THERAPY PRODUCTS
PLASMA DERIVATIVES AND PHARMACEUTICALS
IV SOLUTION AND NUTRITIONAL SUPPORT PRODUCTS
INFUSION DEVICES (INCLUDING IV INFUSION PUMPS AND PHARMACY PRODUCTS)
PATIENT CARE PRODUCTS
TS INFECTION CONTROL PRODUCTS
VASCULAR ACCESS DEVICES
Blood/IV filters and related products, needleless IV connectors, heparin
monitoring equipment, implantable spinal cord stimulators and plasma derivatives
and pharmaceuticals were the Company's top five selling product lines in fiscal
1996. None of these product lines accounted for more than 10% of the Company's
fiscal 1996 combined revenues. While the Company generates its revenues
primarily by selling and distributing specialty medical products under sales and
distribution arrangements with manufacturers,
30
<PAGE>
the Company has entered into agency relationships with certain manufacturers
pursuant to which it earns a commission on generated sales. See
"-- Manufacturer Relationships."
The Company intends to continue to add additional product lines
complementary to its existing product lines as customer demand warrants. The
Company's Product Committee will supervise product selection and pricing
decisions primarily through periodic evaluations of sales data, customer
response and demand to product offerings and the input of local and regional
management.
In addition, the Company generates significant revenues from the service,
repair, rental and leasing of certain product lines, including infusion pumps,
automated pharmacy compounding equipment, dental implant products and surgical
lasers. Revenues from the Company's service, repair, rental and leasing
activities accounted for approximately 9.1% of the Company's fiscal 1996
combined revenues.
SALES AND MARKETING
At August 31, 1997, the Company employed a direct sales force of 140
representatives who have primary responsibility for maintaining relationships
with existing customers and identifying and soliciting new customers. The
Company's sales and marketing efforts emphasize development and maintenance of
close relationships with customers, regular presentation of products and
prototypes of new products and responsiveness to customer requirements. The
Company's sales representatives devote substantial time and attention to direct
dealings with customers, regularly visit hospitals and alternate-site facilities
and meet with the administrators and clinicians to assess customer needs,
provide product support and introduce new product lines. Due to the technical
nature of the Company's products, education and training is essential to the
sales and marketing of these products. The Company's sales representatives
regularly conduct educational seminars and make presentations to discuss product
usage and positive patient and health care provider outcomes which may be
achieved. The sales representatives are regularly invited into the operating
rooms, emergency rooms, intensive care and other critical care units of
hospitals and other health care facilities to observe medical procedures
utilizing represented products and to provide advice as to proper product usage.
With respect to certain of the Company's lower technology products, the Company
maintains a limited inside sales staff to market these products by telephone. In
addition to the Company's sales staff, the Company has five product specialists
on staff to assist the customer in selecting the best product for the procedure
involved and to assist in quantity selection.
The Company maintains an experienced and highly trained sales and support
staff, with its sales representatives averaging 15 years' medical product sales
experience. The Company's future success will depend, in part, on its ability to
continue to attract, retain, motivate and train qualified sales representatives.
The Company has continuous national and regional training programs in place for
its sales representatives to enhance selling skills and provide detailed product
knowledge. Certain manufacturers also support the training of the Company's
sales and support personnel by providing, from time to time, training and
educational programs relating to product lines represented by the Company. In
addition to the training program, the Company hopes to attract, retain and
motivate such sales representatives by offering them representation of a broader
range of products concentrated in their area of specialization.
CUSTOMERS
The Company's customers consist primarily of acute care hospitals and
alternate-site health care providers (including sub-acute care facilities, home
care companies and specialty physician groups). The Company also sells directly
to national medical supply distributors, such as Owens & Minor and Allegiance.
No single customer accounted for more than 5% of the Company's fiscal 1996
combined revenues.
During recent years, as cost-containment pressures have resulted in
increased demand for lower product procurement costs and value-added services,
the customer base in the industry has consolidated to include GPOs, IDNs and
other large alliances formed by health care providers in an effort to reduce
costs and consolidate their vendor bases. The Company anticipates that further
consolidation of its customer base will continue in the future. The Company
intends to target these groups and other large collective purchasing
organizations and believes it is well positioned to satisfy their needs, given
its strategy to provide a broad offering of specialty medical products and
related services through a national contract sales and distribution
organization.
31
<PAGE>
The Company, through HTD, has enjoyed a supportive relationship with
Premier and CHCA, each of which will directly or through its affiliates become a
stockholder in TRIAD based on its interests in HTD. Both Premier and CHCA have
been supportive of the development of the Company's "Small Vendor Corporate
Accounts Opportunity Program," in which the Company would represent small
manufacturers in connection with the sale of their products to these and other
alliances. No assurance can be given that manufacturers represented by the
Company will be awarded contracts by either of these alliances.
MANUFACTURER RELATIONSHIPS
Currently, the Company has arrangements with over 180 manufacturers, 20 of
whose product lines accounted for approximately 49.9% of the Company's combined
fiscal 1996 revenues. The manufacturers of the Company's top five selling
products for fiscal 1996 were Pall Biomedical, Inc., ICU Medical, Inc.,
International Technidyne Corporation, Advanced Neuromodulation Systems, Inc. and
Bayer Corporation.
The Company primarily enters into sales and distribution arrangements with
manufacturers. While the terms of these arrangements vary, they generally
describe the product line to be represented, define the coverage territory of
the representation, outline the value-added services to be performed with
respect to the represented product line, quantify the minimum sales level
requirements and provide termination rights on prior notice typically ranging
from 30 to 90 days. Many of these manufacturing arrangements contain non-
competition provisions which prohibit the Company from selling competitive
product lines in specified territories. Manufacturers may impose additional
requirements on the Company under these arrangements concerning such matters as
minimum size of purchase orders, maintenance of minimum inventory levels,
maintenance of facilities and equipment to perform specified services relating
to the product line and training of sales and service personnel. The Company's
representation of its manufacturers in the hospital market is typically on an
exclusive basis with a local or regional geographic coverage area, whereas
representation of its manufacturers in the alternate-site health care market is
generally on a non-exclusive basis with a national coverage area.
The Company has also entered into a number of agency relationships with
certain manufacturers. These relationships differ from the sales and
distribution arrangements since in these arrangements the Company is generally
not required to purchase the product from the manufacturer for resale or
maintain an inventory of the product. Rather, with agency relationships, the
product is generally shipped directly to the customer from the manufacturer. The
Company earns a commission percentage on its agency sales ranging between 10%
and 30%. Agency relationships are typically terminable by either party on prior
notice ranging from 30 to 90 days.
The Company seeks to purchase the medical products it sells at the lowest
possible price through volume discounts, rebates and product line
consolidations. Individual orders will initially be placed by the Company's
purchasing agents, located at certain of the Company's facilities, who are
responsible for purchasing and maintaining the inventory. Medical products are
delivered directly to the distribution facilities.
The Founding Companies have, from time to time, lost significant product
lines due to, among other things, manufacturers' decisions to sell the product
lines directly to health care providers, acquisitions of the manufacturers or
their product lines by other entities with existing sales forces or failure to
satisfy sales volume or other performance requirements. While the Company
believes that, as a result of its larger size and national presence following
the Acquisitions, it will have greater bargaining power and therefore be in a
position to negotiate longer-term contracts with its manufacturers, there can be
no assurance the Company will not lose significant product lines in the future.
The loss of any significant product line, for any reason, could have a material
adverse effect on the Company's financial condition and results of operations.
OPERATIONS
The Company is committed to providing accurate and complete order
fulfillment and reliable, consistent deliveries. The Company's order entry
process is designed to make ordering products convenient, easy and flexible for
its customers. Approximately 90% of customer orders are received by the
Company's toll-free telephone number, with the Company also having the
capability of receiving orders electronically. The Company intends to expand the
availability of electronic order-entry system for customers and EDI transmission
for both vendors and customers. In addition, the Company is actively researching
Internet
32
<PAGE>
utilization for electronic catalogs, ordering, training and enhanced market
information. All orders are received by the customer service representatives at
the Company's distribution facilities located throughout the United States. The
customer service representatives utilize on-line computer terminals to enter
customer orders and to access information about products, product availability,
pricing, promotions and the customer's purchasing history. Following entry of an
order, a packing slip for the entire order is printed for order fulfillment. The
Company ships its ordered products primarily by Federal Express Corporation and
United Parcel Service of America, Inc., and to a lesser extent by various common
carriers. See "Risk Factors -- Reliance on Efficiency of Distribution and Third
Parties."
Since many of the Company's products are high value items, accurate
inventory control is critical to business profitability. The Company plans to
utilize its broad regional distribution network and information technology to
minimize inventory levels while continuing to maintain high levels of product
availability and rapid order fulfillment.
The Company intends to perform certain corporate activities from its
executive offices. These activities will include national marketing and sales
support, national vendor contracting, accounting, financing, management
information systems support, national customer contracting, contract
administration and human resources and administration. Certain operating
functions will be conducted at specific regional offices including sales and
sales management, customer service, purchasing, inventory control, distribution,
regional marketing support and regional accounting. Day-to-day decision making
and operating control will remain at the regional operating locations whenever
possible and practical. Regional offices will be required to adhere to
company-wide policies relating to training, accounting and internal controls and
customer satisfaction. The management information systems in place will allow
for information to be disseminated at the local and regional level, which the
Company believes will help to improve operating efficiencies and lower operating
costs.
The Company is committed to providing high levels of customer service and
support. The Company intends to integrate its existing computer operating system
with each of the primary facilities of the Company's operations in the near
term. This operating system facilitates various functions critical to customer
service and support including order entry and tracking, purchasing and inventory
control and product pricing and selection. As of the date of this Prospectus,
seven of the Company's facilities are networked to this computer operating
system.
COMPETITION
The Company competes with manufacturers who sell their medical products
directly to health care providers and, to a lesser extent, with national medical
product suppliers. Competition from national medical suppliers does not
generally occur until a product line has substantially matured, which takes
several years into its life cycle. Some of these manufacturers and national
suppliers are substantially larger and have substantially greater financial and
other resources than the Company. The Company also faces competition from many
regional and local distributors in its niche markets, which competitors are
generally relatively small local or regional owner-operated businesses. Barriers
to entry for distribution in the specialty medical product market are relatively
low, and the risk of new competitors entering the market, particularly in local
and regional areas, is high. In response to competitive pressures from any of
its current or future competitors, the Company may be required to lower selling
prices in order to maintain or increase market share, and such measures could
adversely affect the Company's operating results.
The Company believes the principal competitive factors in the contract
sales and distribution business are the experience, training and educational
support capabilities of the sales force, the quality and level of customer
support service, the breadth and quality of products offered, the information
systems and infrastructure available and the consistency and stability of
business relationships with customers and product pricing.
FACILITIES
The Company's facilities, all located in the United States, consist
principally of executive and sales offices and warehouse facilities. The Company
leases 20 warehouse and office facilities located throughout the continental
United States, which range in size from less than 1,000 square feet to
approximately 37,000 square feet, for an aggregate of approximately 224,000
square feet. The Company intends to reduce the
33
<PAGE>
number of its facilities in the near term. However, additional facilities may be
added as the Company implements its acquisition strategy. The leases have
remaining terms ranging from two years to five years with terms the Company
believes to be commercially reasonable. Some of these leases are with affiliates
of the Founding Companies or officers of the Company. See "Certain
Transactions -- Real Estate and Other Transactions." The Company believes its
facilities are well-maintained and adequate for the Company's existing and
planned operations at each operating location.
EMPLOYEES
As of August 31, 1997, the Company had approximately 360 employees, of
which approximately 140 were sales and service representatives. The Company is
not a party to any collective bargaining agreements. The Company has not
experienced any strikes or work stoppages and believes its relationship with its
employees is good.
GOVERNMENT REGULATION
The Company and its customers and suppliers are subject to federal and
state regulation in the United States, and the Company cannot predict the extent
to which future legislative and regulatory developments concerning their
practices and products or the health care industry may affect the Company.
Federal and state laws and regulations govern or influence the testing,
manufacture, safety, labeling, storage, recordkeeping, marketing and
distributing of specialty medical products. In connection with its manufacturing
operations, the Company is required to obtain the approval of federal and state
governmental agencies, including the Food and Drug Administration, prior to
manufacturing, marketing and distributing certain of those products. Further,
the Company's facilities and operations are subject to reporting to, and review
and inspection by, federal, state and local governmental entities. The Company's
suppliers are also subject to similar governmental requirements.
LITIGATION AND INSURANCE
From time to time, the Company is a party to litigation arising in the
normal course of its business. The Company is not currently involved in any
litigation the Company believes will have a material adverse effect on its
financial condition or results of operations.
The Company maintains insurance in such amounts and against such risks as
it deems prudent including, comprehensive, general property and product
liability insurance. No assurance can be given such insurance will be sufficient
under all circumstances to protect the Company against significant claims for
damages. The occurrence of a significant event not fully insured against could
materially and adversely affect the Company's financial condition and results of
operations. Moreover, no assurance can be given the Company will be able to
maintain adequate insurance in the future at commercially reasonable rates or on
acceptable terms.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information respecting the
individuals who will be TRIAD's directors, and executive officers when this
Offering closes (ages as of August 31, 1997):
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION CLASS
- ----------------------------------- --- ------------------------------------------ ---------
<S> <C> <C> <C>
William C. Klintworth, Jr.(1)(4)... 44 Chief Executive Officer, Chairman of the Class I
Board
R. Tucker Coop(1)(4)............... 51 President*, Director* Class III
Clyde A. Blankenship, Jr........... 52 Executive Vice President, Director Class III
Walter D. Wallach.................. 53 Senior Vice President,* Chief Financial
Officer* and Secretary*
Lance C. Ruud...................... 39 Senior Vice President-Corporate Finance
and Development*
Marvin L. Marks.................... 61 President of MegaTech, Director* Class I
Kent J. Wilken..................... 60 President of Kentec, Director* Class I
Greg H. Sellards(1)................ 49 President of Sun, Director* Class II
Michael W. Thomas.................. 42 President of CMS, Director* Class II
Nolan Lehmann(1)(2)(3)(4).......... 53 Director Class I
John B. Benear, II, MD(2)(3)....... 44 Director* Class II
Edward T. Kuklenski(2)(3).......... 39 Director* Class III
Kelvin J. Pennington(1)(2)(3)(4)... 39 Director* Class III
</TABLE>
- ------------
* Appointment will become effective on closing of this Offering.
(1) Member of the Board's Executive Committee.
(2) Member of the Board's Audit Committee.
(3) Member of the Board's Compensation Committee.
(4) Member of the Board's Nominating Committee.
William C. Klintworth, Jr. has been the president, chief executive officer
and a director of TRIAD since its formation in April 1997. Mr. Klintworth has
served as president and a director of HTD since April 1997, and from June 1994
to February 1997, he served as the president of Medical Alliance. He co-founded
both HTD and Medical Alliance. From November 1990 to May 1994, he served as the
president and a director of Alpha ProTech, Inc., a manufacturer and distributor
of medical products. Mr. Klintworth has approximately 23 years experience in the
health care industry, working in sales, distribution and manufacturing.
R. Tucker Coop will be appointed the president and a director of TRIAD on
closing of this Offering. He has been the president and chief executive officer
of THI since its formation in May 1996 and of its predecessor, Triad Medical
Inc., a California corporation ("TMI"), since its inception in 1981. Mr. Coop
has approximately 25 years experience in the health care field, working in both
the hospital and alternate-site markets. Before founding TMI, he was president
of Coop Medical Products and prior to that served in marketing and sales
positions with McGaw Laboratories, a division of American Hospital Supply
Corporation.
Clyde A. Blankenship, Jr. has been the executive vice president and a
director of TRIAD since its formation in April 1997. He has also served as
president of Futuretech, HTD's principal operating subsidiary, since he founded
it in 1977. Since April 1997, Mr Blankenship has served as executive vice
president and a director of HTD.
Walter D. Wallach will be appointed as a senior vice president and the
chief financial officer of TRIAD on closing of this Offering. He has been the
chief operating officer of THI since its formation in May 1996 and of TMI since
May 1993. From May 1991 to December 1992, Mr. Wallach served as the
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<PAGE>
executive vice president and chief financial officer of International Medication
Systems, a generic drug manufacturing company. From January 1986 to April 1991,
he served as the chief financial officer of McGaw Inc., a manufacturer and
distributor of intravenous solutions and sets. Prior to that time, Mr. Wallach
worked with The Kendall Company and Colgate-Palmolive Company as a financial
executive.
Lance C. Ruud has been the senior vice president and chief financial
officer, secretary and treasurer of TRIAD since its formation in April 1997.
From September 1993 to April 1997, Mr. Ruud served as the senior vice president
and chief financial officer of TransAmerican Waste Industries, Inc. From May
1990 to May 1993, he was employed by Republic Industries, Inc. last serving as
the vice president of finance beginning August 1991. Prior to that time, Mr.
Ruud was employed by Arthur Andersen LLP. Mr. Ruud is a certified public
accountant.
Marvin L. Marks will be appointed a director of TRIAD on the closing of
this Offering. Mr. Marks has been the president of MegaTech since he founded it
in 1976. Mr. Marks also serves as the president of JAJ Enterprises Ltd., a
medical products leasing and training company, is president-elect of the
Independent Medical Distributors Association, a trade association of companies
which market specialty medical products throughout the United States. From 1994
to 1996, he was the vice president of BIKO, Inc., a medical products
distribution company.
Kent J. Wilken will be appointed a director of TRIAD on the closing of this
Offering. Mr. Wilken has served as the president of Kentec since he founded it
in 1970.
Greg H. Sellards will be appointed a director of TRIAD on the closing of
this Offering. Mr. Sellards served as the chief executive officer of Sun since
he founded it in 1978.
Michael W. Thomas will be appointed a director of TRIAD on the closing of
the Offering. Mr. Thomas has served as the president of CMS since he founded it
in 1989. He also serves as a director of Specialty Medical Marketing Alliance,
Inc., a trade association of companies which market specialty medical products
throughout the United States and Canada.
Nolan Lehmann has been a director of TRIAD since its formation in April
1997. Since 1983, he has served as the president and a director of Equus Capital
Management Corporation, a registered investment advisor. He also serves as
president and director of Equus II, a registered investment company. Mr. Lehmann
also serves as a director of Allied Waste Industries, Inc., a solid waste
management company, American Residential Services, Inc., a residential services
company, Brazos Sportswear, Inc., a casual sportswear company, Drypers
Corporation, a manufacturer of disposal diapers, and Garden Ridge Corporation, a
specialty retailer, all of which are public companies. He was appointed to the
board of directors pursuant to TRIAD's funding agreement with Equus II. See
"Certain Transactions."
John B. Benear, II, MD will be appointed a director of TRIAD on the closing
of this Offering. He has served as a medical oncologist for the Natalie Warran
Bryan Cancer Center of Saint Francis Hospital located in Tulsa, Oklahoma since
May 1989. Since 1995, he has served as the president of Cancer Care Associates,
a 22-physician oncology practice located throughout Oklahoma. He also serves as
the medical director of Practice Standards and of Clinical Information Systems
for American Oncology Resources, a public physician practice management company.
Dr. Benear serves on the boards of various professional associations.
Edward T. Kuklenski will be appointed a director of TRIAD on the closing of
this Offering. Since 1995, Mr. Kuklenski has served as the president and a
director of Alliance of Children's Hospitals, Inc., a product research and
testing company, and since 1989, as a senior vice president of Child Health
Corporation of America, a national alliance of 36 children's hospitals. Mr.
Kuklenski also serves as a director of the Anesthesia Patient Safety Foundation,
a non-profit consumer safety organization, and National Contracts, Inc., a
national account services company providing services to small and medium-sized
medical products manufacturers.
Kelvin J. Pennington will be appointed a director of TRIAD on the closing
of this Offering. Since January 1992, Mr. Pennington has served as managing
general partner of PENMAN Asset Management,
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<PAGE>
L.P. ("PENMAN Management"), the general partner of PENMAN. He also serves as a
director of AFC Enterprises, Inc., an owner and franchisor of restaurants.
BOARD OF DIRECTORS CLASSES; DIRECTOR COMPENSATION
The Board of Directors is divided into three classes, each of which,
following a transitional period, will serve for three years, with one class
being elected each year at the annual stockholders' meeting. During the
transitional period, the terms of the Class I directors will expire at the 1998
meeting, while the terms of the Class II directors and the Class III directors
will expire at the 1999 meeting and the 2000 meeting, respectively.
Classification of the Board could have the effect of lengthening the time
necessary to change the composition of a majority of the members comprising the
Board. In general, at least two annual meetings of stockholders will be
necessary for stockholders to effect a change in a majority of the members of
the Board.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Following the closing of this Offering,
each director who is not an employee of the Company (an "Outside Director")
initially will receive a fee of $2,000 for each board meeting attended and
$1,000 for each board committee meeting attended (or $500 if held on the same
day as a board meeting) and will periodically be granted options to purchase
Common Stock pursuant to the Incentive Plan. See " -- Incentive Plan." When
this Offering closes, each of TRIAD's four outside directors will be granted
options to purchase 10,000 shares of Common Stock at an exercise price per share
equal to the initial public offering price. TRIAD will reimburse directors for
out-of-pocket expenses they incur in attending board of directors or board
committee meetings in their capacity as directors.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
On closing of this Offering, TRIAD will have employment agreements with
Messrs. Klintworth, Coop, Blankenship, Wallach and Ruud which provide for annual
base salaries of $150,000, $176,400, $150,000, $145,000 and $145,000,
respectively. As of the closing of the Acquisitions, the Company will enter into
employment agreements with a total of 23 key officers of the Founding Companies,
including Messrs. Marks, Wilken, Sellards and Thomas, each of whom is a director
nominee of TRIAD. The following summary of the employment agreements of these
executives and key officers does not purport to be complete and is qualified by
reference to them, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Each of these
agreements entitles the employee to participate in all TRIAD employee benefit
plans in which other members of TRIAD management participate. Each of these
agreements also has a three-year term subject to the right of the Company to
terminate the employee's employment at any time after one year. If the
employee's employment is terminated by the Company within the first three years
without cause (as defined), the employee will be entitled to the payment of any
annual base salary and continuation of health insurance benefits for one year.
Each employment agreement contains a covenant limiting competition with the
Company following the termination of employment for a period of (i) the later of
12 months or the expiration of the remaining term of the employment agreement,
if the employment agreement is terminated by the Company without cause or on
account of disability; or (ii) the fourth anniversary of the effective date of
the employment agreement, if employment is otherwise terminated within its
initial three-year term.
INCENTIVE PLAN
The description set forth below summarizes the principal terms and
conditions of the Incentive Plan, does not purport to be complete and is
qualified in its entirety by reference to the Incentive Plan, a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
GENERAL. The objectives of the Incentive Plan, which was approved by
TRIAD's board of directors and stockholders, are to attract and retain selected
key employees, consultants and Outside Directors, and to encourage their
commitment, motivate their superior performance, facilitate their obtaining
ownership interests in the Company (aligning their personal interests to those
of the Company's stockholders) and enable them to share in the long-term growth
and success of the Company.
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<PAGE>
SHARES SUBJECT TO INCENTIVE PLAN. Under the Incentive Plan, TRIAD may
issue Incentive Awards (as defined below) covering an aggregate of the greater
of (a) 1,130,000 shares of Common Stock and (b) 12.5% of the number of shares of
Common Stock issued and outstanding on the last day of each calendar quarter. No
more than 1,130,000 shares of Common Stock shall be available for ISOs (as
defined below). As of the closing of the Acquisitions, it is anticipated there
will be outstanding options covering 972,987 shares of Common Stock, leaving
157,013 shares of Common Stock available for issuance under the Incentive Plan.
The number of securities available under the Incentive Plan and outstanding
Incentive Awards are subject to adjustments to prevent enlargement or dilution
of rights resulting from stock dividends, stock splits, recapitalizations or
similar transactions or resulting from a change in applicable laws or other
circumstances.
ADMINISTRATION. The Incentive Plan will be administered by the
compensation committee of the Board of Directors (the "Committee"), which will
initially be comprised of Messrs. Benear, Lehmann, Kuklenski and Pennington. The
Committee will consist solely of directors each of whom is (i) an "outside
director" under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and (ii) a "non-employee director" under Rule 16b-3 of the
Exchange Act. The Committee may delegate to the chief executive officer or other
senior officers of the Company its duties under the Incentive Plan, except with
respect to any authority to grant Incentive Awards or take other action with
respect to persons who are subject to Section 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or Section 162(m) of the Code. In
the case of an Incentive Award to an Outside Director, the Board of Directors
shall act as the Committee. Subject to the express provisions of the Incentive
Plan, the Committee is authorized to, among other things, select grantees under
the Incentive Plan and determine the size, duration and type, as well as terms
and conditions (which need not be identical) of each Incentive Award. The
Committee also construes and interprets the Incentive Plan and any related
incentive agreements. All determinations and decisions of the Committee are
final, conclusive and binding on all parties. TRIAD will indemnify members of
the Committee against any damage, loss, liability, cost or expenses arising in
connection with any claim, action, suit or proceeding by reason of any action
taken or failure to act under the Incentive Plan, except for any such act or
omission constituting willful misconduct or gross negligence.
ELIGIBILITY. Key employees, including officers (whether or not they are
directors) and consultants of TRIAD and its subsidiaries and Outside Directors
are eligible to participate in the Incentive Plan. A key employee generally is
any employee of TRIAD (or any of its subsidiaries) who, in the opinion of the
Committee, is in a position to contribute materially to the growth and
development and to the financial success of TRIAD (or any of its subsidiaries).
TYPES OF INCENTIVE AWARDS. Under the Incentive Plan, the Committee may
grant (i) incentive stock options ("ISOs") as defined in Section 422 of the
Code, (ii) "nonstatutory" stock options ("NSOs"), (iii) stock appreciation
rights ("SARs"), (iv) shares of restricted stock, (v) performance units and
performance shares, (vi) other stock-based awards, and (vii) supplemental
payments dedicated to the payment of income taxes (collectively, "Incentive
Awards"). ISOs and NSOs are sometimes referred to collectively herein as
"Options". The terms of each Incentive Award, as determined by the Committee
in its discretion, will be reflected in an agreement (the "Incentive
Agreement") between TRIAD and the participant. A summary of certain of the most
significant features of the Incentive Awards is set out below.
INCENTIVE AND NONSTATUTORY STOCK OPTIONS. Generally, ISOs and NSOs must be
exercised within ten years of the grant date. ISOs may only be granted to
employees and the exercise price of each ISO may not be less than 100% of the
fair market value of a share of Common Stock on the date of grant. The Committee
will have the discretion to determine the exercise price of each NSO granted
under the Incentive Plan. To the extent that the aggregate fair market value of
shares of Common Stock with respect to which ISOs are exercisable for the first
time by any employee during any calendar year exceeds $100,000, such options
must be treated as NSOs.
The exercise price of each Option is payable in cash or, in the discretion
of the Committee, through the delivery of shares of Common Stock owned by the
Optionee, by withholding shares which would otherwise be acquired on the
exercise of the Option or in any combination of the foregoing.
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<PAGE>
An employee will not recognize any income for federal income tax purposes
at the time an ISO is granted, nor on the qualified exercise of an ISO, and will
recognize capital gain or loss (as applicable) upon the subsequent sale of
shares acquired in a qualified exercise. The exercise of an ISO is qualified if
a participant does not dispose of the shares acquired by such exercise within
two years after the ISO grant date and one year after such exercise. TRIAD is
not entitled to a tax deduction as a result of the grant or qualified exercise
of an ISO.
An optionee will not recognize any income for federal income tax purposes,
nor will TRIAD be entitled to a deduction, at the time an NSO is granted.
However, when a NSO is exercised, the optionee will recognize ordinary income in
an amount equal to the difference between the fair market value of the shares
received and the exercise price of the NSO, and TRIAD will generally recognize a
tax deduction in the same amount at the same time.
The foregoing federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Code. The
effect of any state or local taxes is not addressed.
STOCK APPRECIATION RIGHTS (SARS). Upon exercise of a SAR, the holder will
receive cash, shares of Common Stock, or a combination thereof, as specified in
the Incentive Agreement, the aggregate value of which equals the amount by which
the fair market value per share of the Common Stock on the date of exercise
exceeds the exercise price of the SAR, multiplied by the number of shares
underlying the exercised portion of the SAR. A SAR may be granted in tandem with
or granted independently of a NSO. SARs will be subject to such terms and
conditions and will be exercisable at such times as determined by the Committee,
provided, that the exercise price per share must equal at least 100% of the fair
market value of a share of a Common Stock on the date of grant. The value of an
SAR may be paid in cash, in shares of Common Stock, or a combination thereof, as
determined by the Committee.
RESTRICTED STOCK. Restricted stock may be subject to substantial risk of
forfeiture, a restriction on transferability or rights of repurchase or first
refusal in the Company, as determined by the Committee. Unless otherwise
determined by the Committee, during the period of restriction, the grantee will
have all other rights of a stockholder, including the right to vote the shares
and receive the dividends paid thereon.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and
performance shares may only be granted to employees and consultants. For each
performance period (to be determined by the Committee), the Committee shall
establish specific financial or non-financial performance objectives, the number
of performance units or performance shares and their contingent values, which
values may vary depending on the degree to which such objectives are met.
OTHER STOCK-BASED AWARDS. Other stock-based awards are awards denominated
or payable in, valued in whole or in part by reference to, or otherwise related
to, shares of Common Stock. Subject to the terms of the Incentive Plan, the
Committee may determine any terms and conditions of other stock-based awards
provided that, in general, the amount of consideration to be received by TRIAD
shall be either (i) no consideration other than services actually rendered or to
be rendered (in the case of the issuance of shares) or (ii) in the case of an
award in the nature of a purchase right, consideration (other than services
rendered) at least equal to 50% of the fair market value of the shares covered
by such grant on the date of grant. Payment or settlement of other stock-based
awards will be in shares of Common Stock or in other consideration related to
such shares.
SUPPLEMENTAL PAYMENTS FOR TAXES The Committee may grant, in connection
with an Incentive Award (except for ISOs), a supplemental payment, in an amount
not to exceed the amount necessary to pay the federal and state income taxes
payable by the grantee with respect to the Incentive Award and the receipt of
such supplemental payment.
OTHER TAX CONSIDERATIONS. Upon accelerated exercisability of Options and
accelerated lapsing of restrictions upon Restricted Stock or other Incentive
Awards in connection with a Change in Control, certain amounts associated with
such Incentive Awards could, depending upon the individual circumstances of the
participant, constitute "excess parachute payments" under the golden parachute
provisions of Section 280G of the Code. Pursuant to these provisions, a
participant will be subject to a 20% excise tax on any "excess parachute
payment" (as defined in Section 280G of the Code) and TRIAD will be denied any
deduction with respect to such excess parachute payment. The limit on the
deductibility of compensation under Section 162(m) of the Code is also reduced
by the amount of any excess parachute payments.
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<PAGE>
Whether amounts constitute excess parachute payments depends upon, among other
things, the value of the Incentive Awards accelerated and the past compensation
of the participant.
Taxable compensation earned by executive officers who are subject to
Section 162(m) of the Code in respect of Incentive Awards is subject to certain
limitations set forth in the Incentive Plan generally intended to satisfy the
requirements for "qualified performance-based compensation," but no assurance
can be given that TRIAD will be able to satisfy these requirements in all cases,
and TRIAD may, in its sole discretion, determine in one or more cases that it is
in its best interest not to satisfy these requirements even if it is able to do
so.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL. Except as otherwise
provided in the applicable Incentive Agreement or an amendment thereto, if a
participant's employment or other service with TRIAD (or its subsidiaries) is
terminated (i) other than due to his death, Disability, Retirement or for Cause
(each capitalized term as defined in the Incentive Plan), his vested Incentive
Awards remain exercisable for 60 days after such termination, (ii) by reason of
Disability or death, his vested Incentive Awards remain exercisable for one year
following such termination (except for ISOs, which remain exercisable for three
months), (iii) due to his retirement, his vested Incentive Awards remain
exercisable for six months (except for ISOs which remain exercisable for three
months), or (iv) for Cause, all outstanding Incentive Awards, whether vested or
otherwise, shall expire at the commencement of business on the date of such
termination.
Upon a Change in Control of TRIAD as defined in the Incentive Plan (a
"Change in Control"), any restrictions on restricted stock and other
stock-based awards shall be deemed satisfied, all outstanding Options and SARs
become immediately exercisable and all of the performance shares and units and
any other stock-based awards shall be fully vested and deemed earned in full.
These provisions in the Incentive Plan providing for accelerated vesting upon a
Change in Control could in some circumstances have the effect of an
"anti-takeover" defense because, as a result of these provisions, a Change in
Control of TRIAD could be more difficult or costly.
INCENTIVE AWARDS NONTRANSFERABLE. No Incentive Award may be assigned, sold
or otherwise transferred by a participant, other than by will or by the laws of
descent and distribution, or be subject to any encumbrance, pledge, lien,
assignment or charge. An Incentive Award may be exercised during the
participant's lifetime only by the participant or the participant's legal
guardian.
AMENDMENT AND TERMINATION. TRIAD's board of directors may amend or
terminate the Incentive Plan at any time, except that the Incentive Plan may not
be modified or amended, without stockholder approval, if such amendment would
(i) increase the number of shares of Common Stock which may be issued
thereunder, except in connection with a recapitalization of the Common Stock,
(ii) amend the eligibility requirements for employees to purchase Common Stock
under the Incentive Plan, (iii) increase the maximum limits on Incentive Awards
that may be issued to executive officers who are subject to Section 162(m) of
the Code, (iv) extend the term of the Incentive Plan, or (v) decrease the
authority granted to the Committee under the Incentive Plan in contravention of
Rule 16b-3 under the Exchange Act. No termination or amendment of the Incentive
Plan shall adversely affect in any material way any outstanding Incentive Award
previously granted to a participant without his consent.
On closing of this Offering, it is anticipated TRIAD will grant ISOs and
NSOs to purchase a total of 104,230 and 868,757 shares of Common Stock,
respectively. Of these options, 141,787 options represent replacement options
for former THI options held by THI employees (including 22,489 options to Mr.
Wallach), and have a weighted average exercise price per share of $5.85. TRIAD
anticipates granting NSOs to purchase a total of 205,000 shares of Common Stock
to persons to serve as executive officers of TRIAD, including 50,000 shares to
each of Messrs. Klintworth, Coop and Ruud, 40,000 shares to Mr. Wallach and
15,000 shares to Mr. Thomas, and will grant NSOs to purchase a total of 626,200
shares of Common Stock to other employees and Outside Directors. Each of these
options (831,200) will have an exercise price per share equal to the initial
public offering price and will become exercisable as to 25% of such shares six
months after the date of grant and as to 25% of such shares on each anniversary
of the date of grant.
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BONUS AWARDS; OTHER PLANS
The 1997 bonuses for officers and key employees of the Company, if any,
will be based upon the performance standards to be established by the
Compensation Committee. The Company expects the Compensation Committee to
establish such performance standards for the remainder of 1997 following the
closing of this Offering.
The Company has adopted or intends to adopt deferred compensation,
supplemental disability, supplemental life and retirement or other benefit or
welfare plans in which executive officers of the Company will be eligible to
participate.
COMPANY POLICY
On the closing of this Offering, the Compensation Committee will be
established. In the past, matters with respect to the compensation of executive
officers of TRIAD were determined by its Board of Directors, including those
members who serve as executive officers.
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CERTAIN TRANSACTIONS
ORGANIZATION OF TRIAD
TRIAD was initially capitalized with (i) $41,000 provided by Messrs.
Klintworth, Blankenship, Ruud and Michael Campbell in exchange for 548,545
shares of Common Stock (after giving effect to a recent stock split) and (ii)
$300,000 provided by Equus II in exchange for 300,000 shares of Series A
Preferred Stock. Equus II has subsequently converted the Series A Preferred
Stock, in accordance with its terms, into 449,213 shares of Common Stock. Mr.
Lehmann, a director of the Company, is a director and the president of Equus II.
In August 1997, TRIAD issued a warrant to purchase 25,000 shares of Common Stock
at the initial public offering price per share to PENMAN in connection with the
organization of TRIAD. Mr. Pennington, a director of the Company, is managing
general partner of PENMAN Management. TRIAD subsequently issued in a private
placement 100,000 shares of Common Stock at $5.00 per share to certain director
nominees, executive officers and affiliates of the Founding Companies and
certain other investors, including 1,000 shares to Michael W. Thomas, 5,000
shares to Marvin L. Marks, 8,000 shares to each of Messrs. Greg H. Sellards and
John B. Benear, II, 7,000 shares to the Klintworth Family Trust, an affiliate of
William C. Klintworth, Jr., 30,000 shares to Child Health Investment
Corporation, a corporation for which Edward Kuklenski serves as an executive
officer, and a total of 28,000 shares to other affiliates of the Founding
Companies.
Since April 1997, Equus II has advanced funds to TRIAD pursuant to a $2.2
million promissory note (the "Equus Note") to enable TRIAD to pay various
expenses incurred in connection with its efforts to create the Company and
effect this Offering. In connection therewith, TRIAD issued the Equus Warrant,
pursuant to which Equus II has the right to purchase 100,000 shares of Common
Stock at the initial public offering price per share. The Equus Note bears
interest at the prime rate as announced by NationsBank of Texas, N.A., plus
1/2%, and is payable on the earlier of (i) January 31, 1998, (ii) the date the
Company consummates an underwritten initial public offering ("IPO") of Common
Stock, (iii) the date Equus II terminates its commitment due to an event of
default (as defined) or (iv) subject to a limited grace period, the date Equus
II gives written notice to TRIAD if Equus II reasonably determines that it is
highly unlikely (A) the IPO will close by January 31, 1998 or (B) $2.2 million
will be sufficient to fund the pre-IPO expenses (as defined). At August 31,
1997, approximately $1.1 million was outstanding under the Equus Note.
Simultaneously with the closing of this Offering, TRIAD will close the
Acquisitions and acquire all the outstanding capital stock of the Founding
Companies. The aggregate consideration that will be paid by TRIAD to acquire the
Founding Companies consists of (i) approximately $22.2 million in cash, (ii)
3,997,215 shares of Common Stock and (iii) options to purchase up to an
aggregate of 141,787 shares of Common Stock, which options will be in-the-money
at the closing of this Offering in the aggregate amount of approximately $0.7
million. The options to be issued in the Acquisitions replace options for the
same number of shares of THI common stock held by former THI employees. The
Company will also assume all the indebtedness of the Founding Companies and
TRIAD (estimated to be approximately $15.3 million as of closing of this
Offering) and repay substantially all such indebtedness with the proceeds of
this Offering.
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Subject to certain adjustments described below, the following table sets
forth for each Founding Company the consideration to be paid to its stockholders
pursuant to the Acquisitions (i) in cash and (ii) in shares of Common Stock.
CASH SHARES OF
FOUNDING COMPANY CONSIDERATION COMMON STOCK
- ---------------------------------------- ------------- ------------
THI..................................... $ 8,696,559 1,451,322
HTD..................................... 2,475,000 530,357
Sun..................................... 2,050,000 571,429
CMS..................................... 1,600,000 350,000
Kentec.................................. 3,240,000 232,857
Products for Surgery.................... 2,250,000 203,571
MegaTech................................ -- 300,000
Omni Medical............................ 200,000 128,571
New England Specialties................. 553,500 88,750
Professional Equipment.................. 435,000 48,929
Wilson.................................. 720,000 91,429
------------- ------------
Totals............................. $ 22,220,059 3,997,215
============= ============
In addition, the Company will issue options to purchase 141,787 shares of
Common Stock in connection with the THI acquisition. The Company will also repay
an aggregate of $13.1 million of indebtedness of certain of the Founding
Companies (plus $2.2 million of TRIAD indebtedness owed to Equus II) with the
proceeds of this Offering, as follows: THI -- $7.0 million; Sun Medical -- $0.9
million; CMS -- $1.5 million; Products for Surgery -- $0.3 million;
MegaTech -- $1.4 million; Omni Medical -- $1.0 million; New England
Specialties -- $0.4 million; and Professional Equipment -- $0.6 million.
Prior to the closing of the Acquisitions, CMS, MegaTech and Omni Medical,
each of which is as S corporation, are expected to distribute cash to their
respective stockholders in amounts equal to the balance of their respective AAA
accounts as of the closing of the Acquisitions (approximately $4.2 million in
the aggregate as of August 31, 1997). Approximately $3.9 million of indebtedness
used to fund the AAA Distributions will be repaid on closing of this Offering as
part of the estimated $15.3 million aggregate indebtedness of the Founding
Companies and TRIAD. Prior to the closing of the Acquisitions, certain Founding
Companies may make additional distributions to their stockholders of certain
assets and related liabilities with an aggregate net book value of approximately
$0.3 million.
In addition, the purchase price attributable to the THI acquisition is
subject to a $4.4 million adjustment in the event THI fails to consummate the
acquisition of a business prior to the consummation of the Acquisitions.
However, if either (i) the acquisition is closed by April 30, 1998 or (ii) by
such date THI otherwise achieves a negotiated earnings target without that
acquisition, the THI stockholders will be entitled to receive $2.6 million of
the previously surrendered purchase price adjustment.
In connection with the Sun acquisition, Sun has identified possible
violations of the Internal Revenue Code of 1986 and ERISA with respect to the
Sun ESOP. Sun has voluntarily notified the IRS regarding these possible
violations and will seek appropriate remedial action under the oversight of the
IRS and, if appropriate, other governmental entities. TRIAD will deposit $1.5
million in cash and 35,715 shares of Common Stock in an escrow account from
consideration otherwise payable to the Sun ESOP or its beneficiaries in
connection with the Sun acquisition for purposes of resolving Sun ESOP
compliance issues and to pay any taxes, sanctions and professional fees incurred
to address and resolve these potential violations to the satisfaction of the
appropriate governmental entities.
The closing of each Acquisiton is subject to customary conditions. These
conditions include, among others: the accuracy on the closing date of the
Acquisitions of the representations and warranties made by the Founding
Companies, their principal stockholders and TRIAD; the performance of each of
their respective covenants included in the Acquisition Agreements; and the
nonexistence of a material adverse change in the results of operations,
financial condition or business of each Founding Company.
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Any Founding Company's Acquisition Agreement may be terminated, under
certain circumstances, prior to the closing of this Offering: (i) by the mutual
consent of the boards of directors of TRIAD and the Founding Company; (ii) by
the Founding Company, its stockholders or TRIAD if this Offering and the
acquisition of that Founding Company are not closed by January 31, 1998; (iii)
by TRIAD if the schedules to the Acquisition Agreement are amended to reflect a
material adverse change in that Founding Company; or (iv) by the Founding
Company, its stockholders or TRIAD if a material breach or default under the
Acquisition Agreement by one party occurs and is not waived by the other party.
No assurance can be given that the conditions to the closing of all the
Acquisitions will be satisfied or waived or that each of the Acquisitions will
close.
Pursuant to the Acquisition Agreements, certain stockholders of each of the
Founding Companies (other than Equus II, PENMAN and others who are not
restricted from competing with TRIAD under employment agreements) have agreed
not to compete with the Company for a period of three years commencing on the
date of closing of the Acquisitions.
In connection with the Acquisitions, TRIAD will grant certain registration
rights to former stockholders of the Founding Companies. See "Shares Eligible
for Future Sale."
ACQUISITIONS INVOLVING CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
Individuals who are or will become directors, executive officers, or
beneficial owners of 5% or more of the Common Stock of TRIAD will receive the
following consideration in the Acquisitions for their equity interests in the
Founding Companies.
CASH SHARES OF
NAME CONSIDERATION COMMON STOCK
- ------------------------------------- ------------- ------------
William C. Klintworth, Jr.(1)........ $ 495,000 70,715
R. Tucker Coop(2).................... 1,224,132 204,289
Clyde A. Blankenship, Jr............. 990,000 212,499
Walter D. Wallach(3)................. 249,113 41,573
Marvin L. Marks(4)................... -- 268,734
Kent J. Wilken(5).................... 3,240,000 232,857
Michael W. Thomas(6)................. 1,600,000 350,000
PENMAN(7)............................ 4,739,650 790,974
Sun ESOP(8).......................... 2,050,000 571,429
Equus II(9).......................... -- 70,714
- ------------
(1) Represents 50% of the cash and shares payable to HTD Holdings, L.C., a Utah
limited liability company ("HTD Holdings") in which Mr. Klintworth has a
50.0% ownership interest.
(2) Represents cash and shares payable to a family trust, of which Mr. Coop and
his spouse are co-trustees.
(3) Excludes options to purchase 22,489 shares of Common Stock which are to be
granted on closing of this Offering in replacement of THI options, 13,493 of
which will have an exercise price per share of $6.13, with the remaining
8,996 having an exercise price per share of $8.06.
(4) Excludes a AAA Distribution in the amount of $1.4 million to Mr. Marks
preceding the closing of the Acquisitions. Any indebtedness used to fund the
AAA Distribution will be repaid by TRIAD on closing of this Offering. Also
excludes the value of certain assets to be distributed to Mr. Marks prior to
closing of the Acquisitions.
(5) Represents cash and shares payable to a family trust, of which Mr. Wilken
and his wife are co-trustees. Excludes the value of certain assets to be
distributed to Mr. Wilken prior to closing of the Acquisitions.
(6) Excludes a AAA Distribution in the amount of approximately $1.7 million to
Mr. Thomas preceding the closing of the Acquisitions. Any indebtedness used
to fund the AAA Distribution will be repaid by TRIAD on closing of this
Offering.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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(7) Represents the cash and shares PENMAN will receive for its THI common stock
that it acquired from THI for approximately $7.5 million in May 1996.
Excludes shares issuable on exercise of the PENMAN Warrant.
(8) Includes $139,000 in cash to be paid to Mr. Sellards under Sun's
Supplemental Executive Retirement Plan, and 50,714 shares to be received by
Mr. Sellards in partial payment of a promissory note. Of the net $1.9
million in cash and 520,715 shares to be paid to the Sun ESOP, $1.5 million
in cash and 35,715 shares are to be deposited in escrow by TRIAD for
purposes of resolving Sun ESOP compliance issues. See "The
Company -- Summary of Terms of the Acquisitions" and "-- Organization of
TRIAD."
(9) Excludes $2.2 million in repayment of promissory note issued by TRIAD to
Equus II, and $0.5 million paid by HTD in redemption of HTD preferred stock
held by Equus II.
HTD
Prior to the completion of this Offering, Messrs. Blankenship, and
Campbell, Equus II and HTD Holdings (of which Mr. Klintworth is a 50% owner) own
all the capital stock of HTD. For information regarding the organization of HTD,
the reorganization of Futuretech, Inc. ("Futuretech") as a subsidiary of HTD,
HTD's acquisition of Medical Alliance (of which Mr. Klintworth is an executive
officer and former owner) and HTD's sales of its equity securities to Equus II,
see Notes 1 and 13 to the Consolidated Financial Statements of HTD included
elsewhere herein.
HTD is being acquired by TRIAD for consideration of approximately $2.5
million in cash and 530,357 shares of Common Stock. TRIAD valued HTD on a basis
consistent with the other Acquisitions, using generally the same multiple of
cash flow adjusted for stockholders' compensation and other non-recurring items.
TRIAD reimbursed Futuretech and Medical Alliance approximately $200,000 for
expenses relating to its formation.
REAL ESTATE AND OTHER TRANSACTIONS
HTD leases office space and warehouse facilities in Bessemer, Alabama from
a partnership owned 50% by Clyde A. Blankenship, Jr. TRIAD and the partnership
have agreed to extend the lease term until late 2002 at the present annual
rental of $154,800.
Kentec leases its two facilities from Kent J. Wilken. TRIAD and Mr. Wilken
have agreed to extend the leases until late 1999 at the present aggregate annual
rental of $228,000.
Sun leases its offices from a partnership in which Greg H. Sellards owns a
70% general partnership interest. TRIAD and the partnership have agreed to
extend the lease, which provides for annual payments by Sun of approximately
$240,000, until late 2001.
Certain of the Founding Companies have also entered into financing
agreements to which certain of the principals of the Company are parties.
Futuretech has a $1.5 million revolving line of credit which Clyde A.
Blankenship has personally guaranteed. Mr. Blankenship has also loaned funds to
Futuretech for working capital purposes. This loan is evidenced by a promissory
note payable to Mr. Blankenship with a current outstanding balance of
approximately $102,000 and which bears interest at 8% per annum, due monthly.
In February 1997, Sun borrowed $325,000 from Cysco Enterprises, Inc., a
Texas corporation wholly owned by Mr. Sellards. Under the terms of the note (the
"Cysco Note"), Sun is to repay Cysco principal and interest, at the rate of
prime plus 3%, in amounts equal to one half of collections by Sun of principal
and interest under a line of credit Sun extended to Rejuvena Corporation (the
"Rejuvena Note"). At June 30, 1997, $325,000 was outstanding under the Cysco
Note. Prior to or concurrent with this Offering, Mr. Sellards intends to repay
all amounts outstanding under the Cysco Note in exchange for which he will
receive the stock ownership, options and conversion rights in Rejuvena
Corporation which Sun received under the Rejuvena Note. Prior to closing of this
Offering, Sun will also pay approximately $139,000 to Mr. Sellards under Sun's
Supplemental Executive Retirement Plan.
Sun made a personal loan to Mr. Sellards in the principal amount of
$225,000 in January of 1991 which bore interest at the rate of 8% per annum. The
principal amount of the note was paid in full in March
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1996. In May 1995, Sun guaranteed a promissory note (the "Sellards Note")
payable by Mr. Sellards to an unrelated third party, which note has a current
outstanding balance of approximately $514,000. Sun also guaranteed a loan (the
"ESOP Loan") payable by the Sun ESOP to Mr. Sellards, which loan has a current
balance of approximately $2.0 million. In connection with the closing of the Sun
acquisition, TRIAD will repay the ESOP Loan in full through the repayment of the
Sellards Note, a cash payment of approximately $0.7 million and the issuance of
50,714 shares of Common Stock.
MegaTech provided certain services to JAJ Enterprises, Ltd., d/b/a S.O.S.
Technologies ("SOS"), a medical products leasing and training company which is
wholly owned beneficially by Marvin Marks, a director nominee of TRIAD,
including office and warehouse space and administrative services. SOS paid to
MegaTech approximately $120,000, $120,000 and $135,000 in 1994, 1995 and 1996,
respectively, for these services. The relationship between MegaTech and SOS
ended as of June 30, 1997.
The Company believes the consideration paid under each of the leases
described above is at fair market rates and the other agreements described above
are fair to the Company.
COMPANY POLICY
In the future, any transactions with directors, officers, employees or
affiliates of the Company are anticipated to be minimal and will, in any case,
be approved in advance by a majority of the board of directors, including a
majority of disinterested members of the board of directors.
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PRINCIPAL STOCKHOLDERS
The following table shows, immediately after giving effect to the closing
of the Acquisitions and this Offering, the beneficial ownership of the Common
Stock of (i) each person who will own more than five percent of the outstanding
shares of TRIAD Common Stock, (ii) each director and person nominated to become
a director on closing of this Offering, (iii) each person who will be an
executive officer on closing of this Offering and (iv) all directors and
executive officers of TRIAD as a group. The table assumes no other person
intends to acquire shares directly from the Underwriters in connection with this
Offering, other than as set forth in the footnotes to the table.
SHARES BENEFICIALLY OWNED
AFTER OFFERING(2)
---------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT
- ---------------------------------------- ----------- -------
PENMAN Private Equity and Mezzanine
Fund, L.P. (3)........................ 815,974 8.9%
333 West Wacker Drive, Suite 700
Chicago, Illinois 60606
Equus II Incorporated(4)................ 619,927 6.7%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Sun Medical Employee Stock Ownership
Plan(5)............................... 485,000 5.3%
1179 Corporate Drive West, Suite 100
Arlington, Texas 76006
William C. Klintworth, Jr.(6)........... 411,036 3.7%
R. Tucker Coop(7)....................... 204,289 2.2%
Clyde A. Blankenship, Jr................ 334,799 3.7%
Walter D. Wallach(8).................... 46,071 *
Lance C. Ruud........................... 44,332 *
Michael W. Thomas....................... 351,000 3.9%
Marvin L. Marks......................... 273,734 3.0%
Greg H. Sellards(9)..................... 79,121 *
Kent J. Wilken(10)...................... 232,857 2.6%
Nolan Lehmann........................... -- *
Kelvin J. Pennington.................... -- *
John B. Benear II, MD................... 8,000 *
Edward T. Kuklenski(11)................. -- *
All directors and officers as a group
(13 persons)(6)-(11).................. 1,985,239 21.8%
- ------------
* Less than 1%.
(1) All persons listed have sole voting and investment power with respect to
their shares unless otherwise indicated.
(2) Shares shown do not include shares of Common Stock that could be acquired
on exercise of currently outstanding options which do not vest within 60
days hereof.
(3) Includes 25,000 shares of Common Stock issuable on exercise of the PENMAN
Warrant. Mr. Pennington, a director nominee of TRIAD, is the managing
general partner of PENMAN Management, the general partner of PENMAN, and
thus may be deemed to be the beneficial owner of shares held by PENMAN. Mr.
Pennington disclaims beneficial ownership in all of those shares.
(4) Includes 100,000 shares of Common Stock issuable on exercise of the Equus
II Warrant. Mr Lehmann, a director of TRIAD, is the president and director
of Equus II and thus may be deemed to be the beneficial owner of shares
held by Equus II. Mr. Lehmann disclaims beneficial ownership in all of
those shares.
(5) Excludes 35,715 shares to be deposited in escrow for purposes of resolving
Sun ESOP compliance issues and 50,714 shares payable to Mr. Sellards in
partial repayment of a promissory note. Consulting
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
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Fiduciaries, Inc., 2745 Riverwoods Road, Riverwoods, Illinois 60015, has
been appointed independent fiduciary of the Sun ESOP.
(6) Includes 141,429 shares of Common Stock issuable to HTD Holdings, in which
Mr. Klintworth has an approximately 50.0% ownership interest; Mr.
Klintworth disclaims beneficial ownership in 70,714 of those shares. See
"Certain Transactions -- Acquisitions Involving Certain Officers,
Directors and Stockholders."
(7) Represents 204,289 shares owned by a family trust, of which Mr. Coop and
his spouse are co-trustees.
(8) Includes 4,498 shares of Common Stock issuable on exercise of stock
options.
(9) Includes 20,407 shares of Common Stock issuable to the Sun ESOP for Mr.
Sellards' account and 50,714 shares of Common Stock issuable in repayment
of the Sun ESOP indebtedness to Mr. Sellards.
(10) Represents 232,857 shares owned by a family trust, of which Mr. Wilken and
his spouse are co-trustees.
(11) Excludes 54,834 shares of Common Stock beneficially held by Child Health
Investment Corporation, a corporation for which Mr. Kuklenski serves as an
executive officer; Mr. Kuklenski disclaims beneficial ownership of such
shares.
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SHARES ELIGIBLE FOR FUTURE SALE
On closing of the Acquisitions and this Offering, 9,094,973 shares of
Common Stock will be outstanding. The shares sold in this Offering (other than
to affiliates of the Company) will be freely tradable by the public. The
remaining outstanding shares of Common Stock (collectively, the "Restricted
Shares") have not been registered under the Securities Act and may be resold
publicly only following their effective registration under the Securities Act or
pursuant to an available exemption from the registration requirements of the
Securities Act, such as Rule 144 thereunder ("Rule 144").
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who may
be deemed "affiliates" of TRIAD, would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock and (ii) the
average weekly trading volume during a preceding period of four calendar weeks.
Sales under Rule 144 are also subject to certain provisions as to the manner of
sale, notice requirements and the availability of current public information
about TRIAD. In addition, under Rule 144, if a period of at least two years has
elapsed since the later of the date restricted securities were acquired from
TRIAD or the date they were acquired from an affiliate of the Company, a
stockholder who is not an affiliate of TRIAD at the time of sale and has not
been an affiliate for at least three months prior to the sale would be entitled
to sell shares of Common Stock in the public market immediately without
compliance with the foregoing Rule 144 requirements. Rule 144 does not require
the same person to have held the securities for the applicable periods under
certain circumstances. The foregoing summary of Rule 144 is not intended to be a
complete description thereof. The SEC has proposed certain amendments to Rule
144 that would, among other things, eliminate the manner of sale requirements
and revise the notice provisions of that rule. The SEC has also solicited
comments on other possible changes to Rule 144, including possible revisions to
the one- and two-year holding periods and the volume limitations referred to
above.
TRIAD has agreed generally not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of two years (the "lockup period")
following the date of this Prospectus without the prior written consent of
Montgomery Securities, except that the Company may issue Common Stock in
connection with acquisitions, pursuant to awards under the Incentive Plan or
pursuant to the exercise of warrants outstanding as of the closing of this
Offering. Further, all of TRIAD's officers, directors and current stockholders
(including Equus II and PENMAN) and all persons who acquire shares in connection
with the Acquisitions have agreed that they generally will not offer, sell or
otherwise dispose of any of their shares for two years following the date of
this Prospectus without the prior written consent of Montgomery Securities.
In connection with the Acquisitions, TRIAD will enter into a registration
rights agreement with the former stockholders of the Founding Companies (the
"Registration Rights Agreement"), which will provide certain registration
rights with respect to the Common Stock issued to such stockholders in the
Acquisitions. The Registration Rights Agreement will provide for a single demand
registration right, exercisable by the holders of at least 51.0% of the shares
of Common Stock initially subject to the Registration Rights Agreement, pursuant
to which TRIAD will file a Registration Statement under the Securities Act to
register the sale of not less than 1,000,000 shares by those requesting
stockholders and any other holders of Common Stock subject to the agreement who
desire to sell pursuant to such Registration Statement. The demand request may
not be made until the expiration of two years after the date of this Prospectus.
The demand registration rights conferred by the Registration Rights Agreement
will terminate on December 31, 2001. In addition, subject to certain conditions
and limitations, the Registration Rights Agreement will provide the holders of
Common Stock subject to the Registration Rights Agreement with the right to
participate in registrations by TRIAD of its equity securities in underwritten
offerings. TRIAD has granted similar registration rights under the Registration
Rights Agreement to Equus II and PENMAN with respect to the shares of Common
Stock underlying the Equus Warrant and PENMAN Warrant.
Under the Registration Rights Agreement described above, TRIAD is generally
required to pay the costs associated with such an Offering other than
underwriting discounts and commissions and transfer
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taxes attributable to the shares sold on behalf of the selling stockholders. The
Registration Rights Agreement provides that the number of shares of Common Stock
that must be registered on behalf of selling stockholders is subject to
limitation if the managing underwriter determines that market conditions require
such a limitation. Under the Registration Rights Agreement, TRIAD will indemnify
the selling stockholders thereunder, and such selling stockholders will
indemnify TRIAD, against certain liabilities in respect of any registration
statement or offering covered by the Registration Rights Agreement.
TRIAD may register additional shares of Common Stock under the Securities
Act in the future for its use in connection with future acquisitions. Pursuant
to Securities Act Rule 145, the volume limitations and certain other
requirements of Rule 144 will apply to resales of these shares by affiliates of
the businesses the Company acquires for a period of one year from the date of
their acquisition (or such shorter period as the SEC may prescribe). Otherwise
these shares generally will be freely tradable after their issuance by persons
not affiliated with TRIAD unless TRIAD contractually restricts their sale, and
sales of these shares during the lockup period would require the prior written
consent of Montgomery Securities.
TRIAD intends to file a Registration Statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Incentive Plan. Shares of Common Stock
issued pursuant to the Incentive Plan after the effective date of that
Registration Statement generally will be available for sale in the open market
by holders who are not affiliates of TRIAD and, subject to the volume and other
limitations of Rule 144, by holders who are affiliates of TRIAD.
DESCRIPTION OF CAPITAL STOCK
TRIAD's authorized capital stock consists of 20,000,000 shares of Common
Stock, and 1,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). At September 8, 1997, 1,097,758 shares of Common Stock and
no shares of Preferred Stock were issued and outstanding. On closing of the
Acquisitions and this Offering, 9,094,973 shares of Common Stock (9,694,973 if
the underwriters' over-allotment option is exercised in full) will be issued,
outstanding and nonassessable and 1,097,987 shares of Common Stock then will be
reserved for issuance pursuant to all then outstanding options, warrants and
other rights (consisting only of Incentive Plan options and the warrants issued
to Equus II and PENMAN). The following summary is qualified in its entirety by
reference to the Charter, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, and each share has one
vote. The Common Stock affords no cumulative voting rights, and the holders of a
majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive rights
and is not convertible, redeemable, assessable or entitled to the benefits of
any sinking fund. The holders of Common Stock are entitled to dividends in such
amounts and at such times as may be declared by the Board of Directors out of
funds legally available therefor, subject to the dividend preference of any
stock ranking senior to the Common Stock, including the Preferred Stock. See
"Dividend Policy" for information regarding the anticipated dividend policy of
TRIAD.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Charter and limitations prescribed by law, the board of directors is
expressly authorized to adopt resolutions to issue the shares, to fix the number
of shares and to change the number of shares constituting any series, and to
provide for the powers, designations, preferences and relative, participating,
optional or other rights, qualifications, limitations or restrictions thereof,
including without limitation, voting powers, dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption prices, conversion rights and liquidation
preferences of the shares constituting any class or series of the Preferred
Stock, in each case without any further action or vote by the holders of Common
Stock. Although TRIAD has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including
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class voting rights that would enable the holders to block such a transaction;
or such issuance might facilitate a business combination by including voting
rights that would provide a required percentage vote of the stockholders. In
addition, under certain circumstances, the issuance of Preferred Stock could
adversely affect the voting power of the holders of the Common Stock. The Board
of Directors could act in a manner that would discourage an acquisition attempt
or other transaction that some or a majority of the stockholders might believe
to be in their best interests or in which stockholders might receive a premium
for their stock over the then market price of such stock. The Board of Directors
does not at present intend to seek stockholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law or the rules of any
market on which TRIAD's securities are traded.
WARRANTS
TRIAD has issued warrants to purchase an aggregate of 125,000 shares of
Common Stock, exercisable at the initial public offering price per share, and of
which warrants to purchase 100,000 shares and 25,000 shares of Common Stock
expire in April 2002 and September 2002, respectively. The warrants were issued
to Equus II (100,000 shares) in connection with TRIAD's start-up funding and
PENMAN (25,000 shares) in connection with the organization of TRIAD. The
exercise price and the number of shares underlying these warrants are subject to
adjustment in certain events, including the declaration or payment of certain
dividends on the Common Stock or securities convertible into Common Stock
(subject to certain exceptions), stock splits, combinations, and
reclassification of shares. In addition, the exercise price is subject to
adjustment on the issuance of additional shares of Common Stock or rights
thereto, subject to certain exceptions, at certain price levels. In the case of
certain extraordinary transactions, including, without limitation, a merger or
consolidation or the sale of all or substantially all the assets of TRIAD, these
warrants become exercisable for the number of shares of stock, securities or
other property which the Common Stock issuable on exercise of these warrants
would have been entitled as a result of such transactions, together with any
necessary adjustments.
STATUTORY BUSINESS COMBINATION PROVISION
TRIAD is a Delaware corporation and is subject to Section 203 of the DGCL.
In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder, the
board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) following the transaction in which such person became an
interested stockholder, the business combination was approved by the board of
directors of the corporation and authorized at a meeting of stockholders by the
affirmative vote of the holders of 66 2/3% of the outstanding voting stock of
the corporation not owned by the interested stockholder. Under Section 203, the
restrictions described above also do not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of the majority
of the corporation's directors, if such extraordinary transaction is approved or
not opposed by a majority of the directors who were directors prior to any
person becoming an interested stockholder during the previous three years or
were recommended for election or elected to succeed such directors by a majority
of such directors.
OTHER MATTERS
Delaware law authorizes Delaware corporations to limit or eliminate the
personal liability of their directors to them and their stockholders for
monetary damages for breach of a director's fiduciary duty of care. The duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware law,
directors are accountable to corporations and their stockholders for
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monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables Delaware corporations to limit
available relief to equitable remedies such as injunction or rescission. The
Charter limits the liability of directors of TRIAD to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically, no
member of the Board of Directors will be personally liable for monetary damages
for breach of a director's fiduciary duty as a director, except for liability
(i) for any breach of the member's duty of loyalty to TRIAD or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL or (iv) for any transaction from which the member derived an
improper personal benefit. This Charter provision may have the effect of
reducing the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited TRIAD and its stockholders. The
Charter and Bylaws provide indemnification to TRIAD's officers and directors and
certain other persons with respect to certain matters, and TRIAD has entered
into agreements with each of its directors and executive officers providing for
indemnification with respect to certain matters.
The Charter provides that: (i) stockholders may act only at an annual or
special meeting of stockholders and may not act by written consent; and (ii)
special meetings of the stockholders can be called only by the chairman of the
board, the chief executive officer, the president or a majority of the Board of
Directors. The Charter also provides that the Board of Directors shall consist
of three classes of directors serving for staggered terms. As a result, it is
currently contemplated that approximately one-third of the Board of Directors
will be elected each year. The classified board provision could prevent a party
who acquires control of a majority of the outstanding voting stock of TRIAD from
obtaining control of the Board of Directors until the second annual
stockholders' meeting following the date the acquirer obtains the controlling
interest. See "Management -- Directors and Executive Officers." The Charter
provides that the number of directors shall be as determined by the Board of
Directors from time to time, but shall not be less than three. It also provides
that directors may be removed only for cause, and then only by the affirmative
vote of the holders of at least two-thirds of all outstanding voting stock. This
provision, in conjunction with the Charter provisions authorizing the board of
directors to fill vacant directorships, will prevent stockholders from removing
incumbent directors without cause and filling the resulting vacancies with their
own nominees.
STOCKHOLDER PROPOSALS
TRIAD's Bylaws contain provisions requiring that advance notice be
delivered to TRIAD of any business to be brought by a stockholder before an
annual meeting of stockholders and establishing certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors. Generally, such advance notice provisions provide that written notice
must be given to the secretary of TRIAD by a stockholder (i) in the event of
business to be brought by a stockholder before an annual meeting and (ii) in the
event of nominations of persons for election to the Board of Directors by any
stockholder, not less than 60 nor more than 180 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders (with certain
exceptions if the date of the annual meeting is different by more than specified
periods from the anniversary date). Such notice must set forth specific
information regarding such stockholder and such business or director nominee, as
described in TRIAD's Bylaws. The foregoing summary is qualified in its entirety
by reference to TRIAD's Bylaws, which are filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
52
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Montgomery Securities, Smith Barney Inc. and Wedbush Morgan Securities (the
"Representatives"), have severally agreed, subject to the terms and conditions
in the underwriting agreement (the "Underwriting Agreement") by and between
TRIAD and the Underwriters, to purchase from TRIAD the aggregate number of
shares of Common Stock indicated below, opposite their respective names, at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent, and
that the Underwriters are committed to purchase all of the shares of Common
Stock, if they purchase any.
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- ---------
Montgomery Securities...................
Smith Barney Inc........................
Wedbush Morgan Securities...............
---------
Total.............................. 4,000,000
=========
The Representatives have advised TRIAD that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
TRIAD has granted an option to the Underwriters, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
600,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial 4,000,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
The Underwriting Agreement provides that TRIAD will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
TRIAD's officers, directors and current stockholders (including Equus II
and PENMAN) and all persons who acquire shares of Common Stock in the
Acquisitions who, immediately following this Offering, collectively will
beneficially own an aggregate of at least 5,224,471 shares of Common Stock
(including shares issuable upon the exercise of outstanding options and warrants
exercisable within 60 days of the closing of this Offering), have agreed that
for a period of two years after the date of this Prospectus they will not,
without the prior written consent of Montgomery Securities, directly or
indirectly sell, offer, contract or grant any option to sell, pledge, transfer,
establish an open put equivalent position or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock. TRIAD has also
53
<PAGE>
agreed not to directly or indirectly, sell, offer, contract or grant any option
to sell, pledge, transfer or establish an open put equivalent position or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock, for a period of two years after the date of this Prospectus without the
prior written consent of Montgomery Securities, except for securities issued by
TRIAD in connection with acquisitions, awards under the Incentive Plan or
pursuant to the exercise of warrants outstanding as of the closing of this
Offering, subject in each case to any remaining portion of the two year period
applying to shares so issued. In evaluating any request for a waiver of the two
year lockup period, Montgomery Securities will consider, in accordance with its
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the Common
Stock, the size of the request and, with respect to a request by TRIAD to issue
additional equity securities, the purpose of that issuance. See "Shares
Eligible for Future Sale."
The Representatives have informed TRIAD that the Underwriters do not expect
to make sales of Common Stock offered by this Prospectus to accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock will be determined by negotiations between TRIAD and the Representatives.
Among the factors they will consider in such negotiations are the history of,
and the prospects for, the Company and the industry in which the Company
competes, an assessment of the Company's management, its financial conditions,
its past and present earnings and the trend of such earnings, the prospects for
future earnings of the Company, the present state of the Company's development,
the general condition of the economy and the securities markets at the time of
this Offering and the market prices of and demand for publicly traded common
stock of comparable companies in recent periods.
Until the distribution of the Common Stock is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Stock. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of the Common Stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in connection
with this Offering, I.E., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Representatives may reduce that
short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. The Representatives may also
impose a penalty bid on certain Underwriters and selling group members. This
means that if the Representatives purchase shares of Common Stock in the open
market to reduce the Underwriters' short position or to stabilize the price of
the Common Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of this
Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither TRIAD nor any of the Underwriters
makes any representation or predictions as to the direction or magnitude of any
effect that the transactions described above may have on the price of the Common
Stock. In addition, neither TRIAD nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters in connection with the sale of the common stock
offered hereby are being passed upon for TRIAD by Porter & Hedges, L.L.P.,
Houston, Texas, and for the Underwriters by Baker & Botts, L.L.P., Houston,
Texas.
54
<PAGE>
EXPERTS
The audited financial statements included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
TRIAD has not previously been subject to the reporting requirements of the
Exchange Act. TRIAD has filed a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with the SEC with respect
to this Offering. This Prospectus, filed as a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, or the exhibits and schedules thereto, in accordance with the rules
and regulations of the SEC, and reference is hereby made to such omitted
information. The statements made in this Prospectus concerning documents filed
as exhibits to the Registration Statement accurately describe the material
provisions of such documents and are qualified in their entirety by reference to
such exhibits for complete statements of their provisions. The Registration
Statement and the exhibits and schedules thereto may be inspected, without
charge, at the public reference facilities of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
its regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and at 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of all or any portion of the Registration Statement can be
obtained at prescribed rates from the Public Reference Section of the SEC at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. The SEC maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The address of that site is
http://www.sec.gov.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation ............................................. F-3
Unaudited Pro Forma Combined Balance Sheet ........................ F-4
Unaudited Pro Forma Combined Statements of Operations ............. F-5
Notes to Unaudited Pro Forma Combined Financial Statements ........ F-8
FOUNDING COMPANIES
Historical Financial Statements
TRIAD Medical Inc. ................................................
Report of Independent Public Accountants ..................... F-12
Balance Sheet ................................................ F-13
Statement of Operations ...................................... F-14
Statement of Stockholders' Equity ............................ F-15
Statement of Cash Flows ...................................... F-16
Notes to Financial Statements ................................ F-17
TRIAD Holdings, Inc. and Subsidiaries
Report of Independent Public Accountants ..................... F-21
Consolidated Balance Sheets .................................. F-22
Consolidated Statements of Operations ........................ F-23
Consolidated Statements of Stockholders' Equity .............. F-24
Consolidated Statements of Cash Flows ........................ F-25
Notes to Consolidated Financial Statements ................... F-26
Healthcare Technology Delivery, Inc. and Subsidiaries
Report of Independent Public Accountants ..................... F-36
Consolidated Balance Sheets .................................. F-37
Consolidated Statements of Operations ........................ F-38
Consolidated Statements of Stockholders' Equity .............. F-39
Consolidated Statements of Cash Flows ........................ F-40
Notes to Consolidated Financial Statements ................... F-41
Sun Medical, Inc. .................................................
Report of Independent Public Accountants ..................... F-49
Balance Sheets ............................................... F-50
Statements of Operations ..................................... F-51
Statements of Stockholder's Deficit .......................... F-52
Statements of Cash Flows ..................................... F-53
Notes to Financial Statements ................................ F-54
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
PAGE
-----
Custom Medical Specialties, Inc. ..................................
Report of Independent Public Accountants ..................... F-63
Balance Sheets ............................................... F-64
Statements of Operations ..................................... F-65
Statements of Stockholder's Equity ........................... F-66
Statements of Cash Flows ..................................... F-67
Notes to Financial Statements ................................ F-68
Kentec Medical, Inc. ..............................................
Report of Independent Public Accountants ..................... F-73
Balance Sheet ................................................ F-74
Statement of Operations ...................................... F-75
Statement of Stockholder's Equity ............................ F-76
Statement of Cash Flows ...................................... F-77
Notes to Financial Statements ................................ F-78
Products for Surgery, Inc. and Subsidiaries
Report of Independent Public Accountants ..................... F-83
Consolidated Balance Sheet ................................... F-84
Consolidated Statement of Operations ......................... F-85
Consolidated Statement of Stockholders' Equity ............... F-86
Consolidated Statement of Cash Flows ......................... F-87
Notes to Consolidated Financial Statements ................... F-88
MegaTech Medical, Inc. ............................................
Report of Independent Public Accountants ..................... F-95
Balance Sheets ............................................... F-96
Statements of Operations ..................................... F-97
Statements of Stockholders' Equity ........................... F-98
Statements of Cash Flows ..................................... F-99
Notes to Financial Statements ................................ F-100
PCI Medical, Inc. .................................................
Report of Independent Public Accountants ..................... F-104
Statement of Operations ...................................... F-105
Statement of Cash Flows ...................................... F-106
Notes to Financial Statements ................................ F-107
F-2
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the following transactions and events (the Transactions): (i) the
organization of TRIAD Medical Inc. (TRIAD) and the issuance of shares of its
common stock (Common Stock) and preferred stock; (ii) the conversion of
outstanding TRIAD preferred stock into Common Stock; (iii) a split of the
outstanding Common Stock; (iv) the acquisitions (the Acquisitions) by TRIAD of
(a) Triad Holdings, Inc. (THI), (b) Healthcare Technology Delivery, Inc. (HTD),
(c) Sun Medical, Inc. (Sun), (d) Custom Medical Specialties, Inc. (CMS), (e)
Kentec Medical, Inc. (Kentec), (f) Products for Surgery, Inc. (Products for
Surgery), (g) MegaTech Medical, Inc. (MegaTech), (h) Omni Medical, Inc. (Omni),
(i) New England Medical Specialties Inc. (New England Specialties), (j)
Professional Equipment Co., Inc. (Professional Equipment) and (k) Wilson Medical
Specialties, Inc. (Wilson) (together, the Founding Companies); and (v) the
closing of TRIAD's initial public offering of Common Stock (the Offering) and
the application of the estimated net proceeds therefrom. TRIAD and the Founding
Companies are hereinafter collectively referred to as the Company. New England
Specialties, Omni, Wilson and Professional Equipment are sometimes hereinafter
collectively referred to as the Other Founding Companies. The Acquisitions will
become effective concurrently with the closing of the Offering and TRIAD will
account for the Acquisitions (except for the acquisition of THI) using the
purchase method of accounting. THI is presented as the accounting acquirer.
The unaudited pro forma combined balance sheet gives effect to the
Transactions as if they had occurred on June 30, 1997. The unaudited pro forma
combined statements of operations give effect to the Transactions as if they had
occurred on January 1, 1996. These pro forma statements do not purport to
represent what the Company's financial position or results of operations
actually would have been had the Transactions in fact occurred when assumed or
to project that financial position or those results of operations for any future
period.
TRIAD has preliminarily analyzed the savings it expects to realize from
reductions in compensation and benefits to the owners and certain key employees
of the Founding Companies to which they have contractually agreed, and the pro
forma combined statements of operations reflect these reductions. TRIAD cannot
currently quantify other potential cost savings it may achieve through combining
and integrating the operations of the Founding Companies and expects those
savings will be offset by incremental costs TRIAD expects to incur, but also
cannot currently quantify, such as costs associated with corporate management
and being a public company. The pro forma combined statements of operations
reflect neither the unquantifiable savings nor the unquantifiable incremental
costs.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate and may be
revised as additional information becomes available. The unaudited pro forma
combined financial information presented herein does not reflect pro forma
adjustments giving effect to the acquisitions of (i) Medical Companies Alliance,
Inc. (MCA) by HTD in 1997, (ii) two companies by THI in 1997 or (iii) one
company by Products for Surgery in 1996 because the individual and combined
effect of including such adjustments would not be material. Because the Founding
Companies have not been under common control or management, their historical
combined results may not be comparable to, or indicative of, future performance.
The unaudited pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. See "Risk Factors."
The Company intends to obtain a new credit facility (the "New Credit
Facility") in connection with this Offering. The Company has initiated
conversations with a financial institution to establish the terms of the New
Credit Facility and, on the basis of those discussions, expects the New Credit
Facility will provide an initial credit line of approximately $40 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
F-3
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PRODUCTS
FOR
TRIAD THI HTD SUN CMS KENTEC SURGERY
-------- ---------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $134,843 $ 52,481 $ 255,035 $ 779,402 $ 280,859 $ 719,508 $ 42,994
Short-term investments.............. -- -- -- -- -- 111,331 --
Accounts receivable................. -- 8,113,372 2,002,458 1,423,800 1,280,460 1,704,433 725,119
Inventories......................... -- 4,755,229 1,177,626 1,362,191 967,941 1,857,915 1,461,078
Prepaids............................ -- 604,003 21,019 86,632 83,017 -- 45,712
Deferred income taxes............... -- 354,000 25,478 126,464 -- 24,590 --
Other current assets................ -- -- -- -- -- -- --
-------- ---------- --------- --------- --------- --------- ----------
TOTAL CURRENT ASSETS................. 134,843 13,879,085 3,481,616 3,778,489 2,612,277 4,417,777 2,274,903
-------- ---------- --------- --------- --------- --------- ----------
PROPERTY AND EQUIPMENT, net.......... 15,145 4,806,116 318,792 94,383 53,280 152,359 191,233
GOODWILL............................. -- 4,312,094 1,684,632 -- -- -- 95,960
OTHER NON-CURRENT ASSETS............. 2,071,193 130,899 252,880 724,028 11,582 235,575 503,305
-------- ---------- --------- --------- --------- --------- ----------
TOTAL ASSETS......................... $2,221,181 $23,128,194 $5,737,920 $4,596,900 $2,677,139 $4,805,711 $3,065,401
======== ========== ========= ========= ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current obligations under capital
leases............................. -- 620,259 35,063 -- -- -- --
Current maturities of long-term
debt............................... $ -- $1,326,766 $ 25,581 $ 450,000 $ 6,543 $ -- $ --
Short-term payables................. 646,429 700,000 618,037 -- -- -- 195,722
Accounts payable and accrued
liabilities........................ 1,166,708 7,278,646 1,669,389 3,098,028 1,127,795 1,699,640 1,200,167
Pro forma cash considerations due to
Founding Companies................. -- -- -- -- -- -- --
-------- ---------- --------- --------- --------- --------- ----------
TOTAL CURRENT LIABILITIES............ 1,813,137 9,925,671 2,348,070 3,548,028 1,134,338 1,699,640 1,395,889
-------- ---------- --------- --------- --------- --------- ----------
OBLIGATIONS UNDER CAPITAL LEASES..... -- 510,948 70,875 -- -- -- --
LONG-TERM DEBT, net of current
maturities.......................... -- 3,636,168 125,172 425,000 20,930 -- 164,817
NOTES PAYABLE TO STOCKHOLDERS AND
RELATED PARTIES, net of current
maturities.......................... -- 468,229 169,136 1,500,000 9,500 -- --
DEFERRED INCOME TAX LIABILITIES...... -- 293,000 10,272 6,933 -- -- 45,164
OTHER................................ -- 1,141,963 -- 253,050 -- -- 500,000
MANDATORILY REDEEMABLE PREFERRED
STOCK............................... -- -- 450,000 -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock..................... 300 -- -- -- -- -- --
Common stock........................ 549 23,949 900 2,673,357 1,000 46,000 10,588
Additional paid-in capital.......... 4,621,248 6,515,452 1,611,800 (222,789) -- -- 355,892
Retained earnings...................(4,214,053) 612,814 951,695 (3,586,679) 1,723,371 3,060,071 593,051
Treasury stock...................... -- -- -- -- (212,000) -- --
-------- ---------- --------- --------- --------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY........... 408,044 7,152,215 2,564,395 (1,136,111) 1,512,371 3,106,071 959,531
-------- ---------- --------- --------- --------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.............................. $2,221,181 $23,128,194 $5,737,920 $4,596,900 $2,677,139 $4,805,711 $3,065,401
======== ========== ========= ========= ========= ========= ==========
<CAPTION>
OTHER
FOUNDING PRO FORMA POST MERGER AS
MEGATECH COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- --------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $ 29,025 $199,968 $ (250,000 ) $2,244,115 $ 923,003 $3,167,118
Short-term investments.............. -- -- -- 111,331 -- 111,331
Accounts receivable................. 961,313 2,251,007 -- 18,461,962 -- 18,461,962
Inventories......................... 717,237 1,737,416 -- 14,036,633 -- 14,036,633
Prepaids............................ 5,996 58,353 -- 904,732 -- 904,732
Deferred income taxes............... -- -- -- 530,532 -- 530,532
Other current assets................ 50 12,650 -- 12,700 -- 12,700
---------- --------- ----------- ---------- ----------- ---------
TOTAL CURRENT ASSETS................. 1,713,621 4,259,394 (250,000 ) 36,302,005 923,003 37,225,008
---------- --------- ----------- ---------- ----------- ---------
PROPERTY AND EQUIPMENT, net.......... 60,993 315,582 -- 6,007,883 -- 6,007,883
GOODWILL............................. -- -- 22,845,598 28,938,284 -- 28,938,284
OTHER NON-CURRENT ASSETS............. 69,172 326,663 1,680,027 6,005,324 (2,071,193) 3,934,131
---------- --------- ----------- ---------- ----------- ---------
TOTAL ASSETS......................... $1,843,786 $4,901,639 $24,275,625 $77,253,496 $(1,148,190) $76,105,306
========== ========= =========== ========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current obligations under capital
leases............................. -- -- -- 655,322 -- 655,322
Current maturities of long-term
debt............................... $ -- $249,466 $ -- $2,058,356 $(2,058,356) $ --
Short-term payables................. 75,000 -- 3,900,000 6,135,188 (6,135,188) --
Accounts payable and accrued
liabilities........................ 234,702 2,109,687 1,000,000 20,584,762 (1,166,708) 19,418,054
Pro forma cash considerations due to
Founding Companies................. -- -- 22,220,059 22,220,059 (22,220,059) --
---------- --------- ----------- ---------- ----------- ---------
TOTAL CURRENT LIABILITIES............ 309,702 2,359,153 27,120,059 51,653,687 (31,580,311) 20,073,376
---------- --------- ----------- ---------- ----------- ---------
OBLIGATIONS UNDER CAPITAL LEASES..... -- -- -- 581,823 -- 581,823
LONG-TERM DEBT, net of current
maturities.......................... -- 728,171 (1,035,000 ) 4,065,258 (4,065,258) --
NOTES PAYABLE TO STOCKHOLDERS AND
RELATED PARTIES, net of current
maturities.......................... -- 97,700 -- 2,244,565 (2,244,565) --
DEFERRED INCOME TAX LIABILITIES...... -- -- -- 355,369 -- 355,369
OTHER................................ 42,800 300,000 -- 2,237,813 -- 2,237,813
MANDATORILY REDEEMABLE PREFERRED
STOCK............................... -- -- (450,000 ) -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock..................... -- -- (300 ) -- -- --
Common stock........................ 4,000 16,954 (2,772,202 ) 5,095 4,000 9,095
Additional paid-in capital.......... 31,000 114,000 2,437,802 15,464,407 36,737,944 52,202,351
Retained earnings................... 1,509,284 1,327,574 (1,331,649 ) 645,479 -- 645,479
Treasury stock...................... (53,000) (41,913 ) 306,913 -- -- --
---------- --------- ----------- ---------- ----------- ---------
TOTAL STOCKHOLDERS' EQUITY........... 1,491,284 1,416,615 (1,359,434 ) 16,114,981 36,741,944 52,856,925
---------- --------- ----------- ---------- ----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.............................. $1,843,786 $4,901,639 $24,275,625 $77,253,496 $(1,148,190) $76,105,306
========== ========= =========== ========== =========== =========
</TABLE>
F-4
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TRIAD THI HTD SUN CMS KENTEC
---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $35,648,949 $16,475,288 $13,037,884 $9,599,162 $14,412,116
COST OF REVENUES..................... -- 26,656,397 11,042,497 8,595,560 7,022,412 10,060,368
---------- ---------- ---------- ---------- --------- ----------
Gross profit........................ -- 8,992,552 5,432,791 4,442,324 2,576,750 4,351,748
SELLING EXPENSES..................... -- 3,622,672 2,724,858 1,820,170 674,321 1,750,968
GENERAL & ADMINISTRATIVE EXPENSES.... -- 3,017,319 2,353,122 2,121,559 781,362 2,316,731
DEPRECIATION & AMORTIZATION.......... -- 763,071 120,445 60,544 20,933 100,715
---------- ---------- ---------- ---------- --------- ----------
INCOME FROM OPERATIONS............... -- 1,589,490 234,366 440,051 1,100,134 183,334
OTHER INCOME (EXPENSE)
Interest income..................... -- 64,588 11,525 48,308 35,010 28,750
Interest expense.................... -- (368,831) (44,425) (246,549) (950) --
Other............................... -- (113,990) (63,615) -- 7,025 (7,666)
---------- ---------- ---------- ---------- --------- ----------
INCOME BEFORE INCOME TAXES........... -- 1,171,257 137,851 241,810 1,141,219 204,418
PROVISION FOR INCOME TAXES........... -- 464,885 54,782 242,589 -- 50,496
---------- ---------- ---------- ---------- --------- ----------
NET INCOME (LOSS).................... $ -- $ 706,372 $ 83,069 $ (779) $1,141,219 $ 153,922
========== ========== ========== ========== ========= ==========
PRO FORMA NET INCOME PER SHARE.......
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE................
<CAPTION>
OTHER
PRODUCTS FOR FOUNDING PRO FORMA AS
SURGERY MEGATECH PCI COMPANIES ADJUSTMENTS ADJUSTED
------------ --------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $8,824,903 $6,820,737 $6,049,214 $17,017,690 $ -- $127,885,943
COST OF REVENUES..................... 5,407,012 4,214,729 2,967,047 11,470,429 -- 87,436,451
------------ --------- ---------- ---------- ----------- -----------
Gross profit........................ 3,417,891 2,606,008 3,082,167 5,547,261 -- 40,449,492
SELLING EXPENSES..................... 1,151,109 1,327,796 724,656 2,431,459 (120,000)(j) 16,108,009
GENERAL & ADMINISTRATIVE EXPENSES.... 1,909,709 932,104 1,558,923 2,541,995 (3,453,703)(k) 13,746,256
(332,865)(m)
DEPRECIATION & AMORTIZATION.......... 103,951 17,657 131,644 105,894 571,140 (n) 1,995,994
------------ --------- ---------- ---------- ----------- -----------
INCOME FROM OPERATIONS............... 253,122 328,451 666,944 467,913 3,335,428 8,599,233
OTHER INCOME (EXPENSE)
Interest income..................... 3,698 901 4,888 8,096 205,764
Interest expense.................... (107,623) (18,212) (6,460) (126,666) 819,716 (o) (100,000)
Other............................... 304,925 135,000 65,186 31,475 (203,549)(p) 154,791
------------ --------- ---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAXES........... 454,122 446,140 730,558 380,818 3,951,595 8,859,788
PROVISION FOR INCOME TAXES........... 91,600 -- -- 41,024 2,990,468 (q) 3,935,844
------------ --------- ---------- ---------- ----------- -----------
NET INCOME (LOSS).................... $ 362,522 $ 446,140 $ 730,558 $ 339,794 $ 961,127 $ 4,923,944
============ ========= ========== ========== =========== ===========
PRO FORMA NET INCOME PER SHARE....... $ 0.54
===========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE................ 9,161,355(r)
===========
</TABLE>
F-5
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
TRIAD THI HTD SUN CMS KENTEC
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $16,894,302 $8,223,782 $6,667,314 $4,889,211 $7,410,796
COST OF REVENUES..................... -- 12,862,460 5,456,991 4,417,987 3,548,566 5,215,731
--------- ---------- --------- --------- --------- ---------
Gross profit........................ -- 4,031,842 2,766,791 2,249,327 1,340,645 2,195,065
SELLING EXPENSES..................... -- 1,652,268 1,360,904 843,299 391,993 846,606
GENERAL & ADMINISTRATIVE EXPENSES.... -- 1,215,140 1,205,714 1,076,066 419,853 1,177,758
DEPRECIATION & AMORTIZATION.......... -- 313,318 59,055 30,000 10,327 73,675
--------- ---------- --------- --------- --------- ---------
INCOME FROM OPERATIONS............... -- 851,116 141,118 299,962 518,472 97,026
OTHER INCOME (EXPENSE)
Interest income..................... -- 22,196 73 17,381 10,544 16,645
Interest expense.................... -- (210,962) (22,818) (123,565) (475) --
Other............................... -- (36,571) 1,339 -- -- (4,575)
--------- ---------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........... -- 625,779 119,712 193,778 528,541 109,096
PROVISION (BENEFIT) FOR INCOME
TAXES............................... -- 261,185 57,201 221,962 -- 25,248
--------- ---------- --------- --------- --------- ---------
NET INCOME (LOSS).................... $ -- $ 364,594 $ 62,511 $ (28,184) $ 528,541 $ 83,848
========= ========== ========= ========= ========= =========
PRO FORMA NET INCOME PER SHARE.......
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE................
<CAPTION>
OTHER
PRODUCTS FOR FOUNDING PRO FORMA AS
SURGERY MEGATECH PCI COMPANIES ADJUSTMENTS ADJUSTED
------------ --------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $4,969,412 $3,327,669 $4,019,557 $8,370,588 $ -- $64,772,631
COST OF REVENUES..................... 3,427,746 2,003,922 1,968,338 5,721,028 -- 44,622,769
------------ --------- --------- --------- ----------- ----------
Gross profit........................ 1,541,666 1,323,747 2,051,219 2,649,560 -- 20,149,862
SELLING EXPENSES..................... 537,415 531,105 455,649 1,057,985 (71,861)(j) 7,605,363
GENERAL & ADMINISTRATIVE EXPENSES.... 908,227 494,906 883,057 1,304,830 (1,808,418)(k) 6,710,701
(166,432)(m)
DEPRECIATION & AMORTIZATION.......... 46,732 6,862 95,491 61,556 285,570 (n) 982,586
------------ --------- --------- --------- ----------- ----------
INCOME FROM OPERATIONS............... 49,292 290,874 617,022 225,189 1,761,141 4,851,212
OTHER INCOME (EXPENSE)
Interest income..................... 3,645 21 836 2,708 -- 74,049
Interest expense.................... (66,758) (12,790) (6,460) (1,695) 395,523 (o) (50,000)
Other............................... 15,936 75,000 63,629 (564) (169,110)(p) (54,916)
------------ --------- --------- --------- ----------- ----------
INCOME BEFORE INCOME TAXES........... 2,115 353,105 675,027 225,638 1,987,554 4,820,345
PROVISION (BENEFIT) FOR INCOME
TAXES............................... (10,888) -- -- (11,182) 1,573,166 (q) 2,116,692
------------ --------- --------- --------- ----------- ----------
NET INCOME (LOSS).................... $ 13,003 $ 353,105 $ 675,027 $236,820 $ 414,388 $2,703,653
============ ========= ========= ========= =========== ==========
PRO FORMA NET INCOME PER SHARE....... $ 0.30
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE................ 9,161,355(r)
==========
</TABLE>
F-6
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRODUCTS FOR
TRIAD THI HTD SUN CMS KENTEC SURGERY
---------- ---------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $22,365,837 $9,496,658 $6,327,011 $4,633,716 $6,644,722 $ 3,625,654
COST OF REVENUES..................... -- 16,320,094 6,397,816 4,060,634 3,424,799 4,605,321 2,182,922
---------- ---------- --------- --------- --------- --------- ------------
Gross profit....................... -- 6,045,743 3,098,842 2,266,377 1,208,917 2,039,401 1,442,732
SELLING EXPENSES..................... -- 2,452,172 1,489,716 857,620 327,436 760,833 583,869
GENERAL & ADMINISTRATIVE EXPENSES.... 4,034,859 2,347,483 1,078,319 980,929 383,243 1,351,508 1,130,306
DEPRECIATION & AMORTIZATION.......... 800 648,483 102,923 30,000 13,172 47,011 38,165
---------- ---------- --------- --------- --------- --------- ------------
INCOME (LOSS) FROM OPERATIONS........ (4,035,659) 597,605 427,884 397,828 485,066 (119,951) (309,608)
OTHER INCOME (EXPENSE)
Interest income.................... 1,241 15,566 3,627 58,031 8,935 19,960 22,846
Interest expense................... (179,635) (255,639) (30,868) (116,621) (570) -- (18,117)
Other.............................. -- 14,238 (10,670) -- 27,500 (3,013) 408,743
---------- ---------- --------- --------- --------- --------- ------------
INCOME (LOSS) BEFORE INCOME TAXES.... (4,214,053) 371,770 389,973 339,238 520,931 (103,004) 103,864
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- 142,037 163,609 273,109 -- (12,991) 53,246
---------- ---------- --------- --------- --------- --------- ------------
NET INCOME (LOSS).................... $(4,214,053) $ 229,733 $ 226,364 $ 66,129 $ 520,931 $ (90,013) $ 50,618
========== ========== ========= ========= ========= ========= ============
PRO FORMA NET INCOME PER SHARE.......
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE...............
<CAPTION>
OTHER
FOUNDING PRO FORMA AS
MEGATECH COMPANIES ADJUSTMENTS ADJUSTED
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES............................. $3,217,241 $8,578,845 $ -- $64,889,684
COST OF REVENUES..................... 1,932,450 5,832,103 -- 44,756,139
--------- --------- ----------- ----------
Gross profit....................... 1,284,791 2,746,742 -- 20,133,545
SELLING EXPENSES..................... 538,849 1,002,187 (18,245)(j) 7,994,437
GENERAL & ADMINISTRATIVE EXPENSES.... 427,346 1,200,736 (1,135,421)(k) 7,724,245
(3,758,097)(l)
(316,966)(m)
DEPRECIATION & AMORTIZATION.......... 24,428 82,650 285,570(n) 1,273,202
--------- --------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS........ 294,168 461,169 4,943,159 3,141,661
OTHER INCOME (EXPENSE)
Interest income.................... -- 2,865 -- 133,071
Interest expense................... (6,879) (55,693) 614,022(o) (50,000)
Other.............................. 60,000 19,322 (621,986)(p) (105,866)
--------- --------- ----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.... 347,289 427,663 4,935,195 3,118,866
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. -- 71,521 691,510(q) 1,382,041
--------- --------- ----------- ----------
NET INCOME (LOSS).................... $ 347,289 $ 356,142 $ 4,243,685 $1,736,825
========= ========= =========== ==========
PRO FORMA NET INCOME PER SHARE....... $ 0.19
==========
SHARES USED IN COMPUTING PRO FORMA
NET INCOME PER SHARE............... 9,161,355(r)
==========
</TABLE>
F-7
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. TRIAD MEDICAL INC. BACKGROUND:
TRIAD was founded to create a national leader in the contract sale and
distribution of specialty medical products designed for the hospital and
alternate-site health care markets (including sub-acute facilities, home care
companies and specialty physician groups). TRIAD has conducted no operations to
date and will acquire the Founding Companies concurrently with the closing of
the Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements. All Founding Companies have
a December 31 year-end or have been converted to a December 31 year-end, except
for Professional Equipment, which has an October 31 year-end, and New England
Specialties, which has a March 31 year-end. The historical financial statements
included elsewhere in this Prospectus have been included in accordance with
Regulation S-X, Rule 3-05, promulgated by the Securities and Exchange
Commission.
3. ACQUISITION OF FOUNDING COMPANIES:
TRIAD will account for the Acquisitions using the purchase method of
accounting, with THI being treated as the acquirer for financial statement
presentation purposes.
The following table sets forth the consideration to be paid in (i) cash and
(ii) shares of TRIAD's Common Stock, par value $0.001 per share (Common Stock),
for the Founding Companies. For purposes of computing the estimated purchase
price for accounting purposes, the value of the Common Stock was determined
using an estimated fair value of $8.25 per share, which represents a discount of
25 percent from the assumed initial public offering price of $11.00 due to
restrictions on the sale and transferability of the shares issued. The estimated
purchase price for the Acquisitions is based on preliminary estimates and is
subject to certain purchase price adjustments at and following closing. The
table does not reflect (1) the redemption of HTD preferred stock for
approximately $450,000, (2) distributions totaling $4.2 million by Founding
Companies that are S Corporations to their stockholders which constitute
undistributed earnings, which have been taxed to those stockholders ("S
Corporation Distributions") or, (3) the cash surrender value of certain
insurance policies of $0.3 million.
SHARES OF
CASH COMMON
CONSIDERATION STOCK
-------------- -----------
THI.................................. $ 8,696,559 1,451,322
HTD.................................. 2,475,000 530,357
Sun.................................. 2,050,000 571,429
CMS.................................. 1,600,000 350,000
Kentec............................... 3,240,000 232,857
Products for Surgery................. 2,250,000 203,571
MegaTech............................. -- 300,000
Omni................................. 200,000 128,571
New England Specialties.............. 553,500 88,750
Professional Equipment............... 435,000 48,929
Wilson............................... 720,000 91,429
-------------- -----------
Total...................... $ 22,220,059 3,997,215
============== ===========
F-8
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Of the estimated total purchase price of $35.5 million (based on the fair
value of the shares to be issued in the Acquisitions and excluding THI, the
accounting acquirer), $12.7 million has been allocated to the assets acquired
and liabilities assumed. The remaining $22.8 million represents the purchase
price paid to holders of the common stock of the Founding Companies in excess of
the net assets acquired.
Management of TRIAD anticipates, based on its preliminary analysis, that
the historical carrying value of the Founding Companies' assets and liabilities
will approximate fair value. Accordingly, the amount allocated to goodwill is
$22.8 million. Management of TRIAD has not identified any other material
tangible or identifiable intangible assets of the Founding Companies to which a
portion of the purchase price should be allocated.
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the distribution of the accumulated adjustment accounts of
Founding Companies that are S Corporations.
(b) Records the distribution of cash surrender value of life insurance
policies and other personal assets to stockholders.
(c) Records the purchase of the Founding Companies, including the cash
consideration and Common Stock consideration due to the stockholders of
the Founding Companies. This adjustment assumes there will be no
post-closing adjustments to the purchase prices.
(d) Records TRIAD's issuance of shares to THI, the acquiring company.
(e) Records the conversion of 300,000 shares of TRIAD preferred stock into
449,213 shares of Common Stock.
(f) Records the sale of 100,000 shares of Common Stock to investors, including
certain stockholders of TRIAD and the Founding Companies.
(g) Reflects the net deferred income tax assets attributable to the temporary
differences between financial reporting and income tax bases of assets and
liabilities currently held in S Corporations.
(h) Records the estimated proceeds from the issuance of 4,000,000 shares of
Common Stock at an assumed offering price of $11 per share, net of
estimated underwriting discount and offering costs of $7.0 million ($1.2
million accrued prior to filing), including repayment of advances received
from Equus II to fund offering costs. Offering costs primarily consist of
accounting fees, legal fees, regulatory filing fees and printing expenses.
(i) Records the payment to founders and the repayment of certain liabilities
and debt obligations with the net proceeds from the Offering including
$2.9 million of notes payable to stockholders or related parties of
certain Founding Companies of which $0.7 million was current at June 30,
1997.
F-9
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) (G) ADJUSTMENTS
--------- --------- ---------- --------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............ (300,000) (450,000) 500,000 (250,000)
Goodwill............................. 22,845,598 22,845,598
Other noncurrent assets.............. (260,638) 1,908,000 32,665 1,680,027
Short-term payables.................. (3,900,000) (3,900,000)
Accounts payable and accrued
liabilities........................ (1,000,000) (1,000,000)
Pro forma cash consideration due to
Founding Companies................. (13,523,500) (8,696,559) (22,220,059)
Long-term debt, net of current
maturities......................... 1,035,000 1,035,000
Mandatorily redeemable preferred
stock of HTD....................... 450,000 450,000
Preferred stock...................... 300 300
Common stock......................... 2,750,253 22,498 (449) (100) 2,772,202
Additional paid-in capital........... 4,200,000 260,638 (19,286,805) 12,888,114 149 (499,900) (2,437,804)
Retained earnings.................... 5,578,367 (4,214,053) (32,665) 1,331,649
Treasury stock....................... (306,913) -- (306,913)
--------- --------- ---------- --------- ---------- ---------- --------- -----------
-- -- -- -- -- -- -- --
========= ========= ========== ========= ========== ========== ========= ===========
<CAPTION>
POST-
MERGER
(H) (I) ADJUSTMENTS
---------- ---------- -----------
<S> <C> <C> <C>
Cash and cash equivalents............ 38,813,137 (37,890,134) 923,003
Other noncurrent assets.............. (2,071,193) (2,071,193)
Current maturities of long-term
debt............................... 2,058,356 2,058,356
Short-term payables.................. 6,135,188 6,135,188
Accounts payable and accrued
liabilities........................ 1,166,708 1,166,708
Pro forma cash consideration due to
Founding Companies................. 22,220,059 22,220,059
Long-term debt, net of current
maturities......................... 4,065,258 4,065,258
Notes payable to stockholders and
related parties, net of current
maturities......................... 2,244,565 2,244,565
Common stock......................... (4,000) (4,000)
Additional paid-in capital........... (36,737,944) (36,737,944)
---------- ---------- -----------
-- -- --
========== ========== ===========
</TABLE>
F-10
<PAGE>
TRIAD MEDICAL INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
(j) Reduce sales commission expense for the elimination of special sales
programs of certain Founding Companies.
(k) Reduce compensation expenses to the contractual levels the owners and key
employees of the Founding Companies have agreed to receive subsequent to
the Acquisitions.
(l) Reflects the reversal of the $3.9 million non-recurring non-cash
compensation charge by TRIAD related to the issuance of 548,545 shares of
common stock to management. The historical financial statements of TRIAD
include a compensation charge representing the difference between the
amounts paid for the shares issued to the Company's management and their
estimated value on the date of the sale as if the acquisition had
occurred. This reversal is offset by a $123,000 charge for recurring
contractual salary expenses of management.
(m) Eliminates one-time ESOP tax exposure recorded by one of the Founding
Companies.
(n) Records goodwill amortization expense using a 40-year estimated life.
(o) Reduce interest expense for repayment of certain debt obligations which
will be repaid from the net proceeds from the Offering.
(p) Eliminates one-time settlement received from vendors for early
extinguishment of supply contract obligations.
(q) Records the incremental provision for federal and state income taxes
relating to the compensation and sales commission expenses, S Corporation
income, other pro forma adjustments and the inclusion of all Founding
Companies in a consolidated federal income tax return.
(r) The number of shares estimated to be outstanding on completion of the
Offering includes the following:
Issued to management .................................... 548,545
Issued to financial sponsor in exchange
for convertible preferred stock ....................... 449,213
Sale to investors, including management ................. 100,000
Issued to acquire Founding Companies .................... 3,997,215
Issued in the Offering .................................. 4,000,000
---------
Shares estimated to be outstanding ...................... 9,094,973
---------
Net effect of TRIAD stock options
using the Treasury Stock method ....................... 66,382
---------
Shares used in computing pro forma
net income per share .................................. 9,161,355
=========
Such share number does not include (i) an aggregate of 831,200 shares
subject to options granted under TRIAD's 1997 Incentive Plan which have an
exercise price equal to the offering price per share, and (ii) warrants to
purchase up to 100,000 and 25,000 shares of Common Stock, each at a
purchase price equal to the initial public offering price per share, issued
by TRIAD to Equus II Incorporated in connection with TRIAD's start-up
funding and PENMAN Private Equity and Mezzanine Fund, L.P. in consideration
for financial advisory services performed on behalf of TRIAD, respectively.
See "Management -- Option Grants" and "Certain Transactions -- Organization
of TRIAD."
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TRIAD Medical Inc.:
We have audited the accompanying balance sheet of TRIAD Medical Inc. (a
Delaware corporation) as of June 30, 1997, and the related statements of
operations, stockholders' equity and cash flows for the period from inception
(April 7, 1997) to June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TRIAD Medical Inc. as of
June 30, 1997 and the results of its operations and its cash flows for the
period from inception (April 7, 1997) to June 30, 1997 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
September 5, 1997
F-12
<PAGE>
TRIAD MEDICAL INC.
BALANCE SHEET
JUNE 30,
1997
--------------
ASSETS
CASH................................. $ 134,843
DEFERRED OFFERING COSTS.............. 2,071,193
EQUIPMENT, net....................... 15,145
--------------
Total assets............... $ 2,221,181
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE, net of discount of
$228,571........................... $ 646,429
ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES........................ 1,166,708
--------------
Total liabilities.......... 1,813,137
--------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par
value; 1,000,000 shares
authorized, 300,000 shares
(Series A Convertible) issued
and outstanding................ 300
Common stock, $.001 par value;
20,000,000 shares authorized,
548,545 shares issued and
outstanding.................... 549
Warrant to purchase common
stock.......................... 400,000
Additional paid-in capital...... 4,221,248
Accumulated deficit............. (4,214,053)
--------------
Total stockholders'
equity....................... 408,044
--------------
Total liabilities and
stockholders' equity...... $ 2,221,181
==============
The accompanying notes are an integral part of this financial statement.
F-13
<PAGE>
TRIAD MEDICAL INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD
FROM INCEPTION
(APRIL 7, 1997)
TO JUNE 30, 1997
----------------
OPERATING EXPENSES:
Compensation expense relating to
common stock issued to
management..................... $ 3,881,097
General and administrative...... 153,762
Depreciation.................... 800
----------------
Total operating expenses... 4,035,659
----------------
Loss from operations....... (4,035,659)
----------------
OTHER INCOME (EXPENSE):
Interest income................. 1,241
Interest expense................ (179,635)
----------------
NET LOSS............................. $ (4,214,053)
================
The accompanying notes are an integral part of this financial statement.
F-14
<PAGE>
TRIAD MEDICAL INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 7, 1997) TO JUNE 30, 1997
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK WARRANT TO ADDITIONAL
---------------- ---------------- PURCHASE PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMMON STOCK CAPITAL DEFICIT
------- ------ ------- ------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception (April 7, 1997).... -- $ -- -- $ -- $ -- $ -- $ --
Issuance of preferred stock............. 300,000 300 -- -- -- 299,700 --
Issuance of common stock................ -- -- 548,545 549 -- 3,921,548 --
Issuance of warrant to purchase common
stock in connection with the issuance
of notes payable...................... -- -- -- -- 400,000 -- --
Net loss................................ -- -- -- -- -- -- (4,214,053)
------- ------ ------- ------ ------------ ---------- -----------
Balance at June 30, 1997................ 300,000 $ 300 548,545 $ 549 $400,000 $4,221,248 $(4,214,053)
======= ====== ======= ====== ============ ========== ===========
</TABLE>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
Balance at inception (April 7, 1997).... $ --
Issuance of preferred stock............. 300,000
Issuance of common stock................ 3,922,097
Issuance of warrant to purchase common
stock in connection with the issuance
of notes payable...................... 400,000
Net loss................................ (4,214,053)
-------------
Balance at June 30, 1997................ $ 408,044
=============
The accompanying notes are an integral part of this financial statement.
F-15
<PAGE>
TRIAD MEDICAL INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD
FROM INCEPTION
(APRIL 7, 1997)
TO JUNE 30, 1997
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (4,214,053)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Amortization of debt discount
and depreciation................ 172,229
Compensation expense relating to
common stock issued to
management..................... 3,881,097
Increase (decrease) in operating
cash flows resulting from:
Deferred offering costs....... (2,071,193)
Accrued accounting, legal and
professional fees............ 1,150,883
Accrued expenses and other
current liabilities.......... 15,825
----------------
Net cash used in operating
activities................ (1,065,212)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment........... (15,945)
----------------
Net cash used in investing
activities................ (15,945)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes
payable and related common stock
warrant......................... 875,000
Proceeds from issuance of series
A convertible preferred
stock.......................... 300,000
Proceeds from issuance of common
stock.......................... 41,000
----------------
Net cash provided by
financing activities...... 1,216,000
----------------
NET INCREASE IN CASH................. 134,843
CASH, beginning of period............ --
----------------
CASH, end of period.................. $ 134,843
================
The accompanying notes are an integral part of this financial statement.
F-16
<PAGE>
TRIAD MEDICAL INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
TRIAD Medical Inc., a Delaware corporation (the Company or TRIAD), was
founded in April 1997 to create a national leader in the contract sales and
distribution of specialty medical products designed for the hospital and
alternate-site health care markets (including sub-acute care facilities, home
care companies and specialty medical groups). The Company intends to (i) enter
into definitive merger agreements to acquire in separate transactions (the
Acquisitions) 11 other companies (the Founding Companies) for a total of
$22,220,000 in cash and 3,997,215 shares of the Company's common stock, $0.001
par value (Common Stock), and (ii) complete an initial public offering of
4,000,000 shares of the Common Stock (the Offering). Subsequent to the Offering,
the Company intends to continue to acquire, through merger or purchase, similar
businesses to expand its national operations.
The Company's primary assets at June 30, 1997 are cash and deferred
offering costs. The Company has not conducted any operations, and its activities
to date have related to the Acquisitions and the Offering. There is no assurance
that the acquisitions of the Founding Companies will be completed and that the
Company will be able to generate future operating revenues. Equus II
Incorporated (Equus II) has committed to fund up to $2,200,000 in pre-Offering
costs. The Company is dependent on the Offering to fund the amounts due to Equus
II, the pending Acquisitions and related transactions and future operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The financial statements presented have been prepared on the accrual basis
of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and notes
payable. The carrying amounts of those instruments reported in the balance sheet
are considered to be representative of their respective fair values, due to the
short-term nature of such financial instruments and the current interest rate
environment.
DEFERRED OFFERING COSTS
Deferred offering costs consist of accounting, legal and consulting fees.
These costs will be treated as a reduction of the Offering proceeds.
EQUIPMENT
Equipment is stated at cost and depreciation is computed using the
straight-line method over a five year estimated useful life.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
F-17
<PAGE>
TRIAD MEDICAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded a full valuation allowance against all deferred
income tax assets due to the uncertainty of ultimate realizability. Accordingly,
no income tax benefit has been recorded for the current period loss.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires nonpublic entities to disclose
certain information about an entity's capital structure, including the pertinent
rights and privileges of the various securities outstanding. If the Company does
not complete the Offering in 1997, it will be required to adopt SFAS No. 129 in
1997. In the opinion of management, SFAS No. 129 will not significantly change
the Company's existing financial statement disclosures.
3. EQUIPMENT:
Equipment consists of the following at June 30, 1997:
Office equipment and fixtures........... $ 15,945
Less -- accumulated depreciation........ (800)
---------
Equipment, net.......................... $ 15,145
=========
4. NOTES PAYABLE:
The Company has borrowings from Equus II under a $2,200,000 credit facility
totaling $875,000 at June 30, 1997. The borrowings are unsecured, bear interest
at a bank's prime rate plus 0.5 percent (9.0 percent at June 30, 1997), and
mature at the earlier of January 31, 1998 or the date the Offering closes. The
credit facility contains various restrictive covenants, including provisions
relating to restrictions on the issuance of additional shares of capital stock
or convertible securities, declaration of dividends and additional indebtedness.
The Company was in compliance with all its covenants at August 22, 1997. In
addition, the credit facility requires Equus II to have a representative on the
Company's Board of Directors.
In connection with the credit facility, the Company issued a warrant to
Equus II to purchase up to 100,000 shares of Common Stock at a purchase price
equal to the initial public offering price per share in the Offering, subject to
adjustment in certain circumstances. The warrant may be exercised at any time or
from time to time until five years from the date the Offering closes. The
warrant was valued at $400,000, which resulted in an original issue discount on
the notes payable. The original issue discount is being amortized as additional
interest expense over the expected life of the notes payable. The unamortized
original issue discount at June 30, 1997 was $228,571.
5. STOCKHOLDERS' EQUITY:
In connection with its organization and capitalization, the Company issued
and sold 548,545 shares of Common Stock at approximately $.08 per share to
certain officers of the Company for total proceeds of $41,000. The Company
recorded a non-recurring, non-cash compensation charge of $3,881,097,
representing the difference between the amount paid and the value of the shares
on the date of issuance estimated based on an assumed initial public offering
price of $11.00 per share.
In connection with the credit facility discussed in Note 4, the Company
issued 300,000 shares of its series A convertible preferred stock at $1.00 per
share to Equus II. Such shares are subject to certain voting restrictions and
are convertible into 449,213 shares of Common Stock one year after the date of
issuance (see Note 9).
F-18
<PAGE>
TRIAD MEDICAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
TRIAD's Certificate of Incorporation, as amended, authorizes the issuance,
without stockholder approval, of one or more series of preferred stock having
such preferences, powers and relative, participating, optional and other rights
(including preferences over the Common Stock respecting dividends and
distributions and voting rights) as TRIAD's board of directors may determine.
SFAS No. 123, "Accounting for Stock-Based Compensation," allows entities
to choose between a new fair value based method of accounting for employee stock
options or similar equity instruments and the current intrinsic, value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
(APB No. 25). Entities electing to remain with the accounting in APB No. 25 must
make pro forma disclosures of net income and earnings per share as if the fair
value method of accounting had been applied. No awards were issued for which
such disclosure would be required. The Company will provide pro forma disclosure
of net income and earnings per share, as applicable, in the notes to its future
financial statements.
On September 5, 1997 the Company effected an approximately 1.34-for-one
stock split of the outstanding Common Stock for each share of Common Stock
outstanding. The effects of the stock split have been retroactively reflected in
the accompanying financial statements and in these notes.
6. INCOME TAXES:
There were no income taxes recorded for the period ended June 30, 1997 due
to the Company's incurring a net operating loss for financial reporting and
income tax reporting purposes. Management has provided a valuation allowance
equal to the amount of the deferred income tax asset related to the net
operating loss carryforward.
As of June 30, 1997, the Company has a net operating loss carryforward for
income tax reporting purposes of approximately $338,000. These net operating
loss carryforwards are scheduled to expire in 2012.
7. RELATED PARTY TRANSACTIONS:
The Company leases its office space from a company owned in part by an
officer of the Company under a month-to-month lease. The total rent paid under
the lease was approximately $5,600 for the period from inception (April 7, 1997)
to June 30, 1997.
8. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with certain officers of
the Company. If an officer's employment is terminated without cause, the officer
would be entitled to six months' compensation from the date of termination.
COMMON STOCK OPTIONS
The Company has committed to issue options to purchase 972,987 shares of
Common Stock, 831,200 of which will have an exercise price equal to the initial
public offering price per share and 141,787 of which will have a weighted
average exercise price of $5.85 per share. In general, the terms of the option
awards (including vesting schedules) will be established by the compensation
committee of the Company's board of directors.
9. EVENTS SUBSEQUENT TO THE DATE OF AUDITORS' REPORT (UNAUDITED):
On September 5, 1997 the series A convertible preferred stock was amended
to remove the one-year holding restriction (see Note 5) and was converted into
449,213 shares of Common Stock.
On September 8, 1997, the Company and its stockholders approved the TRIAD
Medical Inc. 1997 Incentive Plan (the Plan), which provides for the granting or
awarding of stock options to employees,
F-19
<PAGE>
TRIAD MEDICAL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
nonemployee directors and nonemployee consultants who provide services to TRIAD.
The number of shares authorized and reserved for issuance under the Plan is
limited to the greater of 1,130,000 or 12.5 percent of the number of shares of
Common Stock outstanding on the last day of the preceding calendar quarter. As
discussed in Note 8, the Company has previously committed to issue options to
purchase 972,987 shares of Common Stock at a price equal to the initial public
offering price per share.
On September 8, 1997, the Company issued and sold in a private placement
100,000 shares of Common Stock at a price of $5.00 per share to certain
directors, executive officers of the Founding Companies and certain other
investors.
On September 8, 1997, the Company issued a warrant to a shareholder of one
of the Founding Companies to purchase 25,000 shares of Common Stock at a price
equal to the initial public offering price per share issued in connection with
the Company's formation.
On September 9, 1997, the Company entered into definitive merger agreements
with the Founding Companies, providing for the acquisition of the Founding
Companies by TRIAD.
The Company intends to obtain a new credit facility (the "New Credit
Facility") in connection with this Offering. The Company has initiated
conversations with a financial institution to establish the terms of the New
Credit Facility and, on the basis of those discussions, expects the New Credit
Facility will provide an initial credit line of approximately $40 million.
On September 11, 1997, the Company filed a registration statement on Form
S-1 relating to the Offering. An investment in shares of Common Stock involves a
high degree of risk, including, among others, absence of a combined operating
history, dependence on acquisitions for growth, history of loss of product
lines, need for additional financing and dependence on key personnel. See "Risk
Factors."
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TRIAD Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of TRIAD
Holdings, Inc. (a Delaware corporation) and subsidiaries, as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TRIAD Holdings, Inc. and subsidiaries, as of December 31, 1995 and 1996, and the
results of their consolidated operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
August 1, 1997
F-21
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1995 1996 1997
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 7,273 $ 816,560 $ 52,481
Accounts receivable, net of
allowance of $147,959, $193,863
and $177,659, respectively....... 4,579,763 5,915,999 8,113,372
Inventories, net................... 2,889,002 3,993,437 4,755,229
Prepaid expenses and other current
assets........................... 774,484 929,112 604,003
Deferred income taxes.............. 289,000 420,000 354,000
-------------- -------------- --------------
Total current assets..... 8,539,522 12,075,108 13,879,085
-------------- -------------- --------------
PROPERTY AND EQUIPMENT, net............. 251,981 626,409 680,349
RENTAL EQUIPMENT, net................... 1,844,053 2,465,225 4,125,767
INTANGIBLES............................. -- 2,812,436 4,431,410
OTHER NON-CURRENT ASSETS................ 117,388 83,301 11,583
-------------- -------------- --------------
Total assets............. $ 10,752,944 $ 18,062,479 $ 23,128,194
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current obligations under capital
leases........................... $ 321,865 $ 564,093 $ 620,259
Current maturities of long-term
debt............................. 2,490,664 778,000 1,792,652
Current maturities of notes payable
to stockholders.................. 27,094 234,114 234,114
Accounts payable and accrued
expenses......................... 6,227,034 4,594,473 7,278,646
-------------- -------------- --------------
Total current
liabilities........... 9,066,657 6,170,680 9,925,671
-------------- -------------- --------------
CAPITAL LEASE OBLIGATIONS, net of
current maturities.................... 274,884 479,878 510,948
LONG-TERM DEBT, net of current
maturities............................ -- 2,917,500 3,636,168
NOTES PAYABLE TO STOCKHOLDERS, net of
current maturities.................... 70,547 468,229 468,229
DEFERRED INCOME TAXES................... 267,000 307,000 293,000
OTHER LONG-TERM LIABILITIES............. 1,142,343 1,171,710 1,141,963
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Class A convertible common stock,
$.01 par value, 1,500,000 shares
authorized, 1,362,190 issued and
outstanding in 1996 and 1997..... -- 13,621 13,621
Class B common stock, $.01 par
value, 3,000,000 shares
authorized, 979,845 issued and
outstanding in 1996; 1,032,845
issued and outstanding in 1997... -- 9,798 10,328
Common stock, no par value,
10,000,000 shares authorized,
1,116,300 issued and outstanding X
in 1995.......................... 254,804 -- --
Additional paid-in capital......... -- 6,140,982 6,515,452
Retained earnings.................. (323,291) 383,081 612,814
-------------- -------------- --------------
Total stockholders'
equity................ (68,487) 6,547,482 7,152,215
-------------- -------------- --------------
Total liabilities and
stockholders'
equity................ $ 10,752,944 $ 18,062,479 $ 23,128,194
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................................ $ 22,223,180 $ 29,167,355 $ 35,648,949 $ 16,894,302 $ 22,365,837
COST OF REVENUES........................ 16,180,124 21,802,825 26,656,397 12,862,460 16,320,094
-------------- -------------- -------------- -------------- --------------
Gross profit.................. 6,043,056 7,364,530 8,992,552 4,031,842 6,045,743
SELLING EXPENSES........................ 2,518,124 3,115,960 3,622,672 1,652,268 2,452,172
GENERAL AND ADMINISTRATIVE EXPENSES..... 1,813,184 2,146,309 3,017,319 1,215,140 2,347,483
DEPRECIATION AND
AMORTIZATION.......................... 530,562 561,428 763,071 313,318 648,483
-------------- -------------- -------------- -------------- --------------
Total operating expenses........... 4,861,870 5,823,697 7,403,062 3,180,726 5,448,138
-------------- -------------- -------------- -------------- --------------
Income from operations.................. 1,181,186 1,540,833 1,589,490 851,116 597,605
OTHER INCOME (EXPENSE):
Interest income.................... 27,682 30,164 64,588 22,196 15,566
Interest expense................... (496,184) (538,915) (368,831) (210,962) (255,639)
Other income (expense), net........ (21,705) 15,476 (113,990) (36,571) 14,238
-------------- -------------- -------------- -------------- --------------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 690,979 1,047,558 1,171,257 625,779 371,770
PROVISION FOR INCOME TAXES.............. 102,700 420,600 464,885 261,185 142,037
-------------- -------------- -------------- -------------- --------------
NET INCOME.............................. $ 588,279 $ 626,958 $ 706,372 $ 364,594 $ 229,733
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TRIAD HOLDINGS, INC. COMMON STOCK
-----------------------------------------
TRIAD MEDICAL, INC.
CLASS A CLASS B COMMON STOCK ADDITIONAL
------------------- ------------------- --------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
--------- ------- --------- ------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........... -- $ -- -- $ -- 1,094,500 $ 222,883 $ -- $(1,538,528)
Common stock sold for cash....... -- -- -- -- 5,000 5,500 -- --
Common stock issued for
services....................... -- -- -- -- 2,500 8,661 -- --
Net income....................... -- -- -- -- -- -- -- 588,279
--------- ------- --------- ------- --------- --------- ---------- ----------
BALANCE, December 31, 1994........... -- -- -- -- 1,102,000 237,044 -- (950,249)
Common stock sold for cash....... -- -- -- -- 14,300 17,760 -- --
Net income....................... -- -- -- -- -- -- -- 626,958
--------- ------- --------- ------- --------- --------- ---------- ----------
BALANCE, December 31, 1995........... -- -- -- -- 1,116,300 254,804 -- (323,291)
Class A common stock sold for
cash........................... 1,362,190 13,621 -- -- -- -- 6,770,827 --
Repurchase and conversion of TMI
common stock to Class B common
stock.......................... -- -- 889,269 8,893 (1,116,300) (254,804) (1,004,089) --
Stock options exercised.......... -- -- 30,576 305 -- -- 44,844 --
Issuance of common stock in
connection with acquisition of
PCI............................ -- -- 60,000 600 -- -- 329,400 --
Net income....................... -- -- -- -- -- -- -- 706,372
--------- ------- --------- ------- --------- --------- ---------- ----------
BALANCE, December 31, 1996........... 1,362,190 13,621 979,845 9,798 -- -- 6,140,982 383,081
Issuance of common stock in
connection with acquisition of
Medrep Medical, Inc.
(unaudited).................... -- -- 22,000 220 -- -- 149,780 --
Issuance of common stock in
connection with acquisition of
Eclipse, Inc. (unaudited)...... -- -- 31,000 310 -- -- 224,690 --
Net income (unaudited)........... -- -- -- -- -- -- -- 229,733
--------- ------- --------- ------- --------- --------- ---------- ----------
BALANCE, June 30, 1997 (unaudited)... 1,362,190 $13,621 1,032,845 $10,328 -- $ -- $6,515,452 $ 612,814
========= ======= ========= ======= ========= ========= ========== ==========
</TABLE>
TOTAL
----------
BALANCE, December 31, 1993........... $(1,315,645)
Common stock sold for cash....... 5,500
Common stock issued for
services....................... 8,661
Net income....................... 588,279
----------
BALANCE, December 31, 1994........... (713,205)
Common stock sold for cash....... 17,760
Net income....................... 626,958
----------
BALANCE, December 31, 1995........... (68,487)
Class A common stock sold for
cash........................... 6,784,448
Repurchase and conversion of TMI
common stock to Class B common
stock.......................... (1,250,000)
Stock options exercised.......... 45,149
Issuance of common stock in
connection with acquisition of
PCI............................ 330,000
Net income....................... 706,372
----------
BALANCE, December 31, 1996........... 6,547,482
Issuance of common stock in
connection with acquisition of
Medrep Medical, Inc.
(unaudited).................... 150,000
Issuance of common stock in
connection with acquisition of
Eclipse, Inc. (unaudited)...... 225,000
Net income (unaudited)........... 229,733
----------
BALANCE, June 30, 1997 (unaudited)... $7,152,215
==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 588,279 $ 626,958 $ 706,372 $ 364,594 $ 229,733
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation and amortization..... 530,562 561,428 763,071 313,318 648,483
(Gain) loss on disposal of fixed
assets......................... 7,256 (37,813) (8,001) (14,063) (29,864)
Provision for doubtful accounts... 129,610 164,900 48,041 31,765 (5,000)
Deferred rent..................... 17,831 4,609 12,117 22,014 (29,747)
Common stock issued for
services....................... 8,661 -- -- -- --
Deferred income tax provision
(benefit)...................... (47,300) 25,300 (91,000) 27,000 52,000
Increase (decrease) in operating
cash flows resulting from --
Accounts receivable.......... (1,142,133) (1,106,238) (141,526) (671,929) (1,938,131)
Inventories.................. (1,095,248) (620,791) (360,786) (201,582) (643,327)
Prepaids and other current
assets..................... (356,973) 333,138 (115,765) (116,179) 325,796
Other noncurrent assets...... 42,876 70,766 38,682 103,870 73,313
Accounts payable and accrued
expenses................... 1,978,329 575,027 (1,921,743) (323,078) 2,459,092
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) operating
activities............... 661,750 597,284 (1,070,538) (464,270) 1,142,348
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of
cash acquired..................... -- -- (3,814,651) -- (1,963,794)
Additions to property and
equipment......................... (109,947) (155,456) (436,394) (122,792) (1,302,632)
Proceeds from disposals of property
and equipment..................... 19,285 134,453 49,457 46,384 68,081
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities............... (90,662) (21,003) (4,201,588) (76,408) (3,198,345)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt and
capital leases.................... -- -- 3,890,000 17,985 1,400,000
Principal payments on long-term debt
and capital leases................ (993,697) (1,003,763) (799,879) (271,146) (808,082)
Line of credit, net................. 440,485 451,639 (2,490,664) (2,490,664) 700,000
Payments on notes payable to
stockholders...................... (39,352) (35,608) (97,641) (97,641) --
Proceeds from sale of common
stock............................. 5,500 17,760 6,829,597 6,791,160 --
Repurchase of common shares......... -- -- (1,250,000) (1,250,000) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing
activities............... (587,064) (569,972) 6,081,413 2,699,694 1,291,918
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (15,976) 6,309 809,287 2,159,016 (764,079)
CASH AND CASH EQUIVALENTS, at beginning
of period............................. 16,940 964 7,273 7,273 816,560
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, at end of
period................................ $ 964 $ 7,273 $ 816,560 $ 2,166,289 $ 52,481
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest....................... $ 496,000 $ 360,000 $ 539,000 $ 211,000 $ 256,000
============ ============ ============ ============ ============
Income taxes................... $ 110,000 $ 829,000 $ 746,000 $ 252,000 $ 175,000
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Common stock and notes payable
issued for acquisitions........... $ -- $ -- $ 1,032,343 $ -- $ 375,000
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
TRIAD Holdings, Inc. (the Company), is primarily engaged in the contract
sale and distribution of medical supplies, devices, drugs and durable equipment
to home infusion health care providers throughout the United States.
The Company conducts business through its operating subsidiaries,
principally TRIAD Medical Inc. (TMI), which was incorporated in June 1980. On
April 22, 1996, the Company was incorporated and TMI became its wholly owned
subsidiary.
In October 1996, the Company acquired the assets and assumed certain
liabilities of PCI Medical, Inc. (PCI) for cash consideration of $3,814,651 (net
of cash acquired), notes payable of $702,343 and 60,000 Class B common shares of
the Company valued at $330,000. The acquisition was accounted for as a purchase
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the fair values at the date of
acquisition as follows:
Accounts receivable ...................................... $ 1,242,751
Inventory ................................................ 743,649
Prepaids ................................................. 38,863
Property and equipment ................................... 194,598
Rental equipment ......................................... 111,407
Goodwill ................................................. 2,829,938
Other assets ............................................. 4,595
Accounts payable and accrued expenses .................... (306,432)
Capital leases ........................................... (12,375)
-----------
$ 4,846,994
===========
The excess purchase price over the fair values of the net assets acquired
has been recorded as goodwill to be amortized on a straight-line based over 40
years. Operating results of PCI from October 4, 1996, through December 31, 1996,
have been included in the accompanying consolidated financial statements. See
the financial statements of PCI included elsewhere herein.
The Company and its stockholders intend to enter into a definitive merger
agreement with TRIAD Medical Inc. (TRIAD) pursuant to which the Company will be
acquired by TRIAD for consideration consisting of $8,696,559 in cash and
1,451,322 shares of TRIAD common stock, concurrently with the closing of the
initial public offering by TRIAD of its common stock (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting and include the accounts of the Company and its
subsidiaries. All significant intercompany amounts and transactions have been
eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of June 30, 1997, and for
the six months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the consolidated
financial position, results of operations and cash flows with respect to the
interim consolidated financial statements have been included. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire fiscal year.
F-26
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
Specifically, the Company has accrued an estimate for certain tax expenses,
which are under evaluation. Accordingly, such accrual may require revision.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheets are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
CASH AND CASH EQUIVALENTS
For the purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its
customers, which are primarily alternate-site health care providers. The Company
regularly reviews its accounts receivable and makes provision for potentially
uncollectible balances. At December 31, 1995 and 1996, and at June 30, 1997,
management believes the Company had incurred no material impairments in the
carrying values of its accounts receivable other than uncollectible amounts for
which provision has been made.
INVENTORIES
Inventories consist primarily of medical supplies and equipment.
Inventories, net of allowances, are valued at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method. At December 31, 1996,
and at June 30, 1997, management believes the Company had incurred no material
impairments in the carrying values of its inventories, other than impairments
for which provision has been made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the applicable lease or the estimated useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
INTANGIBLE ASSETS
The intangible assets recorded by the Company in connection with the
acquisition of PCI (see Note 1) are amortized on a straight-line basis. As of
June 30, 1997, accumulated amortization of intangibles amounted to $105,601. The
applicable intangible amortization periods are as follows:
Goodwill................................ 40 years
Patents................................. 17 years
F-27
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED RENT
Certain of the Company's facilities leases include scheduled rent increases
and free rent periods. For financial reporting purposes, rent expense is
recognized on a straight-line basis over the lease term. The difference between
rents paid pursuant to the lease agreements and rent expense for financial
reporting purposes has been reported as deferred rent.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of medical products
and supplies under distribution agreements with various manufacturers. Cost of
revenues consists primarily of product costs, net of rebates, and freight
charges. Selling expenses consist primarily of sales commissions, salaries of
sales managers, travel and entertainment expenses, trade show expenses and
automobile allowances. General and administrative expenses consist primarily of
executive compensation and related benefits, administrative salaries and
benefits, office rent and utilities, communication expenses and professional
fees.
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from the rental of infusion pumps and other equipment under
cancellable and noncancellable operating leases are recognized as earned.
Biomedical, commission and installation revenues are recognized as the services
are provided. The Company also provides financing for equipment sales under
sales-type lease arrangements.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." In accordance with
SFAS No. 123, the Company accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and has adopted the "disclosure only" alternative described in
SFAS No. 123.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information About Capital Structure." SFAS No. 129
requires nonpublic entities to disclose certain information about an entity's
capital structure, including the pertinent rights and privileges of the various
securities outstanding. The Company will be required to adopt SFAS No. 129 in
1997 and, in the opinion of management, SFAS No. 129 will not significantly
change the existing financial statement disclosures.
F-28
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS (UNAUDITED):
On January 17, 1997, the Company purchased certain assets and assumed
certain liabilities of Medrep Medical, Inc. in exchange for 22,000 shares of its
Class B common stock valued at $150,000 and cash of $435,085. The purchase price
was allocated as follows:
Accounts receivable..................... $ 61,024
Rental equipment........................ 372,971
Goodwill................................ 352,102
Covenant not to compete................. 50,000
Other assets............................ 2,282
Accounts payable and accrued expenses... (154,672)
Capital leases.......................... (98,622)
----------
$ 585,085
==========
On May 1, 1997, the Company purchased certain assets and assumed certain
liabilities of Eclipse, Inc. in exchange for 31,000 shares of its Class B common
stock valued at $225,000 and cash of $1,528,709. The purchase price was
allocated as follows:
Accounts receivable..................... $ 193,218
Inventory............................... 118,465
Rental equipment........................ 514,732
Goodwill................................ 1,250,000
Accounts payable and accrued expenses... (70,409)
Capital leases.......................... (252,297)
------------
$ 1,753,709
============
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------------ JUNE 30,
IN YEARS 1995 1996 1997
------------ ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Office equipment..................... 5 $ 179,121 $ 362,549 $ 476,183
Computers and software............... 5 141,603 193,146 207,393
Furniture and fixtures............... 5-7 98,502 139,398 152,519
Warehouse equipment.................. 5 91,773 146,299 203,540
Test equipment....................... 5 -- 116,594 129,265
Leasehold improvements............... 10 49,606 108,763 122,979
---------- ------------ ------------
560,605 1,066,749 1,291,879
Less -- Accumulated depreciation and
amortization....................... (308,624) (440,340) (611,530)
---------- ------------ ------------
Property and equipment, net.......... $ 251,981 $ 626,409 $ 680,349
========== ============ ============
</TABLE>
Equipment financed under capital lease obligations amounted to $3,817,880
and $4,978,194 at December 31, 1995 and 1996, respectively, and $7,018,815 at
June 30, 1997. Related accumulated depreciation for those assets totaled
$1,973,827 and $2,512,969 at December 31, 1995 and 1996, respectively, and
$2,893,048 at June 30, 1997.
F-29
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996:
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
(UNAUDITED)
Goodwill................................ $2,812,577 $ 4,414,679
Covenant not to compete................. -- 50,000
Patents................................. 36,338 72,332
------------ ------------
2,848,915 4,537,011
Less -- Accumulated amortization........ (36,479) (105,601)
------------ ------------
$2,812,436 $ 4,431,410
============ ============
Amortization expense amounted to $17,502 in 1996 and is included in
depreciation and amortization.
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Accounts payable, trade............ $ 5,832,875 $ 4,307,181 $ 7,053,063
Accrued compensation and benefits.. 32,942 134,718 119,918
Accrued commissions................ 71,671 11,147 42,210
Accrued income taxes............... 250,791 60,612 --
Other payable and accrued expenses. 38,755 80,815 63,455
------------ ------------ -----------
$ 6,227,034 $ 4,594,473 $ 7,278,646
============ ============ ===========
6. DEBT:
In May 1996, the Company used the proceeds from a sale of its common stock
to repay the outstanding borrowings under a line of credit and incurred a
related charge of $77,854, included in other income (expense), net in the
accompanying consolidated statements of operations (see Note 12).
In September 1996, TMI entered into a new credit agreement with a bank. The
agreement, which expires on May 31, 1998, provides a revolving line-of-credit
facility of up to $1,000,000. Borrowings under the credit agreement bear
interest at the bank's prime rate plus 0.25 percent or, at the Company's option,
a LIBOR rate plus 3.25 percent. The credit agreement is collateralized by all of
the Company's assets and includes certain restrictive covenants.
In October 1996, the Company entered into an agreement with a bank for an
acquisition line of credit. The agreement expires in September 2001 and provides
a facility of up to $5,000,000. Borrowings under the agreement bear interest at
the bank's prime rate plus 0.625 percent. The agreement includes certain
restrictive covenants. As of December 31, 1996 and June 30, 1997, the Company
was in compliance with such covenants, after considering a waiver of certain
covenants by the bank. The agreement provides that all borrowings thereunder are
collateralized by all the Company's assets. The outstanding borrowings under the
agreement at December 31, 1996 were $3,695,500.
F-30
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt and capital lease obligations as
of December 31, 1996, are as follows:
LONG-TERM CAPITAL
DEBT LEASES
------------ ------------
Year ending December 31 --
1997............................... $ 778,000 $ 656,013
1998............................... 778,000 431,370
1999............................... 778,000 84,321
2000............................... 778,000 --
2001............................... 583,500 --
------------ ------------
$ 3,695,500 1,171,704
============
Less: amount representing interest...... (127,733)
------------
$ 1,043,971
============
NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders consist of the following:
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ------------ -----------
(UNAUDITED)
Subordinated note payable to
stockholder, principal and interest of
$220,000 payable annually, maturing
October 1999, bearing interest at
6.53%................................. $ -- $ 582,343 $ 582,343
Notes payable to stockholders, due in
various amounts through October 1999,
interest at rates ranging from 10% to
12%................................... 97,641 120,000 120,000
---------- ------------ -----------
97,641 702,343 702,343
Less -- Current portion................. (27,094) (234,114) (234,114)
---------- ------------ -----------
$ 70,547 $ 468,229 $ 468,229
========== ============ ===========
7. LEASES:
The Company leases space for its warehouses and corporate office from third
parties. Rent expense under these arrangements totaled approximately $390,000,
$309,000 and $371,000 for the years ended December 31, 1994, 1995 and 1996,
respectively, and was $176,000 and $390,000 for the six months ended June 30,
1996 and 1997, respectively. The leases require the Company to pay taxes,
maintenance, insurance and certain other operating costs of the leased property.
The Company acquired rental equipment totaling $443,402 and $1,040,226
under capital lease obligations in 1995 and 1996, respectively.
F-31
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments required under noncancellable operating
leases that have initial or remaining noncancellable lease terms in excess of
one year at December 31, 1996, are as follows:
Year ending December 31 --
1997............................... $ 772,872
1998............................... 656,460
1999............................... 570,435
2000............................... 415,034
2001............................... 341,943
------------
$ 2,756,744
============
Total rent expense was $415,711 and $571,839 in 1995 and 1996,
respectively.
As discussed in Note 2, the Company rents certain equipment under
noncancellable operating leases. Aggregate future minimum rentals to be received
under noncancellable leases in effect at December 31, 1996, are as follows:
Year ending December 31 --
1997............................... $ 177,200
1998............................... 128,500
1999............................... 76,000
2000............................... 67,200
2001............................... 28,525
----------
$ 477,425
==========
8. INCOME TAXES:
The provision (benefit) for federal and state income taxes follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal --
Current............................ $ 142,400 $ 306,000 $ 435,885 $ 200,457 $ 80,646
Deferred........................... (55,160) 31,300 (79,000) 21,550 40,085
State --
Current............................ 25,200 89,300 120,000 33,728 9,391
Deferred........................... (9,740) (6,000) (12,000) 5,450 11,915
---------- ---------- ---------- ---------- ----------
$ 102,700 $ 420,600 $ 464,885 $ 261,185 $ 142,037
========== ========== ========== ========== ==========
</TABLE>
F-32
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
------------ ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision at the statutory rate......... $ 234,933 $ 356,170 $ 398,227 $ 212,765 $ 126,401
Increase (decrease) resulting from --
State income tax, net of federal
benefit.......................... 34,549 52,378 58,563 31,289 18,589
Net operating loss carryforwards... (160,000) -- -- -- --
Meals and entertainment............ 5,587 7,312 12,236 5,687 9,852
Other.............................. (12,369) 4,740 (4,141) 11,444 (12,805)
------------ ---------- ---------- ---------- ----------
$ 102,700 $ 420,600 $ 464,885 $ 261,185 $ 142,037
============ ========== ========== ========== ==========
</TABLE>
The tax effects of temporary differences representing deferred tax assets and
liabilities result principally from the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Depreciation and amortization........ $ (267,000) $ (307,000) $ (293,000)
Accruals and reserves................ 289,000 420,000 354,000
------------ ------------ -----------
Net deferred income tax assets.. $ 22,000 $ 113,000 $ 61,000
============ ============ ===========
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's consolidated financial
position or consolidated results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The sale, distribution, rental and repair of medical products involve a
risk of product liability claims. The Company maintains product liability
insurance coverage in amounts that it considers adequate.
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their state by out-of-state companies. Complex legal
issues arise in these areas relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to collect such taxes. Although the Company believes that it has
adequately provided for sales taxes on its sales, there can be no assurance as
to the effect of actions state tax authorities may take on the Company's
financial condition or the results of its operations.
F-33
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SIGNIFICANT SUPPLIERS:
Purchases from two vendors accounted for 34 percent and 25 percent of total
purchases in 1995 and 1996, respectively. Although there are a limited number of
suppliers, management believes that other suppliers could provide similar
products on comparable terms. A change in suppliers, however, could cause a
delay in product sales and a possible loss in revenues, which could affect
operating results adversely.
The Company's other significant agreements with its vendors are generally
for terms of one to three years but can be terminated if the Company fails to
meet certain negotiated sales volumes. The loss of one or more of the Company's
relationships with its significant vendors could have a material adverse effect
on the Company's consolidated financial condition and consolidated results of
operations.
11. STOCKHOLDERS' EQUITY:
In May 1996, the Company sold 1,362,190 shares of its Class A convertible
common stock (Class A Common Stock) for net cash consideration of $6,784,448
(net of offering costs of $715,552). Concurrently with that sale, the Company
repurchased 227,031 shares of TMI common stock for $1,250,000, and 889,269
shares of TMI common stock were converted into shares of the Company's Class B
common stock (Class B Common Stock) on a share-for-share basis.
Holders of shares of Class A Common Stock may convert their shares into
Class B Common Stock on a share-for-share basis at any time. The Class A Common
Stock will be automatically converted into shares of Class B Common Stock upon
the consummation of a qualified public offering that occurs before May 2000, or
after May 2000 but only if the current holder of shares of Class A Common Stock
shall have previously distributed its Class A Common Stock to certain third
parties. Should the Company meet certain profitability objectives or if the
Company's acquisition by TRIAD (referred to in Note 1) is completed, the holder
of shares of Class A Common Stock will be required to return 106,465 of the
previously issued shares back to the Company.
Holders of shares of Class A Common Stock vote as a class with the holders
of shares of Class B Common Stock on the basis of one vote per share. Holders of
shares of Class A Common Stock are entitled to dividends or other distributions
declared or paid on each share of Class A Common Stock when and in the same
amount as any dividend or other distribution is declared or paid on each share
of Class B Common Stock.
STOCKHOLDERS' AGREEMENT
Under an agreement between the Company and the holders of Class B Common
Stock, (i) the Company's prior written consent is required for certain transfers
and assignments of shares of Class B Common Stock, (ii) the Company has a right
of first refusal on any sales of Class B Common Stock and (iii) if a holder of
shares of Class B Common Stock dies, the Company is obligated to repurchase the
deceased holder's shares of Class B Common Stock for the greater of the
estimated fair value of the shares, as determined annually by the Company's
board of directors, or the insurance proceeds received by the Company on the
death of the holder. Based on the board of directors' determination of fair
value, the aggregate obligation would be $7,103,876 at December 31, 1996. The
Company maintains insurance on the lives of these stockholders, aggregating
$5,310,000 at December 31, 1995 and 1996, respectively. The agreement will be
terminated upon completion of the acquisition of the Company by TRIAD.
STOCK OPTIONS
A 1992 Company stock option plan (the Plan) provides for the grant of
options to purchase shares of the Company's common stock to employees, officers,
consultants and directors of the Company. The timing of exercise for individual
option grants is at the discretion of the Plan's administrator. Each option
expires no later than 10 years after the date the option is granted (five years
if the option is granted to a 10 percent
F-34
<PAGE>
TRIAD HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stockholder) and generally vest over a three-year period. An option granted to
an employee will expire (i) one year after the employee's employment by the
Company terminates because of a permanent disability or (ii) 90 days after the
employee's termination of employment for any other reason.
Stock option activity under the Plan is as follows:
WEIGHTED
SHARES AVERAGE
SUBJECT TO EXERCISE EXERCISE
OPTIONS PRICE PRICE
---------- ------------ ---------
Balance at December 31, 1994......... 62,500 $1.20-$1.80 $1.48
Exercised....................... (14,300) 1.30- 1.50 1.24
----------
Balance at December 31, 1995......... 48,200 1.30- 1.80 1.54
Granted......................... 87,500 4.68- 5.51 5.32
Exercised....................... (30,576) 1.30- 1.60 1.48
---------- ------------ ---------
Balance at December 31, 1996......... 105,124 $1.40-$5.51 $4.67
========== ============ =========
At December 31, 1996, options to purchase 17,624 shares of common stock at
a weighted average price of $1.47 per share were exercisable. The weighted
average remaining contractual life for all options outstanding at December 31,
1996, is 2.73 years.
The board of directors authorized the granting of options to purchase
30,000 shares of common stock, which have not been issued as of December 31,
1996.
As discussed in Note 2, the Company has elected to follow APB Opinion No.
25 in accounting for its employee stock options because the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB Opinion No. 25, when 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 the consolidated financial statements.
The impact of adopting SFAS No. 123 was not material to the accompanying
consolidated statements of operations.
12. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS (UNAUDITED):
MERGER
On September 9, 1997, the Company and its stockholders entered into a
definitive merger agreement with TRIAD, providing for the acquisition of the
Company by TRIAD.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Healthcare Technology Delivery, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Healthcare
Technology Delivery, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Healthcare Technology Delivery, Inc. and subsidiaries as of
December 31, 1995 and 1996, and the results of their consolidated operations and
their consolidated cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
April 18, 1997
F-36
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 158 $ 1,810 $ 255,035
Accounts receivable, net of
allowance of $18,621, $27,715
and $46,141, respectively..... 1,909,862 1,618,990 2,002,458
Inventories, net................ 1,189,939 1,097,803 1,177,626
Prepaid expenses and other
current assets................ 31,399 28,740 21,019
Deferred income taxes........... 14,025 23,774 25,478
------------ ------------ -----------
Total current assets....... 3,145,383 2,771,117 3,481,616
PROPERTY AND EQUIPMENT, net.......... 165,045 190,346 318,792
INTANGIBLE ASSETS.................... -- -- 1,684,632
OTHER NON-CURRENT ASSETS............. 164,791 234,205 252,880
------------ ------------ -----------
Total assets............... $ 3,475,219 $ 3,195,668 $ 5,737,920
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current obligations under
capital leases................ $ 33,422 $ 23,575 $ 35,063
Current maturities of long-term
debt.......................... -- -- 25,581
Short-term debt................. 466,532 745,632 618,037
Accounts payable and accrued
expenses........................ 1,929,008 1,498,411 1,669,389
------------ ------------ -----------
Total current
liabilities................ 2,428,962 2,267,618 2,348,070
------------ ------------ -----------
CAPITAL LEASE OBLIGATIONS, net of
current maturities................. 76,217 22,111 70,875
LONG-TERM DEBT, net of current
maturities......................... -- -- 125,172
NOTES PAYABLE TO STOCKHOLDERS........ 315,005 169,136 169,136
DEFERRED INCOME TAXES................ 12,233 10,932 10,272
COMMITMENTS AND CONTINGENCIES
SERIES A MANDATORILY REDEEMABLE
PREFERRED STOCK, $100 par value,
4,500 shares authorized, no shares
outstanding at December 31, 1995
and 1996; and 4,500 shares issued
and outstanding at June 30, 1997... -- -- 450,000
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value;
5,000 shares authorized, 1,000
shares issued and 751 shares
outstanding at December 31,
1995 and 1996; and $.01 par
value, 100,000 shares
authorized, and 90,000 shares
issued and outstanding at June
30, 1997...................... 1,000 1,000 900
Additional paid-in capital...... -- -- 1,611,800
Retained earnings............... 697,544 780,613 951,695
Treasury stock, 249 shares (at
cost) at December 31, 1995 and
1996; and no shares at June
30, 1997...................... (55,742) (55,742) --
------------ ------------ -----------
Total stockholders'
equity..................... 642,802 725,871 2,564,395
------------ ------------ -----------
Total liabilities and
stockholders' equity.... $ 3,475,219 $ 3,195,668 $ 5,737,920
============ ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1995 1996 1996 1997
-------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 17,148,917 $ 16,475,288 $ 8,223,782 $ 9,496,658
COST OF REVENUES..................... 11,522,891 11,042,497 5,456,991 6,397,816
-------------- -------------- -------------- --------------
Gross profit............... 5,626,026 5,432,791 2,766,791 3,098,842
-------------- -------------- -------------- --------------
SELLING EXPENSES..................... 2,808,499 2,724,858 1,360,904 1,489,716
GENERAL AND ADMINISTRATIVE
EXPENSES............................. 2,121,913 2,353,122 1,205,714 1,078,319
DEPRECIATION AND AMORTIZATION........ 100,741 120,445 59,055 102,923
-------------- -------------- -------------- --------------
Total operating expenses........ 5,031,153 5,198,425 2,625,673 2,670,958
-------------- -------------- -------------- --------------
Income from operations..... 594,873 234,366 141,118 427,884
OTHER INCOME (EXPENSE):
Interest income................. 7,330 11,525 73 3,627
Interest expense................ (72,313) (44,425) (22,818) (30,868)
Other income (expense), net..... 1,575 (63,615) 1,339 (10,670)
-------------- -------------- -------------- --------------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................ 531,465 137,851 119,712 389,973
-------------- -------------- -------------- --------------
PROVISION FOR INCOME TAXES........... 211,923 54,782 57,201 163,609
-------------- -------------- -------------- --------------
NET INCOME........................... $ 319,542 $ 83,069 $ 62,511 $ 226,364
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
--------------- PAID-IN RETAINED ----------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
------ ------ ---------- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 1,000 $1,000 $ -- $378,002 249 $(55,742) $ 323,260
Net income.......... -- -- -- 319,542 -- -- 319,542
------ ------ ---------- -------- ------ -------- -------------
BALANCE, December 31,
1995................... 1,000 1,000 -- 697,544 249 (55,742) 642,802
Net income.......... -- -- -- 83,069 -- -- 83,069
------ ------ ---------- -------- ------ -------- -------------
BALANCE, December 31,
1996................... 1,000 1,000 -- 780,613 249 (55,742) 725,871
Retirement of
treasury stock of
Futuretech
(unaudited)....... (249) (249) -- (55,493) (249 ) 55,742 --
Reorganization of
Futuretech
(unaudited):
Retirement of
Futuretech
common
stock....... (751) (751) -- 751 -- -- --
Issuance of HTD
common
stock....... 54,000 540 -- (540) -- -- --
Issuance of common
stock (unaudited):
Acquisition of
MCA......... 27,000 270 1,561,890 -- -- -- 1,562,160
Sale to related
party....... 9,000 90 49,910 -- -- -- 50,000
Net income
(unaudited)....... -- -- -- 226,364 -- -- 226,364
------ ------ ---------- -------- ------ -------- -------------
BALANCE June 30, 1997
(unaudited)............ 90,000 $ 900 $1,611,800 $951,695 -- $ -- $ 2,564,395
====== ====== ========== ======== ====== ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 319,542 $ 83,069 $ 62,511 $ 226,364
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation and amortization.... 100,741 120,445 59,055 102,923
Loss on disposal of fixed
assets........................ -- 62,342 -- --
Provision for doubtful
accounts...................... 18,621 23,576 4,546 14,849
Deferred income tax provision
(credit)...................... (2,840) (11,050) 15,961 (2,364)
Increase (decrease) in operating
cash flows resulting from
changes in:
Accounts receivable........... (84,111) 267,296 57,863 (248,161)
Inventories................... (92,726) 92,136 32,558 (51,335)
Prepaid expenses and other
current assets............. (543) 2,659 (6,626) 13,351
Other noncurrent assets....... (46,764) (69,414) (5,646) (45,308)
Accounts payable and accrued
expenses................... 178,641 (430,597) (314,812) 12,556
------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities............ 390,561 140,462 (94,590) 22,875
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (148,341) (208,088) (57,396) (57,314)
Payment on capital leases.......... -- -- (25,693) (23,985)
------------ ------------ ------------ ------------
Net cash used in
investing activities.. (148,341) (208,088) (83,089) (81,299)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt............................. 155,655 81,313 -- 162,000
Principal payments on long-term
debt............................. (30,416) (291,135) -- (11,247)
Net borrowings on short-term
debt............................. (367,680) 279,100 134,284 (339,104)
Proceeds from issuance of note
payable to stockholders.......... -- -- 47,681 --
Proceeds from issuance of preferred
stock............................ -- -- -- 450,000
Proceeds from issuance of common
stock............................ -- -- -- 50,000
------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities............ (242,441) 69,278 181,965 311,649
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (221) 1,652 4,286 253,225
CASH AND CASH EQUIVALENTS, beginning of
period................................ 379 158 158 1,810
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 158 $ 1,810 $ 4,444 $ 255,035
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest...................... $ 75,008 $ 44,425 $ 11,686 $ 17,367
============ ============ ============ ============
Income taxes.................. $ 60,091 $ 182,295 $ 97,566 $ 100,534
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Effective March 1, 1997, the stockholders of Futuretech, Inc. (Futuretech)
exchanged all their shares of Futuretech common stock for shares of common stock
of Healthcare Technology Delivery, Inc. (the Company or HTD), a company formed
in November 1996 by the stockholders of Futuretech. The exchange was accounted
for as a reorganization of Futuretech. Accordingly, no adjustments to the
recorded values of assets or liabilities were made. Also effective March 1,
1997, HTD acquired Medical Companies Alliance, Inc. (MCA) in a purchase
transaction in which all the shares of MCA stock were exchanged for shares of
HTD common stock (see Note 3).
HTD, a Delaware corporation, operates from its facilities in Park City,
Utah and Bessemer, Alabama. The Company primarily markets and sells specialty
medical products on a contract basis with manufacturers.
The Company and its stockholders intend to enter into a definitive merger
agreement with TRIAD Medical Inc. (TRIAD) pursuant to which the Company will be
acquired for consideration consisting of $2,475,000 in cash and 530,357 shares
of TRIAD common stock, concurrently with the closing of the initial public
offering by TRIAD of its common stock (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting and include the accounts of the Company and its
subsidiaries. All significant intercompany amounts and transactions have been
eliminated in consolidation. In 1996, the Company changed its fiscal year end
from October 31 to December 31. Fiscal years presented and referred to in these
financial statements and notes thereto are on a December 31 fiscal-year basis.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of June 30, 1997, and for
the six months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheets are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
F-41
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheets and consolidated statements
of cash flows, the Company considers all investments with original maturities of
three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its
customers, which are primarily hospitals. The Company regularly reviews accounts
receivable and makes provision for potentially uncollectible balances. At
December 31, 1995 and 1996, and at June 30, 1997, management believes the
Company had incurred no material impairments in the carrying values of its
accounts receivable, other than uncollectible amounts for which provision has
been made.
INVENTORIES
Inventories consist primarily of medical supplies and equipment.
Inventories, net of allowances, are valued at the lower of cost or market with
cost being determined on the first-in, first-out (FIFO) method. Included in
inventories at December 31, 1995 and 1996, and at June 30, 1997, are
approximately $172,703, $192,594 and $168,903, respectively, in net book value
of demonstration equipment used by the Company's sales force.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the applicable lease or the estimated useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
INTANGIBLE ASSETS
The intangible assets recorded by the Company in connection with the
acquisition of MCA (see Note 3) are amortized on a straight-line basis. As of
June 30, 1997, accumulated amortization of intangibles amounted to $12,157. The
applicable intangible amortization periods are as follows:
Goodwill............................. 40 years
Patents.............................. 12 years
COLLATERAL INTEREST IN INSURANCE POLICIES
The Company has entered into an agreement with certain of its stockholders
for the sole purpose of financing life insurance premiums on whole-life policies
covering key officers of the Company. The advances are collateralized by the
cash surrender value of and the death benefits payable under the policies. The
Company recorded the advances in other non-current assets in the accompanying
consolidated balance sheets totaling approximately $164,791 and $231,205 at
December 31, 1995 and 1996, respectively, and $247,576 at June 30, 1997.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of specialty
medical products under agreements and arrangements with various manufacturers.
Cost of revenues consists primarily of product costs, net of rebates, and
freight charges. Selling expenses consist primarily of sales commissions,
salaries of sales managers, travel and entertainment expenses, trade show
expenses and automobile allowances.
F-42
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
General and administrative expenses consist primarily of executive compensation
and related benefits, administrative salaries and benefits, office rent and
utilities, communication expenses and professional fees.
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from commissions are recognized as the related products are
sold.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires entities to disclose certain
information about their capital structure, including the pertinent rights and
privileges of the various securities outstanding. The Company will be required
to adopt SFAS No. 129 in 1997 and, in the opinion of management, SFAS No. 129
will not significantly change the existing financial statement disclosures.
3. ACQUISITION (UNAUDITED):
On March 1, 1997, HTD acquired all the outstanding stock of MCA in exchange
for 27,000 shares of HTD common stock. The acquisition was accounted for as a
purchase, and MCA's results of operation have been included in the accompanying
unaudited June 30, 1997 consolidated financial statements since the acquisition
date. MCA is also a contract seller of specialty medical products.
The purchase price was allocated as follows:
Current assets..................... $ 174,456
Property and equipment............. 165,610
Patent............................. 395,551
Goodwill........................... 1,186,655
Current liabilities................ (360,112)
------------
Purchase price..................... $ 1,562,160
============
F-43
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES -------------------------- JUNE 30,
IN YEARS 1995 1996 1997
--------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures............... 5-7 $ 80,314 $ 80,314 $ 126,881
Machinery and equipment.............. 7 84,154 74,265 126,495
Office equipment..................... 5 209,360 200,302 227,210
Rental equipment..................... 5 -- -- 48,725
Leasehold improvements............... 10 23,275 -- --
------------ ------------ -----------
397,103 354,881 529,311
Less -- accumulated depreciation and
amortization....................... (232,058) (164,535) (210,519)
------------ ------------ -----------
Property and equipment, net.......... $ 165,045 $ 190,346 $ 318,792
============ ============ ===========
</TABLE>
Equipment financed under capital lease obligations amounted to $144,133 and
$86,836 at December 31, 1995 and 1996, respectively, and $146,868 at June 30,
1997. Related accumulated depreciation for those assets totaled $45,524 and
$41,634, at December 31, 1995 and 1996, respectively, and $52,729 at June 30,
1997.
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
Trade receivables.................... $ 1,810,467 $ 1,486,413 $ 1,871,048
Commissions receivable............... 100,586 98,491 118,522
Receivables from related party (Note
7)................................. 9,257 17,249 --
Receivables from employees........... 6,623 27,887 31,734
Other................................ 1,550 16,665 27,295
------------ ------------ ------------
1,928,483 1,646,705 2,048,599
Less -- allowance for doubtful
accounts........................... (18,621) (27,715) (46,141)
------------ ------------ ------------
$ 1,909,862 $ 1,618,990 $ 2,002,458
============ ============ ============
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
Accounts payable, trade............... $ 1,364,397 $ 1,079,398 $ 1,183,083
Accrued compensation and benefits..... 117,598 54,085 31,755
Accrued commissions................... 226,605 178,689 205,536
Accrued income taxes.................. 198,095 79,431 104,210
Other payables and accrued expenses... 22,313 106,808 144,805
------------ ------------ ------------
$ 1,929,008 $ 1,498,411 $ 1,669,389
============ ============ ============
F-44
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT:
Short-term debt consists of a $1,500,000 revolving credit line payable on
demand with interest due monthly at the bank's prime rate plus 0.75 percent (9%
at December 31, 1996). This credit line is secured by accounts receivable,
inventories and personal guarantees of the Company's principal stockholders and
contains various restrictive covenants, including provisions relating to the
maintenance of working capital, net worth and current ratios. The Company was in
compliance with, or had received a noncompliance waiver, with respect to all of
its covenants at December 31, 1996. The Company was in compliance with respect
to all of its covenants at June 30, 1997.
Stockholders' notes payable represent amounts advanced to the Company by
certain of its stockholders for working capital purposes. The notes are due
October 31, 1998 and bear interest at 8% payable upon maturity.
The aggregate maturities of long-term debt and capital lease obligations as
of December 31, 1996, are as follows:
Year ending December 31 --
1997....................... $ 23,575
1998....................... 176,355
1999....................... 7,940
2000....................... 3,631
2001....................... 3,321
----------
$ 214,822
==========
Capital lease obligations are shown net of interest and executory costs,
which total approximately $15,000 through 2001.
7. LEASES:
The Company previously leased its warehouse facilities from an entity owned
by two of its stockholders. Rent expense under this arrangement totaled
approximately $84,000 and $77,400 for the years ended December 31, 1995 and
1996, respectively, and was $42,000 and $38,700 for the six months ended June
30, 1996 and 1997, respectively. The Company also previously leased space for
its corporate office from a third party. Rent expense under this arrangement
totaled approximately $55,853 for each of the years ended December 31, 1995 and
1996, and $27,927 and $6,982 for the six months ended June 30, 1996 and 1997,
respectively. The leases required or require the Company to pay taxes,
maintenance, insurance and certain other operating costs of the leased property.
During December 1996, the Company relocated its corporate office and
warehouse into combined new facilities that are owned by the lessor of its
former facilities. The Company provided a guaranty of this related party's
$1,500,000 loan on the new facilities, and the Company advanced funds to this
related party for construction and other purposes. The amount due relating to
these advances totaled $9,257 and $17,249 for the years ending December 31, 1995
and 1996, respectively, and $0 at June 30, 1997. Total rent expense under the
lease for the new facilities amounted to $77,400 for the six months ended June
30, 1997.
In connection with the relocation, the Company recorded a $62,342 charge in
1996 associated with the termination of certain equipment leases, which is
reflected as other expense, net in the accompanying consolidated statement of
operations for the year ended December 31, 1996.
F-45
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments (payable to related parties) required under
noncancellable operating leases that have initial or remaining noncancellable
lease terms in excess of one year at December 31, 1996 are as follows:
Year ending December 31 --
1997............................... $ 154,800
1998............................... 154,800
1999............................... 154,800
2000............................... 154,800
2001............................... 154,800
Thereafter......................... 774,000
------------
$ 1,548,000
============
8. INCOME TAXES:
The provision (benefit) for federal and state income taxes follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------- ---------------------
1995 1996 1996 1997
---------- --------- --------- ----------
(UNAUDITED)
Federal --
Current............... $ 194,395 $ 58,276 $ 36,085 $ 145,309
Deferred.............. (2,476) (9,633) 13,966 (2,151)
State --
Current............... 20,368 7,556 5,155 20,664
Deferred.............. (364) (1,417) 1,995 (213)
---------- --------- --------- ----------
$ 211,923 $ 54,782 $ 57,201 $ 163,609
========== ========= ========= ==========
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
1995 1996 1996 1997
---------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Provision at the statutory rate...... $ 180,698 $ 46,870 $ 40,702 $ 136,415
Increase (decrease) resulting from --
State income tax, net of federal
benefit....................... 13,203 4,052 6,045 9,161
Officers' life insurance
expense....................... 13,845 4,991 1,698 2,569
Meals and entertainment......... 9,913 11,513 3,917 5,926
Other........................... (5,736) (12,644) 4,839 9,538
---------- --------- --------- ----------
$ 211,923 $ 54,782 $ 57,201 $ 163,609
========== ========= ========= ==========
</TABLE>
F-46
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences representing deferred tax assets
and liabilities result principally from the following:
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
Depreciation and amortization........ $ (12,233) $ (10,932) $ (10,272)
Accruals and reserves................ 14,025 23,774 25,478
---------- ---------- -----------
Net deferred income tax assets....... $ 1,792 $ 12,842 $ 15,206
========== ========== ===========
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's consolidated financial
position or consolidated results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The sale and distribution of medical products involve a risk of product
liability claims. The Company maintains product liability insurance coverage in
amounts that it considers adequate.
10. SIGNIFICANT SUPPLIERS:
Sales of specialty medical products under distribution agreements and
agency arrangements with manufacturers represented approximately 89.2 percent
and 7.8 percent, respectively, of the Company's revenues in 1996. Sales of
products under arrangements with the Company's four largest suppliers accounted
for approximately 62.8 percent and 67.0 percent of sales revenues for 1995 and
1996, respectively.
The Company's significant distribution agreements and agency arrangements
are generally for terms of one to three years, but can be terminated if the
Company fails to meet certain negotiated sales volumes. The loss of one or more
of the Company's relationships with its significant manufacturers could have a
material adverse effect on the Company's consolidated financial condition and
consolidated results of operations.
11. EMPLOYEE BENEFIT PLAN:
The Company sponsors a defined contribution 401(k) profit-sharing plan for
employees meeting certain requirements. The Company's contributions during the
years ended December 31, 1995 and 1996, were $33,058 and $20,000, respectively,
and during the six months ended June 30, 1996 and 1997, were $5,000 and $0,
respectively.
12. INCENTIVE BONUS PLAN:
The Company maintains operational-and profit-based bonus plans for certain
sales-related employees. The Company also may approve discretionary bonuses to
certain officers and employees. Amounts expensed under such incentive agreements
totaled $199,190 and $309,400 for the years ended December 31, 1995 and 1996,
respectively, and $190,750 and $60,116 for the six months ended June 30, 1996
and 1997, respectively.
F-47
<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. ISSUANCE OF PREFERRED AND COMMON STOCK (UNAUDITED):
In April 1997, HTD issued and sold 9,000 shares of its common stock and
4,500 shares of its Series A preferred stock (the "HTD Preferred Stock") to
Equus II Incorporated, an investor in TRIAD, for $50,000 and $450,000,
respectively. The HTD preferred stock bears cumulative, preferential dividends
at the rate of $10 per share per annum, payable quarterly, and is mandatorily
redeemable at $100 per share, plus accrued and unpaid dividends, on the
occurence of certain events, including a change of control. TRIAD will redeem
the HTD Preferred Stock with proceeds from the Offering. If TRIAD acquires HTD
and consummates the Offering, certain holders of HTD common stock have agreed
not to exercise and will terminate options to purchase an aggregate of 10,000
shares of HTD common stock.
14. EMPLOYMENT AGREEMENTS:
On March 1, 1997 the Company entered into employment agreements with
certain key employees which provide for a three-year employment period at a base
salary plus various incentives.
15. SUPPLEMENTAL CASH FLOW INFORMATION:
During the six months ended June 30, 1997 the Company had the following
non-cash financing and investing activities:
Acquisition of MCA:
Fair value of assets acquired... $ 1,922,272
Liabilities assumed............. (360,112)
------------
Fair value of stock issued...... $ 1,562,160
============
Treasury stock retired in
reorganization..................... $ 55,742
Common stock retired in
reorganization..................... $ 211
Capital lease transactions........... $ 84,237
16. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
MERGER
On September 9, 1997, the Company and its stockholders entered into a
definitive merger agreement with TRIAD, providing for the acquisition of the
Company by TRIAD.
Concurrently with the closing of the transactions under the merger
agreement, the Company will distribute the cash surrender value of life
insurance to certain of its stockholders and will enter into agreements with a
related party owned by certain of its stockholders to lease land and buildings
used in the Company's operations for a negotiated amount and term.
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sun Medical, Inc.:
We have audited the accompanying balance sheets of Sun Medical, Inc. (a
Texas corporation) as of December 31, 1995 and 1996, and the related statements
of operations, stockholder's equity and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sun Medical, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
April 18, 1997
F-49
<PAGE>
SUN MEDICAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1995 1996 1997
-------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,154,647 $ 803,458 $ 779,402
Accounts receivable, net of
allowance of $4,913, $0
and $0, respectively.......... 1,630,865 1,313,822 1,423,800
Notes receivable -- current
portion....................... 80,804 -- --
Inventories, net................ 1,635,144 1,544,614 1,362,191
Prepaid expenses and other
current assets................ 34,191 35,997 86,632
Deferred income taxes........... 64,015 128,122 126,464
-------------- -------------- -----------
Total current assets....... 4,599,666 3,826,013 3,778,489
PROPERTY AND EQUIPMENT, net.......... 176,925 123,834 94,383
OTHER NON-CURRENT ASSETS:
Notes receivable, net of current
portion....................... -- 440,000 690,000
Other........................... 29,099 29,899 34,028
-------------- -------------- -----------
Total assets............... $ 4,805,690 $ 4,419,746 $ 4,596,900
============== ============== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term
debt and notes payable to
former stockholder............ $ 850,000 $ 450,000 $ 450,000
Accounts payable and accrued
expenses...................... 1,754,773 3,283,662 3,098,028
-------------- -------------- -----------
Total current
liabilities................ 2,604,773 3,733,662 3,548,028
LONG-TERM DEBT, net of current
maturities........................... 200,000 150,000 425,000
NOTES PAYABLE TO FORMER STOCKHOLDER,
net of current maturities............ 1,900,000 1,500,000 1,500,000
DEFERRED INCOME TAXES................ 3,509 7,024 6,933
OTHER LONG-TERM LIABILITIES.......... 1,537,969 231,300 253,050
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, no par value;
500,000 shares authorized,
166,887 shares issued and
outstanding..................... 2,673,357 2,673,357 2,673,357
Additional paid-in capital...... (144,728) (222,789) (222,789)
Unearned ESOP shares............ (4,097,046) (3,779,885) (3,779,885)
Retained earnings............... 127,856 127,077 193,206
-------------- -------------- -----------
Total stockholder's
deficit............... (1,440,561) (1,202,240) (1,136,111)
-------------- -------------- -----------
Total liabilities and
stockholder's
deficit............ $ 4,805,690 $ 4,419,746 $ 4,596,900
============== ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
SUN MEDICAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 12,383,488 $ 13,917,975 $ 13,037,884 $ 6,667,314 $ 6,327,011
COST OF REVENUES..................... 8,438,440 9,341,268 8,595,560 4,417,987 4,060,634
-------------- -------------- -------------- -------------- --------------
Gross profit............... 3,945,048 4,576,707 4,442,324 2,249,327 2,266,377
-------------- -------------- -------------- -------------- --------------
SELLING EXPENSES..................... 1,770,087 1,877,520 1,820,170 843,299 857,620
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,876,597 2,064,811 2,121,559 1,076,066 980,929
DEPRECIATION AND
AMORTIZATION....................... 73,277 66,407 60,544 30,000 30,000
-------------- -------------- -------------- -------------- --------------
Total operating expenses........ 3,719,961 4,008,738 4,002,273 1,949,365 1,868,549
-------------- -------------- -------------- -------------- --------------
Income from operations..... 225,087 567,969 440,051 299,962 397,828
-------------- -------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest income................. 22,468 42,027 48,308 17,381 58,031
Interest expense................ (395,654) (356,033) (246,549) (123,565) (116,621)
-------------- -------------- -------------- -------------- --------------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. (148,099) 253,963 241,810 193,778 339,238
PROVISION FOR INCOME TAXES........... 76,515 247,727 242,589 221,962 273,109
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS).................... $ (224,614) $ 6,236 $ (779) $ (28,184) $ 66,129
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
SUN MEDICAL, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
--------------------- PAID-IN ESOP RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL SHARES EARNINGS DEFICIT
------- ---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. 166,887 $2,673,357 $ (436) $(4,990,545) $ 346,234 $ (1,971,390)
8,622 shares released to ESOP
participants..................... -- -- (45,266) 426,789 -- 381,523
Shares purchased from ESOP
participants..................... -- -- (50,000) -- (50,000)
Net loss........................... -- -- (224,614) (224,614)
------- ---------- ---------- ----------- ---------- -------------
BALANCE, December 31, 1994.............. 166,887 2,673,357 (45,702) (4,613,756) 121,620 (1,864,481)
10,479 shares released to ESOP
participants..................... -- -- (99,026) 518,710 -- 419,684
Shares purchased from ESOP
participants..................... -- -- (2,000) -- (2,000)
Net income......................... -- -- 6,236 6,236
------- ---------- ---------- ----------- ---------- -------------
BALANCE, December 31, 1995.............. 166,887 2,673,357 (144,728) (4,097,046) 127,856 (1,440,561)
10,478 shares released to ESOP
participants..................... -- -- (78,061) 518,661 -- 440,600
Shares purchased from ESOP
participants..................... -- -- (201,500) -- (201,500)
Net loss........................... -- -- (779) (779)
------- ---------- ---------- ----------- ---------- -------------
BALANCE, December 31, 1996.............. 166,887 2,673,357 (222,789) (3,779,885) 127,077 (1,202,240)
Net income (Unaudited)............. -- -- -- 66,129 66,129
------- ---------- ---------- ----------- ---------- -------------
BALANCE, June 30, 1997 (Unaudited)...... 166,887 $2,673,357 $ (222,789) $(3,779,885) $ 193,206 $ (1,136,111)
======= ========== ========== =========== ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
SUN MEDICAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ (224,614) $ 6,236 $ (779) $ (28,184) $ 66,129
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation and amortization.... 73,277 66,407 60,544 30,000 30,000
Provision for doubtful accounts
receivable.................... (145,680) (593) 4,913 -- --
Deferred income taxes, net....... (21,426) (20,358) (60,592) (67,586) 1,567
Shares released to the ESOP...... 381,523 419,684 440,600 220,300 --
Increase (decrease) in operating
cash flows resulting from:
Accounts receivable........... 273,718 (58,084) 392,934 322,433 (109,978)
Inventories................... 399,660 44,413 90,530 211,390 182,423
Prepaid expenses and other
current assets............. -- (9,191) (1,806) (36,828) (50,635)
Other noncurrent assets....... 14,913 58,062 (800) -- (4,129)
Accounts payable and accrued
expenses................... (201,213) 1,007,336 (1,504,314) (348,024) (185,634)
Commitments and
contingencies.............. -- 43,500 1,726,534 21,750 21,750
Loss on sale of property and
equipment.................. -- -- -- -- (6,600)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities............ 550,158 1,557,412 1,147,764 325,251 (55,107)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to investees.............. -- -- (440,000) (400,000) (250,000)
Proceeds from sale of property and
equipment........................ 17,448 11,171 2,547 1,603 6,600
Purchases of property and
equipment........................ (4,867) (153,581) (10,000) -- (549)
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) investing
activities............ 12,581 (142,410) (447,453) (398,397) (243,949)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
debt............................. (523,000) (352,000) (850,000) -- (50,000)
Proceeds of long-term debt......... -- -- -- -- 325,000
Shares purchased from ESOP
Participants..................... (50,000) (2,000) (201,500) -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities............ (573,000) (354,000) (1,051,500) -- 275,000
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (10,261) 1,061,002 (351,189) (73,146) (24,056)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 103,906 93,645 1,154,647 1,154,647 803,458
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 93,645 $ 1,154,647 $ 803,458 $ 1,081,501 $ 779,402
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid for --
Interest...................... $ 352,000 $ 299,000 $ 247,000 $ 10,011 $ 20,808
============ ============ ============ ============ ============
Income taxes.................. $ 15,000 $ 12,000 $ 377,000 $ 314,107 $ 187,025
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Sun Medical, Inc. (the Company or Sun) was founded in 1978 and maintains
its headquarters in Arlington, Texas. The Company is a contract seller and
distributor and limited manufacturer of specialty medical products and
represents over 15 manufacturers.
The Company intends to enter into a definitive merger agreement with TRIAD
Medical Inc. (TRIAD) pursuant to which the Company will be acquired by TRIAD for
consideration consisting of $2,050,000 in cash and 571,429 shares of TRIAD
common stock, concurrently with the closing of the initial public offering by
TRIAD of its common stock (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the accrual
basis of accounting.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of June 30, 1997, and for
the six months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheets are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
CASH AND CASH EQUIVALENTS
For purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents. At December 31, 1995 and 1996 and at June 30, 1997,
the Company maintained cash balances in various financial institutions in excess
of federally insured limits.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its
customers, which are primarily hospitals. The Company regularly reviews accounts
receivable and makes provision for potentially uncollectible balances. At
December 31, 1995 and 1996, and at June 30, 1997, management believes the
Company had incurred no material impairments in the carrying values of its
accounts receivable, other than uncollectible amounts for which provision has
been made.
F-54
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories consist primarily of medical products and supplies.
Inventories, net of allowances, are valued at the lower of cost or market. Cost
is determined on the average/first-in, first-out (FIFO) method. At December 31,
1995 and 1996, and at June 30, 1997, management believes the Company had
incurred no material impairments in the carrying values of its inventories,
other than impairments for which provision has been made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the applicable lease or the estimated useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of specialty
medical products under distribution agreements and agency arrangements with
various manufacturers. Cost of revenues consists primarily of product costs, net
of rebates, and freight charges. Selling expenses consist primarily of sales
commissions, salaries of sales managers, travel and entertainment expenses,
trade show expenses and automobile allowances. General and administrative
expenses consist primarily of executive compensation and related benefits,
administrative salaries and benefits, office rent and utilities, communication
expenses and professional fees.
REVENUE RECOGNITION
Revenues are recognized when services and rentals are provided and when
products and supplies are shipped.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires nonpublic entities to disclose
certain information about an entity's capital structure, including the pertinent
rights and privileges of the various securities outstanding. The Company will be
required to adopt SFAS No. 129 in 1997 and, in the opinion of management, SFAS
No. 129 will not significantly change the existing financial statement
disclosures.
3. INVESTMENTS AND NOTES RECEIVABLE:
On October 26, 1996, the Company issued a $650,000 line of credit to a
developmental stage enterprise (Rejuvena). The credit line carries an interest
rate based on the prevailing prime rate plus 3 percent, with interest payable on
a quarterly basis until October 1999, when the principal balance, plus
F-55
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accrued interest, is due. At December 31, 1996 and June 30, 1997, the principal
balance outstanding under the credit line was $400,000 and $650,000,
respectively, which is reflected as notes receivable in the accompanying balance
sheets. In exchange for the credit line, the Company received the right to
convert the principal balance of the line of credit to shares of common stock of
Rejuvena at a rate of one share for each $.21 of debt at any time after the
first anniversary date of the agreement. The Company also received two stock
options. In November 1996, the Company exercised the first option to purchase
500,000 shares of Rejuvena common stock at a cost of $.001 per share.
Subsequently, Rejuvena effected a reverse-split of its Common Stock on a
1-for-10 basis, resulting in the Company's owning 50,000 shares of Rejuvena
common stock, or 30.2 percent and 3 percent of all the outstanding equity
interests in Rejuvena at December 31, 1996 and June 30, 1997, respectively. The
second option, which the Company has not yet exercised, allows the Company to
purchase shares of Rejuvena at a cost of $0.21 per share determined by the
highest principal amount of the line of credit.
On February 15, 1997, the Company entered into a note agreement with Cysco
Enterprises, Inc. (Cysco), a company owned by the chief executive officer of the
Company. Cysco and the Company agreed to share equally the receivable
outstanding from Rejuvena. In conjunction with the agreement, Cysco loaned the
Company $325,000. The Company will repay Cysco principal and interest in amounts
equal to one-half of the Company's collections on the Rejuvena loan. In exchange
for the loan, the Company granted to Cysco options to purchase one-half of the
common stock of Rejuvena that the Company acquired in connection with the
Rejuvena loan. At June 30, 1997, the Company owed Cysco $325,000.
During 1996, the Company loaned a corporation (Foundation Surgery
Affiliates) $40,000. The note carries an interest rate based on the prevailing
prime rate plus one percent, with interest payable monthly until September 1997,
when principal payments will begin to amortize over a three year period. In
exchange for the loan, the Company received common stock in the corporation,
which was recorded as an investment under the cost method.
Concurrent with the Offering, the chief executive officer of the Company
intends to repay the then outstanding principal balances of the Rejuvena line of
credit and of the Foundation Surgery Affiliates note in exchange for the
Company's stock ownership, options and conversion rights in these companies.
The Company owns approximately 78 percent of the common stock of PreemiCare
Corporation (PreemiCare), a company which specialized in providing infant care
systems and baby warmers to premature babies. Two of the Company's officers
received management fees from PreemiCare of $6,000 in each of the three years
ended December 31, 1996, respectively. In 1992, PreemiCare sold all its assets
to an unrelated third party in exchange for an agreement to receive royalty
payments on related revenues. This investment was written off in 1993 and has
been recorded on the cost method since then. The Company has received no
dividends or other income from PreemiCare since 1993. At December 31, 1996, the
royalty agreement expired and PreemiCare had no operations.
F-56
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------------------ JUNE 30,
IN YEARS 1995 1996 1997
------------ -------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Transportation equipment................ 5 $ 38,336 $ 38,336 $ 38,336
Furniture and fixtures.................. 5-7 196,589 196,589 197,139
Machinery and equipment................. 7 379,420 379,420 379,420
Rental equipment........................ 5-7 748,152 737,057 708,865
Leasehold improvements.................. 10 122,266 122,266 122,266
-------------- -------------- -----------
1,484,763 1,473,668 1,446,026
Less -- accumulated depreciation and
amortization.......................... (1,307,838) (1,349,834) (1,351,643)
-------------- -------------- -----------
Property and equipment, net............. $ 176,925 $ 123,834 $ 94,383
============== ============== ===========
</TABLE>
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consists of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Trade receivables................ $ 1,643,772 $ 1,302,327 $ 1,425,695
Other............................ (7,994) 11,495 (1,895)
------------ ------------ -----------
1,635,778 1,313,822 1,423,800
Less -- allowance for doubtful
accounts....................... (4,913) -- --
------------ ------------ -----------
$ 1,630,865 $ 1,313,822 $ 1,423,800
============ ============ ===========
Inventories are comprised of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Finished goods.................. $ 1,479,888 $ 1,426,353 $ 1,231,584
Raw materials................... 155,256 118,261 130,607
------------ ------------ -----------
$ 1,635,144 $ 1,544,614 $ 1,362,191
============ ============ ===========
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Accounts payable, trade............. $ 1,197,302 $ 1,035,952 $ 667,029
Accrued compensation and benefits... 157,161 173,381 114,253
Accrued income taxes................ 281,424 1,890,708 2,245,811
Refunds payable..................... 72,899 166,524 --
Other payables and accrued expenses. 45,987 17,097 70,935
------------ ------------ -----------
$ 1,754,773 $ 3,283,662 $ 3,098,028
============ ============ ===========
F-57
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT:
Long-term debt consists of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
Notes payable to former stockholder,
due at December 31, 2001, bearing
interest at 10%.................... $ 2,750,000 $ 1,950,000 $ 1,950,000
Note payable to a bank, due
semi-annually ending July 1999,
bearing interest at the prevailing
prime interest rate (8.25% at
December 31, 1996)................. 200,000 150,000 100,000
Note payable to Cysco Enterprises,
due in October 1999 bearing
interest at the prevailing prime
interest rate plus 3% (11.25% at
December 31, 1996)................. -- -- 325,000
------------ ------------ ------------
2,950,000 2,100,000 2,375,000
Less: Amounts due within one
year.......................... (850,000) (450,000) (450,000)
------------ ------------ ------------
$ 2,100,000 $ 1,650,000 $ 1,925,000
============ ============ ============
The Company also has a line of credit from a bank with available borrowings
of $1,500,000 at December 31, 1995 and 1996. There were no amounts outstanding
under the line of credit at December 31, 1995 or 1996 or at June 30, 1997.
The aggregate maturities of long-term debt are as follows:
Year ending December 31 -
1997....................... $ 450,000
1998....................... 450,000
1999....................... 450,000
2000....................... 400,000
2001....................... 350,000
------------
Total................. $ 2,100,000
============
7. LEASES:
The Company leases its facilities from a partnership of which one of the
partners is the chief executive officer of the Company. Included in general and
administrative expenses for the years ended December 31, 1994, 1995 and 1996,
respectively, is approximately $242,805, $244,525 and $253,406 and for the six
months ended June 30, 1997 and 1996 is $122,004 of rent paid to this partnership
under the facilities lease. The lease provides for the lessor to pay taxes,
maintenance and insurance for the leased property. The Company pays certain
operating costs of the leased property
The Company leases vehicles for certain key members of management. The
lease payments under those vehicle leases were approximately $15,770 in the
aggregate for the year ended December 31, 1996.
The Company believes the terms of the related-party leases are at least as
favorable as the terms that would have been obtained from an unaffiliated third
party in a similar transaction.
F-58
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments required under noncancellable operating
leases that have initial or remaining noncancelable lease terms in excess of one
year at December 31, 1996 are as follows:
Year ending December 31 -
1997....................... $ 290,185
1998....................... 273,135
1999....................... 247,772
2000....................... 242,805
2001....................... 222,572
Thereafter................. --
------------
$ 1,276,469
============
8. INCOME TAXES:
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal --
Current......................... $ 26,961 $ 237,590 $ 252,941 $ 241,566 $ 226,544
Deferred........................ 33,053 (16,052) (50,552) (56,385) 1,308
State --
Current......................... 9,936 29,378 50,241 47,981 44,997
Deferred........................ 6,565 (3,189) (10,041) (11,200) 260
---------- ---------- ---------- ---------- ----------
$ 76,515 $ 247,727 $ 242,589 $ 221,962 $ 273,109
========== ========== ========== ========== ==========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35 percent to income
before provision for income taxes as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision (benefit) at the statutory
rate................................. $ (51,835) $ 88,887 $ 84,634 $ 68,872 $ 118,733
Increase (decrease) resulting from --
Nondeductible ESOP
expenses...................... 92,012 96,149 116,502 57,202 110,938
State income tax................ 10,726 17,023 26,130 23,908 29,418
Nondeductible expenses.......... 29,426 38,900 15,323 14,020 14,020
Other........................... (3,814) 6,768 -- 57,960 --
---------- ---------- ---------- ---------- ----------
$ 76,515 $ 247,727 $ 242,589 $ 221,962 $ 273,109
========== ========== ========== ========== ==========
</TABLE>
F-59
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Inventory............................ $ -- $ -- $ 53,950 $ -- $ 53,950
Loss on Investment -- Preemicare..... 256,216 280,250 280,250 280,250 280,250
Other................................ 41,264 60,506 67,148 128,090 65,581
Valuation allowance.................. (256,216) (280,250) (280,250) (280,250) (280,250)
------------ ------------ ------------ ------------ ------------
Total deferred income tax assets..... $ 41,264 $ 60,506 $ 121,098 $ 128,090 $ 119,531
============ ============ ============ ============ ============
</TABLE>
9. RELATED-PARTY TRANSACTIONS:
At December 31, 1995, the Company had a note receivable from its chief
executive officer in the amount of $80,804. The note was secured and carried an
interest rate of 8% per annum. The note was paid in June 1996. Included in other
income for the years ended December 31, 1994, 1995 and 1996 is $11,690, $6,464
and $3,188, respectively, of interest income earned on this note. For a
discussion of certain loan transactions and lease arrangements involving related
parties, see Notes 3, 7 and 12.
At December 31, 1996 and June 30, 1997, the Company guaranteed a note
payable to a bank in the amount of $514,000, by the Company's chief executive
officer. Such note payable relates to a note payable of equal amount from the
Company's Employee Stock Ownership Plan to the chief executive officer, which is
recorded in the accompanying balance sheet, see Note 12. Accordingly, if
pursuant to its guarantee the Company were required to settle the note payable
to the bank, it would also be released from the liability recorded in the
accompanying balance sheet.
10. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The manufacture, sale, distribution and repair of medical products involve
a risk of product liability claims. The Company maintains product liability
insurance coverage in amounts that it considers adequate.
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their state by out-of-state companies. Complex legal
issues arise in these areas relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to
F-60
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
collect such taxes. Although the Company believes that it has adequately
provided for sales taxes on its sales, there can be no assurance as to the
effect of actions state tax authorities may take on the Company's financial
condition or the results of its operations.
11. SIGNIFICANT SUPPLIERS:
The Company has three significant suppliers, together whose products
accounted for approximately 57 percent, 65 percent and 63 percent of the
Company's 1994, 1995 and 1996 revenues, respectively. The Company's arrangement
with Quest Medical, Inc., its largest supplier and whose products accounted for
approximately 18 percent, 31 percent and 28 percent of the Company's 1994, 1995
and 1996 revenues, respectively, is for a term of three years and terminates on
December 31, 1999. The Company's arrangement with Sharplan Lasers, Inc., whose
products (surgical lasers and ultrasonic aspirators and accessories) accounted
for approximately 18 percent, 19 percent and 22 percent of the Company's 1994,
1995 and 1996 revenues, respectively, is for a term of two years and terminates
on December 31, 1997. The Company's arrangement with Baxter Healthcare
Corporation, whose products (infusion pumps and associated disposals) accounted
for approximately 21 percent, 15 percent and 13 percent of the Company's 1994,
1995 and 1996 revenues, respectively, expired on March 31, 1997. The Company is
currently renegotiating this distribution agreement and expects this
relationship to continue in the foreseeable future. The Company's other material
distribution agreements and agency arrangements are generally for terms of one
to two years, and are terminable if the Company fails to meet certain negotiated
sales volumes or on prior notice ranging from 30 to 90 days. A loss of the
Company's distribution or agency relationships with one or more of its
significant manufacturers could have a material adverse effect on the Company's
financial condition and results of operation.
12. EMPLOYEE STOCK OWNERSHIP PLAN:
The Company has established an Employee Stock Ownership Plan ("ESOP")
that owns all the outstanding stock of the Company. The stock was purchased by
the ESOP from the former stockholders of the Company in 1992 for $49.50 per
share. The purchase price was paid in the form of notes payable, which were
collateralized by the common stock of the Company. The Company has contributed
funds to the ESOP to fund its debt service payments to the former stockholders
and the Company has paid the interest on the notes. The ESOP obligations were
recorded as a liability on the Company's balance sheet due to the ESOP's
inability to satisfy the debt from sources other than dividends on the Company's
common stock, contributions from the Company or the sale of the Company's
securities. A corresponding reduction in stockholder's equity for unearned ESOP
shares was also recorded. As the Company makes contributions to the ESOP to make
payments on the loans, shares are allocated to ESOP participants and both the
liability and unearned ESOP shares (reflected as a reduction of stockholder's
equity) are reduced. Any difference in the fair value of the allocated shares
compared to the original stock purchase price is recorded as an increase or
decrease in additional paid-in capital. At December 31, 1996 116,382 shares had
been allocated to the ESOP participants. Interest paid by the Company on behalf
of the ESOP was approximately $327,000, $282,000 and $235,000 for the years
ended December 31, 1994, 1995 and 1996, respectively. The plan provides for
contributions equal to 25% of the wages of eligible employees. Included in
general and administrative expenses for the years ended December 31, 1994, 1995
and 1996, respectively, is approximately $381,500, $419,700 and $440,600 of
contributions to the ESOP.
The Company has identified possible violations of the Internal Revenue Code
of 1986 and the Employee Retirement Income Security Act of 1974 with respect to
the ESOP. The Company has voluntarily notified the Internal Revenue Service
regarding these possible violations and will seek appropriate remedial action.
The Company has accrued approximately $1.7 million and $2 million as of December
31, 1996 and June 30, 1997, respectively, for any taxes, sanctions and
professional fees incurred to address and resolve
F-61
<PAGE>
SUN MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
these potential violations to the satisfaction of the appropriate governmental
entities. Although the Company believes that it has adequately provided for such
exposure, there can be no assurance as to the ultimate resolution.
13. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
On September 9, 1997, the Company and the ESOP entered into a definitive
merger agreement with TRIAD, providing for the acquisition of the Company by
TRIAD. Among the conditions to TRIAD's obligation to acquire the Company are
that the Company shall have collected all amounts owed to it by Rejuvena in
exchange for its equity interests in Rejuvena and all amounts owed to it by
Foundation Surgery Affiliates and shall have also repaid all amounts owed by it
to Cysco.
If the acquisition of the Company by TRIAD is completed, the Company will
owe its CEO $139,000 under the provisions of a supplemental executive retirement
plan, which would be expensed at that date, and the Company concurrently will
enter into a new agreement with its existing lessor to lease the space used in
the Company's operations for a negotiated amount and term.
Also upon consummation of the Offering and TRIAD's acquisition of the
Company, all the outstanding long-term debt of the Company is expected to be
repaid.
F-62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Custom Medical Specialties, Inc.:
We have audited the accompanying balance sheets of Custom Medical
Specialties, Inc. (an Indiana corporation) as of December 31, 1995 and 1996, and
the related statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Custom Medical Specialties,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
April 18, 1997
F-63
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 1,471,219 $ 933,213 $ 280,859
Custodial cash..................... -- 225,431 --
Short-term investments............. 200,000 180,000 --
Accounts receivable, net of
allowance of $28,529............. 1,159,172 1,413,757 1,280,460
Inventories, net................... 960,401 866,489 967,941
Prepaid expenses and other current
assets........................... 66,921 79,150 83,017
------------ ------------ -----------
Total current assets.......... 3,857,713 3,698,040 2,612,277
PROPERTY AND EQUIPMENT, net............. 40,281 21,921 53,280
OTHER NON-CURRENT ASSETS................ 4,187 3,986 11,582
------------ ------------ -----------
Total assets.................. $ 3,902,181 $ 3,723,947 $ 2,677,139
============ ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................. $ -- $ -- $ 6,543
Accounts payable and accrued
expenses......................... 1,157,024 1,538,800 1,127,795
------------ ------------ -----------
Total current liabilities..... 1,157,024 1,538,800 1,134,338
------------ ------------ -----------
LONG-TERM DEBT, net of current
maturities............................ -- -- 20,930
NOTE PAYABLE TO STOCKHOLDER............. 9,500 9,500 9,500
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value; 1,000
shares authorized, 100 shares
issued and 75 shares
outstanding...................... 1,000 1,000 1,000
Treasury stock, 25 shares at
cost............................. (212,000) (212,000) (212,000)
Retained earnings.................. 2,946,657 2,386,647 1,723,371
------------ ------------ -----------
Total stockholder's equity.... 2,735,657 2,175,647 1,512,371
------------ ------------ -----------
Total liabilities and
stockholder's equity....... $ 3,902,181 $ 3,723,947 $ 2,677,139
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- --------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 14,205,135 $ 10,767,804 $ 9,599,162 $ 4,889,211 $ 4,633,716
COST OF REVENUES..................... 10,501,998 7,771,724 7,022,412 3,548,566 3,424,799
-------------- -------------- -------------- ------------ ------------
Gross profit............... 3,703,137 2,996,080 2,576,750 1,340,645 1,208,917
-------------- -------------- -------------- ------------ ------------
SELLING EXPENSES..................... 1,021,352 832,346 674,321 391,993 327,436
GENERAL AND ADMINISTRATIVE
EXPENSES........................... 811,535 784,680 781,362 419,853 383,243
DEPRECIATION AND
AMORTIZATION....................... 25,228 23,371 20,933 10,327 13,172
-------------- -------------- -------------- ------------ ------------
Total operating expenses........ 1,858,115 1,640,397 1,476,616 822,173 723,851
-------------- -------------- -------------- ------------ ------------
Income from operations..... 1,845,022 1,355,683 1,100,134 518,472 485,066
OTHER INCOME (EXPENSE):
Interest income................. 39,635 51,070 35,010 10,544 8,935
Interest expense................ (1,346) (955) (950) (475) (570)
Other income, net............... -- -- 7,025 -- 27,500
-------------- -------------- -------------- ------------ ------------
NET INCOME........................... $ 1,883,311 $ 1,405,798 $ 1,141,219 $ 528,541 $ 520,931
============== ============== ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ TREASURY RETAINED STOCKHOLDER'S
SHARES AMOUNT STOCK EARNINGS EQUITY
------- ------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 75 $1,000 $(212,000) $ 2,589,900 $ 2,378,900
Net income...................... -- -- -- 1,883,311 1,883,311
Distributions................... -- -- -- (1,987,352) (1,987,352)
------- ------- --------- ----------- -------------
BALANCE, December 31, 1994........... 75 1,000 (212,000) 2,485,859 2,274,859
Net income...................... -- -- -- 1,405,798 1,405,798
Distributions................... -- -- -- (945,000) (945,000)
------- ------- --------- ----------- -------------
BALANCE, December 31, 1995........... 75 1,000 (212,000) 2,946,657 2,735,657
Net income...................... -- -- -- 1,141,219 1,141,219
Distributions................... -- -- -- (1,701,229) (1,701,229)
------- ------- --------- ----------- -------------
BALANCE, December 31, 1996........... 75 1,000 (212,000) 2,386,647 2,175,647
Net income (unaudited).......... -- -- -- 520,931 520,931
Distributions (unaudited)....... -- -- -- (1,184,207) (1,184,207)
------- ------- --------- ----------- -------------
BALANCE, June 30, 1997 (unaudited)... 75 $1,000 $(212,000) $ 1,723,371 $ 1,512,371
======= ======= ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
-------------- ------------ -------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 1,883,311 $ 1,405,798 $ 1,141,219 $ 528,541 $ 520,931
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities --
Depreciation and
amortization............... 25,228 23,371 20,933 10,327 13,172
Gain on sale of equipment..... -- -- (7,025) 1,110 (12,298)
Increase (decrease) in operating
cash flows resulting from:
Receivables, net of servicing
activities................. 399,766 (68,042) (480,016) (77,167) 416,072
Inventories................... 345,728 129,305 93,912 174,557 (101,451)
Prepaid expenses and other
current assets............. (6,373) (42,605) (12,229) (46,602) (61,208)
Accounts payable, net of
servicing activities, and
accrued expenses........... (611,117) 182,543 381,776 184,779 (411,006)
Other......................... 1,201 599 201 331 (7,598)
-------------- ------------ -------------- ------------ --------------
Net cash provided by operating
activities....................... 2,037,744 1,630,969 1,138,771 775,876 356,614
-------------- ------------ -------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds of sale of property and
equipment........................ -- -- 7,025 -- 12,298
Proceeds from short-term
investments...................... 100,000 -- 20,000 -- 180,000
Purchases of short-term
investments...................... -- (100,000) -- -- --
Purchases of property and
equipment........................ (33,993) (7,408) (2,573) (1,090) (44,532)
-------------- ------------ -------------- ------------ --------------
Net cash provided by (used in)
investing activities............. 66,007 (107,408) 24,452 (1,090) 147,766
-------------- ------------ -------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceed from issuance of long-term
debt............................. -- -- -- -- 27,473
Distributions to stockholder....... (1,987,352) (945,000) (1,701,229) (1,186,229) (1,184,207)
-------------- ------------ -------------- ------------ --------------
Net cash used in financing
activities....................... (1,987,352) (945,000) (1,701,229) (1,186,229) (1,156,734)
-------------- ------------ -------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... 116,399 578,561 (538,006) (411,443) (652,354)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 776,259 892,658 1,471,219 1,471,219 933,213
-------------- ------------ -------------- ------------ --------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 892,658 $ 1,471,219 $ 933,213 $ 1,059,776 $ 280,859
============== ============ ============== ============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest...................... $ 950 $ 950 $ 950 $ 475 $ 570
============== ============ ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Custom Medical Specialties, Inc., an Indiana corporation (the Company or
CMS), was founded in 1989 and maintains its headquarters in Indianapolis,
Indiana. The Company is a contract seller and distributor of specialty medical
products.
The Company and its stockholder intend to enter into a definitive merger
agreement with TRIAD Medical Inc. (TRIAD) pursuant to which the Company will be
acquired by TRIAD for consideration consisting of $1,600,000 in cash and 350,000
shares of TRIAD common stock, concurrently with the closing of the initial
public offering by TRIAD of its common stock (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
These financial statements have been prepared on the accrual basis of
accounting.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheets are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
CASH AND CASH EQUIVALENTS
For purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents. At June 30, 1997, the Company maintained cash
balances in various financial institutions in excess of federally insured
limits.
SHORT-TERM INVESTMENTS
Short-term investments are non-taxable fixed maturity securities which the
Company has the ability and intent to hold until maturity. Accordingly, such
securities are considered held-to-maturity and are carried at amortized cost.
(See Note 4).
CONCENTRATION OF CREDIT RISK
In the normal course of business, the Company extends credit to its
customers, which are primarily hospitals. The Company regularly reviews its
accounts receivable and makes provision for potentially uncollectible balances.
At December 31, 1995, 1996 and June 30, 1997, management believes the Company
F-68
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
had incurred no material impairments in the carrying values of its accounts
receivable, other than uncollectible amounts for which provision has been made.
INVENTORIES
Inventories consist primarily of medical supplies and equipment.
Inventories, net of allowances, are valued at the lower of cost or market. Cost
is determined on the average cost method. At December 31, 1995 and 1996, and at
June 30, 1997, management believes the Company had incurred no material
impairments in the carrying values of its inventories, other than impairments
for which provision has been made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the applicable lease or the estimated useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of specialty
medical products under agreements with various manufacturers. Cost of revenues
consists primarily of product costs, net of rebates, and freight charges.
Selling expenses consist primarily of sales commissions, salaries of sales
managers, travel and entertainment expenses, trade show expenses and automobile
allowances. General and administrative expenses consist primarily of executive
compensation and related benefits, administrative salaries and benefits, office
rent and utilities, communication expenses and professional fees.
REVENUE RECOGNITION
Revenues are recognized when products and supplies are shipped.
INCOME TAXES
The Company has elected S corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under the Internal Revenue Code provisions applicable to S corporation
status, the stockholder reports the Company's taxable earnings or losses in his
personal federal income tax returns. Accordingly, no provision for federal
income taxes has been made in the accompanying financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires nonpublic entities to disclose
certain information about an entity's capital structure including the pertinent
rights and privileges of the various securities outstanding. The Company will be
required to adopt SFAS No. 129 in 1997 and, in the opinion of management, SFAS
No. 129 will not significantly change the existing financial statement
disclosures.
3. SERVICING ACTIVITIES:
During 1996, the Company began serving as an agent for certain distributors
of specialty medical products. In this capacity, the Company processes orders
from the distributors' customers and places those
F-69
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
orders with the distributors. The distributor then ships the goods directly to
the customer. Additionally, the Company bills and collects payments from the
distributors' customer and remits such payments to the distributor. The Company
generally charges a per-transaction processing fee for this service. Included in
"Agency and other" in the accompanying Statement of Operations for the year
ended December 31, 1996 is $64,465 of such fees earned during the year. During
that year, the Company collected $1,671,369 from the distributors' customers and
remitted $1,445,938 to the distributors under these agreements. Included in
"Accounts payable" in the accompanying financial statements at December 31,
1996 is $429,550 which the Company owed to such distributors. "Custodial Cash"
of $225,431 at December 31, 1996 represents cash collected by the Company under
these arrangements, but not yet remitted to the distributors. Additionally,
included in "Accounts receivable" at December 31, 1996 is $204,119 of amounts
due from the distributors' customers.
4. SHORT-TERM INVESTMENTS:
Information for held-to-maturity securities follows:
AMORTIZED UNREALIZED
SECURITY TYPE COST GAINS FAIR VALUE
- ---------------------------------------- --------- ---------- ----------
State and municipal bonds
At December 31, 1995............... $ 200,000 $7,310 $ 207,310
At December 31, 1996............... $ 180,000 $5,820 $ 185,820
Contractual maturities at December 31, 1996 were as follows:
AMORTIZED
MATURITY COST FAIR VALUE
- ---------------------------------------- -------------- ----------
Due within one year..................... $ 90,000 $ 90,630
Due within one to five years............ 15,000 15,000
Due within five to ten years............ 40,000 42,545
Due within ten years and after.......... 35,000 37,645
-------------- ----------
Totals.................................. $180,000 $ 185,820
============== ==========
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES -------------------------- JUNE 30
IN YEARS 1995 1996 1997
--------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Transportation equipment................ 5 $ 46,406 $ 32,556 $ 57,333
Machinery and equipment................. 7 34,373 33,995 24,598
Office equipment........................ 5 115,151 116,241 122,144
Leasehold improvements.................. 10 4,783 4,784 4,785
------------ ------------ -----------
200,713 187,576 208,860
Less -- accumulated depreciation and
amortization.......................... (160,432) (165,655) (155,580)
------------ ------------ -----------
Property and equipment, net............. $ 40,281 $ 21,921 $ 53,280
============ ============ ===========
</TABLE>
F-70
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade receivables....................... $ 1,126,643 $ 1,136,652 $ 1,232,732
Receivables from suppliers.............. 61,058 101,515 76,257
Receivables from servicing activities
(see Note 3).......................... -- 204,119 --
------------ ------------ -----------
1,187,701 1,442,286 1,308,989
Less -- allowance for doubtful
accounts.............................. (28,529) (28,529) (28,529)
------------ ------------ -----------
$ 1,159,172 $ 1,413,757 1,280,460
============ ============ ===========
</TABLE>
Accounts payable and accrued expenses consist of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
Accounts payable, trade.............. $ 987,296 $ 926,511 $ 884,600
Payables from servicing activities
(see Note 3)....................... -- 429,550 --
Accrued compensation and benefits.... 98,037 76,254 85,099
Other................................ 71,691 106,485 164,639
------------ ------------ -----------
$ 1,157,024 $ 1,538,800 $ 1,134,338
============ ============ ===========
7. NOTE PAYABLE TO STOCKHOLDER:
Long-term debt at December 31, 1995, 1996 and June 30, 1997 consists of an
unsecured note payable to the Company's sole stockholder with an interest rate
of 10 percent, with interest paid semi-annually. The original maturity date of
that note was April 1, 1991. However, the stockholder has informally extended
such note indefinitely. The stockholder has advised the Company that he has no
intention of requesting payment on the note during the next 12 months.
8. LEASES:
The Company leases building and warehouse space from a third party. The
rent expense under this lease was $58,764 for the year ended December 31, 1996.
The lease requires the Company to pay taxes, maintenance, insurance and certain
other operating costs of the leased property.
Future minimum lease payments required under noncancellable operating
leases that have initial or remaining noncancellable lease terms in excess of
one year at December 31, 1996 are as follows:
Year ending December 31 --
1997............................ $ 53,424
1998............................ 35,616
---------
$ 89,040
=========
F-71
<PAGE>
CUSTOM MEDICAL SPECIALTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The sale and distribution of medical products involve a risk of product
liability claims. The Company maintains product liability insurance coverage in
amounts that it considers adequate.
10. SIGNIFICANT SUPPLIERS/CUSTOMERS:
A substantial portion of the Company's revenues is derived from sales of
Pall Biomedical, Inc. (Pall) products. For the years ended December 31, 1994,
1995 and 1996, Pall's products accounted for approximately 36 percent, 41
percent and 38 percent, respectively, of the Company's total revenues. The
agreement with Pall may be terminated with 30 days' notice by either the Company
or Pall. While management believes that, following the acquisition referred to
in Note 12, the Company will continue to represent Pall and other manufacturers
with whom it has entered into similar arrangements, a loss of any of its
significant vendor relationships could have a material adverse effect on the
Company's financial condition and results of operations.
During 1994, the Company lost a significant customer, which accounted for
approximately $3.0 million, or approximately 21 percent, of fiscal 1994
revenues. For the year ended December 31, 1996, no individual customer accounted
for more than 10 percent of revenues.
11. EMPLOYEE BENEFIT PLAN:
In 1994, the Company established a defined contribution 401(k) plan for
employees who are at least 21 years old and have completed one year of service.
Contributions to the plan by the employer are made on a discretionary basis. No
employer contributions were made to the plan in 1994, 1995 or 1996.
12. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
On September 9, 1997, the Company and its sole shareholder entered into a
definitive merger agreement with TRIAD, providing for the acquisition of the
Company by TRIAD.
The Company will make a cash distribution of approximately $1.7 million
prior to the closing of the transactions under the merger agreement which
represents the Company's estimated S corporation accumulated adjustment account.
Had these transactions been recorded at June 30, 1997, the effect on the
accompanying balance sheet would have been a decrease in assets of $0.2 million,
an increase in liabilities of $1.5 million and a decrease in shareholders'
equity of $1.7 million
F-72
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Kentec Medical, Inc.:
We have audited the accompanying balance sheet of Kentec Medical, Inc. (a
California corporation) as of June 30, 1997, and the related statements of
operations, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kentec Medical, Inc. as of
June 30, 1997, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
August 6, 1997
F-73
<PAGE>
KENTEC MEDICAL, INC.
BALANCE SHEET
JUNE 30,
1997
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 719,508
Short-term investments............. 111,331
Accounts receivable, net of
allowance of $77,039.............. 1,704,433
Inventories, net................... 1,857,915
Deferred income taxes.............. 24,590
------------
Total current assets..... 4,417,777
PROPERTY AND EQUIPMENT, net............. 152,359
OTHER NON-CURRENT ASSETS................ 235,575
------------
Total assets............. $ 4,805,711
============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................... $ 1,344,957
Accrued expenses and other current
liabilities....................... 354,683
------------
Total current
liabilities............. 1,699,640
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, no par value; 75,000
shares authorized, 46,000 shares
issued and outstanding............ 46,000
Retained earnings.................. 3,060,071
------------
Total stockholder's
equity.................. 3,106,071
------------
Total liabilities and
stockholder's equity.... $ 4,805,711
============
The accompanying notes are an integral part of this financial statement.
F-74
<PAGE>
KENTEC MEDICAL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED
JUNE 30,
1997
--------------
REVENUES................................ $ 13,646,041
COST OF REVENUES........................ 9,440,908
--------------
Gross profit.................. 4,205,133
--------------
SELLING EXPENSES........................ 1,709,445
GENERAL AND ADMINISTRATIVE EXPENSES..... 2,446,230
DEPRECIATION AND AMORTIZATION........... 83,101
--------------
Total operating expenses........... 4,238,776
--------------
Loss from operations.......... (33,643)
OTHER INCOME (EXPENSE):
Interest income.................... 32,065
Other expense, net................. (6,164)
--------------
LOSS BEFORE PROVISION FOR INCOME
TAXES................................. (7,742)
PROVISION FOR INCOME TAXES.............. 12,396
--------------
NET LOSS................................ $ (20,138)
==============
The accompanying notes are an integral part of this financial statement.
F-75
<PAGE>
KENTEC MEDICAL, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------ RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
------- ------- ---------- --------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1996............... 46,000 $46,000 $3,080,669 $3,126,669
Net loss........................ -- -- (20,138) (20,138)
Dividends....................... -- -- (460) (460)
------- ------- ---------- --------------
BALANCE, June 30, 1997............... 46,000 $46,000 $3,060,071 $3,106,071
======= ======= ========== ==============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-76
<PAGE>
KENTEC MEDICAL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED
JUNE 30,
1997
------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................ $ (20,138)
Adjustments to reconcile net
loss to net cash used in
operating activities --
Depreciation and
amortization.............. 83,101
Provision for doubtful
accounts
receivable.............. 7,788
Deferred income taxes,
net....................... 5,487
Loss on disposal of
property and equipment.... 6,424
Increase (decrease) in
operating cash flows
resulting from:
Accounts receivable... 63,595
Inventories........... 87,300
Prepaid expenses and
other current
assets............... 7,102
Other non-current
assets............... (22,620)
Accounts payable,
accrued expenses and
other current
liabilities.......... (225,840)
------------
Net cash used in
operating
activities....... (7,801)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term
investments.................... (219,632)
Proceeds from short-term
investments.................... 216,468
Purchases of property and
equipment...................... (58,687)
------------
Net cash used in
investing
activities....... (61,851)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends....................... (460)
------------
Net cash used in
financing
activities....... (460)
------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (70,112)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 789,620
------------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 719,508
============
The accompanying notes are an integral part of this financial statement.
F-77
<PAGE>
KENTEC MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Kentec Medical, Inc., a California corporation (the Company or Kentec), was
founded in 1970 and maintains its headquarters in Irvine, California. The
Company is a contract seller and distributor and limited manufacturer of
specialty medical products.
The Company and its stockholder intend to enter into a definitive merger
agreement with TRIAD Medical Inc. (TRIAD) pursuant to which the Company will be
acquired for consideration consisting of $3,240,000 in cash and 232,857 shares
of TRIAD common stock, concurrently with the closing of the initial public
offering by TRIAD of its common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
These financial statements have been prepared on the accrual basis of
accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheet are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
CASH AND CASH EQUIVALENTS
For purposes of the balance sheet and statement of cash flows, the Company
considers all investments with original maturities of three months or less to be
cash equivalents. As of June 30, 1997 and at various times during the year then
ended, the Company maintained cash balances in various financial institutions in
excess of federally insured limits.
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of certificates of deposit
that are all considered held-to-maturity securities. Held-to-maturity
securities, which are fixed maturity securities that the Company has the ability
and intent to hold until maturity, are carried at amortized cost.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its
customers, which are primarily hospitals and medical centers. The Company
regularly reviews accounts receivable and makes provision for potentially
uncollectible balances. At June 30, 1997, management believes the Company had
incurred no material impairments in the carrying values of its accounts
receivable, other than uncollectible amounts for which provision has been made.
INVENTORIES
Inventories consist of medical supplies and equipment. Inventories, net of
allowances, are valued at the lower of cost or market. Cost is determined on the
first-in, first-out (FIFO) method. At June 30, 1997, management believes the
Company had incurred no material impairments in the carrying values of its
inventories, other than impairments for which provision has been made.
F-78
<PAGE>
KENTEC MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is computed
using an accelerated method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized using the straight-line
method over the lesser of the life of the applicable lease or the estimated
useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation or amortization are removed from the accounts and any resulting
gain or loss is recognized in the statement of operations.
COLLATERAL INTEREST IN INSURANCE AGREEMENT
The Company has entered into an agreement with its stockholder for the sole
purpose of financing life insurance premiums on a whole-life policy covering the
president of the Company. The advances are collateralized by the cash surrender
value of and the death benefit payable under the policy. The Company has
recorded the advances in other non-current assets in the accompanying balance
sheet totaling approximately $152,700 as of June 30, 1997.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of specialty
medical products under agreements with various manufacturers. Cost of revenues
consists primarily of product costs, net of rebates, and freight charges.
Selling expenses consist primarily of sales commissions, salaries of sales
managers, travel and entertainment expenses, trade show expenses and automobile
allowances. General and administrative expenses consist primarily of executive
compensation and related benefits, administrative salaries and benefits, office
rent and utilities, communication expenses and professional fees.
REVENUE RECOGNITION
Revenues are recognized when products and supplies are shipped.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires nonpublic entities to disclose
certain information about an entity's capital structure, including the pertinent
rights and privileges of the various securities outstanding. The Company will be
required to adopt SFAS No. 129 in 1997 and, in the opinion of management, SFAS
No. 129 will not significantly change the existing financial statement
disclosures.
F-79
<PAGE>
KENTEC MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED
USEFUL
LIVES IN JUNE 30,
YEARS 1997
---------- ------------
Furniture and fixtures.......... 5-7 $ 412,745
Rental equipment................ 5-7 150,978
Transportation equipment........ 5-7 119,753
Leasehold improvements.......... 7-15 88,227
Machinery and equipment......... 5-10 50,733
------------
822,436
Less -- accumulated depreciation
and amortization............... (670,077)
------------
Property and equipment, net..... $ 152,359
============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
JUNE 30,
1997
------------
Trade receivables....................... $ 1,466,303
Receivables from suppliers.............. 315,169
------------
1,781,472
Less -- allowance for doubtful
accounts.............................. (77,039)
------------
$ 1,704,433
============
Accounts payable, accrued expenses and other current liabilities consist of
the following:
JUNE 30,
1997
----------
Accounts payable, trade.............. $1,344,957
Accrued compensation and benefits.... 315,144
Other payables and accrued
expenses........................... 39,539
----------
$1,699,640
==========
5. LEASES:
The Company leases its two operating facilities from a trustee of its
stockholder (a family trust) under two long-term noncancellable operating lease
agreements. The leases expire in 2009 and provide for rents increasing subject
to the Consumer Price Index. The total annual rent paid under these
related-party leases was approximately $229,600 for the year ended June 30,
1997. The leases require the Company to pay taxes, maintenance, insurance and
certain other operating costs of the leased property. The Company believes the
terms of the related-party leases are at least as favorable as the terms that
could have been obtained from an unaffiliated third party in similar
transactions. The Company also leases certain office equipment under long-term
noncancellable operating lease agreements which expire in 1999 and 2000. The
total annual rent paid under these leases was approximately $4,600 for the year
ended June 30, 1997.
F-80
<PAGE>
KENTEC MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments required under noncancellable operating
leases (including the related-party leases) that have initial or remaining
noncancellable lease terms in excess of one year at June 30, 1997 are as
follows:
Year ending June 30 --
1998............................... $ 234,183
1999............................... 234,183
2000............................... 232,887
2001............................... 230,773
2002............................... 229,572
Thereafter......................... 1,492,218
------------
$ 2,653,816
============
The Company has entered into an agreement to sublease its excess facilities
through March 1998. The future minimum sublease payments due to the Company
under this sublease as of June 30, 1997 are $60,281.
Rent income received for the year ended June 30, 1997 was approximately
$61,900.
6. INCOME TAXES:
Federal and state income taxes are as follows:
YEAR ENDED
JUNE 30,
1997
-----------
Federal --
Current............................ $ 3,611
Deferred........................... 4,094
State --
Current............................ 3,298
Deferred........................... 1,393
-----------
$12,396
===========
Actual income tax provision differs from income tax provision computed by
applying the U.S. federal statutory corporate tax rate of 15 percent to income
before income taxes as follows:
YEAR ENDED
JUNE 30,
1997
----------
Benefit at the statutory rate........... $ (1,161)
State income taxes...................... 3,227
Non-deductible items.................... 10,330
----------
$ 12,396
==========
F-81
<PAGE>
KENTEC MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences in the recognition
of income and expenses for financial reporting purposes and for tax reporting
purposes. The tax effects of these temporary differences representing current
deferred income tax assets of $24,590 at June 30, 1997 result principally from
accruals and reserves not currently deductible for income tax reporting
purposes.
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The sale, manufacture and distribution of medical products involve a risk
of product liability claims. The Company maintains product liability insurance
coverage in amounts that it considers adequate.
8. SIGNIFICANT SUPPLIER:
During the year ended June 30, 1997, the Company purchased approximately 62
percent of its products from Pall Biomedical Products Company (Pall). Revenues
generated from the sales of these products accounted for 56 percent of the
Company's distribution revenues for the year ended June 30, 1997. Under a
distribution agreement with Pall, the Company has agreed to keep a 30-day supply
of inventory on hand. The agreement may be terminated by either party, with or
without cause, at any time after giving not less than 30 days' notice. The loss
of this supplier would have a material adverse effect on the Company's business
and operating results.
9. EMPLOYEE BENEFIT PLANS:
The Company has a money purchase pension plan, a profit sharing plan and a
401(k) plan for employees meeting certain requirements (substantially all
employees). The Company's contributions to these plans vest over a period of six
to seven years. The money purchase pension plan requires the Company to annually
contribute 5 percent of participating employees' salaries, subject to certain
limitations. The Company's contribution to the money purchase pension plan
during the year ended June 30, 1997 was approximately $97,800. Company
contributions to the profit sharing plan and to the 401(k) plan may be made at
the discretion of the Company. No Company contributions were made to the profit
sharing plan or to the 401(k) plan for the year ended June 30, 1997.
10. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
On September 9, 1997, the Company and its stockholder entered into a
definitive merger agreement with TRIAD, providing for the acquisition of the
Company by TRIAD.
Concurrently with the closing of the transactions under the merger
agreement, the Company will enter into agreements with a trustee of its
stockholder to lease certain office and warehouse space used in the Company's
operations for a negotiated amount and term.
F-82
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Products for Surgery, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Products for
Surgery, Inc. (a Texas corporation) and subsidiaries as of June 30, 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Products for Surgery, Inc. and subsidiaries as of June 30, 1997, and the results
of their consolidated operations and their consolidated cash flows for the year
then ended, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
August 15, 1997
F-83
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30,
1997
------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 42,994
Accounts receivable, net of
allowance of $586................. 725,119
Inventories, net................... 1,461,078
Prepaid expenses................... 45,712
------------
Total current assets..... 2,274,903
PROPERTY AND EQUIPMENT, net............. 191,233
OTHER NON-CURRENT ASSETS:
Cash surrender value of life
insurance policies................ 197,448
Notes receivable from
stockholders...................... 133,814
Deferred income taxes.............. 124,668
Intangible assets.................. 95,960
Other non-current assets........... 47,375
------------
Total assets............. $ 3,065,401
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt.................... 195,722
Accounts payable and accrued
expenses.......................... 1,200,167
------------
Total current
liabilities............. 1,395,889
LONG-TERM DEBT.......................... 164,817
DEFERRED INCOME TAXES................... 45,164
OTHER LONG-TERM LIABILITIES............. 500,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value;
300,000 shares authorized, 105,880
shares issued and outstanding,
respectively...................... 10,588
Additional paid-in capital......... 355,892
Retained earnings.................. 593,051
------------
Total stockholders'
equity.................. 959,531
------------
Total liabilities and
stockholders' equity.... $ 3,065,401
============
The accompanying notes are an integral part of this consolidated financial
statement.
F-84
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED
JUNE 30,
1997
------------
REVENUES................................ $ 7,761,235
COST OF REVENUES........................ 4,447,229
------------
Gross profit.................. 3,314,006
SELLING EXPENSES........................ 1,197,857
GENERAL AND ADMINISTRATIVE EXPENSES..... 2,101,413
DEPRECIATION AND AMORTIZATION........... 66,280
------------
Total operating expenses........... 3,365,550
------------
Loss from operations.......... (51,554)
------------
OTHER INCOME (EXPENSE):
Interest income.................... 22,899
Interest expense................... (58,983)
Other income, net.................. 448,048
------------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 360,420
PROVISION FOR INCOME TAXES.............. 150,011
------------
NET INCOME.............................. $ 210,409
============
The accompanying notes are an integral part of this consolidated financial
statement.
F-85
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- ADDITIONAL RETAINED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS EQUITY
--------- --------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1996..... 90,000 $ 9,000 $ -- $ 382,642 $ 391,642
Issuance of common
stock............... 15,880 1,588 355,892 -- 357,480
Net income............ -- -- -- 210,409 210,409
--------- --------- --------------- ---------- -------------
BALANCE, June 30, 1997..... 105,880 $ 10,588 $ 355,892 $ 593,051 $ 959,531
========= ========= =============== ========== =============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-86
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED
JUNE 30,
1997
------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 210,409
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and
amortization................. 66,280
Provision for doubtful
accounts receivable.......... (5,014)
Deferred income taxes, net.... 28,856
Increase (decrease) in operating
cash flows resulting from:
Accounts receivable........... 957,347
Inventories................... 256,454
Prepaid expenses and other
current assets............... 49,111
Other noncurrent assets....... (106,908)
Accounts payable and accrued
expenses..................... (769,931)
------------
Net cash provided by operating
activities........................ 686,604
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment......................... (82,248)
------------
Net cash used in investing
activities........................ (82,248)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt.............................. 17,740
Repayments on short-term debt,
net............................... (632,567)
------------
Net cash used in financing
activities........................ (614,827)
------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................... (10,471)
CASH AND CASH EQUIVALENTS, beginning of
period................................ 53,465
------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 42,994
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest...................... $ 57,036
============
Income taxes.................. $ 124,380
============
The accompanying notes are an integral part of this consolidated financial
statement.
F-87
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Products for Surgery, Inc., a Texas corporation (PSI), was founded in 1979.
PSI, together with its subsidiaries, PSI Service Corporation and Sierra Surgical
Products, Inc. (SSP) (collectively, the Company or Products for Surgery),
maintains its headquarters in Forest Hills, Texas. The Company is a contract
seller and distributor of specialty medical products.
The Company and its stockholders intend to enter into a definitive merger
agreement with TRIAD Medical Inc. (TRIAD) pursuant to which the Company will be
acquired by TRIAD for consideration consisting of $2,250,000 in cash and 203,571
shares of TRIAD common stock, concurrently with the closing of the initial
public offering by TRIAD of its common stock (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting and include the accounts of the Company and its
subsidiaries. All significant intercompany amounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheet are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
CASH AND CASH EQUIVALENTS
For purposes of the balance sheet and statement of cash flows, the Company
considers all investments with original maturities of three months or less to be
cash equivalents. At June 30, 1997, the Company maintained cash balances in
various financial institutions in excess of federally insured limits.
CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Company extends credit to its
customers, which are primarily hospitals and surgical centers. The Company
regularly reviews accounts receivable and makes provision for potentially
uncollectible balances. At June 30, 1997, management believes the Company had
incurred no impairments in the carrying values of its accounts receivable, other
than uncollectible amounts for which provision has been made.
INVENTORIES
Inventories consist of medical supplies and equipment. Inventories are
valued at the lower of cost or market. Cost is determined on the first-in,
first-out (FIFO) method. At June 30, 1997, management believes the Company had
incurred no material impairments in the carrying values of its inventories,
other than impairments for which provision has been made.
F-88
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the applicable lease or the estimated useful life of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
INTANGIBLE ASSETS
The goodwill recorded by the Company in connection with the acquisition of
SSP (see Note 3) is amortized over 40 years on a straight line basis. As of June
30, 1997, accumulated amortization of goodwill amounted to $1,835.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of specialty
medical products under agreements with various manufacturers. Cost of revenues
consists primarily of product costs, net of rebates, and freight charges.
Selling expenses consist primarily of sales commissions, salaries of sales
managers, travel and entertainment expenses, trade show expenses and automobile
allowances. General and administrative expenses consist primarily of executive
compensation and related benefits, administrative salaries and benefits, office
rent and utilities, communication expenses and professional fees.
REVENUE RECOGNITION
Revenues are recognized when products are shipped. Service contract
revenues are recorded over the term of the service contract, and the unearned
portion of the service contract is recorded as a liability.
INCOME TAXES
The Company applies the liability method of accounting for income taxes.
Under this method, deferred income taxes are recorded based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets or liabilities are received or settled.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires nonpublic entities to disclose
certain information about an entity's capital structure, including the pertinent
rights and privileges of the various securities outstanding. The Company will be
required to adopt SFAS No. 129 in 1997 and, in the opinion of management, SFAS
No. 129 will not significantly change the existing financial statement
disclosures.
3. ACQUISITION:
On October 1, 1996, PSI acquired all the outstanding stock of SSP in
exchange for 15,880 shares of PSI common stock. The acquisition was accounted
for as a purchase, and SSP's results of operations have been included in the
accompanying consolidated financial statements since the acquisition date. SSP
is also a contract seller of specialty medical products.
F-89
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price was allocated as follows:
Current assets....................... $ 705,621
Property and equipment............... 20,386
Goodwill............................. 97,795
Current liabilities.................. (466,322)
----------
Purchase price....................... $ 357,480
==========
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
ESTIMATED
USEFUL LIVES JUNE 30,
IN YEARS 1997
------------ ---------
Office equipment........... 5 $ 377,099
Machinery and equipment.... 7 15,624
Furniture and fixtures..... 5-7 58,817
Rental equipment........... 5 50,825
Leasehold improvements..... 10 37,693
Transportation equipment... 5 9,035
---------
549,093
Less -- accumulated
depreciation and
amortization............. (357,860)
---------
Property and equipment,
net...................... $ 191,233
=========
5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
JUNE 30,
1997
---------
Trade receivables.................... $ 692,275
Receivables from suppliers........... 10,955
Other receivables.................... 22,475
---------
Less -- allowance for doubtful
accounts........................... (586)
---------
$ 725,119
=========
Prepaid expenses consist of the following:
JUNE 30,
1997
---------
Prepaid insurance....................... $ 26,496
Prepaid property taxes.................. 3,453
Prepaid advertising..................... 3,704
Other prepaid expenses.................. 12,059
---------
$ 45,712
=========
F-90
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following:
JUNE 30,
1997
----------
Accounts payable, trade................. $ 685,948
Accrued compensation and benefits....... 70,941
Accrued income taxes.................... 232,114
Accrued commissions..................... 70,554
Other accrued expenses.................. 140,610
----------
$1,200,167
==========
6. CASH SURRENDER VALUE OF OFFICERS' LIFE INSURANCE:
The Company maintains life insurance policies on its executive officers.
The company pays the premium and receives, on termination of the policy or death
of the insured, the cash surrender value of the policy and the balance of
benefits paid for the purposes of funding the buy-sell agreement described in
Note 15 and/or to provide key-man insurance.
7. SHORT-TERM DEBT:
The Company has a $500,000 credit line with a bank that expires October 31,
1997, with interest payable monthly at prime plus 0.75 percent. (9.25 percent at
June 30, 1997). As of June 30, 1997, $195,722 was outstanding.
The Company also finances its insurance premiums. The amount outstanding as
of June 30, 1997 was $6,400.
8. LONG-TERM DEBT:
The Company has policy loans outstanding taken against the cash surrender
value of life insurance. The loan agreements are dated April 22, 1996, with
interest due annually at rates ranging from 5 1/2 percent to 8 percent. No
principal payments are required and the loans are payable from policy proceeds.
The amount outstanding as of June 30, 1997 was $164,817.
9. LEASES:
The Company leases its office facilities from a partnership comprised of
certain stockholders of the Company. The lease was renewed on September 1, 1996
and expires on August 31, 2003. Rent paid under this related-party lease was
approximately $129,200 for the year ended June 30, 1997. The Company also leases
furniture and equipment from the same partnership. The leases are cancellable
and expire at various dates through 1998. The rents charged are based on the
fair rental value of similar equipment. Total rent paid under this lease for the
year ended June 30, 1997 was $63,400.
The Company believes the terms of the related-party leases are at least as
favorable as the terms that could have been obtained from an unaffiliated third
party in similar transactions.
F-91
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments required under noncancellable operating
leases (including related party leases) with initial or remaining noncancellable
terms in excess of one year at June 30, 1996 are as follows:
Year ending June 30 -
1998....................... 223,173
1999....................... 168,372
2000....................... 147,300
2001....................... 147,300
2002....................... 147,300
Thereafter................. 173,850
------------
$ 1,007,295
============
10. INCOME TAXES:
Federal and state income taxes are as follows:
YEAR ENDED
JUNE 30, 1997
-------------
Federal --
Current......................... $ 106,779
Deferred........................ 25,432
State --
Current......................... 14,376
Deferred........................ 3,424
-------------
$ 150,011
=============
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35 percent to income
before income taxes as follows:
YEAR ENDED
JUNE 30, 1997
-------------
Provision at the statutory rate...... $ 126,147
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deductions......... 11,570
Nondeductible expenses.......... 12,294
-------------
$ 150,011
=============
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
JUNE 30,
1997
----------
Depreciation and amortization........... $ (41,862)
Inventory............................... 124,419
Accruals and reserves not deductible
until paid............................ (3,302)
Cash to accrual adjustment.............. 249
----------
Net deferred income tax assets
(liabilities)......................... $ 79,504
==========
F-92
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED-PARTY TRANSACTIONS:
The Company has notes receivable from its stockholders in the amount
$133,814 as of June 30, 1997. The notes bear interest at 9.25 percent per annum.
Unpaid principal and accrued interest is payable monthly through September 18,
2003, at which time the remaining unpaid principal and interest is due in full.
12. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's consolidated financial
position or consolidated results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies.
The sale and distribution of medical products involve a risk of product
liability claims. The Company maintains product liability insurance coverage in
amounts that it considers adequate.
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their state by out-of-state companies. Complex legal
issues arise in these areas relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to collect such taxes. Although the Company believes that it has
adequately provided for sales taxes on its sales, there can be no assurance as
to the effect of actions state tax authorities may take on the Company's
consolidated financial condition or the consolidated results of its operations.
13. SIGNIFICANT SUPPLIERS:
The Company has four significant suppliers, whose products together
accounted for 75.7 percent of the Company's revenues during fiscal 1997. The
Company's agreement with Meadox Medical, Inc. (Meadox), terminated October 1,
1996, when Meadox began direct distribution of its product lines. Subsequent to
the termination of the agreement, the Company and Meadox entered into a
non-compete agreement pursuant to which Meadox agreed to make monetary
concessions to the Company. These payments totaled approximately $440,000 in
fiscal 1997. The Company's agreement with MedComp, Inc. (a manufacturer of
vascular access catheters), its largest supplier and whose products accounted
for approximately 16.2 percent of revenues during fiscal 1997, is for a term of
five years and expires in June 1999. The Company's arrangement with Scalan
International (a manufacturer of cardiovascular instruments), accounted for
approximately 14.3 percent of revenues during fiscal 1997, is for a term of one
year and expires in January 1998. The Company's arrangement with Luxtec
Corporation (a manufacturer of fiber-optic light sources and headlights), whose
products accounted for approximately 12.1 percent of revenues during fiscal
1997, is for a term of three years and expires October 31, 1998.
The Company's other distribution agreements and agency arrangements are
generally for terms of 2 to 3 years, and are terminable if the Company fails to
meet certain negotiated sales volumes or on prior notice ranging from 30 to 90
days. A loss of the Company's distribution or agency relationships with one or
more of its significant manufacturers could have a material adverse effect on
the Company's financial condition and results of operations.
14. EMPLOYEE BENEFIT PLAN:
The Company has a qualified 401(k) profit sharing plan available to
full-time employees who meet the plan's eligibility requirements. The plan also
contains a profit sharing component with contributions being
F-93
<PAGE>
PRODUCTS FOR SURGERY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
made at the Company's discretion. Under the 401(k) plan, the Company matches 50
percent of the employees' contributions to the plan, up to six percent of their
annual salary. The 401(k) plan expense for fiscal 1997 was $34,852.
15. BUY-SELL AGREEMENT:
The stockholders of the Company have entered into a buy-sell agreement
among themselves and the Company. Under that agreement: (i) if a stockholder
dies, the Company would have an option to purchase the shares owned by the
deceased stockholder; and (ii) if a stockholder desires to sell his interest in
the Company, then the Company and other stockholders would have a right of first
refusal under the agreement to purchase the shares owned by the selling
stockholder.
16. SUPPLEMENTAL CASH FLOW INFORMATION:
During the year ended June 30, 1997 the Company had the following non-cash
financing and investing activities:
Acquisition of SSP:
Fair value of assets acquired... $ 823,802
Liabilities assumed............. (466,322)
----------
Fair value of stock issued...... $ 357,480
==========
17. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
On September 9, 1997, the Company and its shareholders entered into a
definitive merger agreement with TRIAD, providing for the acquisition of the
Company by TRIAD.
In connection with the closing of the transactions under the merger
agreement, the Company will distribute the cash surrender value of life
insurance with a total carrying value of $197,448 as of June 30, 1997, and enter
into agreements with certain shareholders to lease land and buildings used in
the Company's operations for a negotiated amount and term.
F-94
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MegaTech Medical, Inc.:
We have audited the accompanying balance sheet of MegaTech Medical, Inc. (a
Maryland corporation) as of December 31, 1996 and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MegaTech Medical, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
April 18, 1997
F-95
<PAGE>
MEGATECH MEDICAL, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ -- $ 29,025
Accounts receivable, net of
allowance of $0................... 927,893 961,313
Inventories, net................... 873,955 717,237
Prepaid expenses and other current
assets............................ 6,693 6,046
------------- ----------
Total current assets.......... 1,808,541 1,713,621
PROPERTY AND EQUIPMENT, net............. 84,221 60,993
OTHER NON-CURRENT ASSETS................ 45,951 69,172
------------- ----------
Total assets.................. $ 1,938,713 $1,843,786
============= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term debt.................... $ 250,000 $ 75,000
Accounts payable and accrued
expenses.......................... 175,215 234,702
------------- ----------
Total current liabilities..... 425,215 309,702
COMMITMENTS AND CONTINGENCIES........... 42,800 42,800
STOCKHOLDERS' EQUITY:
Class A common stock, $1 par value,
50,000 shares authorized, 2,000
issued and outstanding in 1996 and
1997.............................. 2,000 2,000
Class B common stock, $1 par value,
50,000 shares authorized, 2,000
issued in 1996 and 1997........... 2,000 2,000
Additional paid-in capital......... 31,000 31,000
Retained earnings.................. 1,435,698 1,509,284
Treasury stock, 200 shares of Class
B common stock at cost............ -- (53,000)
------------- ----------
Total stockholders' equity.... 1,470,698 1,491,284
------------- ----------
Total liabilities and
stockholders' equity....... $ 1,938,713 $1,843,786
============= ==========
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
MEGATECH MEDICAL, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
REVENUES............................. $6,820,737 $ 3,327,669 $ 3,217,241
COST OF REVENUES..................... 4,214,729 2,003,922 1,932,450
------------ ------------ ------------
Gross profit............... 2,606,008 1,323,747 1,284,791
------------ ------------ ------------
SELLING EXPENSES..................... 1,327,796 531,105 538,849
GENERAL AND ADMINISTRATIVE EXPENSES.. 932,104 494,906 427,346
DEPRECIATION AND AMORTIZATION........ 17,657 6,862 24,428
------------ ------------ ------------
Total operating expenses........ 2,277,557 1,032,873 990,623
------------ ------------ ------------
Income from operations..... 328,451 290,874 294,168
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income................. 901 21 --
Interest expense................ (18,212) (12,790) (6,879)
Other income, net............... 135,000 75,000 60,000
------------ ------------ ------------
NET INCOME........................... $ 446,140 $ 353,105 $ 347,289
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE>
MEGATECH MEDICAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ADDITIONAL RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS STOCK EQUITY
------ ------ --------------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995.... 4,000 $4,000 $31,000 $ 1,109,696 $ -- $ 1,144,696
Net income............... -- -- -- 446,140 -- 446,140
Dividends................ -- -- -- (120,138) -- (120,138)
------ ------ --------------- ------------ -------- -------------
BALANCE, December 31, 1996.... 4,000 $4,000 $31,000 $ 1,435,698 -- $ 1,470,698
------ ------ --------------- ------------ -------- -------------
Purchase of 200 shares of
Class B common stock
(unaudited)............ -- -- -- -- (53,000) (53,000)
Net income (unaudited)... -- -- -- 347,289 347,289
Dividends (unaudited).... -- -- -- (273,703) -- (273,703)
------ ------ --------------- ------------ -------- -------------
BALANCE, June 30, 1997
(unaudited)................. 4,000 $4,000 $31,000 $ 1,509,284 $(53,000) $ 1,491,284
====== ====== =============== ============ ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE>
MEGATECH MEDICAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 446,140 $ 353,105 $ 347,289
Adjustments to reconcile net income
to net cash
(used in) operating activities --
Depreciation and amortization.... 17,657 6,862 24,428
Increase (decrease) in operating
cash flow resulting from:
Accounts receivable........... (141,595) (90,744) (33,420)
Inventories................... 19,714 132,864 156,718
Prepaid expenses and other
current assets............. (2,266) -- 647
Other noncurrent assets....... (10,280) 7,473 (23,221)
Accounts payable and accrued
expenses................... (242,854) (299,959) 59,487
------------ ------------ ------------
Net cash provided by
operating
activities............ 86,516 109,601 531,928
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment........................ (21,378) (9,478) (1,200)
------------ ------------ ------------
Net cash used in
investing
activities............ (21,378) (9,478) (1,200)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid..................... (120,138) -- (273,703)
Net proceeds from short-term
debt............................. 55,000 (45,000) (175,000)
Purchase of treasury stock......... -- -- (53,000)
------------ ------------ ------------
Net cash used in
financing
activities............ (65,138) (45,000) (501,703)
------------ ------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... -- 55,123 29,025
CASH AND CASH EQUIVALENTS, beginning of
period................................ -- -- --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period................................ $ -- $ 55,123 $ 29,025
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for --
Interest...................... $ 17,677 $ 10,837 $ 6,879
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
MEGATECH MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
MegaTech Medical, Inc., a Maryland corporation (the Company or MegaTech)
was founded in 1976 and maintains its headquarters in Baltimore, Maryland. The
Company is a contract seller and distributor of specialty medical products.
The Company and its stockholders intend to enter into a definitive merger
agreement with TRIAD Medical Inc. (TRIAD), pursuant to which the Company will be
acquired by TRIAD for consideration consisting of 300,000 shares of TRIAD common
stock, concurrently with the closing of the initial public offering by TRIAD of
its common stock (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
These financial statements have been prepared on the accrual basis of
accounting.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the six
months ended June 30, 1996 and 1997, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade receivables, trade payables and debt instruments. The
carrying amounts of those instruments reported in the balance sheets are
considered to estimate their respective fair values due to the short-term nature
of such financial instruments and the current interest rate environment.
CASH AND CASH EQUIVALENTS
For purposes of the balance sheets and statements of cash flows, the
Company considers all investments with original maturities of three months or
less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISKS
In the normal course of business, the Company extends credit to its
customers, which are primarily hospitals. The Company regularly reviews its
accounts receivable and makes provision for potentially uncollectible balances.
At December 31, 1996, and June 30, 1997, management believes the Company had
incurred no material impairments in the carrying values of its accounts
receivable.
INVENTORIES
Inventories consist primarily of medical supplies and equipment.
Inventories, net of allowances, are valued at the lower of cost or market. Cost
is determined using the average cost method. At December 31,
F-100
<PAGE>
MEGATECH MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996, and at June 30, 1997, management believes the Company has incurred no
material impairments in the carrying values of its inventories, other than
impairments for which provision has been made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
COLLATERAL INTEREST IN INSURANCE POLICY
The Company has entered into an agreement with its controlling stockholder
for the sole purpose of financing life insurance premiums on a whole-life policy
covering the president of the Company. The advances are collateralized by the
cash surrender value of and the death benefit payable under the policy. The
Company has recorded the advances in other non-current assets in the
accompanying balance sheets totaling approximately $45,951 and $37,925 at
December 31, 1996, and June 30, 1997, respectively.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from sales of specialty
medical products under agreements and arrangements with various manufacturers.
Cost of revenues consists primarily of product costs, net of rebates, and
freight charges. Selling expenses consist primarily of sales commissions,
salaries of sales managers, travel and entertainment expenses, trade show
expenses, and automobile allowances. General and administrative expenses consist
primarily of executive compensation and related benefits, administrative
salaries and benefits, office rent and utilities, communication expenses and
professional fees.
REVENUE RECOGNITION
Revenues are recognized when products and supplies are shipped.
INCOME TAXES
The Company has elected S corporation status as defined by the Internal
Revenue Code, whereby the Company is not subject to taxation for federal
purposes. Under the Internal Revenue Code provisions applicable to S
corporations, the stockholders report the Company's taxable earnings or losses
in their personal federal income tax returns. Accordingly, no provision for
federal income taxes has been made in the accompanying financial statements.
Upon completion of the transaction with TRIAD, the Company will become a C
corporation and accrue a previously unrecognized deferred tax asset, which if
accrued on December 31, 1996 and June 30, 1997, would have been approximately
$12,200 and $16,000, respectively.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 129, "Disclosure of Information
About Capital Structure." SFAS No. 129 requires nonpublic entities to disclose
certain information about an entity's capital structure including the pertinent
rights and privileges of the various securities outstanding. The Company will be
required to adopt SFAS No. 129 in 1997 and, in the opinion of management, SFAS
No. 129 will not significantly change the existing financial statement
disclosures.
F-101
<PAGE>
MEGATECH MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
ESTIMATED
USEFUL LIVES DECEMBER 31, JUNE 30,
IN YEARS 1996 1997
------------ ------------ -----------
(UNAUDITED)
Transportation equipment......... 5 $ 75,572 $ 75,572
Machinery and equipment.......... 7 15,128 15,128
Furniture and fixtures........... 5-7 122,929 124,129
Leasehold improvements........... 10 37,926 37,926
------------ -----------
251,555 252,755
Less -- accumulated depreciation and
amortization................... (167,334) (191,822)
------------ -----------
Property and equipment, net...... $ 84,221 $ 60,993
============ ===========
4. SHORT-TERM DEBT:
Short-term debt consisted of a demand line of credit obtained from a bank,
with interest due monthly at the bank's prime rate plus one percent (9.25% at
December 31, 1996). This credit facility is secured by accounts receivable and
inventory. The amount outstanding under the credit facility as of December 31,
1996 was $250,000. At June 30, 1997 there was a balance of $75,000 outstanding.
Management estimates that the fair value of its debt obligations
approximates an aggregate carrying value of $250,000 at December 31, 1996.
5. LEASES:
The Company leases office and warehouse facilities from third parties. The
lease agreements extend through May 31, 1998. The rent paid under these leases
was approximately $38,000, $18,800 and $18,800 for the year ended December 31,
1996 and the six months ended June 30, 1996 and June 30, 1997, respectively. The
Company is required to pay taxes, maintenance, insurance and certain other
operating costs of the leased property.
Future minimum lease payments required under noncancellable operating
leases that have initial or remaining noncancellable lease terms in excess of
one year at December 31, 1996 are as follows:
Year ending December 31 --
1997............................... $ 37,548
1998............................... 15,645
---------
$ 53,193
=========
6. RELATED PARTY TRANSACTIONS:
The controlling stockholder of the Company also owns another company, JAJ
Enterprises, Ltd., d/b/a S.O.S. Technologies (S.O.S.), which is engaged in
renting emergency oxygen units and organizing training for their usage. MegaTech
provides S.O.S. with office and warehouse space and administrative, accounting
and managerial services and personnel. S.O.S. reimburses MegaTech for these
services. Included in other income, net, is approximately $135,000, $75,000 and
$60,000 received from S.O.S. for the year ended December 31, 1996 and for the
six months ended June 30, 1996 and 1997, respectively.
F-102
<PAGE>
MEGATECH MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Management believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims under
losses on any of its insurance policies.
The sale and distribution of medical products involve a risk of product
liability claims. The Company maintains product liability insurance coverage in
amounts that it considers adequate.
SALES TAX CONSIDERATIONS
Various states are increasingly seeking to impose sales or use taxes on
interstate sales made into their state by out-of-state companies. Complex legal
issues arise in these areas, relating to, among other things, the required nexus
of a business with a particular state, which may permit the state to require a
business to collect such taxes. Although the Company believes that each of the
Founding Companies has adequately provided for sales taxes on its sales, there
can be no assurance as to the effect of actions state tax authorities may take
on the Company's financial condition or the results of its operations.
8. SIGNIFICANT SUPPLIERS:
The Company has three significant suppliers, together whose products
collectively accounted for 61 percent and 64 percent of the Company's revenues
for the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively. The Company has no arrangement with Smith & Nephew, its largest
supplier and whose products accounted for approximately 30 percent and 37
percent of the Company's revenues for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively. The Company's arrangement with
Level One, whose products accounted for 16 percent and 11 percent of the
Company's revenues for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively, expired March 31, 1997. However, the Company
partially offset such lost revenues by acquiring new product lines and placing
increased emphasis on new technology products. The Company's material
distribution agreements and agency arrangements are generally for terms of 1 to
5 years and are terminable if the Company fails to meet certain negotiated sales
volumes or on prior notice ranging from 30 to 90 days. A loss of the Company's
distribution or agency relationships with one or more of its significant
manufacturers could have a material adverse effect on the Company's financial
condition and results of operations.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On September 9, 1997, the Company and its shareholders entered into a
definitive merger agreement with TRIAD, providing for the acquisition of the
Company by TRIAD.
In connection with the closing of the transactions under the merger
agreement, the Company will distribute certain assets to the shareholders,
consisting of cash surrender value of life insurance and automobiles, with a
total carrying value of $0.2 million as of December 31, 1996. In addition, the
Company will make a cash distribution of approximately $1.4 million prior to the
merger, which represents the Company's estimated S corporation accumulated
adjustment account. Had these transactions been recorded at June 30, 1997, the
effect on the accompanying balance sheet would have been an increase in
liabilities of $1.4 million and a decrease in stockholders' equity of $1.4
million.
F-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of PCI Medical, Inc.:
We have audited the accompanying statements of operations and cash flows of
PCI Medical, Inc. (an Arizona corporation) for the period from January 1, 1996
to October 4, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 statemens. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of PCI
Medical, Inc. for the period from January 1, 1996 to October 4, 1996, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
August 1, 1997
F-104
<PAGE>
PCI MEDICAL, INC.
STATEMENT OF OPERATIONS
PERIOD FROM
JANUARY 1, 1996
TO
OCTOBER 4, 1996
---------------
REVENUES................................ $ 6,049,214
COST OF REVENUES........................ 2,967,047
---------------
Gross profit....................... 3,082,167
SELLING EXPENSES........................ 724,656
GENERAL AND ADMINISTRATIVE EXPENSES..... 1,558,923
DEPRECIATION AND AMORTIZATION........... 131,644
---------------
Total operating expenses........... 2,415,223
---------------
Income from operations.................. 666,944
OTHER INCOME (EXPENSE)
Interest income.................... 4,888
Interest expense................... (6,460)
Other income, net.................. 65,186
---------------
NET INCOME.............................. $ 730,558
===============
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
PCI MEDICAL, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM
JANUARY 1, 1996
TO
OCTOBER 4, 1996
---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................... $ 730,558
Adjustment to reconcile net income
to net cash provided by operating
activities
Depreciation and
amortization................. 131,644
Gain on disposal.............. (52,670)
Increase (decrease) in
operating cash flows
resulting from:
Accounts receivable...... (110,237)
Inventories.............. 217,658
Prepaids and other
current assets.......... (38,264)
Other noncurrent
assets.................. (7,592)
Accounts payable and
accrued expenses........ (3,569)
---------------
Net cash provided
by operating
activities......... 867,528
---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and
equipment......................... (124,074)
Proceeds from disposals of property
and equipment..................... 74,790
---------------
Net cash used in
investing
activities......... (49,284)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term debt....... 73,217
Principal payments on long-term
debt and capital leases........... (76,125)
Line of credit, net................ (395,000)
Distributions to stockholders...... (225,000)
---------------
Net cash used in
financing
activities......... (622,908)
---------------
INCREASE IN CASH AND CASH EQUIVALENTS... 195,336
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 30,319
---------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 225,655
===============
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
PCI MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
PCI Medical, Inc. (the Company) is primarily engaged in the contract sale
and distribution of medical supplies and devices and the rental, service and
repair of infusion devices and equipment in the hospital and alternate-site
health care markets in the southwestern United States. The Company was
incorporated in 1986.
On October 4, 1996, TRIAD Holdings, Inc. (THI) acquired the assets and
assumed certain liabilities of the Company, for cash consideration of $3,814,651
(net of cash acquired), notes payable of $702,343 and 60,000 Class B common
shares of THI valued at $330,000. As a result, separate operations of the
Company ceased and the results of the Company's operations for subsequent
periods are included in the consolidated financial statements of THI.
Accordingly, only the results of operations and cash flows for the period ended
October 4, 1996 have been included in the accompanying financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
These financial statements have been prepared on the accrual basis of
accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted account principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures 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.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
investments with original maturities of three months or less to be cash
equivalents.
COST OF REVENUES
Cost of revenues is determined using the first-in, first-out (FIFO) method
of valuing inventories.
DEPRECIATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are capitalized and amortized
over the lesser of the life of the applicable lease or the estimated useful life
of the applicable asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the useful
lives of existing equipment are capitalized and depreciated. On retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statement of operations.
DEFERRED RENT
Certain of the Company's facilities leases include scheduled rent increases
and free rent periods. For financial reporting purposes, rent expense is
recognized on a straight-line basis over the lease term.
REVENUES AND EXPENSES
The Company's revenues are primarily derived from rentals and servicing
infusion devices and sales of durable medical equipment. Cost of revenues
consists primarily of product costs, net of rebates, service labor and freight
charges. Selling expenses consist primarily of sales commissions, salaries of
sales
F-107
<PAGE>
PCI MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
managers, travel and entertainment expenses, trade show expenses and automobile
allowances. General and administrative expenses consist primarily of executive
compensation and related benefits, administrative salaries and benefits, office
rent and utilities, communication expenses and professional fees.
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from the rental of infusion pumps and other under cancelable
and noncancelable operating leases are recognized on a straight-line basis over
the rental period. The Company also provides financing for equipment sales under
sales-type lease arrangements.
INCOME TAXES
The Company is a Subchapter S corporation for income tax purposes. As an S
corporation, the Company is not subject to federal income taxes and accordingly,
no such taxes have been provided in the accompanying financial statements.
Federal income taxes related to the earnings of the Company are obligations of
the shareholders of the Company. The Company is subject to an Arizona franchise
tax, which is not significant. This amount has been included in general and
administrative expenses in the accompanying statement of operations.
3. LEASES:
The Company leases its office and warehouse facilities from an entity
controlled by its shareholders. Rent expense under this arrangment totaled
approximately $242,193 for the period from January 1, 1996 to October 4, 1996.
The leases provide for the Company to pay taxes, maintenance, insurance and
certain other operating costs of the leased property.
4. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is a party to certain legal proceedings arising in the ordinary
course of business. Managment believes the outcome of such legal proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses under any of its insurance policies.
The sale, distribution, rental and repair of medical products involve a
risk of product liability claims. The Company maintains product liability
insurance coverage in amounts that it considers adequate.
F-108
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES, OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
-------------------------------
TABLE OF CONTENTS
-------------------------------
PAGE
----
PROSPECTUS SUMMARY................... 3
RISK FACTORS......................... 8
THE COMPANY.......................... 14
USE OF PROCEEDS...................... 17
DIVIDEND POLICY...................... 17
CAPITALIZATION....................... 18
DILUTION............................. 19
SELECTED HISTORICAL AND PRO FORMA
COMBINED FINANCIAL DATA............ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 22
BUSINESS............................. 27
MANAGEMENT........................... 35
CERTAIN TRANSACTIONS................. 42
PRINCIPAL STOCKHOLDERS............... 47
SHARES ELIGIBLE FOR FUTURE SALE...... 49
DESCRIPTION OF CAPITAL STOCK......... 50
UNDERWRITING......................... 53
LEGAL MATTERS........................ 54
EXPERTS.............................. 55
ADDITIONAL INFORMATION............... 55
INDEX TO FINANCIAL STATEMENTS........ F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,000,000 SHARES
TRIAD
MEDICAL INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
MONTGOMERY SECURITIES
SMITH BARNEY INC.
WEDBUSH MORGAN SECURITIES
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions) in connection with the offering described in this
Registration Statement, all of which shall be paid by TRIAD. All of such amounts
(except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Listing Fee) are estimated.
SEC Registration Fee.................... $ 16,728
NASD Filing Fee......................... 6,020
Nasdaq National Market Listing Fee...... 28,000
Blue Sky Fees and Expenses.............. *
Printing and Engraving Costs............ *
Legal Fees and Expenses................. *
Accounting Fees and Expenses............ *
Transfer Agent and Registrar Fees and
Expenses.............................. *
Miscellaneous........................... *
---------
Total.............................. *
=========
- ------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action. In an action brought to obtain a judgment in the corporation's favor,
whether by the corporation itself or derivatively by a stockholder, the
corporation may only indemnify for expenses, including attorney's fees, actually
and reasonably incurred in connection with the defense or settlement of such
action, and the corporation may not indemnify for amounts paid in satisfaction
of a judgment or in settlement of the claim. In any such action, no
indemnification may be paid in respect of any claim, issue or matter as to which
such person shall have been adjudged liable to the corporation except as
otherwise approved by the Delaware Court of Chancery or the court in which the
claim was brought. In any other type of proceeding, the indemnification may
extend to judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such other proceeding, as well as to
expenses.
The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. The statute contains additional limitations
applicable to criminal actions and to actions brought by or in the name of the
corporation. The determination as to whether a person seeking indemnification
has met the required standard of conduct is to be made (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
TRIAD's Certificate of Incorporation and Bylaws require TRIAD to indemnify
its directors to the fullest extent permitted under Delaware law. Pursuant to
employment agreements entered into by TRIAD
II-1
<PAGE>
with its executive officers and certain other key employees, TRIAD must
indemnify such officers and employees in the same manner and to the same extent
that TRIAD is required to indemnify its directors under TRIAD's Certificate of
Incorporation and Bylaws. TRIAD's Certificate of Incorporation limits the
personal liability of a director to the corporation or its stockholders to
damages for breach of the director's fiduciary duty.
TRIAD has not purchased insurance on behalf of its directors and officers
against certain liabilities that may be asserted against, or incurred by, such
persons in their capacities as directors or officers of the registrant, or that
may arise out of their status as directors or officers of the registrant,
including liabilities under the federal and state securities laws. TRIAD has
entered into indemnification agreements to indemnify its directors to the
maximum extent permitted under Delaware law.
The Underwriting Agreement provides for indemnification of the directors
and officers of the Company in certain circumstances.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table reflects sales by TRIAD of unregistered securities
within the past three years. Share amounts have been adjusted for the 1.3379145
to 1 stock split effective prior to the date of this Prospectus. Except as
otherwise disclosed, the issuances by TRIAD of the securities sold in the
transactions referenced below were not registered under the Securities Act,
pursuant to the exemption contemplated in Section 4(2) thereof, for transactions
not involving a public offering. No underwriter was involved in the transactions
and no commissions were paid. The consideration for which the shares of Common
Stock were issued is indicated below:
<TABLE>
<CAPTION>
WARRANTS TO PURCHASE
NUMBER SHARES OF
DATE OF SHARES COMMON STOCK CONSIDERATION PURCHASER
- ------------------- --------- -------------------- ------------- -------------------------------------
<C> <C> <C> <C> <S>
April 11, 1997 195,000 $ 19,500 William C. Klintworth, Jr.
85,000 8,500 Clyde A. Blankenship
75,000 7,500 Michael K. Campbell
25,000 2,500 Lance C. Ruud
100,000 (1) Equus II Incorporated
May 12, 1997 15,000 $ 1,500 William C. Klintworth, Jr.
7,500 750 Clyde A. Blankenship
7,500 750 Michael K. Campbell
September 8, 1997 449,213(2) $ 300,000 Equus II Incorporated
September 8, 1997 25,000 Services PENMAN Private Equity and Mezzanine
Fund, L.P.
September 8, 1997 2,250 $ 11,250 James L. Stariha
1,250 6,250 Terry L. Harrell
1,250 6,250 Thomas H. Dean
1,250 6,250 Bruce R. Hoadley
1,000 5,000 David A. Meyer
1,000 5,000 James W. Eshcoff
2,000 10,000 Thomas M. Boucher
1,000 5,000 Michael W. Thomas
1,000 5,000 Paul C. Gries
5,000 25,000 Marvin L. Marks
5,000 25,000 Peter A. Miller
3,000 15,000 William Graue
3,000 15,000 Edward Berman
1,500 7,500 Harvey A. Lawhon
1,500 7,500 Robert L. and Chris Wahlenmaier
1,500 7,500 R. Bryan and Beverly Gregory
1,500 7,500 Thomas J. Madsen
8,000 40,000 Greg A. Sellards
30,000 150,000 Child Health Investment Corporation
1,000 5,000 Terry Family Trust
6,000 30,000 Bruce Baily
2,000 10,000 Stephen W. Walls
7,000 35,000 Klintworth Family Trust
8,000 40,000 John B. Benear, II
4,000 20,000 Jeff Haines
</TABLE>
(SEE NOTES ON FOLLOWING PAGE)
II-3
<PAGE>
- ------------
(1) TRIAD issued this Warrant to Equus II Incorporated ("Equus II") under a
Funding and Stock Purchase Agreement dated April 18, 1997, whereby Equus II
agreed to (i) purchase 300,000 shares of TRIAD's Series A Preferred Stock
for $300,000 and (ii) advance up to $2.2 million for purposes for funding
certain expenses relating to TRIAD's initial public offering of Common
Stock.
(2) 449,213 shares of Common Stock issued on conversion of the 300,000 shares of
TRIAD's Series A Preferred Stock issued on April 18, 1997 as set forth in
(1) above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------
*1.1 -- Form of Underwriting Agreement dated ,
1997 by and among TRIAD, Montgomery
Securities, Smith Barney Inc. and
Wedbush Morgan Securities.
2.1 -- Uniform Provisions for the Acquisition
of the Founding Companies.
2.2 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, TRIAD Acquisition, Inc.,
THI and its stockholders.
2.3 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, HTD Acquisition, Inc., HTD
and its Stockholders.
2.4 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, Sun Acquisition, Inc., Sun
and its Stockholders.
2.5 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, Custom Acquisition, Inc.,
CMS and its Stockholders.
2.6 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, Kentec Acquisition, Inc.,
Kentec and its Stockholders.
2.7 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, PFS Acquisition, Inc.,
Products for Surgery and its
Stockholders.
2.8 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, MegaTech Acquisition, Inc.,
MegaTech and its Stockholders.
2.9 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, Omni Medical Acquisition,
Inc., Omni Medical and its Stockholders.
2.10 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, NEMS Acquisition, Inc., New
England Specialties and its
Stockholders.
2.11 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, Professional Equipment
Acquisition, Inc., Professional
Equipment and its Stockholders.
2.12 -- Agreement and Plan of Reorganization
dated as of September 9, 1997 by and
among TRIAD, Wilson Acquisition, Inc.,
Wilson and its Stockholders.
*3.1 -- Certificate of Incorporation of TRIAD,
as amended.
*3.2 -- Bylaws of TRIAD, as amended.
*4.1 -- Form of Certificate representing Common
Stock.
4.3 -- Form of Registration Rights Agreement
among TRIAD and the stockholders listed
on the signature pages thereto.
*5.1 -- Opinion of Porter & Hedges, L.L.P.
10.1 -- 1997 Incentive Plan of TRIAD.
*10.2 -- Form of Indemnification Agreement
between TRIAD and each of its directors
and officers.
10.3 -- Employment Agreement by and between
TRIAD and William C. Klintworth, Jr.
dated September 9, 1997.
10.4 -- Employment Agreement by and between
TRIAD and Clyde A. Blankenship, Jr.
dated September 9, 1997.
II-4
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ----------------------------------------------------------------
10.5 -- Employment Agreement by and between
TRIAD and Lance C. Ruud dated September
9, 1997.
10.6 -- Employment Agreement by and between R.
Tucker Coop and TRIAD dated September 9,
1997.
10.7 -- Employment Agreement by and between
Walter D. Wallach and TRIAD dated
September 9, 1997.
10.8 -- Employment Agreement by and between
TRIAD and Marvin L. Marks dated
September 9, 1997.
10.9 -- Employment Agreement by and between
TRIAD and Kent J. Wilken dated September
9, 1997.
10.10 -- Employment Agreement by and between
TRIAD and Greg H. Sellards dated
September 9, 1997.
10.11 -- Employment Agreement by and between
TRIAD and Michael W. Thomas dated
September 9, 1997.
10.12 -- Warrant to purchase 100,000 shares of
Common Stock of TRIAD dated as of April
18, 1997, as amended.
10.13 -- Warrant to purchase 25,000 shares of
Common Stock of TRIAD dated as of
September 8, 1997.
10.14 -- Funding and Stock Purchase Agreement
dated April 18, 1997 between TRIAD and
Equus II Incorporated, as amended.
*21.1 -- Subsidiaries of TRIAD.
23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Porter & Hedges, L.L.P.
(contained in Exhibit 5.1)
*23.3 -- Consent of R. Tucker Coop as nominee for
director.
*23.4 -- Consent of Kelvin J. Pennington as a
nominee for director.
*23.5 -- Consent of Marvin L. Marks as a nominee
for director.
*23.6 -- Consent of Gregory H. Sellards as a
nominee for director.
*23.7 -- Consent of Kent J. Wilken as a nominee
for director.
*23.8 -- Consent of Edward T. Kuklenski as a
nominee for director.
*23.9 -- Consent of Michael W. Thomas as a
nominee for director.
*23.10 -- Consent of John B. Benear, II as nominee
for director.
24.1 -- Power of Attorney (included on the
signature page of this Registration
Statement).
*27.1 -- Financial Data Schedule.
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates representing the shares of Common Stock offered hereby in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as a part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON SEPTEMBER 11, 1997.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.
Chief Executive Officer
Each person whose signature appears below hereby appoints William C.
Klintworth and Lance C. Ruud, and both of them, either of whom may act without
the joinder of the other, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
registration statement for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing appropriate or necessary to be done, as fully and
for all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON SEPTEMBER 11, 1997.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED
--------- ------------------------
<S> <C>
/s/ WILLIAM C. KLINTWORTH, JR. Chief Executive Officer, Director
William C. Klintworth, Jr. (Principal Executive Officer)
/s/ LANCE C. RUUD Senior Vice President and Chief Financial Officer
Lance C. Ruud (Principal Financial and Accounting Officer)
/s/ CLYDE A. BLANKENSHIP, JR. Executive Vice President, Director
Clyde A. Blankenship, Jr.
/s/ NOLAN LEHMANN Director
Nolan Lehmann
</TABLE>
II-7
EXHIBIT 2.1
TRIAD MEDICAL INC.
UNIFORM PROVISIONS
FOR THE
ACQUISITION
OF
FOUNDING COMPANIES
WORDS AND TERMS USED IN THESE UNIFORM PROVISIONS WHICH ARE
DEFINED IN THE AGREEMENT AND PLAN OF REORGANIZATION AMONG TRIAD MEDICAL INC.
[NEWCO] , [NAME OF ACQUISITION CANDIDATE] AND ITS STOCKHOLDERS (CALLED THEREIN
AND HEREIN "THIS AGREEMENT") TO WHICH THESE UNIFORM PROVISIONS ARE ATTACHED AS
ANNEX I, ARE USED HEREIN AS DEFINED THEREIN.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I ADDITIONAL DEFINITIONS......................................1
Section 1.02 ADDITIONAL DEFINED TERMS................................1
Section 1.03. OTHER DEFINITIONAL PROVISIONS..........................14
Section 1.04 CAPTIONS...............................................14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER...........................................15
Section 3.02. OWNERSHIP AND STATUS OF COMPANY CAPITAL STOCK..........15
Section 3.03. POWER OF THE STOCKHOLDER; APPROVAL OF THE MERGER.......15
Section 3.04. NO CONFLICTS OR LITIGATION............................16
Section 3.05. NO BROKERS............................................16
Section 3.06. PREEMPTIVE AND OTHER RIGHTS; WAIVER...................16
Section 3.07. CONTROL OF RELATED BUSINESSES..........................16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS...........................17
Section 4.02. QUALIFICATION.........................................17
Section 4.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF
CONFLICTS; REQUIRED CONSENTS..........................17
Section 4.04. CHARTER DOCUMENTS AND RECORDS; NO VIOLATION...........18
Section 4.05. NO DEFAULTS...........................................18
Section 4.06. COMPANY SUBSIDIARIES..................................19
Section 4.07. CAPITAL STOCK OF THE COMPANY AND THE COMPANY
SUBSIDIARIES..........................................19
Section 4.08. TRANSACTIONS IN CAPITAL STOCK.........................19
Section 4.09. NO BONUS SHARES.......................................19
Section 4.10. PREDECESSOR STATUS; ETC...............................20
Section 4.11. RELATED PARTY AGREEMENTS..............................20
Section 4.12. LITIGATION............................................20
Section 4.13. FINANCIAL STATEMENTS; DISCLOSURE......................20
Section 4.14. COMPLIANCE WITH LAWS..................................21
Section 4.15. CERTAIN ENVIRONMENTAL MATTERS.........................22
Section 4.16. LIABILITIES AND OBLIGATIONS...........................22
Section 4.17. RECEIVABLES...........................................23
Section 4.18. OWNED AND LEASED REAL PROPERTIES......................23
Section 4.19. OWNED AND LEASED PROPERTY, PLANT AND EQUIPMENT........24
Section 4.20. PROPRIETARY RIGHTS....................................25
Section 4.21. TITLE TO OTHER PROPERTIES.............................25
Section 4.22. COMMITMENTS...........................................25
Section 4.23. CAPITAL EXPENDITURES..................................27
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<PAGE>
Section 4.24. INVENTORIES...........................................27
Section 4.25. INSURANCE.............................................27
Section 4.26. EMPLOYEE MATTERS......................................28
Section 4.27. COMPLIANCE WITH ERISA, ETC............................30
Section 4.28. TAXES.................................................33
Section 4.29. GOVERNMENT CONTRACTS..................................34
Section 4.30. ABSENCE OF CHANGE.....................................34
Section 4.31. BANK RELATIONS; POWERS OF ATTORNEY....................35
Section 4.32. RELATIONS WITH GOVERNMENTS, ETC.......................36
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO............37
Section 5.02. ORGANIZATION; POWER...................................37
Section 5.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF
CONFLICTS; REQUIRED CONSENTS..........................37
Section 5.04. CHARTER DOCUMENTS.....................................38
Section 5.05. CAPITAL STOCK OF TMI AND NEWCO........................38
Section 5.06. SUBSIDIARIES..........................................39
Section 5.07. LIABILITIES...........................................39
Section 5.08. COMPLIANCE WITH LAWS; NO LITIGATION...................39
Section 5.09. NO BROKERS............................................39
Section 5.10. PRIVATE PLACEMENT MEMORANDUM..........................39
Section 5.11. REGISTRATION AND OTHER RIGHTS.........................40
Section 5.12 STOCKHOLDERS AGREEMENT.................................40
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME..................40
Section 6.02 ACCESS AND COOPERATION; DUE DILIGENCE..................40
Section 6.03. CONDUCT OF BUSINESS PENDING CLOSING...................41
Section 6.04. PROHIBITED ACTIVITIES.................................42
Section 6.05. NO SHOP: RELEASE OF DIRECTORS.........................43
Section 6.06. NOTIFICATION OF CERTAIN MATTERS.......................44
Section 6.07. SUPPLEMENTAL INFORMATION..............................44
Section 6.08. COOPERATION IN CONNECTION WITH THE IPO................45
Section 6.09. ADDITIONAL FINANCIAL STATEMENTS.......................45
Section 6.10. TERMINATION OF PLANS..................................46
Section 6.11. DISPOSITION OF UNWANTED ASSETS........................46
Section 6.12. HSR ACT MATTERS.......................................46
Section 6.13. TMI ACTIONS PENDING IPO...............................46
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING
AND CONSUMMATION...........................................47
Section 7.02. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY...........47
Section 7.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
AND THE STOCKHOLDERS..................................49
Section 7.04. CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO........50
ii
<PAGE>
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................52
Section 8.02. DISCLOSURE............................................52
Section 8.03. PREPARATION AND FILING OF TAX RETURNS.................52
Section 8.04. DIRECTORS.............................................52
Section 8.05. REMOVAL OF GUARANTIES.................................52
ARTICLE IX INDEMNIFICATION............................................53
Section 9.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES............53
Section 9.04. INDEMNIFICATION OF STOCKHOLDER INDEMNIFIED PARTIES....54
Section 9.05. CONDITIONS OF INDEMNIFICATION.........................55
Section 9.06. REMEDIES EXCLUSIVE....................................57
Section 9.07. LIMITATIONS ON INDEMNIFICATION........................57
Section 9.08 INDEMNIFICATION CLAIMS BY TMI AFFILIATES...............58
ARTICLE XI GENERAL PROVISIONS.........................................59
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION................59
iii
<PAGE>
THE UNIFORM PROVISIONS
ARTICLE I
ADDITIONAL DEFINITIONS
Section 1.02 ADDITIONAL DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below:
"ACQUISITION PROPOSAL" has the meaning specified in Section
6.05.
"AFFILIATE" means, as to any specified Person, any other
Person that, directly or indirectly through one or more intermediaries
or otherwise, controls, is controlled by or is under common control with
the specified Person. As used in this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person (whether through
ownership of Capital Stock of that Person, by contract, or otherwise).
"CAPITAL LEASE" means a lease of (or other agreement conveying
the right to use) real or personal property that is required to be
classified and accounted for as a capital lease under GAAP as in effect
on the date of this Agreement.
"CAPITAL STOCK" means, with respect to: (a) any corporation,
any share, or any depositary receipt or other certificate representing
any share, of an equity ownership interest in that corporation; and (b)
any other Entity, any share, membership or other percentage interest,
unit of participation or other equivalent (however designated) of an
equity interest in that Entity.
"CASH COMPENSATION" means, as applied to any employee,
nonemployee director or officer of, or any natural person who performs
consulting or other independent contractor services for, the Company or
any Company Subsidiary, the wages, salaries, bonuses (discretionary and
formula), fees and other cash compensation paid or payable by the
Company and each Company Subsidiary to that employee or other natural
person.
"CERCLA" means the Comprehensive Environmental Response,
Conservation, and Liability Act of 1980.
"CERTIFICATE OF MERGER" means: (a) if the Surviving
Corporation is a Delaware corporation, the certificate of merger
respecting the Merger which contains the information required by the
DGCL to effect the Merger; and (b) if the Company's Organization State
is not Delaware, the articles or certificate of merger respecting the
Merger which contains the information required by the laws of the
Company's Organization State to effect the Merger.
1
<PAGE>
"CHARTER DOCUMENTS" means, with respect to any Entity at any
time, in each case as amended, modified and supplemented at that time,
the articles or certificate of formation, incorporation or organization
(or the equivalent organizational documents) of that Entity, (b) the
bylaws or limited liability company agreement or regulations (or the
equivalent governing documents) of that Entity and (c) each document
setting forth the designation, amount and relative rights, limitations
and preferences of any class or series of that Entity's Capital Stock or
of any rights in respect of that Entity's Capital Stock.
"CLAIM NOTICE" has the meaning specified in Section 9.05.
"CLOSING" has the meaning specified in Section 7.01.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY COMMITMENT" has the meaning specified in Section
4.22.
"COMPANY ERISA BENEFIT PLAN" has the meaning specified in
Section 4.26.
"COMPANY ERISA PENSION PLAN" has the meaning specified in
Section 4.26.
"COMPANY ERISA GROUP" means any "group of organizations"
within the meaning of Section 414(b), (c), (m) or (o) of the Code or any
"controlled group" as defined in Section 4001 (a)(14) of ERISA.
"COMPANY SUBSIDIARY" means at any time any Entity that is a
Subsidiary of the Company at that time.
"CONFIDENTIAL INFORMATION" means, with respect to any Person,
all trade secrets and other confidential, nonpublic and/or proprietary
information of that Person, including information derived from designs,
reports, investigations, research, testing, development,
work-in-progress, codes, marketing and sales programs, capital
expenditure projects, cost summaries, pricing formulae, contract
analyses, financial information, projections, confidential filings with
any Governmental Authority and any other confidential, nonpublic
concepts, methods of doing business, ideas, materials or information
prepared or performed for, by or on behalf of that Person.
"CURRENT BALANCE SHEET" has the meaning specified in Section
1.01.
"CURRENT BALANCE SHEET DATE" has the meaning specified in
Section 1.01
"CURRENT DATE" means any day during the 20-day period ending
on the date of the Closing.
2
<PAGE>
"DAMAGE" to any specified Person means any cost, damage
(including any consequential damage) or expense (including reasonable
and necessary or appropriate fees and actual expenses of and
disbursements by attorneys, consultants, experts or other
Representatives and Litigation costs) to, any fine of or penalty on, or
any liability (including loss of earnings or profits) of, any other
nature of that Person.
"DAMAGE CLAIM" means, as asserted (a) against any specified
Person, any claim, demand or Litigation made or pending against that
Person for Damages to any other Person, or (b) by the specified Person,
any claim or demand of the specified Person against any other Person for
Damages to the specified Person.
"DGCL" means the General Corporation Law of the State of
Delaware.
"DERIVATIVE SECURITIES" of a specified Entity means any
Capital Stock or debt security or other Indebtedness of the specified
Entity or any other Person which is convertible into or exchangeable
for, or any option, warrant or other right to acquire, (a) any unissued
Capital Stock of the specified Entity or (b) any Capital Stock of the
specified Entity which has been issued and is being held by the Entity
directly or indirectly as treasury Capital Stock.
"EFFECTIVE TIME" has the meaning specified in Section 2.02.
"ELECTION PERIOD" has the meaning specified in Section 9.05.
"EMPLOYEE POLICIES AND PROCEDURES" means at any time all
employee manuals and all material policies, procedures and work-related
rules that apply at that time to any employee, nonemployee director or
officer of, or any other natural person performing consulting or other
independent contractor services for, the Company or any Company
Subsidiary.
"EMPLOYMENT AGREEMENT" means at any time (a) any agreement to
which the Company or any Company Subsidiary is a party which then
relates to the direct or indirect employment or engagement, or arises
from the past employment or engagement, of any natural person by the
Company or any Company Subsidiary, whether as an employee, a nonemployee
officer or director, a consultant or other independent contractor, a
sales representative or a distributor of any kind, including any
employee leasing or service agreement and any noncompetition agreement,
and (b) any agreement between the Company or any Company Subsidiary and
any Person which arises from the sale of a business by that Person to
the Company or any Company Subsidiary and limits that Person's
competition with the Company or any Company Subsidiary
"ENTITY" means any sole proprietorship, corporation,
partnership of any kind having a separate legal status, limited
liability company, business trust, unincorporated
3
<PAGE>
organization or association, mutual company, joint stock company or
joint venture.
"ENVIRONMENTAL LAWS" means any and all Governmental
Requirements relating to the environment or worker health or safety,
including ambient air, surface water, land surface or subsurface strata,
or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes (including Solid Wastes, Hazardous Wastes or
Hazardous Substances) or noxious noise or odor into the environment or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, recycling, removal, transport or handling
of pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes (including petroleum, petroleum distillates,
asbestos or asbestos-containing material, polychlorinated biphenyls,
chlorofluorocarbons or hydrochlorofluorocarbons).
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" means, with respect to any specified Person
at any time, any other Person, including an Affiliate of the specified
Person, that is, or at any time within six years of that time was, a
member of any ERISA Group of which the specified Person is or was a
member at the same time.
"ERISA AFFILIATE PENSION PLAN" has the meaning specified in
Section 4.26.
"ERISA EMPLOYEE BENEFIT PLAN" means any "employee benefit
plan" as defined in Section 3(3) of ERISA and includes any ERISA Pension
Benefit Plan.
"ERISA PENSION BENEFIT PLAN" means any "employee pension
benefit plan," as defined in Section 3(2) of ERISA, including any plan
that is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code (excluding any Multiemployer
Plan).
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FINAL PROSPECTUS" means the prospectus included in the
Registration Statement at the time it becomes effective, except that if
the prospectus first furnished to the Underwriter after the Registration
Statement becomes effective for use in connection with the IPO differs
from the prospectus included in the Registration Statement at the time
it becomes effective (whether or not the prospectus so furnished to the
Underwriter is required to be filed with the SEC pursuant to Securities
Act Rule 424(b)), the prospectus so furnished is the "FINAL PROSPECTUS."
"FINANCIAL STATEMENTS" means the Initial Financial Statements
and the other financial statements of the Company and the Company
Subsidiaries, if any, delivered to TMI pursuant to Section 6.09 prior to
the Effective Time.
4
<PAGE>
"GAAP" means generally accepted accounting principles and
practices in the United States as in effect from time to time which (i)
have been concurred with by Arthur Andersen LLP and (ii) have been or
are applied on a basis consistent (except for changes concurred with by
Arthur Andersen LLP) with the most recent audited Financial Statements
delivered to TMI prior to the Effective Time.
"GENERAL RELEASE" means the general release of the Company and
the Company Subsidiaries to be executed at or before, and delivered to
TMI and the Company at, the Closing, effective as of the Effective Time,
by each Stockholder, which general release shall be in the form of
Exhibit 1.02-B with the blanks appropriately filled.
"GOVERNMENTAL APPROVAL" means at any time any authorization,
consent, approval, permit, franchise, certificate, license, implementing
order or exemption of, or registration or filing with, any Governmental
Authority.
"GOVERNMENTAL AUTHORITY" means any national, state, county,
municipal or other government, domestic or foreign, or any agency,
board, bureau, commission, court, department or other instrumentality of
any such government.
"GOVERNMENTAL REQUIREMENT" means at any time (a) any law,
statute, code, ordinance, order, rule, regulation, judgment, decree,
injunction, writ, edict, award, authorization or other requirement of
any Governmental Authority in effect at that time or (b) any obligation
included in any certificate, certification, franchise, permit or license
issued by any Governmental Authority or resulting from binding
arbitration, including any requirement under common law, at that time.
"GUARANTY" means, for any specified Person, without
duplication, any liability, contingent or otherwise, of that Person
guaranteeing or otherwise representing liability for any obligation of
any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including any liability of the specified Person,
direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) that obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the
payment of that obligation, (b) to purchase property, securities or
services for the purpose of assuring the owner of that obligation of its
payment, or (c) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as
to enable the primary obligor to pay that obligation; PROVIDED, HOWEVER,
that the term "Guaranty" excludes endorsements for collection or deposit
in the ordinary course of the endorser's business.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976.
"IMMEDIATE FAMILY MEMBER" of a Stockholder means at any time:
(a) if the
5
<PAGE>
Stockholder is a natural person, any child or grandchild (by blood or
legal adoption) or spouse of that Stockholder at that time, or any child
of the spouse; and (b) if the Stockholder is an Entity whose ultimate
beneficial owner is a natural person, or a natural person and his
spouse, any child or grandchild (by blood or legal adoption) or spouse
at that time (if not then an ultimate beneficial owner of that Entity),
or any child of the spouse, of the ultimate beneficial owner or owners.
"INDEBTEDNESS" of any Person means, without duplication, (a)
any liability of that Person (i) for borrowed money or arising out of
any extension of credit to or for the account of that Person (including
reimbursement or payment obligations with respect to surety bonds,
letters of credit, banker's acceptances and similar instruments), for
the deferred purchase price of property or services or arising under
conditional sale or other title retention agreements, other than trade
payables arising in the ordinary course of business, (ii) evidenced by
notes, bonds, debentures or similar instruments, (iii) in respect of
Capital Leases, or (iv) in respect of Interest Rate Protection
Agreements, (b) any liability secured by any Lien upon any property or
assets of that Person (or upon any revenues, income or profits of that
Person therefrom), whether or not that Person has assumed that liability
or otherwise become liable for the payment thereof, or (c) any liability
of others of the type described in the preceding clause (a) or (b) in
respect of which that Person has incurred, assumed or acquired a
liability by means of a Guaranty.
"INDEMNITY NOTICE" has the meaning specified in Section 9.05.
"INDEMNIFIED PARTY" has the meaning specified in Section 9.05.
"INDEMNIFYING PARTY" has the meaning specified in Section
9.05.
"INFORMATION" means written information, including (a) data,
certificates, reports and statements (excluding Financial Statements)
and (b) summaries of unwritten agreements, arrangements, contracts,
plans, policies, programs or practices or of unwritten amendments or
modifications of, supplements to or waivers under any of the foregoing
documents.
"INTEREST RATE PROTECTION AGREEMENT" means, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement
providing for the transfer or mitigation of interest rate risks of that
Person, either generally or under specific contingencies, between that
Person and any other Person.
"IPO" means the first time after September 1, 1997 a
registration statement filed under the Securities Act and respecting a
primary offering by TMI of shares of TMI Common Stock (other than a
registration statement respecting shares being offered pursuant to a
Company ERISA Benefit Plan or any Other Compensation Plan) is declared
effective under the Securities Act and the shares registered by that
registration statement
6
<PAGE>
are issued and sold by TMI (otherwise than pursuant to the exercise by
the Underwriter of any over-allotment option).
"IPO CLOSING DATE" means the date on which TMI first receives
payment for the shares of TMI Common Stock it sells to the Underwriter
in the IPO.
"IPO COMMITTEE" means those persons named in the Registration
Statement as the directors of TMI effective upon consummation of the IPO
Closing, other than Edward T. Kuklenski and John B. Benear, II, M.D.
"IPO PRICE" means the price per share of TMI Common Stock
which is set forth as the "price to public" on the cover page of the
Final Prospectus.
"IPO PRICING DATE" means the date, if any, on which TMI and
the Underwriter agree in the Underwriting Agreement to the price per
share of Common Stock at which the Underwriter, subject to the terms and
conditions of the Underwriting Agreement, will purchase newly issued
shares of TMI Common Stock from TMI on the IPO Closing Date.
"IRS" means the Internal Revenue Service.
"LIEN" means, with respect to any property or asset of any
Person (or any revenues, income or profits of that Person therefrom) (in
each case whether the same is consensual or nonconsensual or arises by
contract, operation of law, legal process or otherwise), (a) any
mortgage, lien, security interest, pledge, attachment, levy or other
charge or encumbrance of any kind thereupon or in respect thereof or (b)
any other arrangement under which the same is transferred, sequestered
or otherwise identified with the intention of subjecting the same to, or
making the same available for, the payment or performance of any
liability in priority to the payment of the ordinary, unsecured
creditors of that Person, including any "adverse claim" (as defined in
Section 8-302(b) of each applicable Uniform Commercial Code) in the case
of any Capital Stock. For purposes of this Agreement, a Person shall be
deemed to own subject to a Lien any asset that Person has acquired or
holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capital Lease or other title retention
agreement relating to that asset.
"LITIGATION" means any action, case, proceeding, claim,
grievance, suit or investigation or other proceeding conducted by or
pending before any Governmental Authority or any arbitration proceeding.
"MATERIAL" means, as applied to any Entity, material to the
business, operations, property or assets, liabilities, financial
condition or results of operations of that Entity and its Subsidiaries
considered as a whole.
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"MATERIAL ADVERSE EFFECT" means, with respect to the
consequences of any fact or circumstance (including the occurrence or
non-occurrence of any event) to the Company and the Company Subsidiaries
considered as a whole (or after the Effective Time the Surviving
Corporation and the Company Subsidiaries considered as a whole), that
such fact or circumstance has caused, is causing or will cause, directly
or indirectly, singly or in the aggregate with other facts and
circumstances, any Damages in excess of the Threshold Amount.
"MATERIAL AGREEMENT" of an Entity means any contract or
agreement (a) to which that Entity or any of its Subsidiaries is a
party, or by which that Entity or any of its Subsidiaries is bound or to
which any property or assets of that Entity or any of its Subsidiaries
is subject and (b) which is Material to that Entity.
"MINIMUM CASH AMOUNT" has the meaning specified in Section
7.02.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA, Section 414 of the Code or Section 3(37)
of ERISA.
"NEWCO COMMON STOCK" means the common stock, par value $.001
per share, of Newco.
"ORGANIZATION STATE" means, as applied to (a) any corporation,
its state or other jurisdiction of incorporation, (b) any limited
liability company or limited partnership, the state or other
jurisdiction under whose laws it is organized and existing in that legal
form, and (c) any other Entity, the state or other jurisdiction whose
laws govern that Entity's internal affairs.
"OTHER AGREEMENTS" has the meaning specified in the
Preliminary Statement in this Agreement.
"OTHER COMPENSATION PLAN" means any compensation arrangement,
plan, policy, practice or program established, maintained or sponsored
by the Company or any Company Subsidiary, or to which the Company or any
Company Subsidiary contributes, on behalf of any of its employees,
nonemployee directors or officers or other natural persons performing
consulting or other independent contractor services for the Company or
any Company Subsidiary, including all such arrangements, plans,
policies, practices or programs providing for severance pay, deferred
compensation, incentive, bonus or performance awards or the actual or
phantom ownership of any Capital Stock or Derivative Securities of the
Company or any Company Subsidiary, but excluding all Company ERISA
Pension Plans and Employment Agreements.
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"OTHER FINANCING SOURCES" has the meaning specified in Section
7.02.
"OTHER NEWCO SUBSIDIARIES" means the Subsidiaries of TMI which
are parties to the Other Agreements.
"OTHER TRANSACTION DOCUMENTS" means the Other Agreements and
the other written agreements, documents, instruments and certificates at
any time executed pursuant to or in connection with the Other Agreements
(other than the Transaction Documents and the Underwriting Agreement),
all as amended, modified or supplemented from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED INVESTMENTS" means at the time of their purchase or
other acquisition by the Company or any Company Subsidiary (a)
obligations issued or guaranteed by the United States of America with a
remaining maturity not exceeding one year, (b) commercial paper with
maturities of not more than 270 days and a published rating of not less
than A-1 by S&P or P-1 by Moody's, and (c) certificates of deposit and
bankers' acceptances having maturities of not more than one year of any
commercial bank or trust company if (A) the issuing bank or trust
company has a combined capital and surplus of at least $500,000,000 and
(B) its unsecured long-term debt obligations, or those of a holding
company of which it is a Subsidiary, are rated not less than A- by S&P
or A3 by Moody's.
"PERMITTED LIENS" means, as applied to the property or assets
of any Person (or any revenues, income or profits of that Person
therefrom): (a) Liens for Taxes if the same are not at the time due and
delinquent; (b) Liens of carriers, warehousemen, mechanics, laborers and
materialmen for sums not yet due; (c) Liens incurred in the ordinary
course of that Person's business in connection with worker's
compensation, unemployment insurance and other social security
legislation (other than pursuant to ERISA or Section 412(n) of the
Code); (d) Liens incurred in the ordinary course of that Person's
business in connection with deposit accounts or to secure the
performance of bids, tenders, trade contracts, statutory obligations,
surety and appeal bonds, performance and return-of- money bonds and
other obligations of like nature; (e) easements, rights-of-way,
reservations, restrictions and other similar encumbrances incurred in
the ordinary course of that Person's business or existing on property
and not materially interfering with the ordinary conduct of that
Person's business or the use of that property; (f) defects or
irregularities in that Person's title to its real properties which do
not materially diminish the value of the surface estate or interfere
with the ordinary conduct of that Person's business or the use of any of
such properties; (g) any interest or title of a lessor of assets being
leased by any Person pursuant to any Capital Lease disclosed in Section
4.19 of the Disclosure Statement or any lease that, pursuant to GAAP,
would be accounted for as an operating lease; and (h) Liens securing
purchase money Indebtedness disclosed in Section
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4.18 or 4.19 of the Disclosure Statement so long as such Liens do not
attach to any property or assets other than the properties or assets
purchased with the proceeds of such Indebtedness.
"PERSON" means any natural person, Entity, estate, trust,
union or employee organization or Governmental Authority or, for the
purpose of the definition of "ERISA Affiliate," any trade or business.
"PLAN" has the meaning specified in Section 4.27.
"PRIVATE PLACEMENT MEMORANDUM" means the TMI Private Placement
Memorandum dated as of September 7, 1997, relating to the offer of TMI
Common Stock in connection with the Merger.
"PROHIBITED TRANSACTION" means any transaction that is
prohibited under Section 4975 of the Code or Section 406 of ERISA and
not exempt under Section 4975 of the Code or Section 408 of ERISA.
"PROPERTY, PLANT AND EQUIPMENT" means at any time any property
that then would be included and classified as property, plant and
equipment on a consolidated balance sheet prepared in accordance with
GAAP of the Company and the Company Subsidiaries.
"PROPRIETARY RIGHTS" means (a) patents, applications for
patents and patent rights, (b) in each case, whether registered,
unregistered or under pending registration, trademark rights, trade
names, trade name rights, corporate names, business names, trade styles
or dress, service marks and logos and other trade designations and
copyrights and (c), in the case of the Company or any Company
Subsidiary, all agreements relating to the technology, know-how or
processes used or marketed in any business of the Company or any Company
Subsidiary.
"QUALIFIED PLANS" has the meaning specified in Section 4.27.
"REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement to be executed and delivered at the Closing by TMI and the
Stockholders electing to be parties thereto in the form of Exhibit
1.02-A, with it blanks appropriately completed.
"REGISTRATION STATEMENT" means the registration statement,
including (a) each preliminary prospectus included therein prior to the
date on which that registration statement is declared effective under
the Securities Act (including any prospectus filed with the SEC pursuant
to Securities Act Rule 424(b)), (b) the Final Prospectus and (c) any
amendments thereof and all supplements and exhibits thereto, filed by
TMI with the SEC to register shares of TMI Common Stock under the
Securities Act for public
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offering and sale in the IPO.
"RETURNS" means the returns, reports or statements (including
any information returns) any Governmental Requirement requires to be
filed for purposes of any Tax.
"RELATED PARTY AGREEMENT" means any contract or other
agreement, written or oral, to which the Company or any Company
Subsidiary is a party or is bound or by which any property of the
Company or any Company Subsidiary is bound or may be subject and (a) to
which any Stockholder or any of that Stockholder's Related Persons or
Affiliates also is a party, (b) of which any Stockholder or any of that
Stockholder's Related Persons or Affiliates is a beneficiary, or (c) as
to which any transaction contemplated thereby properly would be
characterized (without regard to the amount involved) as a related party
transaction for purposes of applying the disclosure requirements of GAAP
or the SEC applicable to the Registration Statement.
"RELATED PERSON" of a Stockholder means: (a) if the
Stockholder is a natural person, (i) any Immediate Family Member of the
Stockholder, (ii) any Estate of the Stockholder or any Immediate Family
Member of the Stockholder, (iii) the trustee of any inter vivos or
testamentary trust of which all the beneficiaries are Related Persons of
the Stockholder and (iv) any Entity the entire equity interest in which
is owned by any one or more of the Stockholder and Related Persons of
the Stockholder; and (b) if the Stockholder is an Entity, Estate or
trust, (i) any Person who owns an equity interest in the Stockholder on
the date hereof, (ii) any Person who would be a Related Person under
clause (a) of this definition of a natural person who is an ultimate
beneficial owner of the Stockholder or (iii) any other Entity the entire
equity interest in which is owned by any one or more of the Stockholder
and Related Persons of the Stockholder. As used in this definition,
"Estate" means, as to any natural person who has died or been
adjudicated mentally incompetent by a court of competent jurisdiction,
(i) that person's estate or (ii) the administrator, conservator,
executor, guardian or representative of that person's estate.
"REPRESENTATIVES" means, with respect to any Person, the
directors, officers, employees, Affiliates, accountants (including
independent certified public accountants), advisors, attorneys,
consultants or other agents of that Person, or any other representatives
of that Person or of any of that Person's directors, officers,
employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants or other agents.
"REPORTABLE EVENT" means, with respect to any Company ERISA
Pension Plan, (a) the occurrence of any of the events set forth in
Section 4043(b) or 4043(c) (other than a Reportable Event as to which
the provision of 30 days' notice to the PBGC is waived under applicable
regulations), 4062(e) or 4063(a) of ERISA with respect to that plan, (b)
any event requiring the Company or any ERISA Affiliate to provide
security to that plan
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under Section 401 (a)(29) of the Code, or (c) any failure to make a
payment required by Section 412(m) of the Code with respect to that
plan.
"RCRA" means the Resource Conservation and Recovery Act of
1976.
"RESTRICTED PAYMENT" means, with respect to any Entity at any
time, any of the following effected by the Entity: (a) any declaration
or payment of any dividend or other distribution, direct or indirect on
account of any Capital Stock of that Entity or any Affiliate of the
Entity or (b) any direct or indirect redemption, retirement, purchase or
other acquisition for value of, or any direct or indirect purchase,
payment or sinking fund or similar deposit for the redemption,
retirement, purchase or other acquisition for value of, or to obtain the
surrender of, any then outstanding Capital Stock of the Entity or any
Affiliate of the Entity or any then outstanding warrants, options or
other rights to acquire or subscribe for or purchase unissued or
treasury Capital Stock of the Entity or any of its Affiliates.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933.
"SOLID WASTES, HAZARDOUS WASTES OR HAZARDOUS SUBSTANCES" have
the meanings ascribed to those terms in CERCLA, RCRA or any other
Environmental Law applicable to the business or operations of the
Company or any Company Subsidiary which imparts a broader meaning to any
of those terms than does CERCLA or RCRA.
"S&P" means Standard and Poor's Rating Group.
"STOCKHOLDER INDEMNIFIED PARTY" means (a) each Stockholder and
each of that Stockholder's Affiliates (other than the Company or,
following the Effective Time, the Surviving Corporation or TMI or any of
its Subsidiaries, if the Stockholder is an Affiliate of TMI), agents and
counsel and (b) prior to the Effective Time, the Company and each of its
officers, directors, employees, agents and counsel who are not
Stockholder Indemnified Parties within the meaning of clause (a) of this
definition.
"STOCKHOLDER INDEMNIFIED LOSS" has the meaning specified in
Section 9.04.
"SUBSIDIARY" of any specified Person at any time, means any
entity a majority of the Capital Stock of which is at that time owned or
controlled, directly or indirectly, by the specified Person.
"SUPPLEMENTAL INFORMATION" has the meaning specified in
Section 6.07.
"TAX" or "TAXES" means all net or gross income, gross
receipts, net proceeds,
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sales, use, ad valorem, value added, franchise, withholding, payroll,
employment, excise, property, deed, stamp, alternative or add-on
minimum, environmental or other taxes, assessments, duties, fees, levies
or other governmental charges or assessments of any nature whatever
imposed by any Governmental Requirement, whether disputed or not,
together with any interest, penalties, additions to tax or additional
amounts with respect thereto.
"TAXING AUTHORITY" means any Governmental Authority having or
exercising jurisdiction with respect to any Tax.
"TERMINATION EVENT" means, with respect to any Company ERISA
Pension Plan, (a) any Reportable Event with respect to that plan which
is likely to result in the termination of that plan, (b) the termination
of, or the filing of a notice of intent to terminate, that plan or the
treatment of any amendment to that plan as a termination under Section
4041(c) of ERISA, or (c) the institution of proceedings to terminate, or
the appointment of a trustee to administer, that plan under Section 4042
of ERISA.
"TMI COMMON STOCK" means the common stock, par value $.001 per
share, of TMI.
"TMI INDEMNIFIED PARTY" means TMI and its Affiliates and each
of their respective officers, directors, employees, agents and counsel;
PROVIDED, HOWEVER, that no Person who indemnifies TMI Indemnified
Parties in this Agreement in his capacity as a Stockholder will be a TMI
Indemnified Party for purposes of this Agreement, notwithstanding that
the Person is a TMI Indemnified Party for purposes of one or more of the
Other Agreements.
"TMI INDEMNIFIED LOSS" has the meaning specified in Section
9.03.
"THIRD PARTY CLAIM" has the meaning specified in Section 9.05.
"TRANSACTION DOCUMENT" means this Agreement, the Certificates
of Merger, the General Release, the Registration Rights Agreement and
the other written agreements, documents, instruments and certificates
executed pursuant to or in connection with this Agreement (other than
the Other Transaction Documents and the Underwriting Agreement),
including those specified in Article VII to be delivered at or before
the Closing, all as amended, modified or supplemented from time to time.
"UNDERWRITER" means collectively (a) the investment banking
firms that prospectively may enter into the Underwriting Agreement and
(b) from and after the IPO Pricing Date, the investment banking firms
parties to the Underwriting Agreement.
"UNDERWRITING AGREEMENT" has the meaning specified in Section
7.02.
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"WELFARE PLAN" means an "employee welfare benefit plan" as
defined in Section 3(1) of ERISA.
"WHOLLY OWNED SUBSIDIARY" means any corporation or other
Entity all of the outstanding Capital Stock of which, on a fully diluted
basis, is owned and controlled, directly or indirectly through another
Wholly Owned Subsidiary, by the Company.
Section 1.03. OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise
specified herein, all references herein to any Governmental Requirement
defined or referred to herein, including the Code, CERCLA, ERISA, the
Exchange Act, RCRA and the Securities Act, shall be deemed references to
that Governmental Requirement or any successor Governmental Requirement,
as the same may have been amended or supplemented from time to time, and
any rules or regulations promulgated thereunder.
(b) When used in this Agreement, the words "herein," "hereof"
and "hereunder" and words of similar import shall refer to this
Agreement as a whole and not to any provision of this Agreement, and the
words "Article," "Section," "Annex," "Schedule" and "Exhibit" refer to
Articles and Sections of, and Annexes, Schedules and Exhibits to, this
Agreement unless otherwise specified.
(c) Whenever the context so requires, the singular number
includes the plural and VICE VERSA, and a reference to one gender
includes the other gender and the neuter.
(d) The word "including" (and, with correlative meaning, the
word "include") means including, without limiting the generality of any
description preceding such word, and the words "shall" and "will" are
used interchangeably and have the same meaning.
Section 1.04 CAPTIONS. Captions to Articles, Sections and subsections
of, and Annexes, Schedules and Exhibits to, this Agreement or any other
Transaction Document are included for convenience of reference only, and shall
not constitute a part of this Agreement or any other Transaction Document for
any other purpose, nor shall they in any way affect the meaning or construction
of any provision of this Agreement or any other Transaction Document.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.02. OWNERSHIP AND STATUS OF COMPANY CAPITAL STOCK. The
Stockholder is the record and beneficial owner (or, if the Stockholder is a
trust or the estate of a deceased natural person, the legal owner) of the number
of shares of Company Capital Stock set forth, by each class, and by each series
in each class, thereof, opposite the Stockholder's name in Schedule 3.02, free
and clear of all Liens, except for the Liens accurately set forth in Schedule
3.02, all of which will be released at or before the Effective Time.
Section 3.03. POWER OF THE STOCKHOLDER; APPROVAL OF THE MERGER. (a) The
Stockholder has the full power, legal capacity and authority to execute
and deliver this Agreement and each other Transaction Document to which
the Stockholder is a party and to perform the Stockholder's obligations
in this Agreement and in all other Transaction Documents to which the
Stockholder is a party. This Agreement constitutes, and each such other
Transaction Document, when executed in the Stockholder's individual
capacity and delivered by the Stockholder, will constitute, the legal,
valid and binding obligation of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except as that enforceability
may be (i) limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) subject to general principles of
equity (regardless of whether that enforceability is considered in a
proceeding in equity or at law). If the Stockholder is an Entity, the
Stockholder has obtained, in accordance with all applicable Governmental
Requirements and its Charter Documents, all approvals and the taking of
all actions necessary for the authorization, execution, delivery and
performance by the Stockholder of this Agreement and the other
Transaction Documents to which the Stockholder is a party. If the
Stockholder is acting otherwise than in his individual capacity (whether
as an executor or a guardian or in any other fiduciary or representative
capacity), all actions on the part of the Stockholder and all other
Persons (including any court) necessary for the authorization,
execution, delivery and performance by the Stockholder of this Agreement
and the other Transaction Documents to which the Stockholder is a party
have been duly taken.
(b) The Stockholder, acting in each capacity in which he is
entitled, by reason of the Company's Charter Documents or the
Governmental Requirements of the Company's Organization State or for any
other reason, to vote to approve or disapprove the consummation of the
Merger, has voted all the shares of Company Capital Stock owned by him
and entitled to a vote or votes on that matter, in any one or more of
the manners prescribed or permitted by the Company's Charter Documents
or the Governmental Requirements of the Company's Organization State,
whichever are controlling, to approve this Agreement and the
consummation of the Merger and the other transactions contemplated by
this Agreement.
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Section 3.04. NO CONFLICTS OR LITIGATION. The execution, delivery and
performance in accordance with their respective terms by the Stockholder of this
Agreement and the other Transaction Documents to which the Stockholder is a
party do not and will not (a) violate any Governmental Requirement, (b) breach
or constitute a default under any agreement or instrument to which the
Stockholder is a party or by which the Stockholder or any of the shares of
Company Capital Stock owned by the Stockholder is bound, (c) result in the
creation or imposition of, or afford any Person the right to obtain, any Lien
upon any of the shares of Company Capital Stock owned by the Stockholder (or
upon any revenues, income or profits of the Stockholder therefrom) or (d) if the
Stockholder is an Entity, violate the Stockholder's Charter Documents. No
Litigation is pending or, to the knowledge of the Stockholder, threatened to
which the Stockholder is or may become a party which (a) questions or involves
the validity or enforceability of any of the Stockholder's obligations under any
Transaction Document or (b) seeks (or reasonably may be expected to seek) (i) to
prevent or delay the consummation by the Stockholder of the transactions
contemplated by this Agreement to be consummated by the Stockholder or (ii)
Damages in connection with any consummation by the Stockholder of the
transactions contemplated by this Agreement.
Section 3.05. NO BROKERS. The Stockholder has not, directly or
indirectly, in connection with this Agreement or the transactions contemplated
hereby (a) employed any broker, finder or agent or (b) agreed to pay or incurred
any obligation to pay any broker's or finder's fee, any sales commission or any
similar form of compensation.
Section 3.06. PREEMPTIVE AND OTHER RIGHTS; WAIVER. Except for the right
of the Stockholder to receive shares of TMI Common Stock as a result of the
Merger or to acquire TMI Common Stock pursuant to any written option or warrant
granted by TMI to the Stockholder, the Stockholder either (a) does not have any
statutory or contractual preemptive or other right of any kind (including any
right of first offer or refusal) to acquire any shares of Company Capital Stock
or TMI Common Stock or (b) hereby irrevocably waives each right of that type the
Stockholder owns or otherwise has.
Section 3.07. CONTROL OF RELATED BUSINESSES. Except as accurately set
forth in Schedule 3.07, the Stockholder is not, alone or with one or more other
Persons, the controlling Affiliate of any Entity, business or trade (other than
the Company and the Company Subsidiaries, if the Stockholder is an Affiliate of
the Company) that (a) is engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three-year period ending on the date of
this Agreement, engaged in any transaction with the Company or any Company
Subsidiary, except for (i) transactions in the ordinary course of business of
the Company or that Company Subsidiary and (ii) any single transaction (or
series of related transactions) involving property or services having a value,
or the payment of money, in excess of $20,000.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.02. QUALIFICATION. Section 4.02 of the Disclosure Statement
accurately lists all the jurisdictions in which the Company and the Company
Subsidiaries is authorized or qualified to own or lease and to operate its
properties or to carry on its business as now conducted, and neither the Company
nor any Company Subsidiary owns, leases or operates properties or carries on its
business in any jurisdiction not listed in that Section.
Section 4.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS. (a) The execution, delivery and performance by the
Company of this Agreement and each other Transaction Document to which
it is a party, and the effectuation of the Merger and the other
transactions contemplated hereby and thereby, are within its corporate
or other power under its Charter Documents and all applicable
Governmental Requirements of its Organization State and have been duly
authorized by all proceedings, including actions permitted to be taken
in lieu of proceedings, required under its Charter Documents and all
applicable Governmental Requirements.
(b) This Agreement has been, and each of the other Transaction
Documents to which the Company is a party, when executed and delivered
to TMI (or, in the case of the Certificate of Merger, the applicable
Governmental Authorities) will have been, duly executed and delivered by
the Company and is, or when so executed and delivered will be, the
legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as that enforceability
may be (i) limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and (ii) subject to general principles of
equity (regardless of whether that enforceability is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance in accordance with
their respective terms by the Company of the Transaction Documents to
which it is a party have not and will not (i) violate, breach or
constitute a default under (A) the Charter Documents of any of the
Company and the Company Subsidiaries, (B) any Governmental Requirement
applicable to any of the Company and the Company Subsidiaries or (C)
except as set forth in Section 4.03 of the Disclosure Statement, any
Material Agreement of the Company, (ii) except as set forth in Section
4.03 of the Disclosure Statement, result in the acceleration or
mandatory prepayment of any Indebtedness, or any Guaranty not
constituting Indebtedness, of any of the Company and the Company
Subsidiaries or afford any holder of any of that Indebtedness, or any
beneficiary of any of those Guaranties, the right to require any of the
Company and the Company Subsidiaries to
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redeem, purchase or otherwise acquire, reacquire or repay any of that
Indebtedness, or to perform any of those Guaranties, (iii) cause or
result in the imposition of, or afford any Person the right to obtain,
any Lien upon any property or assets of any of the Company and the
Company Subsidiaries (or upon revenues, income or profits of any of the
Company and the Company Subsidiaries therefrom), (iv) except as set
forth in Section 4.03 of the Disclosure Statement, result in the
revocation, cancellation, suspension or material modification, in any
single case or in the aggregate, of any Governmental Approval possessed
by any of the Company and the Company Subsidiaries at the date hereof
and necessary for the ownership or lease or the operation of its
properties or the carrying on of its business as now conducted,
including any necessary Governmental Approval under each applicable
Environmental Law, or (v) except as set forth in Section 4.03 of the
Disclosure Statement, entitle any Person other than the Company or a
Company Subsidiary to revoke, cancel, suspend or materially modify any
Company Commitment.
(d) Except for (i) the filing of the Certificates of Merger
with the applicable Governmental Authorities, (ii) filings of the
Registration Statement under the Securities Act and the SEC order
declaring the Registration Statement effective under the Securities Act,
and (iii) as may be required by the HSR Act or the applicable state
securities or blue sky laws, no Governmental Approvals are required to
be obtained, and no reports or notices to or filings with any
Governmental Authority are required to be made, by any of the Company
and the Company Subsidiaries for the execution, delivery or performance
by the Company of the Transaction Documents to which it is a party, the
enforcement against the Company of its obligations thereunder or the
effectuation of the Merger and the other transactions contemplated
thereby.
Section 4.04. CHARTER DOCUMENTS AND RECORDS; NO VIOLATION. The Company
has caused true, complete and correct copies of the Charter Documents, each as
in effect on the date hereof, and the minute books and similar corporate or
other Entity records of each of the Company and the Company Subsidiaries to be
delivered or otherwise made available to TMI. No breach or violation of any
Charter Document of any of the Company and the Company Subsidiaries has occurred
and is continuing.
Section 4.05. NO DEFAULTS. No act or omission by the Company or any of
the Company Subsidiaries has occurred, and to the knowledge of the Company, the
Company Subsidiaries and the Stockholders, no other condition or state of facts
exists, or, with the giving of notice or the lapse of time or both, would exist,
which (a) entitles any holder of any outstanding Indebtedness, or any Guaranty
not constituting Indebtedness, of any of the Company and the Company
Subsidiaries, or a representative of that holder, to accelerate the maturity, or
require a mandatory prepayment of that Indebtedness or Guaranty, or affords that
holder or its representative, or any beneficiary of that Guaranty, the right to
require any of the Company and the Company Subsidiaries to redeem, purchase or
otherwise acquire, reacquire or repay any of that Indebtedness, or to perform
that Guaranty in whole or in part, (b) entitles any Person to obtain
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any Lien (other than a Permitted Lien) upon any properties or assets of any of
the Company and the Company Subsidiaries (or upon revenues, income or profits of
any of the Company and the Company Subsidiaries therefrom), or (c) constitutes a
violation or breach of, or a default under, any Material Agreement of the
Company by any of the Company and the Company Subsidiaries.
Section 4.06. COMPANY SUBSIDIARIES. Section 4.06 of the Disclosure
Statement either (a) accurately sets forth the form of organization, legal name,
each assumed name and Organization State of each Company Subsidiary or (b)
correctly states no Entity is a Company Subsidiary. Except as accurately
disclosed in Section 4.06 of the Disclosure Statement, each Company Subsidiary
is a Wholly Owned Subsidiary. In the case of any Company Subsidiary that is not
a Wholly Owned Subsidiary, Section 4.06 of the Disclosure Statement accurately
sets forth, by each class and each series within each class, the number of
outstanding shares of Capital Stock of the Company Subsidiary, (a) the Company's
aggregate direct and indirect ownership of those shares and (b) the name and
address of record and percentage ownership of those shares of each holder of
record thereof other than the Company or a Company Subsidiary. No Lien exists on
any outstanding share of Capital Stock of any Company Subsidiary which is owned
directly or indirectly by the Company other than (a) the Liens, if any,
described in Section 4.06 of the Disclosure Statement, all of which will be
released at or before the Effective Time, and (b) Permitted Liens. Except as
accurately set forth in Section 4.06 of the Disclosure Statement, the Company
does not own, of record or beneficially, directly or indirectly through any
Person, and does not control, directly or indirectly through any Person or
otherwise, any Capital Stock or Derivative Securities of any Entity other than a
Company Subsidiary.
Section 4.07. CAPITAL STOCK OF THE COMPANY AND THE COMPANY SUBSIDIARIES.
All the issued and outstanding shares of Capital Stock of each of the Company
and the Company Subsidiaries have been duly authorized and validly issued in
accordance with the applicable Governmental Requirements of their issuer's
Organization State and Charter Documents and are fully paid and nonassessable.
Neither the Company nor any Company Subsidiary has issued or sold any shares of
its outstanding Capital Stock in breach or violation of (a) any applicable
statutory or contractual preemptive rights, or any other rights of any kind
(including any rights of first offer or refusal), of any Person or (b) the terms
of any of its Derivative Securities which then were outstanding. No Person has,
otherwise than solely by reason of that Person's right, if any, to vote shares
of the Capital Stock of the Company or any Company Subsidiary it holds (to the
extent those shares afford their holder any voting rights) any right to vote on
any matter with the holders of Capital Stock of the Company or any Company
Subsidiary.
Section 4.08. TRANSACTIONS IN CAPITAL STOCK. Except as accurately set
forth in Section 4.08 of the Disclosure Statement: (a) the Company has no fixed
or contingent obligation to purchase, redeem or otherwise acquire or reacquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof, and (b) no transaction has been
effected, and no action has been taken, respecting the equity ownership of
either the Company or any Company Subsidiary, in either case in contemplation of
the transactions described in this Agreement.
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Section 4.09. NO BONUS SHARES. Except as accurately set forth in Section
4.09 of the Disclosure Statement, no outstanding share of Capital Stock of the
Company was issued for less than an amount judged by the Company's Board of
Directors as its fair market value at the time of its issuance or was issued in
exchange for any consideration other than cash.
Section 4.10. PREDECESSOR STATUS; ETC. Section 4.10 of the Disclosure
Statement accurately lists all the legal and assumed names of all predecessor
companies for the past five years of the Company and each Company Subsidiary,
including the names of any Entities from which the Company previously acquired
material assets. Except as accurately disclosed in Section 4.10 of the
Disclosure Statement, the Company has not been a Subsidiary or division of
another corporation or a part of an acquisition that later was rescinded.
Section 4.11. RELATED PARTY AGREEMENTS. Except as set forth in Schedule
4.11, each Related Party Agreement in effect on the date of this Agreement will
have been terminated as of the IPO Closing Date, and no Related Party Agreement
will exist then or thereafter to and including the Effective Time.
Section 4.12. LITIGATION. Except as accurately disclosed in Section 4.12
of the Disclosure Statement, no Litigation is pending or, to the knowledge of
the Company or any Stockholder, threatened to which the Company or any Company
Subsidiary is or may become a party.
Section 4.13. FINANCIAL STATEMENTS; DISCLOSURE. (a) FINANCIAL
STATEMENTS. The Financial Statements (including in each case the related
schedules and notes) delivered to TMI present fairly, in all material
respects, the consolidated financial position of the Company and the
Company Subsidiaries at the respective dates of the balance sheets
included therein and the consolidated results of their operations and
their consolidated cash flows and stockholders' or other owners' equity
for the respective periods set forth therein and have been prepared in
accordance with GAAP. As of the date of each balance sheet included in
all previously delivered Financial Statements, neither the Company nor
any Company Subsidiary then had any outstanding Indebtedness to any
Person or any liabilities of any kind (including contingent obligations,
tax assessments or forward or long-term commitments), or any unrealized
or anticipated loss, which in the aggregate then were Material to the
Company and required to be reflected in those Financial Statements or in
the notes related thereto in accordance with GAAP which were not so
reflected.
(b) DISCLOSURE. To the knowledge of the Company and the
Stockholders (i) all Information (other than financial budgets and
projections) that (A) is set forth in the Disclosure Statement, (B) has
been delivered to TMI by or on behalf of the Company pursuant to an
express requirement of this Agreement, or (C) has been furnished to TMI
by or on behalf of the Company for inclusion in the Registration
Statement under the captions "THE COMPANY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS," "BUSINESS," "MANAGEMENT," and
"CERTAIN TRANSACTIONS" in any prospectus forming a part of the
Registration Statement is, taken together, true and correct in all
material respects and does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements contained therein not materially misleading in light
of the circumstances under which those statements were made.
(ii) All financial budgets and projections that have been
or are hereafter from time to time prepared by the Company or
any of its Representatives and made available prior to the
Effective Time to TMI pursuant to or in connection with this
Agreement, any other Transaction Document or the transactions
contemplated hereby or thereby have been and will be prepared
and furnished to TMI in good faith and were and will be based
on facts and assumptions that are believed by the management
of the Company to be reasonable and represented and will
represent management's good faith estimate of the consolidated
projected financial performance of the Company and the Company
Subsidiaries based on the information available to the
Responsible Officer at the time so furnished (it being
acknowledged by TMI that the budgets and projections referred
to in this clause (ii) are derived from judgments made by the
Company's management and are only estimates of future results
based on assumptions made at the time of their preparation,
and that there can be no assurance that the budgets or
projections will be obtained or maintained or that actual
results will not be different from those budgeted or
projected).
Section 4.14. COMPLIANCE WITH LAWS. (a) Except as accurately disclosed
in Section 4.14 of the Disclosure Statement, to the knowledge of the
Company, each of the Company and the Company Subsidiaries are in
compliance in all material respects with the terms and conditions of all
Governmental Approvals necessary for the ownership or lease and the
operation of its properties (including all the facilities and sites it
owns or holds under any lease) and the carrying on of its business as
now conducted. The Company has provided TMI with an accurate, complete
written list of all the Governmental Approvals so possessed. To the
knowledge of the Company, all the Governmental Approvals so listed are
valid, and, except as accurately disclosed in Section 4.14 of the
Disclosure Statement, neither the Company nor any Company Subsidiary has
received any notice from any Governmental Authority of its intention to
cancel, terminate or not renew any of those Governmental Approvals.
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(b) Except as accurately disclosed in Section 4.14 of the
Disclosure Statement, each of the Company and the Company Subsidiaries:
(i) to the knowledge of the Company, has been and continues to be in
compliance with all Governmental Requirements applicable to it or any of
its presently or previously owned or operated properties (including all
the facilities and sites now or previously owned or held by it under any
lease), businesses or operations, including all applicable Governmental
Requirements under ERISA and Environmental Laws; and (ii)(A) neither the
Company nor any Company Subsidiary has received any notice from any
Governmental Authority which asserts, or raises the possibility of
assertion of, any noncompliance with any of those Governmental
Requirements and (B) to the knowledge of the Company and the
Stockholders, no condition or state of facts exists which would provide
a valid basis for any such assertion.
Section 4.15. CERTAIN ENVIRONMENTAL MATTERS. Except as accurately
disclosed in Section 4.15 of the Disclosure Statement: (a) to the knowledge of
the Company, the Company and each Company Subsidiary have complied, and remain
in compliance, to the knowledge of the Company, with the provisions of all
Environmental Laws applicable to any of them or any of their respective
presently owned or operated facilities, sites or other properties, businesses
and operations and which relate to the reporting by the Company and each Company
Subsidiary of all sites presently owned or operated by any of them where Solid
Wastes, Hazardous Wastes or Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (b) no release (as defined in the applicable
Environmental Laws) at, from, in or on any site owned or operated by the Company
or any Company Subsidiary has occurred which, if all relevant facts were known
to the relevant Governmental Authorities, reasonably could be expected to
require remediation to avoid deed record notices, restrictions, liabilities or
other consequences that would not be applicable if that release had not
occurred; (c) neither the Company nor any Company Subsidiary has transported or
arranged for the transportation of any Solid Wastes, Hazardous Wastes or
Hazardous Substances to, or disposed or arranged for the disposition of any
Solid Wastes, Hazardous Wastes or Hazardous Substances at, any off-site location
that could lead to any valid claim against the Company, any Company Subsidiary,
TMI or Newco, as a potentially responsible party or otherwise, for any clean-up
costs, remedial work, damage to natural resources, personal injury or property
damage, including any claim under CERCLA; and (d) no storage tanks exist on or
under any of the properties owned or operated by the Company or any Company
Subsidiary from which any Solid Wastes, Hazardous Wastes or Hazardous Substances
have been released into the surrounding environment. The Company has provided
TMI with copies (or if not available, accurate written summaries) of all
environmental investigations, studies, audits, reviews and other analyses
conducted by or on behalf, or which otherwise are in the possession, of the
Company or any Company Subsidiary respecting any facility, site or other
property presently owned or operated by the Company and each Company Subsidiary.
Section 4.16. LIABILITIES AND OBLIGATIONS. Section 4.16 of the
Disclosure Statement accurately lists all present liabilities, of every kind,
character and description and whether
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accrued, absolute, fixed, contingent or otherwise, of each of the Company and
the Company Subsidiaries which exceed or reasonably could be expected to exceed
$10,000 and which (a) had been incurred prior to the Current Balance Sheet Date,
but are not reflected on the Current Balance Sheet, or (b) were incurred after
the Current Balance Sheet otherwise than in the ordinary course of business, and
consistent with the past practice, of that Entity, in each case other than (i)
obligations and liabilities of the Company and the Company Subsidiaries in
respect of the Company Commitments, (ii) obligations and liabilities of the
Company in respect of each Company ERISA Benefit Plan, (iii) obligations and
liabilities of the Company and the Company Subsidiaries set forth in the
Disclosure Statement, and (iv) obligations and liabilities of the Company and
the Company Subsidiaries which are not required to be disclosed pursuant to
another representation or warranty set forth elsewhere in this Article IV by
reason of an exception, proviso, cut-back, threshold or other limitation or
qualification specifically set forth in such other representation and warranty.
Section 4.16 of the Disclosure Statement also accurately lists and describes,
for each of the Company and the Company Subsidiaries: (a) each of its
outstanding secured and unsecured Guaranties not constituting its Indebtedness
and, for each of those Guaranties, whether any Stockholder or Related Person or
Affiliate of any Stockholder is a Person whose obligation is covered by that
Guaranty, and (b) for each of the items listed under clause (a) of this
sentence, (i) if that item is secured by any property or asset of the Company or
any Company Subsidiary, the nature of that security, and (ii) if that item is
covered in whole or in part by a Guaranty of any Stockholder or any Related
Person or Affiliate of any Stockholder, the name of the guarantor.
Section 4.17. RECEIVABLES. Except as accurately set forth in Section
4.17 of the Disclosure Statement, all the accounts and notes or other advances
receivable of the Company and the Company Subsidiaries reflected on the Current
Balance Sheet were collected, or are, in the good faith belief of the Company's
management, collectible, in the respective amounts so reflected, net of the
reserves, if any, reflected in the Current Balance Sheet.
Section 4.18. OWNED AND LEASED REAL PROPERTIES. (a) Section 4.18 of the
Disclosure Statement accurately lists and correctly describes in all
material respects: (i) all real properties owned by any of the Company
and the Company Subsidiaries and, for each of those properties, its
address, the type and square footage of each structure located thereon
and the nature of its use in the business of the Company and the Company
Subsidiaries; (ii) all real properties of which any of the Company and
the Company Subsidiaries is the lessee and, for each of those
properties, its address, the type and square footage of each structure
located thereon the Company or a Company Subsidiary is leasing and the
expiration date of its lease and the use made of the leased property in
the business of the Company and the Company Subsidiaries; and (iii) in
the case of each real property listed as being owned, whether it was
previously owned, and in the case of each real property listed as being
leased, whether it is presently owned, by any Stockholder or any of his
Related Persons or Affiliates (other than the Company and the Company
Subsidiaries, if the Stockholder is an Affiliate of the Company).
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(b) The Company has provided TMI with true, complete and
correct copies of all title reports and title insurance policies owned
or in the possession of any of the Company and the Company Subsidiaries
and relating to any of the real properties listed as being owned in
Section 4.18 of the Disclosure Statement. Except as accurately set forth
in that Section or those reports and policies, and except for Permitted
Liens, the Company or a Company Subsidiary owns in fee, and has good,
valid and indefeasible title to, free and clear of all Liens, each
property listed in that Section as being owned.
(c) The Company has provided TMI with true, correct and
complete copies of all leases under which the Company or a Company
Subsidiary is leasing each of the properties listed in Section 4.18 of
the Disclosure Statement as being leased, and, except as accurately set
forth in Section 4.18 of the Disclosure Statement, (i) each of those
leases is, to the knowledge of the Company, valid and binding on the
lessor party thereto, and (ii) the lessee party thereto has not sublet
any of the leased space to any Person other than the Company or a
Company Subsidiary.
(d) The fixed assets of each of the Company and the Company
Subsidiaries are affixed only to one or more of the real properties
listed in Section 4.18 of the Disclosure Statement and, except as
accurately set forth in that Section, are well- maintained and adequate
for the purposes for which they presently are being used or held for
use, ordinary wear and tear excepted.
(e) The Company has accurately disclosed in all material
respects in writing to TMI all plans or projects involving the opening
of new operations, the expansion of any existing operations or the
acquisition of any real property or existing business, with respect to
which management of the Company or any Company Subsidiary has made any
expenditure in the two-year period prior to the date of the Agreement in
excess of $25,000, or which if pursued by the Company or any Company
Subsidiary would require additional capital expenditures in excess of
$25,000.
Section 4.19. OWNED AND LEASED PROPERTY, PLANT AND EQUIPMENT. (a) The
Company has provided TMI with a list accurate and complete in all
material respects of the Property, Plant and Equipment owned and leased
by any of the Company and the Company Subsidiaries, which list states,
in the case of each of those properties listed as being owned, whether
it was previously owned, and in the case of each of those properties
listed as being leased, whether it is presently owned, by any
Stockholder or any of his Related Persons or Affiliates (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate
of the Company).
(b) Except as accurately set forth in Section 4.19 of the
Disclosure Statement and except for Permitted Liens, the Company or a
Company Subsidiary has good, valid and indefeasible title to, free and
clear of all Liens, each property listed in that Section as being owned.
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(c) The Company has provided TMI with true, correct and
complete copies of all leases under which the Company or a Company
Subsidiary is leasing each of the properties listed in Section 4.19 of
the Disclosure Statement as being leased and all leases referred to in
Section 4.21 and, except as accurately set forth in Section 4.19 of the
Disclosure Statement, (i) each of those leases is, to the knowledge of
the Company, valid and binding on the lessor party thereto, and (ii) the
lessee party thereto has not sublet any of the leased property to any
Person other than the Company or a Company Subsidiary.
(d) Except as accurately set forth in Section 4.19 of the
Disclosure Statement, all the Property, Plant and Equipment listed
therein are in good working order and condition, ordinary wear and tear
excepted, and adequate for the purposes for which they presently are
being used or held for use.
Section 4.20. PROPRIETARY RIGHTS. Except as accurately set forth in
Section 4.20 of the Disclosure Statement, each of the Company and the Company
Subsidiaries owns or has the legal right to use all Proprietary Rights that are
necessary to the conduct of its business as now conducted, in each case free of
any claims or infringements known to the Company or any Stockholder. Section
4.20 of the Disclosure Statement accurately (a) lists these Proprietary Rights
(except for those which, under the terms of any agreement by which the Company
acts as sales representative or distributor for any manufacturer or other
supplier, grant the Company or a Company Subsidiary the right to use trade
names, trademark rights, service marks or logos of the manufacturer or supplier
in sales literature or other marketing materials used by the Company or a
Company Subsidiary) and (b) indicates those owned by the Company or any Company
Subsidiary and, for those not listed as so owned, the agreement or other
arrangement pursuant to which they are possessed. Except as accurately set forth
in Section 4.20 of the Disclosure Statement, (a) no consent of any Person will
be required for the use of any of these Proprietary Rights by TMI or any
Subsidiary of TMI following the Effective Time and (b) no governmental
registration of any of these Proprietary Rights has lapsed or expired or been
canceled, abandoned, opposed or the subject of any reexamination request.
Section 4.21. TITLE TO OTHER PROPERTIES. In each case, free and clear of
all Liens except for Permitted Liens and as accurately set forth in Section 4.21
of the Disclosure Statement, each of the Company and the Company Subsidiaries
has good and valid title to, or holds under a lease valid and binding on the
lessor party thereto, all its tangible personal properties and assets (other
than Property, Plant and Equipment) that individually is or in the aggregate are
Material to the Company.
Section 4.22. COMMITMENTS. (a) Except as accurately set forth in Section
4.22(a) of the Disclosure Statement, the Company has provided TMI with a
complete, accurate list of each of the following (each a "Company
Commitment") to which any of the Company and the Company Subsidiaries is
a party or by which any of its properties is bound and which presently
remains executory in whole or in any part:
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(i) each partnership, joint venture or cost-sharing agreement;
(ii) each guaranty or suretyship, indemnification or
contribution agreement or performance bond;
(iii) each instrument, agreement or other obligation
evidencing or relating to Indebtedness of any of the Company and
the Company Subsidiaries or to money lent or to be lent to
another Person;
(iv) each contract to purchase or sell real property;
(v) each agreement under which any of the Company and the
Company Subsidiaries represents or acts as agent for a
manufacturer or other supplier;
(vi) each agreement (other than individual, current purchase
orders or purchase order acknowledgments) under which any of the
Company and the Company Subsidiaries has committed to purchase
products from a manufacturer or other supplier;
(vii) each agreement (other than individual, current purchase
orders or purchase order acknowledgments) under which any of the
Company and the Company Subsidiaries has agreed to sell or supply
products or services to a hospital, medical clinic, physician or
other customer;
(viii) each agreement with dealers or sales or non-employee
commission agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this
Agreement and the transactions contemplated hereby) involving
total payments within any 12-month period in excess of $10,000
and which is not terminable without penalty and on no more than
30 days' prior notice,
(ix) each Related Party Agreement involving total payments
within any 12- month period in excess of $10,000 and which is not
terminable without penalty on no more than 30 days' prior notice;
(x) each agreement for the acquisition or provision of
services, supplies, equipment, inventory, fixtures or other
property involving more than $10,000 in the aggregate;
(xi) each contract containing any noncompetition agreement,
covenant or undertaking; or
(xii) each other agreement or commitment not made in the
ordinary course
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of business that is Material to the Company.
True, correct and complete copies of all written Company Commitments,
and true, correct and complete written descriptions of all oral Company
Commitments, have been delivered or made available to TMI. Except as
accurately set forth in Section 4.22(a) of the Disclosure Statement: (i)
there are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse
of time or both, would constitute defaults or events of default under
any Company Commitment which is Material to the Company by any of the
Company and the Company Subsidiaries or, to the knowledge of the
Company, any other party thereto; and (ii) no penalties have been
incurred, nor are amendments pending, with respect to any Company
Commitment which is Material to the Company. The Company Commitments are
in full force and effect and are valid and enforceable obligations of
the Company or the Company Subsidiaries parties thereto and, to the
knowledge of the Company, the other parties thereto, in accordance with
their respective terms, and no defenses, off-sets or counterclaims have
been asserted or, to the knowledge of the Company, may be made by any
party thereto (other than by the Company or a Company Subsidiary), nor
has the Company or a Company Subsidiary, as the case may be, waived any
rights thereunder, except as accurately described in Section 4.22 of the
Disclosure Statement.
(b)Except as accurately disclosed in Section 4.22(b) of the
Disclosure Statement or contemplated hereby or by any other Transaction
Document to which the Company or any Company Subsidiary or Stockholder
is a party: (i) neither the Company nor any Company Subsidiary or
Stockholder has received notice of any plan or intention of any other
party to any Company Commitment to exercise any right to cancel or
terminate any Company Commitment, and neither the Company nor any
Company Subsidiary or Stockholder knows of any condition or state of
facts, including the consummation of the Merger, which would justify the
exercise of such a right; and (ii) neither the Company nor any Company
Subsidiary or Stockholder currently contemplates, or has reason to
believe any other Person currently contemplates, any amendment or change
to any Company Commitment.
Section 4.23. CAPITAL EXPENDITURES. Section 4.23 of the Disclosure
Statement accurately sets forth the total amount of capital expenditures
currently budgeted to be incurred by the Company and the Company Subsidiaries
during the balance of the Company's current fiscal year. Except as accurately
set forth in Section 4.23 of the Disclosure Statement, to the knowledge of the
Company and the Stockholders, no condition or state of facts exists which will
cause the total capital expenditures of the Company and the Company Subsidiaries
which will be required to replace worn-out or obsolete Property, Plant and
Equipment in the Company's current fiscal year to exceed the amount budgeted for
capital expenditures by the Company and the Company Subsidiaries for that
current fiscal year in order to maintain the types and levels of sales and
services the Company and the Company Subsidiaries presently make or provide.
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Section 4.24. INVENTORIES. Except as accurately set forth in Section
4.24 of the Disclosure Statement: (a) all inventories, net of reserves
determined in accordance with GAAP, of each of the Company and the Company
Subsidiaries which are classified as such on the Current Balance Sheet are, to
the knowledge of the Company, merchantable and salable or usable in the ordinary
course of business of the Company and the Company Subsidiaries; (b) the
inventories reflected in the Financial Statements, as at the Current Balance
Sheet Date, (i) were reasonable in relation to the then existing circumstances
of the Company and the Company Subsidiaries on a consolidated basis and
classified as current assets in accordance with GAAP, (ii) were consistent with
their past practices and (iii) fairly reflected the average inventory levels
maintained during the 12-month period ended on that date; and (c) neither the
Company nor any Company Subsidiary depends on any single vendor for its
inventories the loss of which could have a Material Adverse Effect on the
Company or ever has sustained a difficulty Material to the Company in obtaining
its inventories.
Section 4.25. INSURANCE. Except as accurately set forth in Section 4.25
of the Disclosure Statement: (a) the Company has provided TMI with: (i) a list
accurate as of the Current Balance Sheet Date of all insurance policies then
carried by each of the Company and the Company Subsidiaries; (ii) an accurate
list of all insurance loss runs and worker's compensation claims received for
the most recently ended three policy years; and (iii) true, complete and correct
copies of all insurance policies carried by each of the Company and the Company
Subsidiaries which are in effect, all of which have been issued by insurers of
recognized responsibility and currently are, and will remain without
interruption through the IPO Closing Date, in full force and effect; (b) no
insurance carried by the Company or any Company Subsidiary has been canceled by
the insurer during the past five years, and neither the Company nor any Company
Subsidiary has ever been denied coverage; and (c) neither the Company nor any
Company Subsidiary or Stockholder has received any notice or other communication
from any issuer of any listed insurance policy of any material increase in any
deductibles, retained amounts or the premiums payable thereunder, and, to the
knowledge of the Company and the Stockholders, no such increase in deductibles,
retainages or premiums is threatened.
Section 4.26. EMPLOYEE MATTERS. (a) CASH COMPENSATION. The Company has
provided TMI with an accurate, complete written list of the names,
titles and rates of annual Cash Compensation, at the Current Balance
Sheet Date and at the date hereof (and the portions thereof attributable
to salary or the equivalent, fixed bonuses, discretionary bonuses and
other Cash Compensation, respectively) of all key employees (including
all employees who are officers or directors), nonemployee officers,
nonemployee directors and key consultants and independent contractors of
each of the Company and the Company Subsidiaries.
(b)EMPLOYMENT AGREEMENTS. Section 4.26(b) of the Disclosure
Statement accurately lists all Employment Agreements remaining executory
in whole or in part on the date hereof, complete and correct copies of
all of which have been provided to TMI by the Company. Neither the
Company nor any Company Subsidiary is a party to any
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oral Employment Agreement.
(c)OTHER COMPENSATION PLANS. Section 4.26(c) of the Disclosure
Statement accurately lists all Other Compensation Plans either remaining
executory at the date of this Agreement or to later become effective.
The Company has provided TMI with a true, correct and complete copy of
each of the listed Other Compensation Plans that is in writing and an
accurate description of each of the listed Other Compensation Plans that
is not written. Except as accurately set forth in Section 4.26(c) of the
Disclosure Statement, each of the Other Compensation Plans, including
each that is a Welfare Plan, may be unilaterally amended or terminated
by the Company or any Company Subsidiary without liability to any of
them, except as to benefits accrued thereunder prior to amendment or
termination.
(d)ERISA BENEFIT PLANS. Section 4.26(d) of the Disclosure
Statement accurately (i) lists each ERISA Pension Benefit Plan (A) the
funding requirements of which (under Section 301 of ERISA or Section 412
of the Code) are, or at any time during the six-year period ending on
the date of this Agreement were, in whole or in part, the responsibility
of the Company or any Company Subsidiary, or respecting which the
Company or any Company Subsidiary is, or at any time during that period
was, a "contributing sponsor" or an "employer" as defined in Sections
4001(a)(13) and 3(5), respectively, of ERISA (each plan described in
this clause (A) being a "Company ERISA Pension Plan"), (B) each other
ERISA Pension Benefit Plan respecting which an ERISA Affiliate is, or at
any time during that period was, such a "contributing sponsor" or
"employer" (each plan described in this clause (B) being an "ERISA
Affiliate Pension Plan"), and (C) each other ERISA Employee Benefit Plan
that is being, or at any time during that period was, sponsored,
maintained or contributed to by the Company or any Company Subsidiary
(each plan described in this clause (C) and each Company ERISA Pension
Plan being a "Company ERISA Benefit Plan"), (ii) states the termination
date of each Company ERISA Benefit Plan and ERISA Affiliate Pension Plan
that has been terminated, and (iii) identifies for each ERISA Affiliate
Pension Plan the relevant ERISA Affiliates. The Company has provided TMI
with true, complete and correct copies of (i) each Company ERISA Benefit
Plan and ERISA Affiliate Pension Plan, (ii) each trust agreement related
thereto, and (iii) all amendments to those plans and trust agreements.
Except as accurately set forth in Section 4.26(d) of the Disclosure
Statement, (i) neither the Company nor any Company Subsidiary is, or at
any time during the six-year period ended on the date of this Agreement
was, a member of any ERISA Group that currently includes, or included
when the Company or a Company Subsidiary was a member, among its members
any Person other than the Company and the Company Subsidiaries, and (ii)
no Person is an ERISA Affiliate of the Company or any Company Subsidiary
(other than the Company or any Company Subsidiary in the case of any
other Company Subsidiary or any Company Subsidiary in the case of the
Company, if the Company and the Company Subsidiaries comprise an ERISA
Group).
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(e)EMPLOYEE POLICIES AND PROCEDURES. Section 4.26(e) of the
Disclosure Statement accurately lists all Employee Policies and
Procedures. The Company has provided TMI with a copy of all written
Employee Policies and Procedures and a written description of all
material unwritten Employee Policies and Procedures the continuance or
discontinuance of which could reasonably be expected to have a Material
Adverse Effect.
(f)UNWRITTEN AMENDMENTS. Except as accurately described in
Section 4.26(f) of the Disclosure Statement, no material unwritten
amendments have been made, whether by oral communication, pattern of
conduct or otherwise, with respect to any of the Employment Agreements,
Other Compensation Plans or Employee Policies and
Procedures.
(g)LABOR COMPLIANCE. To the knowledge of the Company, each of the
Company and the Company Subsidiaries has been and is in compliance with
all applicable Governmental Requirements respecting employment and
employment practices, terms and conditions of employment and wages and
hours, and neither the Company nor any Company Subsidiary is liable for
any arrears of wages or penalties for failure to comply with any of the
foregoing. Neither the Company nor any Company Subsidiary has engaged in
any unfair labor practice or discriminated on the basis of race, color,
religion, sex, national origin, age, disability or handicap in its
employment conditions or practices. Except as accurately set forth in
Section 4.26(g) of the Disclosure Statement, there are no (i) unfair
labor practice charges or complaints or racial, color, religious, sex,
national origin, age, disability or handicap discrimination charges or
complaints pending or, to the knowledge of the Company, threatened
against the Company or any of the Company Subsidiaries before any
Governmental Authority (nor, to the knowledge of the Company, does any
valid basis therefor exist) or (ii) existing or, to the knowledge of the
Company, threatened labor strikes, disputes, grievances, controversies
or other labor troubles affecting the Company or any of the Company
Subsidiaries (nor, to the knowledge of the Company, does any valid basis
therefor exist).
(h)UNIONS. Neither the Company nor any Company Subsidiary or
ERISA Affiliate has ever been a party to any agreement with any union,
labor organization or collective bargaining unit. No employees of any of
the Company and the Company Subsidiaries are represented by any union,
labor organization or collective bargaining unit. Except as accurately
set forth in Section 4.26(h) of the Disclosure Statement, to the
knowledge of the Company, none of the employees of the Company and the
Company Subsidiaries has threatened to organize or join a union, labor
organization or collective bargaining unit.
(i)NO ALIENS. All employees of each of the Company and the
Company Subsidiaries are citizens of, or are authorized in accordance
with federal immigration laws to be employed in, the United States.
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(j)CHANGE OF CONTROL BENEFITS. Except as accurately set forth in
Section 4.26(j) of the Disclosure Statement, neither the Company nor any
of the Company Subsidiaries is a party to any agreement, or has
established any policy, practice or program, requiring it to make a
payment or provide any other form of compensation or benefit or vesting
rights to any person performing services for the Company or any of the
Company Subsidiaries which would not be payable or provided in the
absence of this Agreement or the consummation of the transactions
contemplated by this Agreement, including any parachute payment under
Section 280G of the Code.
(k)RETIREES. Neither the Company nor any of the Company
Subsidiaries has any obligation or commitment to provide medical, dental
or life insurance benefits to or on behalf of any of its employees who
may retire or any of its former employees who have retired except (i) as
may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code, the applicable parallel provisions of ERISA
and any applicable state law, (ii) continuation of benefits in the event
of disability, and (iii) conversion privileges provided under any
insured Company ERISA Employee Benefit Plans.
Section 4.27. COMPLIANCE WITH ERISA, ETC. (a) COMPLIANCE. Each of the
Company ERISA Benefit Plans and Other Compensation Plans (each, a
"Plan") (i) is in substantial compliance with all applicable provisions
of ERISA, as well as with all other applicable Governmental
Requirements, and (ii) has been administered, operated and managed in
accordance with its governing documents.
(b)QUALIFICATION. All Plans that are intended to qualify under
Section 401(a) of the Code (the "Qualified Plans") are so qualified and
have been determined by the IRS to be so qualified (or application for
determination letters have been timely submitted to the IRS). The
Company has provided TMI with true, complete and correct copies of the
current plan determination letters, most recent actuarial valuation
reports, if any, most recent Form 5500, or, as applicable, Form
5500-C/R, filed with respect to each Qualified Plan and most recent
trustee or custodian report. To the extent that any Qualified Plans have
not been amended to comply with applicable Governmental Requirements,
the remedial amendment period permitting retroactive amendment of these
Qualified Plans has not expired and will not expire within 120 days
after the Effective Time. All reports and other documents required to be
filed with any governmental agency or distributed to plan participants
or beneficiaries (including annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or Returns) have been timely
filed or distributed.
(c)NO PROHIBITED TRANSACTIONS, ETC. None of the Stockholders, any
Plan or the Company or any Company Subsidiary has engaged in any
Prohibited Transaction. No Plan has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(a)
of ERISA, and no circumstances exist under which the Company or any
Company Subsidiary could have any direct or indirect liability
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whatsoever (including being subject to any statutory Lien to secure
payment of any such liability), to the PBGC under Title IV of ERISA or
to the IRS for any excise tax or penalty with respect to any Plan
maintained or contributed to by the Company or any of its ERISA
Affiliates. Further:
(i) there have been no terminations, partial terminations or
discontinuances of contributions to any Qualified Plan without a
determination by the IRS that such action does not adversely
affect the tax-qualified status of that plan;
(ii) no Termination Event has occurred;
(iii) no Reportable Event has occurred with respect to any
Plan which was not properly reported;
(iv) the valuation of assets of any Qualified Plan, as of the
Effective Time, shall equal or exceed the actuarial present value
of all "benefit liabilities" (within the meaning of Section
40001(a)(16) of ERISA) under that plan in accordance with the
assumptions contained in the Regulations of the PBGC governing
the funding of terminated defined benefit plans;
(v) with respect to Plans qualifying as "group health plans"
under Section 4980B of the Code or Section 607(l) or 609 of ERISA
and related regulations (relating to the benefit continuation
rights imposed by "COBRA" or qualified medical child support
orders), the Company, each Company Subsidiary and the
Stockholders have complied (and at the Effective Time will have
complied) in all material respects with all reporting,
disclosure, notice, election and other benefit continuation and
coverage requirements imposed thereunder as and when applicable
to those plans, and neither the Company nor any Company
Subsidiary has incurred (or will incur) any direct or indirect
liability or is (or will be) subject to any loss, assessment,
excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or
indirect failure by the Company, any Company Subsidiary or any
Stockholder, at any time prior to the Effective Time, to comply
with any such federal or state benefit continuation or coverage
requirement, which is capable of being assessed or asserted
before or after the Effective Time directly or indirectly against
the Company, any Company Subsidiary, any Stockholder, the
Surviving Corporation or TMI with respect to any of those group
health plans;
(vi) the Financial Statements as of the Current Balance Sheet
Date reflect the approximate total pension, medical and other
benefit liability for all Plans, and no material funding changes
or irregularities are reflected thereon which would cause those
Financial Statements to be not representative of prior periods;
and
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(vii) neither the Company nor any Company Subsidiary has
incurred liability under Section 4062 of ERISA.
(d)MULTIEMPLOYER PLANS. Except as set forth in Section 4.27(d) of
the Disclosure Statement, neither the Company nor any Company
Subsidiary, and no ERISA Affiliate of any of them, is, or at any time
during the six-year period ended on the date of this Agreement was,
obligated to contribute to a Multiemployer Plan. Neither the Company nor
any Company Subsidiary, and no ERISA Affiliate of any of them, has made
a complete or partial withdrawal from a Multiemployer Plan so as to
incur withdrawal liability as defined in Section 4201 of ERISA.
(e)CLAIMS AND LITIGATION. Except as accurately set forth in
Section 4.27(e) of the Disclosure Statement, no Litigation or claims
(other than routine claims for benefits) are pending or, to the
knowledge of the Company, threatened against, or with respect to, any of
the Plans or with respect to any fiduciary, administrator or sponsor
thereof (in their capacities as such), or any party-in-interest thereof.
(f)EXCISE TAXES, DAMAGES AND PENALTIES. No act, omission or
transaction has occurred which would result in the imposition on the
Company or any Company Subsidiary of (i) breach of fiduciary duty
liability damages under Section 409 of ERISA, (ii) a civil penalty
assessed pursuant to Section 502 of ERISA or (iii) any excise tax under
applicable provisions of the Code with respect to any Plan.
(g)VEBA WELFARE TRUST. Any trust funding a Plan, which is
intended to be exempt from federal income taxation pursuant to Section
501(c)(9) of the Code, satisfies the requirements of that section and
has received a favorable determination letter from the IRS regarding
that exempt status and has not, since receipt of the most recent
favorable determination letter, been amended or operated in a way that
would adversely affect its exempt status.
Section 4.28. TAXES. (a) Each of the following representations and
warranties in this Section 4.28 is qualified to the extent set forth in
Section 4.28 of the Disclosure Statement.
(b)All Returns required to be filed with respect to any Tax for
which any of the Company and the Company Subsidiaries is liable have
been duly and timely filed with the appropriate Taxing Authority, each
Tax shown to be payable on each such Return has been paid, each Tax
payable by the Company or a Company Subsidiary by assessment has been
timely paid in the amount assessed, and adequate reserves have been
established on the consolidated books of the Company and the Company
Subsidiaries for all Taxes for which any of the Company and the Company
Subsidiaries is liable, but the payment of which is not yet due. Neither
the Company nor any Company Subsidiary is, or ever has been, liable for
any Tax payable by reason of the income or property of a Person
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other than the Company or a Company Subsidiary. Each of the Company and
the Company Subsidiaries has timely filed true, correct and complete
declarations of estimated Tax in each jurisdiction in which any such
declaration is required to be filed by it. No Liens for Taxes exist upon
the assets of the Company or any Company Subsidiary except Liens for
Taxes which are not yet due. Neither the Company nor any Company
Subsidiary is, or ever has been, subject to Tax in any jurisdiction
outside of the United States. No Litigation with respect to any Tax for
which the Company or any Company Subsidiary is asserted to be liable is
pending or, to the knowledge of the Company or any Stockholder,
threatened, and no basis which the Company or any Stockholder believes
to be valid exists on which any claim for any such Tax can be asserted
against the Company or any Company Subsidiary. There are no requests for
rulings or determinations in respect of any Taxes pending between the
Company or any Company Subsidiary and any Taxing Authority. No extension
of any period during which any Tax may be assessed or collected and for
which the Company or any Company Subsidiary is or may be liable has been
granted to any Taxing Authority. Neither the Company nor any Company
Subsidiary is or has been a party to any tax allocation or sharing
agreement. All amounts required to be withheld by any of the Company and
the Company Subsidiaries and paid to governmental agencies for income,
social security, unemployment insurance, sales, excise, use and other
Taxes have been collected or withheld and paid to the proper Taxing
Authority. The Company and each Company Subsidiary have made all
deposits required by law to be made with respect to employees'
withholding and other employment Taxes.
(c)Neither the Company nor any Stockholder is a "foreign person,"
as that term is referred to in Section 1445(f)(3) of the Code.
(d)The Company has not filed a consent pursuant to Section 341
(f) of the Code or any comparable provision of any other tax statute and
has not agreed to have Section 341 (f)(2) of the Code or any comparable
provision of any other Tax statute apply to any disposition of an asset.
The Company has not made, is not obligated to make and is not a party to
any agreement that could require it to make any payment that is not
deductible under Section 280G of the Code. No asset of the Company or of
any Company Subsidiary is subject to any provision of applicable law
which eliminates or reduces the allowance for depreciation or
amortization in respect of that asset below the allowance generally
available to an asset of its type. No accounting method changes of the
Company or of any Company Subsidiary exist or are proposed or threatened
which could give rise to an adjustment under Section 481 of the Code.
Section 4.29. GOVERNMENT CONTRACTS. Except as accurately set forth in
Section 4.29 of the Disclosure Statement, neither the Company nor any Company
Subsidiary is a party to any governmental contract subject to price
redetermination or renegotiation.
Section 4.30. ABSENCE OF CHANGE. Since the Current Balance Sheet Date,
except as accurately set forth in Section 4.30 of the Disclosure Statement, none
of the following has
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occurred with respect to the Company or any Company Subsidiary:
(a)any circumstance, condition, event or state of facts (either
singly or in the aggregate), other than conditions affecting the economy
or the healthcare industry generally, which has caused, is causing or
could reasonably be expected to cause a Material Adverse Effect on the
Company;
(b)any change in its authorized Capital Stock or in any of its
outstanding Capital Stock or Derivative Securities;
(c)any Restricted Payment, except any declaration or payment of
dividends by any Company Subsidiary solely to the Company;
(d)any increase in, or any commitment or promise to increase, the
rates of Cash Compensation as of the date hereof, or the amounts or
other benefits paid or payable under any Company ERISA Pension Plan or
Other Compensation Plan, except for ordinary and customary bonuses and
salary increases for employees (other than the Stockholders or their
Immediate Family Members) at the times and in the amounts consistent
with its past practice;
(e)any work interruptions, labor grievances or claims filed, or
any similar event or condition of any character, that will have a
Material Adverse Effect on the Surviving Corporation following the
Effective Time;
(f)any distribution, sale or transfer of, or any Company
Commitment to distribute, sell or transfer, any of its assets or
properties of any kind which singly is or in the aggregate are Material
to the Company, other than distributions, sales or transfers in the
ordinary course of its business and consistent with its past practices
to Persons other than to the Stockholders and their Immediate Family
Members and Affiliates;
(g)any cancellation, or agreement to cancel, any Indebtedness,
obligation or other liability owing to it, including any Indebtedness,
obligation or other liability of any Stockholder or any Related Person
or Affiliate thereof, provided that the Company or a Company Subsidiary
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, if the adjustments
are (i) included in the Supplemental Information provided TMI pursuant
to Section 6.07 or (ii) do exceed $10,000 in the aggregate;
(h)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of its assets,
property or rights or requiring consent of any Person to the transfer
and assignment of any such assets, property or rights;
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(i)any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of its business consistent with its past
practices;
(j)any waiver of any of its rights or claims that singly is or in
the aggregate are Material to the Company;
(k)any transaction by it outside the ordinary course of its
business or not consistent with its past practices and which involves in
excess of $15,000;
(1)any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any Company Commitment to incur any
Indebtedness or any such Guaranty;
(m) any investment in the Capital Stock, Derivative Securities or
Indebtedness of any Person, other than a Permitted Investment;
(n)except in accordance with the Company's consolidated capital
expenditure budget for the Company's current fiscal year, any capital
expenditure or series of related capital expenditures by the Company and
the Company Subsidiaries collectively in excess of $25,000, or
commitments by the Company and the Company Subsidiaries to make capital
expenditures totaling in excess of $25,000; or
(o)any cancellation or termination of a Material Agreement of the
Company.
Section 4.31. BANK RELATIONS; POWERS OF ATTORNEY. The Company has
provided TMI with an accurate, complete written statement setting forth:
(a)the name of each financial institution in which the Company or
any Company Subsidiary has borrowing or investment arrangements, deposit
or checking accounts or safe deposit boxes;
(b)the types of those arrangements and accounts, including, as
applicable, names in which accounts or boxes are held, the account or
box numbers and the name of each Person authorized to draw thereon or
have access thereto; and
(c)the name of each Person holding a general or special power of
attorney from the Company or any Company Subsidiary and a description of
the terms of each such power.
Section 4.32. RELATIONS WITH GOVERNMENTS, ETC. Neither the Company nor
any Company Subsidiary has made, offered or agreed to offer anything of value to
any governmental official, political party or candidate for government office
which would cause the Company or any
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Company Subsidiary to be in violation of the Foreign Corrupt Practices Act of
1977 or any Governmental Requirement to a similar effect.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.02. ORGANIZATION; POWER. TMI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and each of TMI and Newco has all requisite corporate power and authority under
the laws of its Organization State and its Charter Documents to own or lease and
to operate its properties presently and following the Effective Time and to
carry on its business as now conducted and as proposed to be conducted following
the Effective Time. Neither TMI nor Newco has engaged in any operations since
its organization other than in connection with their formation and
capitalization and the transactions contemplated by this Agreement and the Other
Agreements.
Section 5.03. AUTHORIZATION; ENFORCEABILITY; ABSENCE OF CONFLICTS;
REQUIRED CONSENTS. (a) The execution, delivery and performance by each
of TMI and Newco of this Agreement and each other Transaction Document
to which it is a party, and the effectuation of the Merger and the other
transactions contemplated hereby and thereby, are within its corporate
power under its Charter Documents and the applicable Governmental
Requirements of its Organization State and have been duly authorized by
all proceedings, including actions permitted to be taken in lieu of
proceedings, required under its Charter Documents and the applicable
Governmental Requirements of its Organization State.
(b)This Agreement has been, and each of the other Transaction
Documents to which either of TMI or Newco is a party, when executed and
delivered to the other parties thereto (or, in the case of the
Certificate of Merger, the applicable Governmental Authorities), will
have been, duly executed and delivered by it and is, or when so executed
and delivered will be, its legal, valid and binding obligation,
enforceable against it in accordance with its terms, except as that
enforceability may be (i) limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law).
(c)The execution, delivery and performance in accordance with
their respective terms by each of TMI and Newco of the Transaction
Documents to which it is a party have not and will not (i) violate,
breach or constitute a default under (A) the Charter Documents of TMI or
Newco, (B) any Governmental Requirement applicable to TMI or Newco or
(C) any Material Agreement of TMI or Newco, (ii) result in the
acceleration or mandatory prepayment of any Indebtedness, or any
Guaranty not constituting Indebtedness, of TMI or Newco or afford any
holder of any of that Indebtedness, or any beneficiary of any of those
Guaranties, the right to require TMI or Newco to redeem, purchase or
otherwise acquire, reacquire or repay any of that Indebtedness, or to
perform
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any of those Guaranties, (iii) cause or result in the imposition of, or
afford any Person the right to obtain, any Lien upon any property or
assets of TMI or Newco (or upon any revenues, income or profits of
either TMI or Newco therefrom) or (iv) result in the revocation,
cancellation, suspension or material modification, in any single case or
in the aggregate, of any Governmental Approval possessed by TMI or Newco
at the date of this Agreement and necessary for the ownership or lease
and the operation of its properties or the carrying on of its business
as now conducted, including any necessary Governmental Approval under
each applicable Environmental Law.
(d)Except for (i) the filing of the Certificate of Merger with
the applicable Governmental Authorities, (ii) filings of the
Registration Statement under the Securities Act and a registration
statement on Form 8-A with respect to the registration of the TMI Common
Stock under the Exchange Act and the SEC order declaring those
registration statements effective under the Securities Act and the
Exchange Act, respectively, and (iii) as may be required by the HSR Act
or the applicable state securities or blue sky laws, no Governmental
Approvals are required to be obtained, and no reports or notices to or
filings with any Governmental Authority are required to be made, by TMI
or Newco for the execution, delivery or performance by TMI or Newco of
the Transaction Documents to which it is a party, the enforcement
against TMI or Newco, as the case may be, of its obligations thereunder
or the effectuation of the Merger and the other transactions
contemplated thereby.
(e)The representations and warranties made by TMI in paragraphs
(a) through (d) of this Section 5.03 with respect to the Transaction
Documents and Newco are true and correct, MUTADIS MUTANDIS, with respect
to all Other Transaction Documents and all Other Newco Subsidiaries.
Section 5.04. CHARTER DOCUMENTS. TMI has delivered to the Company true,
complete and correct copies of the Charter Documents of each of TMI and Newco.
No breach or violation of any Charter Document of either TMI or Newco has
occurred and is continuing.
Section 5.05. CAPITAL STOCK OF TMI AND NEWCO. (a) Immediately prior to
and immediately after the Effective Time, (i) the authorized Capital
Stock of TMI will be comprised of (A) 20,000,000 shares of TMI Common
Stock and (B) 1,000,000 shares of preferred stock, $.001 par value per
share, (ii) both immediately before and after giving effect to the
Merger and the merger transactions contemplated by the Other Agreements,
(A) the number of shares of TMI Common Stock then issued and
outstanding, and the nature and amount of all Derivative Securities then
outstanding, will be as set forth in the Registration Statement when it
becomes effective under the Securities Act, (B) no shares of the TMI
preferred stock then will be issued or outstanding, (C) TMI will have
authorized for issuance, and reserved for issuance, pursuant to Other
Compensation Plans or the exercise of Derivative Securities the number
of shares of TMI Common Stock set forth in the Registration Statement
when it becomes effective under the Securities Act,
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and (D) no agreements or commitments shall exist, whether written or
oral, obligating TMI to sell or issue any shares of TMI Capital Stock or
any Derivative Securities of TMI.
(b)The authorized Capital Stock of Newco is comprised of 1,000
shares of Newco Common Stock, all of which shares are issued,
outstanding and owned, of record and beneficially, by TMI.
(c)All shares of TMI Common Stock and Newco Common Stock
outstanding immediately prior to the Effective Time, and all shares of
TMI Common Stock to be issued pursuant to Section 2.04, pursuant to the
Other Agreements and in the IPO, when issued, will have been duly
authorized and validly issued in accordance with the DGCL and their
issuer's Charter Documents, and will be fully paid and nonassessable.
None of the shares of TMI Common Stock to be issued pursuant to Section
2.04 will, when issued, have been issued in breach or violation of (i)
any applicable statutory or contractual preemptive rights, or any other
rights of any kind (including any rights of first offer or refusal), of
any Person or (ii) the terms of any of its Derivative Securities then
outstanding.
Section 5.06. SUBSIDIARIES. Immediately prior to the IPO Closing Date,
(a) TMI will have no Subsidiaries other than Newco and each Entity defined as
"Newco" in each of the Other Agreements, (b) Newco will have no Subsidiaries,
and (c) neither TMI nor Newco will own, of record or beneficially, directly or
indirectly through any Person or otherwise (except pursuant hereto or to the
Other Agreements), any Capital Stock or Derivative Securities of any Entity not
described in this Section 5.06 as a Subsidiary of TMI (in the case of TMI) or
any Entity (in the case of Newco).
Section 5.07. LIABILITIES. Except as disclosed in the Private Placement
Memorandum, neither TMI nor Newco has any material liabilities of any kind other
than those incurred in connection with this Agreement and the Other Agreements
and the transactions contemplated hereby and thereby, including the IPO.
Section 5.08. COMPLIANCE WITH LAWS; NO LITIGATION. Each of TMI and Newco
is in compliance with all Governmental Requirements applicable to it, and no
Litigation is pending or, to the knowledge of TMI, threatened to which TMI or
Newco is or may become a party which questions or involves the validity or
enforceability of any obligation of TMI or Newco under any Transaction Document,
or which seeks (or reasonably may be expected to seek) (a) to prevent or delay
consummation by TMI or Newco of the transactions contemplated by this Agreement
to be consummated by TMI or Newco, as the case may be, or (b) damages from TMI
or Newco in connection with any such consummation.
Section 5.09. NO BROKERS. TMI has not, directly or indirectly, in
connection with this Agreement or the transactions contemplated hereby, employed
any broker, finder or agent, or agreed to pay or incurred any obligation to pay
any broker's or finder's fee, any sales
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commission or any similar form of compensation.
Section 5.10. PRIVATE PLACEMENT MEMORANDUM. At the date hereof, the
Private Placement Memorandum (other than the historical financial statements,
including the notes thereto, of the Founding Companies (other than the Company)
and the historical information contained therein respecting the Company and the
Stockholders, to which this Section 5.10 does not apply) does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not materially misleading in
the light of the circumstances under which those statements are made.
Section 5.11. REGISTRATION AND OTHER RIGHTS. Except as set forth in the
Registration Rights Agreement or otherwise described in the Private Placement
Memorandum or the Registration Statement, at the Effective Time TMI will have no
(a) commitment to any Person to cause securities of TMI to be registered under
the Securities Act or the securities laws of any state, (b) outstanding
Derivative Securities, or (c) outstanding agreements or commitments of any
character committing TMI to issue or acquire shares of its Capital Stock or
Derivative Securities.
Section 5.12 STOCKHOLDERS AGREEMENT. The representations and warranties
made by TMI in the Stockholders Agreement are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.02 ACCESS AND COOPERATION; DUE DILIGENCE. (a) From the date of
this Agreement until the earlier to occur of the IPO Closing Date or a
termination of this Agreement under Article XII, the Company, for the
benefit of TMI and each Other Founding Company, will (i) afford to the
Representatives of TMI and each Other Founding Company reasonable access
to all the key employees, sites, properties, books and records of each
of the Company and the Company Subsidiaries, (ii) provide TMI with such
additional financial and operating data and other information relating
to the business and properties of each of the Company and the Company
Subsidiaries as TMI or any Other Founding Company may from time to time
reasonably request, and (iii) cooperate with TMI and each Other Founding
Company and their respective Representatives in the preparation of any
documents or other material which may be required in connection with any
Transaction Documents or any Other Transaction Documents. Each
Stockholder and the Company agree, for the benefit of TMI and each Other
Founding Company, that they will treat all Confidential Information
obtained by them in connection with the negotiation and performance of
this Agreement or the due diligence investigations conducted with
respect to each Other Founding Company as confidential in accordance
with the provisions of Section 11.01. In addition, TMI will cause each
Other Founding Company to enter into a provision similar to this Section
6.02
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to require each Other Founding Company to keep confidential any
Confidential Information respecting any of the Company and the Company
Subsidiaries obtained by that Other Founding Company.
(b)Each of the Company and the Stockholders will use its best
efforts to secure, as soon as practicable, of this Agreement, all
approvals or consents of third Persons as may be necessary to consummate
the transactions contemplated hereby.
(c)From the date hereof and until the earlier to occur of the IPO
Closing Date or a termination of this Agreement under Article XII, TMI
and Newco will (i) afford to the Representatives of the Company and the
Stockholders access to all sites, properties, books and records of TMI
and Newco, (ii) provide the Company with such additional financial and
operating data and other information relating to the business and
properties of TMI and Newco as the Company or any Stockholder may from
time to time reasonably request, and (iii) cooperate with the Company
and the Stockholders and their respective Representatives in the
preparation of any documents or other material which may be required in
connection with any Transaction Documents.
(d)If this Agreement is terminated pursuant to Section 12.01, TMI
promptly will return all written Confidential Information of the Company
it then possesses to the Company.
Section 6.03. CONDUCT OF BUSINESS PENDING CLOSING. From the date of this
Agreement until the earlier to occur of a termination of this Agreement under
Article XII or the Effective Time, the Company will, and will cause each Company
Subsidiary to, except as and only to the extent set forth in Schedule 6.03:
(a)carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(b)maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(c)perform all its obligations under agreements relating to or
affecting its assets, properties and other rights;
(d)keep in full force and effect without interruption all its
present insurance policies or other comparable insurance coverage;
(e)use reasonable commercial efforts to (i) maintain and preserve
its business organization intact, (ii) retain its present employees, and
(iii) maintain its relationships with suppliers, customers and others
having business relations with it;
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(f)comply with all applicable Governmental Requirements; and
(g)except as required or expressly permitted by this Agreement,
maintain the instruments and agreements governing its outstanding
Indebtedness and leases on their present terms and not enter into new or
amended Indebtedness or lease instruments or agreements involving
amounts over $5,000 in any case or $25,000 in the aggregate, without the
prior written consent of TMI (which consent will not be unreasonably
withheld).
Section 6.04. PROHIBITED ACTIVITIES. From the date of this Agreement
until the Effective Time, without the prior written consent of TMI or unless as
required or expressly permitted by this Agreement, the Company will not, and
will not permit any Company Subsidiary to:
(a)make any change in its Charter Documents;
(b)issue any of its Capital Stock or issue or otherwise create
any of its Derivative Securities;
(c)make any Restricted Payment (other than as provided in
Schedule 6.04);
(d)make any investments (other than Permitted Investments) in the
Capital Stock, Derivative Securities or Indebtedness of any Person;
(e)enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in a single
transaction or a series of related transactions involving an aggregate
amount of more than $25,000 otherwise than in the ordinary course of its
business and consistent with its past practice;
(f)increase or commit or promise to increase the Cash
Compensation payable or to become payable to any officer, director,
stockholder, employee or agent, consultant or independent contractor of
any of the Company and the Company Subsidiaries or make any
discretionary bonus or management fee payment to any such Person, except
bonuses or salary increases to employees (other than the Stockholders or
their Immediate Family Members) at the times and in the amounts
consistent with its past practice;
(g)create or assume any Liens (other than Permitted Liens) upon
any of its assets or properties, whether now owned or hereafter
acquired, except for purchase money Liens incurred in connection with
the acquisition of equipment with an aggregate cost not in excess of
$10,000 and necessary or desirable for the conduct of the business of
any of the Company and the Company Subsidiaries;
(h)adopt, establish, amend or terminate any ERISA Employee
Benefit Plan, or any Other Compensation Plan or Employee Policies and
Procedures, or take any
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discretionary action, or omit to take any contractually required action,
if that action or omission could either (i) deplete the assets of any
ERISA Employee Benefit Plan or any Other Compensation Plan or (ii)
increase the liabilities or obligations under any such plan;
(i)sell, assign, lease or otherwise transfer or dispose of any of
its owned or leased property or equipment otherwise than in the ordinary
course of its business and consistent with its past practice;
(j)negotiate for the acquisition of any business or the start-up
of any new business;
(k)merge, consolidate or effect a share exchange with, or agree
to merge, consolidate or effect a share exchange with, any other Entity;
(1)waive any of its material rights or claims, provided that it
may negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice, but such
adjustments will not be deemed to be included in Section 4.17 of the
Disclosure Statement unless specifically listed in the Supplemental
Information;
(m) commit a material breach of or amend materially or terminate
any Material Agreement of the Company or any of its Governmental
Approvals; or
(n)enter into any other transaction (i) which is Material and
outside the ordinary course of its business and consistent with its past
practice or (ii) prohibited hereby.
Section 6.05. NO SHOP: RELEASE OF DIRECTORS. (a) Each of the Company and
the Stockholders agrees that, from the date of this Agreement until the
first to occur of the Effective Time or the termination of this
Agreement in accordance with Article XII, neither the Company nor any
Stockholder, nor any of their respective officers and directors shall,
and the Company and each Stockholder will direct and use their best
efforts to cause each of their respective Representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or
the making or implementation of any proposal or offer (including any
proposal or offer to the Stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company (any such proposal or offer being herein
called an "Acquisition Proposal") or engage in any activities,
discussions or negotiations concerning, or provide any Confidential
Information respecting, the Company, any Other Founding Company or TMI
to, or have any discussions with, any Person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. The Company and each Stockholder
will: (i) immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any Persons conducted
heretofore
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with respect to any of the foregoing, and each will take the steps
necessary to inform the Persons referred to in the first sentence of
this Section 6.05(a) of the obligations undertaken in this Section
6.05(a); and (ii) notify TMI immediately if any such inquiries or
proposals are received by, any such information is requested from or any
such discussions or negotiations are sought to be initiated or continued
with the Company or any Stockholder.
(b)Each of the Company and the Stockholders hereby (i) waives
every right, if any, the Governmental Requirements of the Company's
Organization State afford the Company or Stockholders to require the
Company's directors (or their equivalents if the Company is not a
corporation), in the exercise of their fiduciary duties in their
capacity as such, to engage in any of the activities prohibited by this
Section 6.05 and (ii) releases each such person from any and all
liability he might otherwise have to the Company or any Stockholders but
for this release.
Section 6.06. NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the
Company shall give prompt notice to TMI of (a) the existence or occurrence of
each condition or state of facts which will or reasonably could be expected to
cause any representation or warranty of the Company or any Stockholder contained
herein to be untrue or incorrect in any material respect at or prior to the
Closing or on the IPO Closing Date and (b) any material failure of any
Stockholder or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by that Person hereunder, provided
that no such notice shall be required until TMI shall give notice to the Company
and the Stockholders of the date scheduled for the Closing with respect to the
occurrence in the ordinary course of business and consistent with past practice
of the Company or any Company Subsidiary, as the case may be, of any condition
or state of facts which would cause any of Sections 4.16, 4.17, 4.18, 4.19 and
4.21 of the Disclosure Statement to be incorrect. TMI shall give prompt notice
to the Company of (a) the existence or occurrence of each condition or state of
facts which will or reasonably could be expected to cause any representation or
warranty of TMI or Newco contained herein to be untrue or inaccurate at or prior
to the Closing or on the IPO Closing Date and (b) any material failure of TMI or
Newco to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 6.06 shall not be deemed to (a) modify the representations or
warranties herein of the party delivering that notice, or any other party, which
modification may be made only pursuant to Section 6.07, (b) modify the
conditions set forth in Article VII or (c) limit or otherwise affect the
remedies available hereunder to the party receiving that notice.
Section 6.07. SUPPLEMENTAL INFORMATION. Each of the Company and the
Stockholders agrees that, with respect to its representations and warranties
contained in this Agreement, it will have the continuing obligation (except to
the extent otherwise provided in Section 6.06) until the Closing (or earlier
termination of this Agreement under Article XII) to provide TMI promptly with
such additional supplemental Information (collectively, the "Supplemental
Information"), in the form of (a) amendments to then existing Schedules or
Sections of the Disclosure Statement or
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(b) additional Schedules or Sections of the Disclosure Statement, as would be
necessary, in the light of the circumstances, conditions, events and states of
facts then known to the Company or any Stockholder, to make each of those
representations and warranties true and correct as of the Closing and on the IPO
Closing Date. For purposes only of determining whether the conditions to the
obligations of TMI and Newco which are specified in Sections 7.04(a)(ii)(A) and
7.04(b)(ii) have been satisfied, and not for any purpose under Article IX, the
Schedules and the Disclosure Statement as of the Closing and on the IPO Closing
Date shall be deemed to be the Schedules and the Disclosure Statement as of the
date hereof as amended or supplemented by the Supplemental Information provided
to TMI prior to the Closing pursuant to this Section 6.07; PROVIDED, HOWEVER,
that if the Supplemental Information so provided discloses the existence of
circumstances, conditions, events or states of facts which, in any combination
thereof, (a) have had a Material Adverse Effect on the Company which was not
reflected in the determination of the Merger Consideration or, in the judgment
of TMI (which shall be conclusive for purposes of this Section 6.07 and Article
XII, but not for any purpose of Article IX), (b) are having or will have a
Material Adverse Effect on the Company or the Surviving Corporation, as the case
may be, TMI will be entitled either (i) to terminate this Agreement pursuant to
Section 12.01(a)(iv) to treat as TMI Indemnified Losses for all purposes of
Article IX (which treatment will not prejudice the right of any Stockholder
under Article IX to contest Damage Claims made by TMI in respect of those TMI
Indemnified Losses) all Damages to the Company or the Surviving Corporation
which are attributable to the circumstances, conditions, events and states of
facts first disclosed herein after the date hereof in the Supplemental
Information; and PROVIDED FURTHER, HOWEVER, that if the circumstances,
conditions, events or states of facts disclosed in the Supplemental Information
and having or judged to have in the future such a Material Adverse Effect (A)
have not resulted from a breach by the Company or the Stockholders of any of
their covenants set forth in Article VI or elsewhere in this Agreement and (B)
do not indicate that any representation or warranty of the Stockholders and the
Company made in Articles III and IV shall have been untrue or inaccurate at the
date of this Agreement, then TMI shall only be entitled to terminate this
Agreement pursuant to Section 12.01(a)(iv), and shall not be entitled to treat
as TMI Indemnified Losses any such Damages to the Company or the Surviving
Corporation. TMI will provide the Company with copies of the Registration
Statement, including all pre-effective amendments thereto, promptly after the
filing thereof with the SEC under the Securities Act.
Section 6.08. COOPERATION IN CONNECTION WITH THE IPO. The Company and
the Stockholders will (a) provide TMI and the Underwriter with all the
Information concerning the Company or any of the Stockholders which is
reasonably requested by TMI and the Underwriter from time to time in connection
with effecting the IPO and (b) cooperate with TMI and the Underwriter and their
respective Representatives in the preparation and amendment of the Registration
Statement (including the Financial Statements) and in responding to, the
comments of the SEC staff, if any, with respect thereto. The Company and each
Stockholder agree promptly to (a) advise TMI if, at any time during the period
in which a prospectus relating to the IPO is required to be delivered under the
Securities Act, any information contained in the then current Registration
Statement prospectus concerning the Company or the Stockholders becomes
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incorrect or incomplete in any material respect and (b) provide TMI with the
information needed to correct or complete that information.
Section 6.09. ADDITIONAL FINANCIAL STATEMENTS. The Company will furnish
to TMI:
(a)as soon as available and in any event within 30 days after the
end of each of the Company's fiscal quarters which ends prior to the IPO
Pricing Date, an unaudited consolidated balance sheet of the Company and
the Company Subsidiaries as of the end of that fiscal quarter and the
related consolidated statements of income or operations, cash flows and
stockholders' or other owners' equity for that fiscal quarter and for
the period of the Company's fiscal year ended with that quarter, in each
case (i) setting forth in comparative form the figures for the
corresponding portion of the Company's previous fiscal year and (ii)
prepared in accordance with GAAP applied on basis consistent throughout
the periods indicated (excepting footnotes) and consistent with the
basis on which the Initial Financial Statements including the Current
Balance Sheet were prepared; and
(b)if requested by TMI in connection with any amendment of the
Registration Statement and promptly following any such request, such
summary consolidated operating or other financial information of the
Company and the Company Subsidiaries as of the end of either the first
or second fiscal month in any of the Company's fiscal quarters as TMI
may request.
Section 6.10. TERMINATION OF PLANS. If requested by TMI, the Company
will, or will cause the applicable Company Subsidiary to, if permitted by all
applicable Governmental Requirements to do so, terminate each Plan identified in
Section 4.26(c) or (d) of the Disclosure Statement as a "Plan To Be Terminated"
at, or if agreed by the Company, prior to, the Effective Time.
Section 6.11. DISPOSITION OF UNWANTED ASSETS. At or prior to the
Closing, the Company will make all arrangements and take all such actions as are
necessary and satisfactory to TMI to dispose, prior to the Effective Time, of
those assets of it or of one or more of the Company Subsidiaries which are
listed in Schedule 6.11.
Section 6.12. HSR ACT MATTERS. If TMI shall determine that filings under
the HSR Act are necessary or appropriate in connection with the effectuation of
the Merger or the consummation of the acquisitions contemplated by the Other
Agreements, and advises the Company in writing of that determination, the
Company promptly will compile and file under the HSR Act such information
respecting it as the HSR Act requires of an Entity to be acquired, and the
expiration or termination of the applicable waiting period and any extension
thereof under the HSR Act shall be deemed a condition precedent set forth in
Section 7.02(b).
Section 6.13. TMI ACTIONS PENDING IPO. Prior to the Closing, TMI,
without the
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approval of at least a majority of the members of the IPO Committee (and in the
case of clause (viii) below, all of the members of the IPO Committee), shall
not:
(i) amend, modify, grant any waiver under or terminate any of the
Other Transaction Documents;
(ii) incur or agree to incur any indebtedness for borrowed money
or establish any credit facility under which TMI may do so;
(iii) acquire or agree to acquire another business entity other
than pursuant to the Other Agreements;
(iv) sell or issue any shares of TMI's Capital Stock or
Derivative Securities;
(v) withdraw the Registration Statement or terminate the offering
contemplated therein;
(vi) make any commitment or otherwise take any action which would
cause the proceeds of the IPO to be used for a purpose or purposes other
than those described in the Registration Statement under the caption
"USE OF PROCEEDS";
(vii) agree in the Underwriting Agreement to (a) the number of
shares of TMI Common Stock to be sold to the Underwriter under the
Underwriting Agreement, (b) the price per share of TMI Common Stock at
which the Underwriter, subject to the terms and conditions of the
Underwriting Agreement, will purchase newly issued shares of TMI Common
Stock from TMI on the IPO Closing Date, or (c) the underwriting discount
per share of TMI Common Stock so purchased by the Underwriter under the
Underwriting Agreement;
(viii) effect any change in the persons named in the Registration
Statement as constituting the directors of TMI upon consummation of the
IPO Closing, unless the change is required by the death of a proposed
director or his inability or unwillingness to serve in such capacity; or
(ix) enter into any agreement or transaction which, if the IPO is
consummated, would be Material to TMI and which is not described or
contemplated in the Registration Statement or inherent in the offering
contemplated therein or the consummation of the transactions
contemplated therein.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
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Section 7.02. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. (a) The
obligation of each party hereto to take the actions contemplated to be
taken by that party at the Closing is subject to the satisfaction of
each of the following conditions on or before the date of the Closing:
(i) NO LITIGATION. No Litigation shall be pending on the date
of the Closing to restrain, prohibit or otherwise interfere with,
or to obtain material damages or other relief from TMI or the
Surviving Corporation in connection with, the consummation of the
Merger or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals (other
than the acceptance for filing of the Certificate of Merger)
required to be obtained by any of the Company, TMI and Newco in
connection with the consummation of the Merger and the IPO shall
have been obtained; and
(iii) THE REGISTRATION STATEMENT. (A) The Registration
Statement, as amended to cover the offering, issuance and sale by
TMI of such number of shares of TMI Common Stock at the IPO Price
(which need not be set forth in the Registration Statement when
it becomes effective under the Securities Act) as shall yield
aggregate cash proceeds to TMI (net of the Underwriter's discount
or commissions) in at least the amount (the "Minimum Cash
Amount") sufficient when added to the funds, if any, available
from other sources (the "Other Financing Sources"), if any, and
as set forth in the Registration Statement when it becomes
effective under the Securities Act to enable TMI to pay or
otherwise deliver on the IPO Closing Date (1) the total cash
portion of the merger Consideration then to be delivered pursuant
to Section 2.04, (2) the total cash portion of the merger or
other acquisition consideration then to be delivered pursuant to
the Other Agreements as a result of the consummation of the
mergers or other acquisition transactions contemplated thereby,
and (3) the total amount of Indebtedness of the Founding
Companies and TMI which the Registration Statement discloses at
the time it becomes effective under the Securities Act will be
repaid on the IPO Closing Date with proceeds received by TMI from
the IPO and the Other Financing Sources, shall have been declared
effective under the Securities Act by the SEC; (B) no stop order
suspending the effectiveness of the Registration Statement shall
have been issued by the SEC, and the SEC shall not have initiated
or threatened to initiate Litigation for that purpose; (C) the
Underwriter shall have agreed in writing (the "Underwriting
Agreement," which term includes the related pricing agreement, if
any) to purchase from TMI on a firm commitment basis for resale
to the public initially at the IPO Price, subject to the
conditions set forth in the Underwriting Agreement, such number
of shares of TMI Common Stock covered by the Registration
Statement as, when multiplied by the price per share of TMI
Common Stock to be paid by the Underwriter to TMI pursuant to the
Underwriting Agreement, shall equal at least the Minimum
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Cash Amount; and (D) neither the Registration Statement nor the
Final Prospectus shall contain any untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements contained therein not materially misleading
in the light of the circumstances under which those statements
are made.
(b)The obligation of each party hereto with respect to the
actions to be taken on the IPO Closing Date is subject to the
satisfaction on that date of each of the following conditions:
(i) NO LITIGATION. No Litigation shall be pending on the IPO
Closing Date to restrain, prohibit or otherwise interfere with,
or to obtain material damages or other relief from TMI or the
Surviving Corporation in connection with, the consummation of the
Merger or the IPO;
(ii) GOVERNMENTAL APPROVALS. All Governmental Approvals
required to be obtained by the Company, TMI and Newco in
connection with the consummation of the Merger and the IPO shall
have been obtained;
(iii) RECEIPT OF CERTAIN CERTIFICATES. Each party to the
Stockholders Agreement or his Representative shall receive the
certificates that such party is entitled to receive on the IPO
Closing Date pursuant to Section 3.5 of the Stockholders
Agreement;
(iv) REGISTRATION STATEMENT AND FINAL PROSPECTUS. Neither the
Registration Statement, in its form at the Effective Time, nor
the Final Prospectus shall contain any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements contained therein not materially
misleading in the light of the circumstances under which those
statements are made;
(v) CLOSING OF OTHER TRANSACTIONS. The transactions
contemplated in the Other Agreements with Founding Companies
having aggregate combined revenues for their respective most
recent fiscal years representing at least 80% of the aggregate
combined revenues of all Founding Companies for their respective
most recent fiscal years, shall have been consummated
substantially contemporaneously with the IPO Closing; and
(vi) CLOSING OF THE IPO. (A) TMI shall have issued and sold
shares of TMI Common Stock to the Underwriter in accordance with
the Underwriting Agreement for initial resale at the IPO Price
and received payment therefor in an amount at least equal to the
amount by which (1) the Minimum Cash Amount exceeds (2) the
aggregate amount of funds actually received on the IPO Closing
Date, if any, from any one or more of the Other Financing Sources
and (B) the
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IPO Price shall have been at least $8.
Section 7.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and each Stockholder with respect
to actions to be taken by them at or before the Closing and the actions to be
taken on the IPO Closing Date are subject to the satisfaction, or the written
waiver by the Company on behalf of itself and each Stockholder pursuant to
Section 11.05 on or before the date of the Closing of, in addition to the
conditions specified in Section 7.02 (a) or 7.02 (b), as applicable, (i) all the
conditions set forth in Section 7.01 (b), if any, and (ii) all the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the representations
and warranties of TMI and Newco in Article V shall be true and
correct in all material respects as of the Closing as though made
at that time;
(B) DELIVERY OF DOCUMENTS. TMI shall have delivered to the
Company, with copies for each Stockholder:
(1) an TMI officer's certificate respecting the
representations and warranties of TMI and Newco in Article V
and compliance with the covenants of TMI and Newco in Article
VI and in the form thereof attached as an exhibit to the
Closing Memorandum;
(2) opinions dated the IPO Closing Date and addressed to
the Company and the Stockholders from Counsel for TMI and
Newco substantially in the forms thereof attached as exhibits
to the Closing Memorandum;
(3) a certificate of the secretary or any assistant
secretary of TMI in the form thereof (without attachments
thereto) attached as an exhibit to the Closing Memorandum and
respecting, and to which there shall be attached, (a) the
Charter Documents of TMI and Newco (certified by the Secretary
of State of the State of Delaware in the case of the
certificates of incorporation of TMI included therein); (b)
the resolutions of the boards of directors of TMI and Newco
respecting the Transaction Documents and the transactions
contemplated thereby; (c) a certificate respecting the
incumbency and true signatures of the TMI and Newco officers
who execute the Transaction Documents on behalf of TMI and
Newco, respectively; (d) a specimen certificate evidencing
shares of TMI Common Stock; (e) the prospectus included in the
Registration Statement when it became effective; and (f) a
facsimile copy of the Underwriting Agreement as executed and
delivered by TMI and the Underwriter;
(4) the Registration Rights Agreement duly executed and
delivered by
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TMI; and
(5) a certificate, dated as of a Current Date, duly issued
by the Secretary of State of the State of Delaware, showing
TMI to be in good standing and authorized to do business in
that State.
Section 7.04. CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. (a) The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing of, in addition to the conditions specified in
Section 7.02 (a), (i) all the conditions set forth in Section 7.01(c),
if any, and (ii) all the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. All the representations
and warranties of the Stockholders and the Company in Articles
III and IV shall be true and correct in all material respects as
of the Closing as though made at that time;
(B) DELIVERY OF DOCUMENTS. The Stockholders and the Company
shall have delivered to TMI:
(1) a Company officer's certificate, signed by a
Responsible Officer, respecting the representations and
warranties of the Stockholders and the Company in Articles III
and IV and compliance with the covenants of the Stockholders
and the Company in Article VI and in the form thereof attached
as an exhibit to the Closing Memorandum;
(2) opinions dated the IPO Closing Date and addressed to
TMI from Counsel for the Company and the Stockholders
substantially in the form thereof attached as exhibits to the
Closing Memorandum;
(3) a certificate of the secretary or any assistant
secretary of the Company in the form thereof (without
attachments thereto) attached as an exhibit to the Closing
Memorandum and respecting, and to which is attached, (a) the
Charter Documents of the Company; (b) the resolutions of the
board of directors of the Company respecting the Transaction
Documents and the transactions contemplated thereby; and (c) a
certificate respecting the incumbency and true signatures of
the Responsible Officers who execute the Transaction Documents
on behalf of the Company;
(4) from each Stockholder, a General Release duly executed
and delivered by that Stockholder;
(5) from each Stockholder, an executed certificate to the
effect that no withholding is required under Section 1445 of
the Code, in the form of Exhibit
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7.04, with the blanks therein appropriately completed; and
(6) for each of the Company and the Company Subsidiaries,
a certificate, dated as of a Current Date, duly issued by the
appropriate Governmental Authorities in its Organization State
and, unless waived by TMI, in each other jurisdiction listed
for it in Section 4.02 of the Disclosure Statement, showing it
to be in good standing and authorized to do business in its
Organization State and those other jurisdictions and that all
state franchise and/or income tax returns and taxes due by it
in its Organization State and those other jurisdictions for
all periods prior to the Closing have been filed and paid.
(b)The obligations of TMI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of (i) all the conditions set forth in Section 7.01(d), if
any, and (ii) the condition that all the representations and warranties
of the Stockholders and the Company in Articles III and IV shall be true
and correct in all material respects as of the IPO Closing Date as
though made on that date.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.02. DISCLOSURE. If, subsequent to the IPO Pricing Date and
prior to the 25th day after the date of the Final Prospectus, any Stockholder
becomes aware of any fact or circumstance which would change (or, if after the
Effective Time, would have changed) a representation or warranty of the Company
or any Stockholder in this Agreement or would affect any document delivered
pursuant hereto in any material respect that Stockholder will promptly give
notice of that fact or circumstance to TMI.
Section 8.03. PREPARATION AND FILING OF TAX RETURNS. Each party hereto
will, and will cause its Affiliates to, provide to each of the other parties
hereto such cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a liability
for Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. This cooperation and information shall include
providing copies of all relevant portions of the relevant Returns, together with
such accompanying schedules and work papers, documents relating to rulings or
other determinations by Taxing Authorities and records concerning the ownership
and Tax bases of property as are relevant which a party possesses. Each party
will make its employees, if any, reasonably available on a mutually convenient
basis at its cost to provide an explanation of any documents or information so
provided. Subject to the preceding sentence, each party required to file Returns
pursuant to this Agreement shall bear all costs attributable to the preparation
and filing of those Returns.
Section 8.04. DIRECTORS. TMI will cause such corporate proceedings as on
its part will be necessary to cause each of the persons, if any, who are named
in the Final Prospectus as persons who will become members of the board of
directors of TMI following the Effective Time to be appointed to the board when
the prospectus so provides.
Section 8.05. REMOVAL OF GUARANTIES. Within 120 days following the
Effective Time, TMI will cause the Stockholder Guaranties listed in Schedule
8.05 to be terminated.
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ARTICLE IX
INDEMNIFICATION
Section 9.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All the
provisions of this Agreement will survive the Closing and the Effective Time
notwithstanding any investigation at any time made by or on behalf of any party
hereto or the provision of any Supplemental Information pursuant to Section
6.07, provided that the representations and warranties set forth in Articles IV,
V and VI and in any certificate delivered in connection herewith with respect to
any of those representations and warranties will terminate and expire 18 months
after the IPO Closing Date, except as follows: (a) the representations and
warranties of the Stockholders which relate expressly or by necessary
implication to Taxes or ERISA will survive until the expiration of the
applicable statutes of limitations (including all periods of extension and
tolling); and (b) the representations and warranties of TMI and the Company will
terminate and expire at the Effective Time. After a representation and warranty
has terminated and expired, no indemnification will or may be sought on the
basis of that representation and warranty by any Person who would have been
entitled pursuant to this Article IX to indemnification on the basis of that
representation and warranty prior to its termination and expiration, provided
that, in the case of each representation and warranty that will terminate and
expire as provided in this Section 9.02, no claim presented in writing for
indemnification pursuant to this Article IX on the basis of that representation
and warranty prior to its termination and expiration will be affected in any way
by the termination and expiration.
Section 9.03. INDEMNIFICATION OF TMI INDEMNIFIED PARTIES. (a) Subject to
the applicable provisions of Sections 9.02 and 9.07, the Stockholders
covenant and agree that they, jointly and severally, will indemnify each
TMI Indemnified Party against, and hold each TMI Indemnified Party
harmless from and in respect of, all Damages that arise from, are based
on or relate or otherwise are attributable to (i) any breach of the
representations and warranties of the Stockholders or the Company set
forth herein (other than in Article III) or in certificates delivered in
connection herewith (other than in respect of certificates relating only
to the representations and warranties in Article III), (ii) any
nonfulfillment of any covenant or agreement on the part of the
Stockholders or the Company under this Agreement, (iii) any liability
under the Securities Act, the Exchange Act or other applicable
Governmental Requirement which arises out of or is based on (A) any
untrue statement of a material fact relating to the Company and the
Company Subsidiaries, or any of them, which is (1) provided to TMI or
its counsel by the Company or the Stockholders and (2) contained in any
preliminary prospectus relating to the IPO, the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or (B) any omission or alleged omission to state
therein a material fact relating to the Company and the Company
Subsidiaries, or any of them, required to be stated therein or necessary
to make the statements therein not misleading, and not provided to TMI
or its counsel by the Company or the Stockholders (each such Damage
Claim and each Damage Claim described in Section 9.03(b) being a "TMI
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Indemnified Loss"); PROVIDED, HOWEVER, that no Stockholder shall be
obligated to indemnify any TMI Indemnified Party against any TMI
Indemnified Loss to the extent that such untrue statement (or alleged
untrue statement) was made in, or such omission (or alleged omission)
occurred in, any preliminary prospectus and the Stockholder or the
Company timely provided, in writing, corrected or the necessary
additional information to TMI and its counsel for inclusion in the Final
Prospectus.
(b)Each Stockholder, severally and not jointly with any other
Person, covenants and agrees that he will indemnify each TMI Indemnified
Party against, and hold each TMI Indemnified Party harmless from and in
respect of, all Damage Claims that arise from, are based on or relate or
otherwise are attributable to (i) any breach of the representations and
warranties of that Stockholder solely as to that Stockholder set forth
in Article III or in certificates delivered by that Stockholder and
relating to those representations and warranties, (ii) any
nonfulfillment of any several, and not joint and several, agreement on
the part of that Stockholder under this Agreement or (iii) any liability
under the Securities Act, the Exchange Act or other applicable
Governmental Requirement which arises out of or is based on (A) any
untrue statement or alleged untrue statement of a material fact relating
solely to that Stockholder which is (1) provided to TMI or its counsel
by that Stockholder and (2) contained in any preliminary prospectus
relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto,
or (B) any omission or alleged omission to state therein a material fact
relating solely to that Stockholder required to be stated therein or
necessary to make the statements therein not misleading, and not
provided to TMI or its counsel by that Stockholder; PROVIDED, HOWEVER,
that no Stockholder shall be obligated to indemnify any TMI Indemnified
Party against any TMI Indemnified Loss to the extent that such untrue
statement (or alleged untrue statement) was made in, or such omission
(or alleged omission) occurred in, any preliminary prospectus and the
Stockholder or the Company timely provided, in writing, corrected or the
necessary additional information to TMI and its counsel for inclusion in
the Final Prospectus.
Section 9.04. INDEMNIFICATION OF STOCKHOLDER INDEMNIFIED PARTIES. TMI
covenants and agrees that it will indemnify each Stockholder Indemnified Party
against, and hold each Stockholder Indemnified Party harmless from and in
respect of, all Damage Claims (that arise from, are based on or relate or
otherwise are attributable to (i) any breach by TMI or Newco of their
representations and warranties set forth herein or in their certificates
delivered to the Company or the Stockholders in connection herewith, (ii) any
nonfulfillment of any covenant or agreement on the part of TMI or Newco under
this Agreement (each such Damage Claim being a "Stockholder Indemnified Loss");
or (iii) any liability under the Securities Act, the Exchange Act or other
applicable Governmental Requirement which arises out of or is based on (A) any
untrue statement or alleged untrue statement of a material fact relating to TMI,
Newco or any of the Other Founding Companies contained in any preliminary
prospectus relating to the IPO, the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or
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supplement thereto, or (B) any omission or alleged omission to state therein a
material fact relating to TMI, Newco or any of the Other Founding Companies, or
any of them, required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
Section 9.05. CONDITIONS OF INDEMNIFICATION. (a) All claims for
indemnification under this Agreement shall be asserted and resolved as
follows in this Section 9.05.
(b)A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party
claim or claims asserted against the Indemnified Party ("Third Party
Claim") that could give rise to a right of indemnification under this
Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to the claim (if
any), an estimate of the amount of damages attributable to the Third
Party Claim to the extent feasible (which estimate shall not be
conclusive of the final amount of the claim) and the basis for the
Indemnified Party's request for indemnification under this Agreement.
Except as set forth in Section 9.02, the failure to promptly deliver a
Claim Notice shall not relieve the Indemnifying Party of its obligations
to the Indemnified Party with respect to the related Third Party Claim
except to the extent that the resulting delay is materially prejudicial
to the defense of the claim. Within 15 days after receipt of any Claim
Notice (the "Election Period"), the Indemnifying Party shall notify the
Indemnified Party (i) whether the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article IX with
respect to the Third Party Claim and (ii) if the Indemnifying Party does
not dispute its potential liability to the Indemnified Party with
respect to the Third Party Claim, whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to
defend the Indemnified Party against the Third Party Claim.
(c)If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall
have the right to defend, at its sole cost and expense, the Third Party
Claim by all appropriate proceedings, which proceedings shall be
prosecuted diligently by the Indemnifying Party to a final conclusion or
settled at the discretion of the Indemnifying Party in accordance with
this Section 9.05(c) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect
to the Third Party Claim and otherwise cooperate with the Indemnifying
Party in the defense of the Third Party Claim; PROVIDED, HOWEVER, that
the Indemnifying Party shall not enter into any settlement with respect
to any Third Party Claim that purports to limit the activities of, or
otherwise restrict in any way, any Indemnified Party or any Affiliate of
any Indemnified Party without the prior consent of that Indemnified
Party (which consent may be withheld in the sole discretion of that
Indemnified Party). The
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Indemnified Party is hereby authorized, at the sole cost and expense of
the Indemnifying Party if found liable hereunder, to file, during the
Election Period, any motion, answer or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to this
Section 9.05(c) and will bear its own costs and expenses with respect to
its participation; PROVIDED, HOWEVER, that if the named parties to any
such action (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party, and the Indemnified Party
has been advised in writing by counsel that there may be one or more
legal defenses available to it which are different from or additional to
those available to the Indemnifying Party, then the Indemnified Party
may employ separate counsel at the expense of the Indemnifying Party,
and, on its written notification of that employment, the Indemnifying
Party shall not have the right to assume or continue the defense of the
action on behalf of the Indemnified Party.
(d)If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this
Article IX, (B) elects not to defend the Indemnified Party pursuant to
Section 9.05(c) or (C) fails to notify the Indemnified Party that the
Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 9.05(c) or (ii) elects to defend the Indemnified Party pursuant
to Section 9.05(c) but fails diligently and promptly to prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party
(if the Indemnified Party is entitled to indemnification hereunder), the
Third Party Claim by all appropriate proceedings, which proceedings
shall be promptly and vigorously prosecuted by the Indemnified Party to
a final conclusion or settled. The Indemnified Party shall have full
control of such defense and proceedings. Notwithstanding the foregoing,
if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article IX and
if such dispute is resolved in favor of the Indemnifying Party, the
Indemnifying Party shall not be required to bear the costs and expenses
of the Indemnified Party's defense pursuant to this Section 9.05 or of
the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the
Indemnifying Party in full for all reasonable and appropriate costs and
expenses of such litigation. The Indemnifying Party may participate in,
but not control, any defense or settlement controlled by the Indemnified
Party pursuant to this Section 9.05(d), and the Indemnifying Party shall
bear its own costs and expenses with respect to such participation.
(e)If any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim,
the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of Damages attributable
to that claim to the extent feasible (which estimate shall not be
conclusive of
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the final amount of the claim) and the basis of the Indemnified Party's
request for indemnification under this Agreement. If the Indemnifying
Party does not notify the Indemnified Party within 15 days from its
receipt of the Indemnity Notice that the Indemnifying Party disputes the
claim, the claim specified by the Indemnified Party in the Indemnity
Notice shall be deemed a liability of the Indemnifying Party hereunder.
If the Indemnifying Party has timely disputed the claim, as provided
above, the dispute shall be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement
of such dispute within 30 days after notice of the dispute is given.
(f)Payments of all amounts owing by an Indemnifying Party
pursuant to this Article IX relating to a Third Party Claim shall be
made within 30 days after the latest of (i) the settlement of that Third
Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of that Third Party Claim or (iii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's
liability to the Indemnified Party under this Agreement. Payments of all
amounts owing by an Indemnifying Party pursuant to Section 9.05(e) shall
be made within 30 days after the later of (i) the expiration of the 30-
day Indemnity Notice period or (ii) the expiration of the period for
appeal of a final adjudication of the Indemnifying Party's liability to
the Indemnified Party under this Agreement. If and after the aggregate
amount of all Damage Claims paid by a Stockholder under this Article IX
equals or exceeds the amount of cash included in the Merger
Consideration received by that Stockholder, then that Stockholder, in
payment and satisfaction of any remaining unsatisfied or subsequent
Damage Claims in respect of which that Stockholder may be required to
indemnify any TMI Indemnified Party, may transfer and surrender to the
Company such number of shares of TMI Common Stock included in the Merger
Consideration received by such Stockholder as shall equal (i) the amount
of all such remaining unsatisfied or subsequent Damage Claims divided by
(ii) $14.
Section 9.06. REMEDIES EXCLUSIVE. Except as otherwise expressly provided
in this Agreement, the remedies provided in this Article IX are the exclusive
remedies available to one party against the other in respect of any matter
indemnified against in this Article IX.
Section 9.07. LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding the
provisions of Section 9.03(a), neither the Company nor any of the
Stockholders shall be required to indemnify or hold harmless any of the
TMI Indemnified Parties on account of any TMI Indemnified Loss under
Section 9.03(a) unless the liability of the Company and the Stockholders
in respect of that TMI Indemnified Loss, when aggregated with the
liability of the Company and the Stockholders in respect of all TMI
Indemnified Losses under Section 9.03 (a), exceeds, and only to the
extent the aggregate amount of all those TMI Indemnified Losses does
exceed, the Threshold Amount. In no event shall (i) the aggregate joint
and several liability of the Company and the Stockholders under this
Agreement, including Section 9.03(a), exceed the Ceiling Amount or (ii)
the aggregate
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liability of each Stockholder under this Agreement, including Sections
9.03(a) and 9.03(b), exceed that Stockholder's Pro Rata Share of the
Ceiling Amount.
(b)Notwithstanding the provisions of Section 9.04, TMI shall not
be required to indemnify or hold harmless any of the Stockholder
Indemnified Parties on account of any Stockholder Indemnified Loss
unless the liability of TMI in respect of that Stockholder Indemnified
Loss, when aggregated with the liability of TMI in respect of all
Stockholder Indemnified Losses, exceeds, and only to the extent the
aggregate amount of all those Stockholder Indemnified Losses does
exceed, the Threshold Amount. In no event shall TMI be liable under this
Agreement, including Section 9.04, for any amount in excess of the
Ceiling Amount less that portion of the Merger Consideration which is
payable in cash.
Section 9.08 INDEMNIFICATION CLAIMS BY TMI AFFILIATES. Notwithstanding
the provisions of Sections 9.03 and 9.05, if a TMI Indemnified Party other than
TMI proposes to assert a Damage Claim against one or more Stockholders for a TMI
Indemnified Loss, and if such Damage Claim does not arise as a result of a Third
Party Claim which requires defensive action to be taken within 30 days from the
date of the Third Party Claim, then as a condition to any exercise of its rights
under this Article IX, (i) such TMI Indemnified Party shall notify TMI in
writing of such TMI Indemnified Party's intent to make a claim and of the nature
of the proposed claim, and (ii) TMI shall have 20 days thereafter to elect (by
written notice to such TMI Indemnified Party) to assume the direction and
control of such proposed Damage Claim on behalf of all TMI Indemnified Parties.
If TMI does not so elect within such 20-day period, the TMI Indemnified Party
proposing to assert the Damage Claim may do so. If a Damage Claim proposed to be
asserted by a TMI Indemnified Party other than TMI arises out of a Third Party
Claim that requires that defensive action be taken within 30 days of the Third
Party Claim, then such TMI Indemnified Party may, upon written notice to TMI,
proceed to assert such Damage Claim, and TMI shall have 20 days from the date of
its receipt of such notice to elect to assume the direction and control of such
Damage Claim on behalf of all TMI Indemnified Parties.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. (a) Each of the
Company and the Stockholders, severally and not jointly with any other
Person, acknowledges that it has or may have had in the past, currently
has and in the future may have access to Confidential Information of the
Company and the Company Subsidiaries, the Other Founding Companies and
their Subsidiaries and TMI and its Subsidiaries. Each of the Company and
the Stockholders, severally and not jointly with any other Person,
agrees that it will keep confidential all such Confidential Information
furnished to it and, except with the specific prior written consent of
TMI will not disclose such Confidential Information to any Person except
(a) Representatives of TMI, (b) its own Representatives, provided that
these Representatives (other than counsel) agree to the confidentiality
provisions of this Section 11.01; and provided, further, that
Confidential Information shall not include (i) such information which
becomes known to the public generally through no fault of any
Stockholder, (ii) information required to be disclosed by law or the
order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), each
Stockholder shall, if possible, give prior written notice thereof to TMI
and provide TMI with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the
disclosing party. In the event of a breach or threatened breach by any
Stockholder of the provisions of this Section 11.01 with respect to any
Confidential Information, TMI shall be entitled to an injunction
restraining such Stockholder from disclosing, in whole or in part, that
Confidential Information. Nothing herein shall be construed as
prohibiting TMI from pursuing any other available remedy for such breach
or threatened breach, including the recovery of damages.
(b)Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 11.01(a), and
because of the immediate and irreparable damage that would be caused to
TMI for which it would have no other adequate remedy, each of the
Company and the Stockholders agrees that TMI may enforce the provisions
of Section 11.01(a) by injunctions and restraining orders against each
of them who breaches any of those provisions.
(c)The obligations of TMI set forth in Section 6.02(d) are
incorporated in this Section 11.01 by this reference.
(d)The obligations of the parties under this Section 11.01 shall
survive the termination of this Agreement.
61
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
TRIAD ACQUISITION, INC.,
TRIAD HOLDINGS, INC.
AND
ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS..................................................................................1
Section 1.01. Certain Defined Terms.................................................................1
ARTICLE II THE MERGER AND RELATED MATTERS...............................................................8
Section 2.01. Certificate of Merger.................................................................8
Section 2.02. The Effective Time....................................................................8
Section 2.03. Certain Effects of the Merger.........................................................8
Section 2.04. Effect of the Merger on Capital Stock.................................................8
Section 2.05. Delivery, Exchange and Payment........................................................9
Section 2.06. Fractional Shares....................................................................10
Section 2.07. Treatment of Company Options.........................................................10
Section 2.08. Post-Closing Adjustment of Unadjusted Merger Consideration...........................11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER.............................................................................................14
Section 3.01. By Each Stockholder..................................................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS........................................................................15
Section 4.01. By the Company and Each Stockholder..................................................15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO.............................................16
Section 5.01. By TMI and Newco.....................................................................16
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...................................................16
Section 6.01. Of Each Party........................................................................16
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION............................................................................................17
Section 7.01. The Closing and Certain Conditions...................................................17
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME......................................................18
Section 8.01. Of Each Party Other Than the Company.................................................18
ARTICLE IX INDEMNIFICATION.............................................................................20
Section 9.01. Indemnification Rights and Obligations...............................................20
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ARTICLE X LIMITATIONS ON COMPETITION..................................................................21
Section 10.01. Prohibited Activities................................................................21
Section 10.02. Damages..............................................................................22
Section 10.03. Reasonable Restraint.................................................................22
Section 10.04. Severability; Reformation............................................................22
Section 10.05. Independent Covenant.................................................................22
Section 10.06. Materiality..........................................................................22
ARTICLE XI GENERAL PROVISIONS..........................................................................22
Section 11.01. Treatment of Confidential Information................................................22
Section 11.02. Restrictions on Transfer of TMI Common Stock.........................................23
Section 11.03. Brokers and Agents...................................................................24
Section 11.04. Assignment; No Third Party Beneficiaries.............................................24
Section 11.05. Entire Agreement; Amendment; Waivers.................................................25
Section 11.06. Counterparts.........................................................................25
Section 11.07. Expenses.............................................................................25
Section 11.08. Notices..............................................................................25
Section 11.09. Governing Law........................................................................27
Section 11.10. Exercise of Rights and Remedies......................................................27
Section 11.11. Time.................................................................................27
Section 11.12. Reformation and Severability.........................................................27
Section 11.13. Remedies Cumulative..................................................................27
Section 11.14. Respecting the IPO...................................................................27
ARTICLE XII TERMINATION.................................................................................28
Section 12.01. Termination of This Agreement........................................................28
Section 12.02. Liabilities in Event of Termination..................................................29
</TABLE>
ii
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
TRIAD Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of
TMI ("Newco"), TRIAD Holdings, Inc., a Delaware corporation (the "Company"), and
the persons listed on the signature pages of this Agreement under the caption
"Stockholders" (collectively, the "Stockholders," and each of those persons,
individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii) TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the
Company, the "Founding Companies") under agreements similar to this
Agreement entered into among those entities, their equity owners, TMI
and subsidiaries of TMI (collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its
common stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
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"ADDITIONAL CASH" shall be determined as provided, and shall
have the meaning set forth, in Subparagraph 2.08(a)(i).
"ADDITIONAL MERGER CONSIDERATION" shall be determined as
provided, and shall have the meaning set forth, in Section 2.08.
"ADDITIONAL TMI OPTION SHARES" shall mean the increase in the
number of shares of TMI Common Stock that shall be subject to the TMI
Options as a result of an adjustment to the Merger Consideration
pursuant to Subsection 2.08(b) of this Agreement.
"ADDITIONAL TMI SHARES" shall be determined as provided, and
shall have the meaning set forth, in Subparagraph 2.08(a)(ii).
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules,
Annexes and Exhibits, as each of them may be amended, modified or
supplemented from time to time under their provisions or the provisions
of this Agreement.
"ANNUALIZED EBITDA" means, with reference to any period of
less than one year, (i) 12 multiplied by (ii) an amount equal to (a)
the sum of EBITDA for each of the full calendar months included in such
period divided by (b) the number of full calendar months included in
such period.
"APPLICABLE CLOSING CONVERSION RATIO" means (i) 0.8995 if the
TEAC Acquisition is consummated by the date of the Closing and (ii)
0.7979 if the TEAC Acquisition is not consummated by the date of the
Closing.
"APPLICABLE CLOSING DATE INDEBTEDNESS" means (i) $6,994,473 if
the TEAC Acquisition is consummated on or before the date of Closing,
or (ii) $6,034,473 if the TEAC Acquisition is not consummated by the
date of Closing.
"BUSINESS CORPORATION ACT" means the Delaware General
Corporation Law.
"CEILING AMOUNT" means (i) on or before the first anniversary
of the IPO Closing Date, the amount of the Merger Consideration and
(ii) thereafter, 50% of the amount of the Merger Consideration less the
amount of all Damages paid, or payable, by the party or parties in
question with respect to claims for indemnification made on or before
the first anniversary of the IPO Closing Date (with the shares of TMI
Common Stock being valued at the IPO price per share for purposes of
determining the amount of the Merger Consideration under this
definition).
"COMPANY COMMON STOCK" means the common stock, par value $.01
per share, of the Company, including both its Class A and its Class B
common stock.
2
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"COMPANY OPTIONEES" means the persons who were the holders of
the Company Options that are converted into TMI Options at the
Effective Time pursuant to Section 2.07.
"COMPANY OPTIONS" means the options to purchase shares of
Company Common Stock that are converted into TMI Options at the
Effective Time pursuant to Section 2.07.
"COMPANY OPTION SHARES" means the number of shares of Company
Common Stock that are subject to the Company Options that are converted
into TMI Options at the Effective Time pursuant to Paragraph 2.07(b).
"COMPANY STOCKHOLDERS" means the holders of outstanding shares
of Company Common Stock that are outstanding immediately prior to the
Effective Time.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Stradling
Yocca Carlson & Rauth, a Professional Corporation.
"CURRENT BALANCE SHEET" means the unaudited, consolidated
balance sheet of the Company and the Company Subsidiaries at June 30,
1997, which is included in the Initial Financial Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending
on the date of the Closing.
"CURRENT MARKET PRICE" per share of TMI Common Stock on any
specified date means the average daily market prices (determined as set
forth below in this definition) of the TMI Common Stock for the 10
consecutive Trading Days ending on the third Trading Day before that
date. The market price for each Trading Day shall be the average of the
last sale prices on such Trading Day on all stock exchanges and the
Nasdaq Stock Market on which the TMI Common Stock may then be listed or
admitted for quotation, respectively, PROVIDED, that if no sale takes
place on any such Trading Day on any such exchange or the Nasdaq Stock
Market, the market price for each Trading Day shall be the average of
the reported bid and asked prices on such day on the over-the-counter,
or if TMI Common Stock is not quoted on the over-the-counter market,
the market price for each Trading Day shall be the average of the bid
and asked prices furnished by any member of the National Association of
Securities Dealers selected by TMI.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Company Stockholders and delivered to TMI
prior to the execution and delivery of this Agreement, in which either
(a) exceptions are taken to each of certain of the representations and
warranties made by the Company and the Stockholders in this Agreement
or (b) it is confirmed that no exception is taken to that
representation and warranty.
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"EBITDA" means for the Company and its consolidated
Subsidiaries, net income before interest expense, federal and state
income taxes, and depreciation and amortization expenses, all for any
and the same period in question, as determined on a consolidated basis
for the Company and its consolidated Subsidiaries by reference to the
consolidated financial statements of the Company and its consolidated
Subsidiaries for, or included in, such period.
"EBITDA THRESHOLD" shall have the meaning set forth in Section
2.8.
"EMPLOYEE STOCK OPTIONS" means the currently outstanding
options for the purchase of an aggregate 157,624 shares of Class B
Common Stock of the Company granted under the Company's 1992 Stock
Option and Restricted Stock Purchase Plan (as amended and restated on
May 14, 1996).
"ENTERPRISE VALUE" means (i) if the TEAC Acquisition is
consummated on or before the date of the Closing, $37,166,000, or (ii)
if the TEAC Acquisition Agreement is not consummated on or before the
date of the Closing, $32,700,000.
"FORMATION AGREEMENT" means that certain Formation Agreement
dated as of May 17, 1996 among the Company, PENMAN and the former
shareholders of TRIAD Medical, pursuant to which the Company was
organized and acquired all of the outstanding shares of TRIAD Medical,
PENMAN acquired its Class A Common Stock from the Company and such
shareholders of TRIAD Medical acquired their shares of Class B Common
Stock from the Company.
"FULLY-DILUTED COMPANY SHARES" means the sum of (i) the number
of shares of Common Stock of the Company that are outstanding
immediately prior to the Effective Time (after giving effect to the
reduction in the number of outstanding shares of Class A Common Stock
of the Company to 1,255,725 shares pursuant to the Formation
Agreement), and (ii) the number of Company Option Shares. Assuming no
exercise or termination of any of the Company Options between the date
hereof and the Effective Time of the Merger, there will be 2,461,694
Full-Diluted Company Shares that will be outstanding at the Effective
Time, of which 157,624 will be Company Option Shares.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited,
consolidated balance sheets of the Company and the Company Subsidiaries
at December 31, 1995 and 1996, and the related audited, consolidated
statements of operations, stockholders' equity and cash flows for each
of the Company's three fiscal years in the three-year period ended
December 31, 1996, together with the related audit report of Arthur
Andersen LLP, and (b) the Current Balance Sheet and the related
unaudited consolidated statements of operations, stockholders' equity
and cash flows for the six-month period ended on the Current Balance
Sheet Date.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination
of Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
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"MERGER CONSIDERATION" means (i) unless and until the
Unadjusted Merger Consideration is adjusted under Section 2.08, the
Unadjusted Merger Consideration, and (ii) if and once the Unadjusted
Merger Consideration is adjusted under Section 2.08, the Unadjusted
Merger Consideration as so adjusted.
"NEW EMPLOYMENT AGREEMENTS" means the three Employment
Agreements entered into as of September 9, 1997, between TMI and each
of R. Tucker Coop, Walter D. Wallach, and Robert A. Zimardo.
"NEWCO" means TRIAD Acquisition, Inc., a Delaware corporation.
"OPTIONEES' ALLOCABLE PERCENTAGE" shall have the meaning set
forth in Subparagraph 2.8(b)(i).
"OUTSTANDING COMPANY SHARES" means the number of outstanding
shares of Company Common Stock at the Effective Time (taking into
account the reduction in the number of shares of outstanding Company
Common Stock referred to in Section 4.01(b)).
"PENMAN" means PENMAN Private Equity and Mezzanine Fund, L.P.,
a Stockholder.
"PENMAN WARRANT"means the warrant held by PENMAN for the
purchase of 25,000 shares (subject to adjustment as therein provided)
of TMI Common Stock.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth opposite the name of the
Stockholder in Schedule 3.02.
"RESPONSIBLE OFFICER" means either of R. Tucker Coop or Walter
D. Wallach.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"SHAREHOLDERS AGREEMENT" means that certain Shareholders
Agreement dated as of May 17, 1996 by and among the Company, PENMAN,
and the holders of the outstanding shares of Class B Common Stock of
the Company (the "Class B Shares"), which Agreement (among other
things) (i) places certain restrictions on the transferability of the
Class B Shares, (ii) grants the Company and the Company's shareholders
certain rights of first refusal on proposed transfers or other
dispositions of the Class B Shares or any interests therein, (iii)
provides for registration rights, and (iv) grants contractual
preemptive and "tag-along" and "bring-along" rights to the Company's
Shareholders.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
entered into as of September 9, 1997, among TMI, the Stockholders and
the other Persons party thereto.
"STOCKHOLDERS' ALLOCABLE PERCENTAGE" shall have the meaning
set forth in Subparagraph 2.8(a).
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"STOCKHOLDERS' MERGER CONSIDERATION" shall be determined as
provided, and shall have the meaning set forth, in Subparagraph
2.08(a).
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TEAC" means The Economic Alliance Corporation.
"TEAC ACQUISITION" means the pending acquisition by the
Company of 80% of the outstanding capital stock of TEAC pursuant to the
TEAC Acquisition Agreement.
"TEAC ACQUISITION AGREEMENT" means the stock purchase
agreement pursuant to which the TEAC Acquisition is to be consummated
on terms no less favorable to TRIAD Medical than those set forth on
Schedule 1.1 attached hereto.
"TEAC ACQUISITION INDEBTEDNESS" means and includes (i) all
Indebtedness of TRIAD Medical incurred to the selling shareholders of
TEAC under the TEAC Acquisition Agreement, (ii) all other Indebtedness
of the Company or TRIAD Medical, or both, incurred to finance any
portion of the purchase price payable to the TEAC selling shareholders
under the TEAC Acquisition Agreement and (iii) all Indebtedness for
borrowed money of TEAC outstanding on the date the TEAC Acquisition is
consummated (unless discharged by the selling shareholders of TEAC
prior to the closing of the TEAC Acquisition).
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means, for all periods, 2% of the Ceiling
Amount that is applicable during the year ending on the first
anniversary of the IPO Closing Date.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of distributing medical or healthcare products to
hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and which was called on by any of the Company, TMI
or a Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any
of them has made an acquisition analysis.
"TMI OPTION SHARES" means shares of TMI Common Stock that are
issuable on exercise of TMI Options.
"TMI OPTIONS" means options to purchase TMI Option Shares
issued either (i) pursuant to Section 2.07 or Section 2.08 of this
Agreement to the Company Optionees or (ii) pursuant to the TRIAD
Medical Inc. 1997 Incentive Plan (the "Incentive Plan") to persons
eligible to receive TMI Options under the Incentive Plan.
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"TRADING DAY" means any day during the course of which the
Nasdaq Stock Market, or the principal securities exchange, as the case
may be, on which the TMI Common Stock is admitted for quotation or
listed, is open for the exchange of securities.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"TRIAD MEDICAL" means TRIAD Medical, Inc., a wholly owned
Subsidiary of the Company.
"UNADJUSTED CASH CONSIDERATION" means (i) $8,696,559 (which is
an amount equal to 23.4% of the Enterprise Value of the Company), if
the TEAC Acquisition is consummated on or before the date of Closing,
or (ii) $7,821,559 if the TEAC Acquisition is not consummated by the
date of Closing.
"UNADJUSTED MERGER CONSIDERATION" shall mean the Unadjusted
Cash Consideration and the Unadjusted Non-Cash Consideration.
"UNADJUSTED NON-CASH CONSIDERATION" shall mean the Unadjusted
Stock Consideration and the TMI Options issuable pursuant to Section
2.07.
"UNADJUSTED STOCK CONSIDERATION" means (i) 1,451,322 shares of
TMI Common Stock, if the TEAC Acquisition is consummated on or before
the date of Closing or (ii) 1,279,822 shares of TMI Common Stock, if
the TEAC Acquisition is not consummated by the date of Closing.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and
conditions of this Agreement, the Company will cause a Certificate of Merger to
be duly executed and delivered on or promptly after the date of the Closing to
the Secretary of State of the State of Delaware.
Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 9:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco
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and (ii) be governed by the laws of the State of Delaware, (e) the Charter
Documents of the Company then in effect (after giving effect to the amendment of
the Company's articles of incorporation specified in clause (c) of this
sentence) will become and thereafter remain (until changed in accordance with
(i) applicable law, in the case of the articles of incorporation or (ii) their
terms, in the case of the bylaws) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Persons named in Schedule 2.03, and those Persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Delaware and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those Persons will serve in
each office specified for that Person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
Person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the
Effective Time, as a result of the Merger and without any action on the part of
any holder thereof:
(a) The Outstanding Company Shares will (i) be converted into
the right to receive, without interest, on surrender of the
certificates evidencing those Outstanding Company Shares, (A) the
amount of the Unadjusted Cash Consideration and (B) the Unadjusted
Stock Consideration, with each Outstanding Company Share to be
converted into the right to receive the portion of the Unadjusted Cash
Consideration and the portion of the Unadjusted Stock Consideration
determined as provided in Schedule 3.02, (ii) cease to be outstanding
and to exist, and (iii) be canceled and retired;
(b) Each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(c) Each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one
share of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving
Corporation issued on such conversion will constitute all the issued
and outstanding shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing any Outstanding Company Shares will,
as of the Effective Time and thereafter, cease to have any rights respecting
those Outstanding Company Shares other than the right to receive, without
interest, the Merger Consideration and the additional cash, if any, owing with
respect to any fractional shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Company
Stockholder, as a holder of certificates representing Outstanding
Company Shares, will, on surrender of his or her certificates to TMI
(or any agent which may be appointed by TMI for purposes of this
Section 2.05), receive, and TMI will pay and issue, or cause to be paid
and issued, to each
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Company Stockholder, in each case, subject to the provisions of Section
2.06, the Merger Consideration; and (ii) until any certificate
representing Outstanding Company Shares has been surrendered and
replaced pursuant to this Section 2.05, that certificate will, for all
purposes, be deemed to evidence ownership of the number of whole shares
of TMI Common Stock included in the Merger Consideration payable in
respect of that certificate pursuant to Section 2.04 or Section 2.08.
All shares of TMI Common Stock included in the Unadjusted Stock
Consideration will be deemed for all purposes to have been issued by
TMI at the Effective Time. All cash included in the Merger
Consideration shall be paid by TMI's company check or checks, one or
more wire transfers to accounts designated, at least two New York
business days before the IPO Closing Date, by the respective Company
Stockholders, or by certified or official bank check or checks, at
TMI's option.
(b) Each Company Stockholder will deliver to TMI (or any agent
that may be appointed by TMI for purposes of this Section 2.05) on or
before the date of the Closing the certificates representing the
Outstanding Company Shares owned by the Company Stockholder, duly
endorsed in blank by him, or accompanied by duly executed stock powers
in blank, and with all necessary transfer tax and other revenue stamps,
acquired at his expense, affixed and canceled. Each Company Stockholder
shall cure any deficiencies in the endorsement of the certificates or
other documents of conveyance respecting, or in the stock powers
accompanying, the certificates representing his or her Outstanding
Company Shares delivered by him. Nothing herein, however, shall be
construed to make the delivery of such certificates in accordance with
the provisions of this Paragraph 2.05(b) a condition precedent to, and
the failure of any Company Stockholder to deliver such certificates in
accordance with the provisions of this Paragraph 2.05(b) on or before
the date of the Closing shall not affect, delay or impair, the
effectiveness of the Merger.
(c) No dividends (or interest) or other distributions declared
or earned after the Effective Time with respect to the shares of TMI
Common Stock issuable to the holders of record thereof after the
Effective Time will be paid to the holder of any unsurrendered
certificates representing Outstanding Company Shares converted into
shares of TMI Common Stock pursuant to this Agreement (whether pursuant
to Section 2.04 or Section 2.08, all of which shall be deemed to have
been issued at the Effective Time) until those certificates are
surrendered as provided herein, but (i) on such surrender TMI will
cause to be paid, to the Person in whose name the certificates
representing such shares of TMI Common Stock shall then be issued, the
amount of dividends or other distributions previously paid with respect
to such whole shares of TMI Common Stock with a record date, or which
have accrued, subsequent to the Effective Time, but prior to surrender,
and the amount of any cash payable to such Person for and in lieu of
fractional shares pursuant to Section 2.06 and (ii) at the appropriate
payment date or as soon as practicable thereafter, TMI will cause to be
paid to that Person the amount of dividends or other distributions with
a record date, or which have been accrued, subsequent to the Effective
Time, but which are not payable until a date subsequent to surrender,
which are payable with respect to such whole shares of TMI Common
Stock, subject in all cases to any applicable escheat laws. No interest
will be payable with respect to the payment of such dividends or other
distributions
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or cash for and in lieu of fractional shares on surrender of
certificates representing Outstanding Company Shares.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
Section 2.07. TREATMENT OF COMPANY OPTIONS.
(a) CONVERSION OF COMPANY OPTIONS. At the Effective Time, each
then outstanding Company Option shall, by virtue of the consummation of
the Merger, and without any further action on the part of the Optionee
that is the holder thereof, be converted into a TMI Option to purchase
a number of TMI Option Shares that shall be determined by multiplying
the number of Company Option Shares that are subject to that Company
Option by the Applicable Closing Conversion Ratio, at an exercise price
per TMI Option Share equal to the per share exercise price of such
Company Option immediately prior to the Effective Time divided by the
Applicable Closing Conversion Ratio and rounded up to the nearest cent.
If the foregoing calculation results in any Company Option becoming
exercisable for a fraction of a share of TMI Common Stock, then the
number of TMI Option Shares subject to such TMI Option will be rounded
up to the nearest whole number of TMI Option Shares. The term,
exerciseability, status as an "incentive stock option" under Section
422 of the Code, if applicable, and all other terms and conditions of
the TMI Options to be issued on conversion of the Company Options shall
be as set forth in the Company's stock option plan or the stock option
agreement pursuant to which the Company Options were granted, except as
modified by the terms set forth in Section 2.07 of the Company's
Disclosure Statement.
(b) REGISTRATION. TMI shall cause the TMI Option Shares
issuable on exercise of the TMI Options issued to the holders of the
Company Options pursuant to this Section 2.07 and the additional TMI
Option Shares that become issuable pursuant to Section 2.08 hereof, if
any, to be registered on Form S-8 promulgated by the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), as soon as
practicable, but not later than the (i) the earliest date after the IPO
Closing Date as of which TMI shall be eligible to register shares on
Form S-8 under the 1933 Act or (ii) fifteen (15) days after the IPO
Closing Date, whichever is later, and TMI shall use its best efforts to
maintain the effectiveness of such registration statement, and any
successor registration statement thereto, for so long as such TMI
Options shall remain outstanding. With respect to those individuals
who, subsequent to the IPO Closing Date, will be subject to the
reporting requirements under Section 16(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), TMI shall administer the
Company's Stock Option Plan under which the Company Options were
granted (the "Company Option Plan") in a manner that complies with Rule
16(b)(3) under the Exchange Act. TMI shall reserve for issuance and
authorize the issuance of the number
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of shares of TMI Common Stock that shall be issuable from time to time
on exercise of the TMI Options that are issued pursuant to this Section
2.07, as the same may be adjusted pursuant to Section 2.08.
Section 2.08. POST-CLOSING ADJUSTMENT OF UNADJUSTED MERGER
CONSIDERATION. If the TEAC Acquisition is consummated after the date of the
Closing, but on or before April 30, 1998, or if, notwithstanding the inability
to consummate the TEAC Acquisition by April 30, 1998, the Company achieves, for
the period from November 1, 1997 to April 30, 1998, inclusive, an Annualized
EBITDA of at least $4,940,000 ( the "EBITDA Threshold"), then, the aggregate
dollar amount of the Unadjusted Merger Consideration shall be increased by
$2,600,000 (the "Additional Merger Consideration"), which shall be payable as
follows:
(a) ADDITIONAL MERGER CONSIDERATION PAYABLE TO COMPANY
STOCKHOLDERS. The Company's Stockholders shall become entitled to
receive from TMI that percentage of the Additional Merger Consideration
that is equal to the percentage of the Fully-Diluted Company Shares
that, as of the Effective Time, was represented by the Outstanding
Company Shares (the "Stockholders' Allocable Percentage"). (Assuming no
changes occur between the date hereof and the Effective Time in the
number of Outstanding Company Shares and the number of Company Option
Shares, the Stockholders' Allocable Percentage shall be 93.6% of the
Additional Merger Consideration.) The Stockholders' Allocable
Percentage of the Additional Merger Consideration shall consist of the
following:
(i) ADDITIONAL CASH. Cash (the "Additional Cash") in
an aggregate amount equal to 25% of the Additional Merger
Consideration.
(ii) ADDITIONAL TMI SHARES. A number of shares of
TMI Common Stock (the "Additional TMI Shares"), determined in
the following manner:
(A) The amount of the Additional Cash shall
be subtracted from the amount (stated in dollars) of
the Stockholders' Allocable Percentage of the
Additional Merger Consideration, and
(B) The result thus obtained shall then be
divided by $14 to arrive at the number of the
Additional Shares that shall be issued by TMI to the
Company Stockholders (which number shall be rounded
to the nearest whole TMI Share).
The Additional Cash and the Additional TMI Shares shall be allocated
among the Company Stockholders in the respective percentages set forth
opposite their names on Disclosure Schedule 3.02 attached hereto.
(b) ADJUSTMENT TO NUMBER AND EXERCISE PRICE OF TMI OPTIONS.
The number of TMI Option Shares that were subject to the TMI Options
issued on the Effective Date in exchange for the Company Options shall
be increased by a number of TMI Option Shares (the "Additional TMI
Option Shares") that shall be determined in the following manner:
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(i) The portion of the Additional Merger
Consideration allocable to the Company Options (the
"Optionees' Allocable Percentage") shall be determined by
multiplying the Additional Merger Consideration by the
percentage of the Fully- Diluted Company Shares that, as of
the Effective Time, was represented by the Company Options.
(Assuming no changes occur between the date hereof and the
Effective Time in the number of Outstanding Company Shares and
the number of Company Option Shares, the Optionees' Allocable
Percentage shall be 6.4% of the Additional Merger
Consideration);
(ii) The Optionees' Allocable Percentage of the
Additional Merger Consideration (stated in dollars) shall be
divided by $14.00 to arrive at the number of Additional TMI
Option Shares that shall be subject to the TMI Options issued
in exchange for the Company Options at the Effective Time; and
(iii) Upon the determination of the number of the
Additional TMI Option Shares, the per share exercise price of
the TMI Option Shares of each Company Optionee that are
subject to a TMI Option that was granted in exchange for
Company Options shall be redetermined by dividing the
aggregate exercise price of such Company Optionee's TMI
Options, before giving effect to the increase in the number of
TMI Option Shares pursuant to this Section 2.08, by the number
of TMI Option Shares that are subject to each such TMI Option
after giving effect to the increase in TMI Option Shares
pursuant hereto.
(c) PAYMENT/ISSUANCE OF ADDITIONAL MERGER CONSIDERATION. In
the event of an adjustment to the Merger Consideration pursuant to this
Section 2.08, the Additional Cash that shall be payable and the
Additional TMI Shares that shall be issuable by TMI to the Company
Stockholders, and the Additional TMI Options that shall be issuable by
TMI to the Company Optionees, pursuant to this Section 2.08 shall be
determined within five business days after the date of the consummation
of the TEAC Acquisition or the issuance of financial statements of the
Company for the six-month period ending April 30, 1998, whichever first
occurs. Within ten business days after such determination, TMI shall
(i) pay any Additional Cash and issue the stock certificates evidencing
the Additional TMI Shares to the Company Stockholders in accordance
with their respective Pro-Rata Shares as set forth in Schedule 3.02 of
the Disclosure Statement and (ii) execute, and deliver to the holders
of the TMI Options issued on conversion of the Company Options as of
the Effective Time, Amended Option Agreements that shall supersede the
Option Agreements evidencing the TMI Options issued as of the Effective
Time, in order to give effect to and evidence the increase in the
number of TMI Option Shares subject to their TMI Options and to the
reduction in the exercise price thereof as a result of any adjustment
made to the Merger Consideration pursuant to this Section 2.08. In the
event that any Optionee has exercised any of his or her TMI Options
issued pursuant to Section 2.07 prior to the adjustment in the number
and exercise price of the TMI Option Shares pursuant to Subsection
2.08(b) and, as a result of such adjustment, the per share exercise
price of the TMI Option Shares (including those subject to the
Additional TMI Options) is reduced, then, concurrently with the
amendment to the such Optionee's TMI Option Agreement, TMI shall pay to
such Optionee, in cash, an
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amount equal to the product of the per share reduction in the exercise
price resulting from the adjustment to the Merger Consideration
hereunder and the number of TMI Option Shares theretofore exercised by
such Optionee. In the event that any of the TMI Options have terminated
as a result of or following the termination of the Optionee's
employment after the IPO Closing Date and prior to the determination of
the adjustment to the Merger Consideration pursuant to this Section
2.08, the TMI Option Shares that would otherwise have been issued
pursuant hereto to such Optionee shall, instead, be cancelled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution;
(ii) the Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of TMI Common Stock other
than this Agreement, the Stockholders Agreement and the Registration
Rights Agreement; (iii) unless otherwise specified on Schedule 3.01,
the Stockholder is an "accredited investor" as defined in Securities
Act Rule 501 (a); (iv) the Stockholder (A) is able to bear the economic
risk of an investment in the TMI Common Stock to be acquired by him or
her pursuant to this Agreement, (B) can afford to sustain a total loss
of that investment, (C) has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits
and risks of the proposed investment in the TMI Common Stock, (D) has
had an adequate opportunity to ask questions and receive answers from
the officers of TMI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
TMI, the plans for the operations of the business of TMI, the business,
operations and financial condition of the Other Founding Companies and
any plans of TMI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all
those questions have been answered to his or her satisfaction;
(b) if such Stockholder is a trust, the Person executing this
Agreement on behalf of such Stockholder is the duly named and serving
trustee of such Stockholder, the execution and delivery of this
Agreement by the trustee of such Stockholder are within the powers of
such trustee, and the performance by such Stockholder of this Agreement
are within the powers and purposes of such Stockholder under the terms
of all documents creating, evidencing or governing such Stockholder,
true and correct copies of all of which will be delivered to the
Company by such Stockholder within fifteen days after the date hereof,
and neither the execution, delivery nor performance by such Stockholder
of this Agreement will
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violate, constitute a breach of, or conflict with any documents
creating, evidencing or governing such Stockholder; and
(c) the representations and warranties contained in Article
III of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
Delaware, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has
all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted, and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than its Organization State) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the
aggregate, would not have a Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised
of (i) 1,500,000 shares of Class A Convertible Common Stock, of which
1,362,190 shares have been issued and are now outstanding; provided,
however, if the Merger is consummated, the number of shares of Class A
Common Stock that will be outstanding immediately prior to the
Effective Time shall be reduced to 1,255,725 shares of Class A Common
Stock as contemplated by the Formation Agreement, and (ii) 3,000,000
shares of Class B Common Stock, $.01 par value per share, of which (x)
1,048,345 shares have been issued and are now outstanding and (y)
157,624 shares have been reserved for issuance upon exercise of the
Company Stock Options. No shares are held by the Company as treasury
shares, and, except for the Company Stock Options, no outstanding
Derivative Securities of the Company exist;
(c) except to the extent modified or supplemented under the
provisions of paragraphs (d) and (e) of this Section 4.01, the
representations and warranties contained in Article IV of the Uniform
Provisions (the text of which Article hereby is incorporated herein by
this reference) are true and correct, and the agreements set forth in
that Article IV are agreed to;
(d) the threshold amounts above which disclosure must be made
in the Disclosure Statement pursuant to the following Sections or
paragraphs (or clauses contained
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therein) of Article IV of this Agreement (as set forth in the Uniform
Provisions) are hereby increased from the amounts indicated therein and
specified under Column A below to the amounts specified in Column B
below:
A B
-------------------- -----------------
SECTION OR PARAGRAPH OLD THRESHOLD NEW THRESHOLD
(OR CLAUSE THEREIN) AMOUNT AMOUNT
- --------------------------- -------------------- -----------------
4.16 $10,000 $25,000
4.18(e) $25,000 $50,000
4.22(a)(viii) $10,000 $25,000
4.22(a)(ix) $10,000 $25,000
4.22(a)(x) $10,000 $25,000
4.30(g) $10,000 $25,000
4.30(k) $15,000 $25,000
(e) the representation and warranty made in Section 4.22(a) is
modified by adding to clause (vi) thereof the words "and which either
(x) commits the Company or a Subsidiary to purchase products having an
aggregate purchase price of more than $50,000 or which extends for a
term of more than 180 days after the date of this Agreement."
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.01. BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY.
(a) Except as specifically set forth in paragraph (b) and (c)
of this Section 6.01, until the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform
Provisions (the text of which Article VI is hereby incorporated herein
by this reference) to be performed or observed by that party.
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(b) Nothing in Section 6.03 or Section 6.04 shall prohibit or
restrict the Company or TRIAD Medical from consummating the TEAC
Acquisition or incurring the TEAC Acquisition Indebtedness.
(c) The $5,000 and $25,000 amounts specified in Section
6.03(g) are hereby increased to $20,000 and $50,000, respectively, and
the $10,000 amount specified in Section 6.04(g) is hereby increased to
$20,000.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the
parties hereto will take all actions necessary to (i) effect the Merger
on the IPO Closing Date (including, as permitted by the Business
Corporation Act (A) the execution of a Certificate of Merger meeting
the requirements of the Business Corporation Act and providing that the
Merger will become effective on the IPO Closing Date and (B) the filing
of the Certificate with the Secretary of State of the State of
Delaware), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger
Consideration, and (iii) satisfy the document delivery requirements to
which the obligations of the parties to effect the Merger and the other
transactions contemplated hereby are conditioned by the provisions of
this Article VII (all those actions collectively being the "Closing").
The Closing will take place at the offices of Porter & Hedges, L.L.P.,
700 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at such
later time on the IPO Pricing Date as TMI shall specify by written
notice to R. Tucker Coop and PENMAN. The actions taken at the Closing
will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to
Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed
on or before the IPO Closing Date, including the surrender of the
Company Common Stock in exchange for the Merger Consideration will be
closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by
the parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligations of the Company and the Stockholders
with respect to the actions to be taken by them at or before the
Closing are subject to the satisfaction on or before the date of the
Closing, or waiver by them pursuant to Section 11.05, of all the
conditions set forth in Sections 7.02(a) and 7.03. The obligations of
the Stockholders with respect to the actions to be taken on the IPO
Closing Date are subject to the satisfaction on that date of the
following conditions: (i) each of the Stockholders Agreement and each
of the New Employment Agreements then shall be in full force and
effect; (ii) TMI shall have delivered to the Company a copy of its
Certificate of Incorporation, as amended to the date of Closing and
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certified by the Secretary of State of Delaware; and (iii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO.
The obligations of TMI and Newco with respect to actions to be taken by
them at or before the Closing are subject to the satisfaction on or
before the date of the Closing, or waiver by them pursuant to Section
11.05, of the following conditions: (i) the Company shall have
delivered to TMI a copy of the Amended and Restated Certificate of
Incorporation, as amended to the date of the Closing and certified by
the Secretary of State of the State of Delaware as of a Current Date,
of the Company; and (ii) all the conditions set forth in Sections
7.02(a) and 7.04(a). The obligations of TMI and Newco with respect to
the actions to be taken on the IPO Closing Date are subject to the
satisfaction on that date of the following conditions: (i) each of the
New Employment Agreements then shall be in full force and effect; and
(ii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(d) UNIFORM CONDITIONS. The text of Article VII of the Uniform
Provisions hereby is incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY.
(a) From and after the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto (other than the Company)
will comply with each covenant for which provision is made in Article
VIII of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) to be performed or observed by
that party, and in addition, TMI shall comply with each of the
covenants set forth in paragraphs (b), (c) and (d) of this Section
8.01).
(b) As soon as practicable following the Effective Time, and
in any event no later than the first time following the Effective Time
when any options, stock appreciation rights, or other stock based
awards are granted under TMI's 1997 Incentive Plan (the "Incentive
Plan"), TMI shall cause to be granted to the individuals named below
non-qualified stock options for the purchase of an aggregate 165,000
shares of TMI Common Stock at the IPO Price (except for shares of TMI
Common Stock to be acquired by the Chief Operating Officer which will
be priced at the time of such officer's employment by the Company),
with each such individual to be granted non-qualified stock options
covering the number of shares of TMI Common Stock set opposite his name
below:
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Name No. of Options
------------------------------- ----------------------
R. Tucker Coop 50,000
Walter D. Wallach 40,000
Jack M. Saladow 25,000
Robert A. Zimardo 20,000
Chief Operating Officer 30,000
TMI shall cause the shares issuable on exercise of options or
other grants under the Incentive Plan to be registered on Form S-8
promulgated by the SEC under the 1993 Act, as soon as practicable, but
not later than the (i) the earliest date after the IPO Closing Date as
of which TMI shall be eligible to register shares on Form S-8 under the
1933 Act or (ii) fifteen (15) days after the IPO Closing Date,
whichever is later, and TMI shall use its best efforts to maintain the
effectiveness of such registration statement, and any successor
registration statement thereto, for so long as such TMI Options or
other grants remain outstanding. With respect to those individuals who,
subsequent to the IPO Closing Date, will be subject to the reporting
requirements under Section 16(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), TMI shall administer the
Incentive Plan in a manner that complies with Rule 16(b)(3) under the
Exchange Act. TMI shall reserve for issuance and authorize the issuance
of the number of shares of TMI Common Stock that shall be issuable from
time to time under the Incentive Plan. In addition, so long as PENMAN
owns shares of TMI Common Stock, TMI will furnish to PENMAN copies of
its reports on Form 10-Q and 10-K on a periodic basis.
(c) Until the earliest of (i) the date PENMAN ceases to have a
representative as a member of the Board of Directors of TMI, (ii) the
third anniversary of the Closing Date or (iii) date as of which the
number of shares of Common Stock of TMI owned beneficially by PENMAN,
inclusive of the shares subject to the PENMAN Warrant (the "Warrant
Shares") declines to less than 75% of the number beneficially owned
immediately following the consummation of the IPO, inclusive of the
Warrant Shares and any TMI Shares issued pursuant to section 2.08 of
this Agreement, TMI will permit a representative of PENMAN (in addition
to the representative serving on the Board) to receive timely notice
of, attend and observe at all meetings of TMI's Board of Directors
(subject to the right of TMI to excuse such additional representative
from the portion of any Board meeting if the Board or its Chairman
deems it necessary or advisable to preserve the attorney-client
privilege for any discussions by, or communications with, the Board).
All reasonable travel and other out-of-pocket expenses of each
additional PENMAN representative in attending TMI Board meetings shall
be paid by TMI upon the submission of appropriate documentation
therefor.
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<PAGE>
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS.
(a) The text of Article IX of the Uniform Provisions, as
modified by this Section 9.01, is hereby incorporated herein by this
reference.
(b) Notwithstanding, and in supplementation of, Sections 9.03
through 9.07:
(i) subject to the provisions of this paragraph (b),
the Stockholders covenant and agree that they, jointly and
severally, will indemnify each TMI Indemnified Party against,
and hold each TMI Indemnified Party harmless from and in
respect of, all Damages that arise from, are based on or
relate or otherwise are attributable to any claims or
assessments against the Company for state sales taxes payable
in respect of sales of goods or services made by the Company
or any of its Subsidiaries during any period ended on or
before the Current Balance Sheet Date, whether or not reserved
against in any balance sheet included in the Financial
Statements, to the extent that the aggregate amount of all
such Damages (herein called "Specially Indemnified Damages")
exceed $175,000 (the "Deductible"), and then only to the
extent of that excess;
(ii) the amount of the Specially Indemnified Damages
as to which the Stockholders shall be required under clause
(i) of this paragraph (b) to indemnify the TMI Indemnified
Parties shall not be reduced as a result of any limitation set
forth in the first sentence of paragraph (a) of Section 9.07,
and shall not be considered as TMI Indemnified Losses for
purposes of the first sentence of Section 9.07(a); and
(iii) the amount of the Specially Indemnified
Damages in respect of which the Stockholders shall be required
under clause (i) of this paragraph (b) to indemnify the TMI
Indemnified Parties shall be taken into account and included
for purposes of determining the aggregate joint and several
liability of the Company and the Stockholders, and the
aggregate liability of each Stockholder under this Agreement,
under the second sentence of Section 9.07(a) of this
Agreement.
(c) Notwithstanding any other provision of this Article IX,
and specifically including the provisions of Section 9.07, PENMAN shall
not be obligated under Article IX to indemnify the TMI Indemnified
Parties, or have any liability to any Person (including the
Stockholders) on account of any TMI Indemnified Loss, for any amount in
excess of 51% of any TMI Indemnified Loss.
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ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether
as an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business
selling any products or providing any services in competition with the
Company, any Company Subsidiary or TMI or any Subsidiary of TMI (TMI
and its Subsidiaries collectively being "TMI" for purposes of this
Article X) within any territory surrounding any sales office or
distribution center (each a "facility") in which any of the Company or
the Company Subsidiaries was engaged in business on the date hereof or
immediately prior to the Effective Time (for purposes of this Article
X, the territory surrounding a facility shall be: (i) the city, town or
village in which the facility is located, (ii) the county or parish in
which the facility is located, (iii) the counties or parishes
contiguous to the county or parish in which the facility is located,
(iv) the area located within 100 miles of the facility and (v) the area
in which the facility regularly makes sales or provides services, all
of such locations being herein collectively called the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or TMI in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or TMI, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or TMI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or TMI within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge
of that Person's status as an TMI Acquisition Candidate, for the
purpose of acquiring that Person or arranging the acquisition of that
Person by any Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.02. DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no
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<PAGE>
other adequate remedy, each Restricted Stockholder agrees that TMI may enforce
the provisions of Section 10.01 by injunctions and restraining orders against
that Restricted Stockholder if he breaches any of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article
X are severable and separate, and the unenforceability of any specific covenant
in this Article X is not intended by any party hereto to, and shall not, affect
the provisions of any other covenant in this Article X. If any court of
competent jurisdiction shall determine that the scope, time or territorial
restrictions set forth in Section 10.01 are unreasonable as applied to any
Restricted Stockholder, the parties hereto, including that Restricted
Stockholder, acknowledge their mutual intention and agreement that those
restrictions be enforced to the fullest extent the court deems reasonable, and
thereby shall be reformed to that extent as applied to that Restricted
Stockholder and any other Restricted Stockholder similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article
X are intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
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(a) During the two-year period ending on the second
anniversary of the IPO Closing Date (the "Restricted Period") no
Stockholder voluntarily will, except pursuant to and in accordance with
the applicable provisions of the Registration Rights Agreement: (i)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint
or otherwise dispose of (A) any shares of TMI Common Stock received by
any Stockholder in the Merger or (B) any interest in (including any
option to buy or sell) any of those shares of TMI Common Stock, in
whole or in part and TMI will have no obligation to, and shall not,
treat any such attempted transfer as effective for any purpose; or (ii)
engage in any transaction, whether or not with respect to any shares of
TMI Common Stock or any interest therein, the intent or effect of which
is to reduce the risk of owning the shares of TMI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED,
HOWEVER, that this Section 11.02 shall not restrict (i) any transfer of
TMI Common Stock acquired by a Stockholder pursuant to this Agreement
to any of that Stockholder's Related Persons who agree in writing to be
bound by the provisions of Section 11.01 and this Section 11.02, or
(ii) any transfer by PENMAN of TMI Common Stock acquired by PENMAN
pursuant to this Agreement or the PENMAN Warrant to PENMAN's partners
(who may in turn transfer such shares to their respective partners) in
connection with any liquidating distribution or other distribution in
kind by PENMAN (or its partners) of such shares, or (iii) any transfer
of TMI Common Stock acquired by a Stockholder pursuant to this
Agreement (or, in the case of PENMAN, also pursuant to the PENMAN
Warrant) that is consented to in writing and in advance by Montgomery
Securities, which is the lead underwriter for the IPO in each such case
if such transfer or transfers can be made in compliance with all
federal and state securities laws and if the transferees agree in
writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the TMI Common Stock delivered to
each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other
information as TMI may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS
CERTIFICATE AND THE OTHER PARTIES THERETO, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE
ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE,
PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY
OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING ON [DATE
THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING DATE] (THE
"RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder
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pursuant to Section 2.04 (A) have not been and, except pursuant to the
Registration Rights Agreement, if applicable, will not be registered
under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (B) will, as
a result of their restrictions on transferability which are imposed by
this Agreement during the Restricted Period, have a value materially
less at the Effective Time than the value of then freely tradeable
shares of TMI Common Stock, and (ii) covenants that none of the shares
of TMI Common Stock issued to that Stockholder pursuant to Section 2.04
will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of TMI Common Stock
issued pursuant to Section 2.04 will bear the following legend in
addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND
OTHER APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend
required by the securities or blue sky laws of the state in which that
Stockholder resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and
severally represent and warrant to TMI that the Company has not directly or
indirectly employed or become obligated to pay any broker or similar agent in
connection with the transactions contemplated hereby and agree, without regard
to the Threshold Amount limitations set forth in Article IX, to indemnify TMI
against all Damage Claims arising out of claims for any and all fees and
commissions of brokers or similar agents employed or promised payment by the
Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. In the
event of a conflict between any of the provisions contained in this Agreement
and any of the Uniform Provisions, the provisions in this Agreement shall govern
to the extent necessary to resolve such conflict. This Agreement may be amended,
modified or supplemented, and any right hereunder may be waived, if, but only
if, that amendment, modification,
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supplement or waiver is in writing and signed by the Majority Stockholders, the
Company and TMI. The waiver of any of the terms and conditions of this Agreement
shall not be construed or interpreted as, or deemed to be, a waiver of any of
its other term or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) up to
$35,000 of the fees, expenses and disbursements of Altheimer & Gray, who have
acted as counsel for certain Stockholders of the Company, incurred in connection
with the subject matter of this Agreement, the Registration Rights Agreement,
the PENMAN Warrant and the Registration Statement on or before the IPO Closing
Date, (b) the Company will pay any fees, expenses and disbursements of Counsel
for the Company and the Stockholders incurred in connection with the subject
matter of this Agreement and the Registration Statement on or before the IPO
Closing Date, and (c) the Stockholders will pay from personal funds, and not
from funds of the Company or any Company Subsidiary, (i) all sales, use,
transfer and other similar taxes and fees (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated hereby, and (ii) the
fees, expenses and disbursements in excess of $35,000 in the aggregate, of any
counsel for the Stockholders (other than Counsel for the Company and the
Stockholders) incurred in connection with the subject matter of this Agreement
and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or TMI or the Surviving Corporation, will pay all Taxes assessable
against him under applicable law in respect of his receipt of the consideration
payable to that Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
2078 Prospector Avenue
Park City, UT 84060
24
<PAGE>
Telecopy No.: (801) 645-9893
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Telecopy No.: (713) 228-4935
Attn: James M. Harbison, Jr.
(ii) if to the Stockholders, addressed to them at
their addresses set forth in Schedule 2.04 and if to the
Company, addressed to it at:
TRIAD Holdings, Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn: R. Tucker Coop, President
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Stradling Yocca Carlson & Rauth, a
Professional Corporation
660 Newport Center Drive, Suite 1600
Newport Beach, California 92663
Telecopy No.: (714) 725-4100
Attn: Ben A. Frydman
Altheimer & Gray
10 South Wacker Drive
Chicago, Illinois 60606-7482
Telecopy No.: (312) 715-4800
Attn: Roger Wilen, Esq.
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER,
THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES
THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a
25
<PAGE>
result of any breach or default hereunder by any other party hereto shall impair
any such right, power or remedy, nor shall it be construed, deemed or
interpreted as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be construed, deemed or interpreted as a waiver of any
other breach or default hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
26
<PAGE>
(i) by the mutual written consent of TMI and the
Company;
(ii) automatically and without action on the part of
any party hereto, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful
failure of the party (or in the case of the Stockholders and
the Company, any of them) seeking to terminate this Agreement
to perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company,
on the one hand, or by TMI, on the other hand, if a material
breach or default shall be made by the other party (or in the
case of the Stockholders and the Company, any of them) in the
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein; or
(iv) by TMI if it is entitled to do so as provided
in Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting
Agreement is terminated pursuant to its terms after the
Closing and prior to the consummation of the IPO; or
(ii) automatically and without action on the part of
any party hereto if the IPO is not consummated within 15 New
York City business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been
abandoned prior to the Effective Time and of no force or effect. If
this Agreement is terminated pursuant to this Section 12.01 after the
Certificate of Merger has been filed with the Secretary of State of the
State of Delaware, but before the IPO has been consummated, TMI will
take all actions, if any, that Counsel for the Company and the
Stockholders advises TMI are required by the applicable laws of the
State of Delaware to withdraw the Certificate of Merger (which shall
include, if requested by the Company, the execution and filing with the
Delaware Secretary of State, of a Certificate of Correction or such
other instrument as may be necessary or appropriate to evidence that
the Merger had not become effective prior to the termination of this
Agreement and the abandonment of the Merger).
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement
is terminated pursuant to Section 12.01, there shall be no liability or
obligation on the part of any party hereto except (a) as provided in Section
11.07, (b) each Stockholder shall be severally liable for any breach by that
Stockholder of any covenant made severally by that Stockholder in this Agreement
and for any breach by that Stockholder of any representation and warranty made
by that Stockholder severally in Article III and which that Stockholder knew was
untrue or inaccurate at the date of this
27
<PAGE>
Agreement, and (c) the Company shall be liable for any breach by the Company of
any covenant made by the Company in this Agreement and for any breach by the
Company of any representation and warranty made by the Company in Article IV and
which the Company knew as untrue or inaccurate at the date of this Agreement,
and (d) TMI shall be liable for any breach by TMI of any covenant made by TMI in
this Agreement and for any breach by TMI of any representation and warranty made
by TMI in Article V and which TMI knew was untrue or inaccurate at the date of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
Chief Executive Officer
TRIAD ACQUISITION, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr., President
TRIAD HOLDINGS, INC.
By: /s/ R. TUCKER COOP
R. Tucker Coop, Chief Executive Officer
STOCKHOLDERS:
PENMAN PRIVATE EQUITY AND
MEZZANINE FUND, L.P.
By: PENMAN Asset Management, L.P., the General
Partner
By: /s/ KEVIN J. PENNINGTON
Kevin J. Pennington, a general
partner
28
<PAGE>
R. TUCKER COOP FAMILY TRUST
DATED 9/11/92
By: /s/ R. TUCKER COOP
R. Tucker Coop, Trustee
/s/ WALTER D. WALLACH
Walter D. Wallach
STEPHEN E. FARROW AND NANCY J. FARROW
TRUST DATED 3/19/93
By: /s/ STEPHEN E. FARROW
Stephen E. Farrow, Trustee
/s/ ROBERT A. ZIMARDO
Robert A. Zimardo
/s/ JAMES A. PEARSON
James A. Pearson
ROBERT R. MCCLENDON AND MARSHA B.
MCCLENDON FAMILY TRUST
DATED JULY 12, 1990
By: /s/ ROBERT R. MCCLENDON
Robert R. McClendon, Trustee
/s/ CHARLES E. CLARK
Charles E. Clark
/s/ JOHN D. BAILEY
John D. Bailey
/s/ ROLAND G. WOOD
Roland G. Wood
29
<PAGE>
/s/ WILLIAM G. GOLIK
William G. Golik
/s/ RICHARD A. ZIMARDO
Richard a. Zimardo
/s/ ALEJANDRO DIGIANFILIPPO
Alejandro Digianfilippo
/s/ JAYE M. CARROLL
Jaye M. Carroll
JOEL D. SPUNGIN REVOCABLE TRUST U/A/D
4/29/95
By: JOEL D. SPUNGIN
Joel D. Spungin, Trustee
30
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used
herein as therein defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthtech Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties
Omnimedical, Inc.
Professional Equipment Company
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 1.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
The Economic Alliance Corporation ("TEAC") is a company jointly owned
by two community based home nursing agencies, Community Medical Technologies
("CMT") and Visiting Nurse Health Systems ("VNHS"). TEAC was formed to develop,
procure and subsequently provide a myriad of procedural kits to other community
based home health agencies nationwide. A wholly-owned subsidiary of TRIAD
Holdings, Inc. ("THI") is purchasing 80% of the capital stock of TEAC from its
stockholders (the "selling stockholders") for a purchase price of $960,000 and
"folding in" TEAC's existing procedural kit business into THI's normal
distribution network. In addition, THI will change the name of TEAC (a Georgia
corporation) to Triad Patient Direct ("TPD") and will reincorporate TEAC, under
its new name, in Delaware. TPD will be in the business of providing supplies and
information services to home health agencies. As the new name would imply, TPD
will be distributing products both to home health agencies and directly to
patients' homes. Simultaneously with this transaction, product supply agreements
will be entered into between TPD, CMT and VNHS under which either TPD, or a
wholly-owned subsidiary of THI will be phased in to become a principal supplier
to CMT and VHNS.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Walter D. Wallach
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Chief Executive Officer: R. Tucker Coop
President: R. Tucker Coop
Vice President, Secretary
and Treasurer Walter D. Wallach
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
PENMAN Private Equity and 333 West Wacker Drive, Suite 700
Mezzanine Fund, L.P. Chicago, Illinois 60606
R. Tucker Coop Family Trust c/o R. Tucker Coop, Trustee
dated 9/11/92 33422 Dosinia Drive
Dana Point, CA 92629
Walter D. Wallach 4627 Roxbury Road
Corona Del Mar, CA 92625
Stephen E. Farrow and Nancy J. c/o Stephen E. Farrow, Trustee
Farrow Trust dated 3/19/93 1404 Oxford Avenue
Claremont, CA 91711
Robert A. Zimardo 151 11th Avenue
Huntington Station, NY 11746
James A. Pearson 4519 Forest Peak Circle
Marietta, GA 30066
Robert R. McClendon and Marsha B. c/o Robert R. McClendon, Trustee
McClendon Family Trust 15888 North 77th Ave.
dated July 12, 1990 Peoria, AZ 85382
Charles E. Clark 28051 Paseo Ventura
San Juan, CA 92675
John D. Bailey 5528 Woodcrest Drive
Edina, MN 55424
Roland G. Wood 8564 Ostrich Circle
Fountain Valley, CA 92708
William G. Golik 7890 SW 76th Terrace
Miami, FL 33143
Richard A. Zimardo 180 Fulton Street
Massapequa Park, NY 11762
Alejandro Di Gianfilippo 29192 North 78th Street
Scottsdale, AZ 85262
Jaye M. Carroll 82 Washington Ave.
Patchogue, NY 11772
c/o Joel D. Spungin, Trustee
Joel D. Spungin Revocable Trust 800 Deerfield Road No. 207
U/A/D 4/29/95 Highland Park, Illinois 60035
<PAGE>
SCHEDULE 2.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
TRIAD Acquisition, Inc.
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The terms of the TMI Options issuable on conversion of the Company
Options shall be as follows:
1. NUMBER OF TMI OPTION SHARES. To be determined as provided in
Sections 2.07 and 2.08 of the Agreement.
2. EXERCISE PRICE PER SHARE. To be determined as provided in
Sections 2.07 and 2.08 of the Agreement.
3. TERM OF TMI OPTIONS. To be determined by reference to (i) the
date of the original grant of the Company Options that are
converted into TMI Options and (ii) the term of the Company
Options and the termination provisions applicable thereto as
set forth in the respective Option Agreements governing the
Company Options, except that in the event of a termination of
an Optionee's employment for Cause, as such term is defined in
the TMI 1997 Incentive Plan, with whichever of TMI or its
Subsidiaries is the Optionee's employer, all such Optionee's
TMI Options shall terminate automatically in accordance with
the terms of the 1997 Incentive Plan applicable to
terminations of employment for Cause, except for TMI Options
issued on conversion of the Company Options identified on
Attachment A hereto.
4. VESTING AND EXERCISEABILITY OF TMI OPTIONS. All of the TMI
Options of each Optionee issued on conversion of the
Optionee's Company Options as of the Effective Time (inclusive
of any TMI Options issued pursuant to Section 2.08 of the
Agreement), but the Effective Tine and all such TMI Options
shall be exercisable at any time in whole or from time to time
during the applicable period of exerciseability set forth in
the Company's Option Plan or the Option Agreement pursuant to
which the Company Options were granted, as modified by
Paragraph 3 above with respect to terminations of Employment
for Cause.
5. RESTRICTIONS ON TRANSFER. TMI Options exercised during the
period ending on the second anniversary of the IPO Closing
Date shall be subject to the restrictions on transferability
that apply to TMI shares issued on conversion of Outstanding
Company Shares in the Merger, as set forth in Section 11.02 of
the Agreement; provided, however, that an Optionee whose
employment has terminated (other than
<PAGE>
for Cause as defined in the 1997 Incentive Plan and other than
a voluntary termination by an Optionee), shall be entitled to
sell a number of Option shares, through a broker in cashless
exercise transaction, sufficient to enable the Optionee to pay
the exercise price of the Option shares and any federal and
state income taxes payable on the spread between the fair
market value of the Option shares on the date of exercise and
the exercise price.
6. OTHER TERMS. Except as otherwise set forth herein, the TMI
Options shall be governed by the terms set forth in the Triad
Holdings Option Plan, except that references to Triad Holdings
or Company therein shall refer to TMI following the Effective
Time.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder, other than those listed below, is an "accredited
investor" as defined in Securities Act Rule 501(a):
Charles E. Clark
Roland G. Wood
William G. Golik
Richard A. Zimardo
Alejandro Di Gianfilippo
Jaye M. Carroll
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's
Capital Stock and the Pro Rata Share of each Stockholder:
NUMBER OF PRO RATA
NAME CLASS SHARES OWNED SHARE
PENMAN Private Equity and
Mezzanine Fund, L.P. Class A Common 1,362,190 54.5%
R. Tucker Coop Family Trust Class B Common 324,322 14.1%
dated 9/11/92
Stephen E. Farrow and Nancy J. Class B Common 223,766 9.7%
Farrow Trust dated 3/19/93
Robert A. Zimardo Class B Common 140,881 6.1%
James A. Pearson Class B Common 80,000 3.5%
Walter D. Wallach Class B Common 66,000 2.9%
Robert R. McClendon and Marsha Class B Common 50,000 2.2%
B. McClendon Family Trust
dated July 12, 1990
Charles E. Clark Class B Common 37,876 1.6%
John D. Bailey Class B Common 31,000 1.3%
Roland G. Wood Class B Common 25,000 1.1%
William G. Golik Class B Common 22,000 1.0%
Richard A. Zimardo Class B Common 20,000 0.9%
Alejandro Di Gianfilippo Class B Common 10,000 0.4%
Jaye M. Carroll Class B Common 2,500 0.1%
Joel D. Spungin Revocable Trust
U/A/D 4/29/95 Class B Common 15,000 0.6%
Pursuant to the Formation Agreement dated May 17, 1996, among the Company,
PENMAN and the former shareholders of TRIAD Medical, PENMAN will surrender
106,465 shares of Class A Common Stock on or before the Merger. The table above
sets forth the number of shares owned by PENMAN (I.E. 1,362,190) prior to the
surrender of such shares but the percentages set forth above in the column
headed "Pro Rata Share" are calculated on a pro forma basis after the surrender
of such shares.
<PAGE>
C. Under a Shareholders' Agreement dated as of May 17, 1996, among the
Company and the holders of it s Class A and Class B Common Stock, (i) the
Company's prior written consent is required for certain transfers of shares of
Class B Common Stock, (ii) the Company has a right of first refusal in
connection with sales of shares of its Class B Common Stock, (iii) if a holder
of shares of Class B Common Stock dies, the Company is obligated to purchase the
deceased holder's shares, and (iv) the holders of the Class A and Class B Common
Stock have certain preemptive, "tag-along," and "bring-along" rights. The
Shareholders' Agreement also contains certain voting agreements among the
stockholders. The foregoing summary is not complete and is qualified by
reference to the Shareholders' Agreement, a copy of which has been furnished to
TMI. The parties to the Shareholders' Agreement have entered into an agreement
dated the date of the Agreement, that provides that on consummation of the
Merger and the IPO, the Shareholders' Agreement shall automatically terminate
without the necessity of any action on the party of any of its parties.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. A Company Subsidiary leases two of its warehouse facilities from
Robert R. McClendon and Marsha B. McClendon and an entity controlled by
Mr. McClendon. Rent expense under these leases is an aggregate of
$37,000 per annum and was an aggregate of $17,500 for the six months
ended June 30, 1997. The leases expire on June 30, 1999.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms, subject to
the following provisions of this Schedule:
1. The Lease Agreements between a Company Subsidiary and
McClendon Livestock Enterprises, Inc. and Robert R. and Marsha B.
McClendon, respectively, described in Part B of Schedule 3.07 to the
captioned Agreement.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc,.
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
NONE
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to TMI to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause
the following Stockholder Guarantees to be terminated:
None
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.,
TRIAD Acquisition, Inc.,
TRIAD Holdings, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
Stephen Farrow
James Pearson
EXHIBIT 2.3
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
HTD ACQUISITION, INC.
HEALTHCARE TECHNOLOGY DELIVERY, INC.
AND
ITS STOCKHOLDERS
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................5
Section 2.01. Certificate of Merger......................................5
Section 2.02. The Effective Time.........................................5
Section 2.03. Certain Effects of the Merger..............................5
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................6
Section 2.06. Fractional Shares..........................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER..............................................7
Section 3.01. By each Stockholder........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS..............................8
Section 4.01. By the Company and Each Stockholder........................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO...............9
Section 5.01. By TMI and Newco............................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME........................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO
CLOSING AND CONSUMMATION......................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIIICOVENANTS FOLLOWING THE EFFECTIVE TIME..........................11
Section 8.01. Of Each Party Other Than the Company......................11
ARTICLE IX INDEMNIFICATION.................................................11
Section 9.01. Indemnification Rights and Obligations....................11
ARTICLE X LIMITATIONS ON COMPETITION...................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
Section 10.03. Reasonable Restraint.....................................12
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Section 10.04. Severability; Reformation................................12
Section 10.05. Independent Covenant.....................................13
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS..............................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................15
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................15
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................18
Section 11.14. Respecting the IPO.......................................18
ARTICLE XII TERMINATION.....................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"), HTD
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of TMI
("Newco"), Healthcare Technology Delivery, Inc., a Delaware corporation (the
"Company"), and the persons listed on the signature pages of this Agreement
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii)TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying Addendum
I (each an "Other Founding Company" and, collectively with the Company, the
"Founding Companies") under agreements similar to this Agreement entered into
among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its common
stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
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"AGREEMENT" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Schedules, Annexes and
Exhibits, as each of them may be amended, modified or supplemented from
time to time under their provisions or the provisions of this Agreement.
"CEILING AMOUNT" means (i) on or before the first anniversary of the
IPO Closing Date, $9.9 million, and (ii) thereafter, $4.95 million less
the amount of all Damages paid or which have become payable by the party
or parties in question with respect to indemnification claims made on or
before the first anniversary of the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there shall
be included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"COMPANY COMMON STOCK" means the common stock, par value $.01 per
share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited consolidated balance
sheet of the Company and the Company Subsidiaries at June 30, 1997, which
is included in the Initial Financial Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on the
date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and each of the Stockholders and delivered to TMI prior to the
execution and delivery of this Agreement, in which either (a) exceptions
are taken to each of certain of the representations and warranties made by
the Company and the Stockholders in this Agreement or (b) it is confirmed
that no exception is taken to that representation and warranty.
"DGCL" means the General Corporation Law of the State of Delaware.
"EXISTING RELATED PARTY LEASES" means (i) the Commercial Lease dated
January 13, 1997, between Saralou Associates, as lessor, and Futuretech,
as lessee, by which Futuretech leases the real property located at 5911
Greenwood Parkway, Bessemer,
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Alabama, and (ii) the Lease Agreement dated October 1, 1993, between
P.O.P. Associates, L.C., as lessor, and MCA, as lessee, by which MCA
leases office space located at 2078 Prospector Avenue, Park City, Utah.
"FUTURETECH" means Futuretech, Inc., an Alabama corporation and a
wholly owned Subsidiary of the Company.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited consolidated
balance sheets of the Company and the Company Subsidiaries at December 31,
1995, and 1996 and the related audited consolidated statements of
operations, stockholders' equity and cash flows for each of the Company's
two fiscal years ended December 31, 1996, together with the related audit
report of Arthur Andersen LLP, and (b) the Current Balance Sheet and the
related unaudited consolidated statements of operations, cash flows and
stockholders' equity for the six month period ended on the Current Balance
Sheet.
"MCA" means Medical Companies Alliance, a Utah corporation and a
wholly owned Subsidiary of the Company.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW LEASE AGREEMENTS" means the Lease Agreements to be executed and
delivered by Futuretech and Saralou Associates, and MCA and P.O.P.
Associates, L.C., respectively, at or before the Closing, to be effective
as of the Effective Time, and to be in the form of Exhibits 1.02-C and
1.02-D, respectively, attached to this Agreement, by which Futuretech and
MCA, respectively, from and after the Effective Time, will lease the real
property now leased under the Existing Related Party Leases.
"NEWCO" means HTD Acquisition, Inc., a Delaware corporation.
"PREFERRED SHARES" has the meaning specified in Section 4.01(b).
"PRO RATA SHARE" means for each Stockholder the fraction expressed
as a percentage and set forth in Schedule 2.04, (a) the numerator of which
is the number of shares of outstanding Company Common Stock owned by that
Stockholder, as set forth in Schedule 2.04, and (b) the denominator of
which is the total number of shares of outstanding Company Common Stock
owned by all Stockholders, as set forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means either of Clyde A. Blankenship or
Michael Campbell.
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"RESTRICTED STOCKHOLDER" has the meaning specified in Section 10.01.
"REVOLVING CREDIT INDEBTEDNESS" means all amounts from time to time
outstanding under Futuretech's $1.5 million revolving credit facility with
AmSouth Bank, N.A.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDER NOTES" means the promissory notes of Futuretech to
certain of the Stockholders referred to in Note 6 of the December 31, 1997
balance sheet included in the Initial Financial Statements, the aggregate
outstanding principal balance of which was $169,136 at June 30, 1997.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be designated
in the Certificate of Merger as the surviving corporation of the Merger.
"TERM DEBT" means all long-term Indebtedness (including the current
maturities thereof but excluding indebtedness under capitalized leases) of
the Company and the Company Subsidiaries, other than the Indebtedness of
the Company evidenced by the Stockholder Notes.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $198,000.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of distributing medical or healthcare products to hospitals,
clinics, physicians, laboratories, pharmacies, alternate care sites or
other medical or healthcare facilities or conceiving, designing,
developing or testing technologically advanced medical or healthcare
products, and which was called on by any of the Company, TMI or a
Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any of
them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
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ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions of
this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Delaware.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the DGCL, (b) Newco will cease to exist as a separate legal
entity, (c) the articles of incorporation of the Company will be amended to
change its authorized capital stock to 1,000 shares, par value $1.00 per share,
of Common Stock, (d) the Company will be the Surviving Corporation and, as such,
will, all with the effect provided by the DGCL, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Delaware, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law, in the case of the articles of incorporation or (ii)
their terms, in the case of the bylaws) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Persons named in Schedule 2.03, and those Persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Delaware and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those Persons will serve in
each office specified for that Person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
Person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of TMI Common Stock set forth or determined as provided
in Schedule 2.04 (the "Merger Consideration"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
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(ii) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(iii)each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving Corporation,
and the shares of Common Stock of the Surviving Corporation issued on
conversion will constitute all the issued and outstanding shares of
Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will,
on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI will
pay and issue, or cause to be paid and issued, to each Stockholder, in
each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company Common
Stock has been surrendered and replaced pursuant to this Section 2.05,
that certificate will, for all purposes, be deemed to evidence ownership
of the number of whole shares of TMI Common Stock included in the Merger
Consideration payable in respect of that certificate pursuant to Section
2.04. All shares of TMI Common Stock issuable in the Merger will be deemed
for all purposes to have been issued by TMI at the Effective Time. All
cash included in the Merger Consideration shall be paid by TMI's company
check or checks, one or more wire transfers to accounts designated by the
respective Stockholders at least two New York business days before the IPO
Closing Date, or by certified or official bank check or checks, at TMI's
option.
(b) Each Stockholder will deliver to TMI (or any agent that may be
appointed by TMI for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by
the Stockholder, duly endorsed in blank by him, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and
other revenue stamps, acquired at his expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record
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thereof after the Effective Time will be paid to the holder of any
unsurrendered certificates representing shares of Company Common Stock for
which shares of TMI Common Stock have been issued in the Merger until
those certificates are surrendered as provided herein, but (i) on such
surrender TMI will cause to be paid, to the Person in whose name the
certificates representing such shares of TMI Common Stock shall then be
issued, the amount of dividends or other distributions previously paid
with respect to such whole shares of TMI Common Stock with a record date,
or which have accrued, subsequent to the Effective Time, but prior to
surrender, and the amount of any cash payable to such Person for and in
lieu of fractional shares pursuant to Section 2.06 and (ii) at the
appropriate payment date or as soon as practicable thereafter, TMI will
cause to be paid to that Person the amount of dividends or other
distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent
to surrender, which are payable with respect to such whole shares of TMI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or
other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of this
Article II, no fractional shares of TMI Common Stock will be issued, and any
Stockholder otherwise entitled to receive a fractional share of TMI Common Stock
but for this Section 2.06 will instead be entitled to receive a cash payment for
and in lieu thereof in the amount (rounded to the nearest whole cent) equal to
that Person's fractional interest in a share of TMI Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to himself
or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI Common
Stock to be issued pursuant to Section 2.04 to the Stockholder solely for
the Stockholder's account, for investment purposes only and with no
current intention or plan to distribute, sell or otherwise dispose of any
of those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of TMI Common Stock other than this Agreement, the
Stockholders Agreement and the Registration Rights Agreement; (iii) unless
otherwise specified on Schedule 3.01, the Stockholder is an "accredited
investor" as defined in Securities Act Rule 501 (a); (iv) the Stockholder
(A) is able to bear the economic risk of an investment in the TMI Common
Stock to be acquired by him or her pursuant to this Agreement, (B) can
afford to sustain a total loss of that investment, (C) has such knowledge
and experience in financial and business matters that
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he or she is capable of evaluating the merits and risks of the proposed
investment in the TMI Common Stock, (D) has had an adequate opportunity to
ask questions and receive answers from the officers of TMI concerning any
and all matters relating to the transactions contemplated by this
Agreement, including the background and experience of the current and
proposed officers and directors of TMI, the plans for the operations of
the business of TMI, the business, operations and financial condition of
the Other Founding Companies and any plans of TMI for additional
acquisitions, and (E) has asked all questions of the nature described in
preceding clause (D), and all those questions have been answered to his or
her satisfaction; and
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Delaware,
and the Company (i) is a corporation duly organized, validly existing and
in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted, and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than its Organization
State) in which it owns or leases property or in which the carrying on of
its business as now conducted so requires except where the failure to be
so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of (1)
200,000 shares of Company Common Stock, of which 90,000 shares have been
issued and are now outstanding and (ii) 4,500 shares of preferred stock,
par value $100 per share, of which 4,500 shares (the "Preferred Shares")
have been issued and are now outstanding. There are no shares are held by
the Company as treasury shares, and no outstanding Derivative Securities
of the Company exist;
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(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the DGCL (A) the execution of a
Certificate of Merger meeting the requirements of the DGCL and providing
that the Merger will become effective on the IPO Closing Date and (B) the
filing of the Certificate with the Secretary of State of the State of
Delaware), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05, and (iii) satisfy the document
delivery requirements to which the obligations of the parties to effect
the Merger
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and the other transactions contemplated hereby are conditioned by the
provisions of this Article VII (all those actions collectively being the
"Closing"). The Closing will take place at the offices of Porter & Hedges,
L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston time, or at
such later time on the IPO Pricing Date as TMI shall specify by written
notice to William C. Klintworth, Jr. The actions taken at the Closing will
not include the completion of either the Merger or the delivery of the
Company Common Stock or the Merger Consideration pursuant to Section 2.05.
Instead, on the IPO Closing Date, the Certificate of Merger will become
effective pursuant to Section 2.02, and all transactions contemplated by
this Agreement to be closed or completed on or before the IPO Closing
Date, including the surrender of the Company Common Stock in exchange for
the Merger Consideration (including a certified check or checks in an
amount equal to the cash portion of the Merger Consideration) will be
closed or completed, as the case may be. During the period from the
Closing to the IPO Closing Date, this Agreement may be terminated by the
parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set forth
in Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) the
Stockholders Agreement, the New Employment Agreements and the New Lease
Agreements then shall be in full force and effect; and (ii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before the
date of the Closing, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to TMI a copy
of the articles of incorporation, as amended to the date of the Closing
and certified by the Secretary of State of the State of Delaware as of a
Current Date, of the Company; (ii) Futuretech shall have paid in full the
entire unpaid balance (both principal and accrued, unpaid interest) on the
Revolving Credit Indebtedness, the Stockholder Notes and the Term Debt;
and (iii) all the conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions to
be taken on the IPO Closing Date are subject to the satisfaction on that
date of the following conditions: (i) the New Employment Agreements and
the New Lease Agreements then shall be in full force and effect; (ii) the
Preferred Shares shall have been, or shall be contemporaneously with the
IPO Closing, redeemed, for cash, at their stated redemption price; and
(iii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
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(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article IX
of the Uniform Provisions hereby is incorporated herein by this reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the
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<PAGE>
facility is located, (iv) the area located within 100 miles of the
facility and (v) the area in which the facility regularly makes sales or
provides services, all of such locations being herein collectively called
the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or TMI in any managerial capacity with the
purpose or intent of attracting that person from the employ of the
Company, any Company Subsidiary or TMI, provided that the Stockholder may
call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or TMI within the Territory, (i) for the purpose of soliciting
or selling any product or service in competition with the Company, any
Company Subsidiary or TMI within the Territory and (ii) with the knowledge
of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
12
<PAGE>
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X are
intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary of
the IPO Closing Date (the "Restricted Period") no Stockholder voluntarily
will, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of
(A) any shares of TMI Common Stock received by any Stockholder in the
Merger or (B) any interest in (including any option to buy or sell) any of
those shares of TMI Common Stock, in whole or in part and TMI will have no
obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or
not with respect to any shares of TMI Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of TMI Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); PROVIDED, HOWEVER, that this Section 11.02 shall not
restrict any transfer of TMI Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who
agree in writing to be bound by the provisions
13
<PAGE>
of Section 11.01 and this Section 11.02. The certificates evidencing the
TMI Common Stock delivered to each Stockholder pursuant to Section 2.05
will bear a legend substantially in the form set forth below and
containing such other information as TMI may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND
THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING
DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold by that Stockholder without compliance with the Securities Act and
(B) will, as a result of their restrictions on transferability which are
imposed by this Agreement during the Restricted Period, have a value
materially less at the Effective Time than the value of then freely
tradeable shares of TMI Common Stock, and (ii) covenants that none of the
shares of TMI Common Stock issued to that Stockholder pursuant to Section
2.04 will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations
of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of TMI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
14
<PAGE>
Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and
the rights of its parties may not be assigned (except by operation of law) and
shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, (a) TMI will pay (i) the fees, expenses and disbursements of
TMI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by TMI and Newco under this Agreement, including the
costs of preparing the Registration Statement, and (ii) the fees, expenses and
disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date, (b) the Company will pay any fees,
expenses and disbursements of any counsel (other than Counsel for the Company
and the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date, up
to a maximum of $25,000 in the aggregate, and (c) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, (i)
all sales, use, transfer and other similar taxes and fees (collectively,
"Transfer Taxes") incurred in connection with the transactions contemplated
hereby, and (ii) the fees, expenses and disbursements in excess of $25,000 in
the aggregate, of any counsel
15
<PAGE>
(other than Counsel for the Company and the Stockholders) incurred in connection
with the subject matter of this Agreement and the Registration Statement on or
before the IPO Closing Date. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or TMI or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall be
in writing, and shall be deemed to be delivered and received (a) if personally
delivered or if delivered by telex, telegram, facsimile or courier service, when
actually received by the party to whom notice is sent or (b) if delivered by
mail (whether actually received or not), at the close of business on the third
Houston, Texas business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate party or
parties, at the address of such party set forth below (or at such other address
as such party may designate by written notice to all other parties in accordance
herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii)if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Healthcare Technology Delivery, Inc.
2078 Prospector Avenue
P.O. Box 680788
Park City, Utah 84068-0788
Attn: William C. Klintworth, Jr.
16
<PAGE>
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO WILL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE GOVERNED BY THE
DGCL.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within
17
<PAGE>
a particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii)by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions contemplated
by this Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful failure of
the party (or in the case of the Stockholders and the Company, any
of them) seeking to terminate this Agreement to perform or adhere to
any agreement required hereby to be performed or adhered to by it
prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if a material breach or default
shall be made by the other party (or in the case of the Stockholders
and the Company, any of them) in the observance or in the due and
timely performance of any of the covenants, agreements or conditions
contained herein; or
(iv) by TMI if it is entitled to do so as provided in Section
6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
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<PAGE>
(ii)automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this
Section 12.01 after the Certificate of Merger has been filed with the
Secretary of State of the State of Delaware, but before the IPO has been
consummated, TMI will take all actions that Counsel for the Company and
the Stockholders advises TMI are required by the applicable laws of the
State of Delaware to rescind the Merger.
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRIAD MEDICAL INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
Chief Executive Officer
HTD ACQUISITION, INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
President
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<PAGE>
HEALTHCARE TECHNOLOGY DELIVERY, INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
President
STOCKHOLDERS:
/s/ CLYDE A. BLANKENSHIP, JR.
Clyde A. Blankenship, Jr.
/s/ MICHAEL K. CAMPBELL
Michael K. Campbell
EQUUS II INCORPORATED
By: /s/ NOLAN LEHMANN
Nolan Lehmann
Its: President
HTD HOLDINGS, L.C.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.
Its: Manager
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President: R. Tucker Coop
Vice President: William C. Klintworth, Jr.
Vice President: Walter D. Wallach
Vice President, Secretary,
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
EQUUS II Incorporated c/o Equus Capital Corporation
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Attn: Nolan Lehman, President
HTD Holdings, L.C. 2078 Prospector Ave
Park City, Utah 84060-7321
Attn: William C. Klintworth, Jr., Manager
Clyde A. Blankenship, Jr. 5911 Greenwood Parkway
Bessemer, Alabama 35023
Michael K. Campbell 5911 Greenwood Parkway
Bessemer, Alabama 35023
C. The aggregate Merger Consideration shall be comprised of (i) $2,475,000
(the "Cash Consideration") and (ii) 530,357 shares of TMI Common Stock (the
"Stock Consideration"). The percentage of the Cash Consideration and the Stock
Consideration to be received by each Stockholder shall be as set forth below:
STOCKHOLDER % OF CASH CONSIDERATION %OF STOCK CONSIDERATION
- ------------------------- ----------------------- -----------------------
HTD Holdings, L.C. 40.00% 26.6667%
Clyde A. Blankenship, Jr. 40.00% 40.0667%
Michael K. Campbell 20.00% 19.9333%
Equus II Incorporated 0% 13.333%
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
- ------------------------ --------- ----------------------
Equus II Incorporated Preferred 4,500
Common 9,000
HTD Holdings, L.C. Common 27,000
Clyde A. Blankenship, Jr. Common 36,048
Michael K. Campbell Common 17,952
C. Of the 27,000 shares owned by HTD Holdings, L.C., 4,500 of those shares
are held in escrow pursuant to a Stock Escrow Agreement dated March 1, 1997 by
and between Healthcare Technology Delivery, Inc., HTD Holdings, L.C. and Gorham
& Waldrep, P.C., as the escrow agent. During the term of the escrow agreement,
HTD Holdings, L.C. is the record owner of the shares and has full voting power
with respect thereto. The shares are to be released from escrow at or before the
IPO Closing Date.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. Futuretech leases its facilities from Saralou Associates, a
partnership in which Messrs. Blankenship and Campbell are the sole
partners. Monthly payments under the lease are $12,900 and rentals paid to
Saralou amount to $154,800 annually.
2. MCA leases its facilities from P.O.P. and Associates, LLC in
which William C. Klintworth, Jr. is a 50% member. Monthly lease payments
amount to approximately $1,900. MCA has paid to P.O.P. approximately
$26,600 in each of 1994, 1995 and 1996.
3. Futuretech has a $1.5 million revolving line of credit which
Messrs. Blankenship and Campbell have personally guaranteed.
4. Messrs. Blankenship and Campbell have loaned funds to Futuretech
for working capital purposes. These loans are evidenced by promissory
notes payable to Messrs. Blankenship and Campbell in the aggregate
original principal amount of approximately $169,000, and bear interest at
8% per annum, due monthly. The entire amount of principal is due in
October 1997.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreements will be permitted to continue in
effect past the date of the Closing in accordance with its terms, subject to the
following provisions of this Schedule:
1. The New Lease Agreements
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as are
necessary and satisfactory to TMI to dispose, prior to the Effective Time, of
the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause the
following Stockholder Guarantees to be terminated:
1. The personal guarantee by Messrs. Blankenship and Campbell of
Futuretech's $1.5 million revolving line of credit with AmSouth Bank N.A.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
HTD Acquisition, Inc.
Healthcare Technology Delivery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.4
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
SUN ACQUISITION INC.
SUN MEDICAL, INC.
AND
ITS SOLE STOCKHOLDER
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS................................................................1
Section 1.01. Certain Defined Terms................................................1
ARTICLE II THE MERGER AND RELATED MATTERS.............................................7
Section 2.01. Certificate of Merger................................................7
Section 2.02. The Effective Time...................................................7
Section 2.03. Certain Effects of the Merger........................................7
Section 2.04. Effect of the Merger on Capital Stock................................8
Section 2.05. Delivery, Exchange and Payment.......................................9
Section 2.06. Fractional Shares...................................................10
Section 2.07. Escrow of Contingent Merger Consideration...........................10
Section 2.08. Assumption and Payment of Closing Date Indebtedness.................11
Section 2.09. Sellards Application of Note Proceeds...............................11
Section 2.10. Payment of SERP Obligation to Sellards..............................11
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDER........................................................11
Section 3.01. By the Stockholder..................................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDER...........................................13
Section 4.01. By the Company and the Stockholder..................................13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO...........................14
Section 5.01. By TMI and Newco....................................................14
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME.................................14
Section 6.01. Of Each Party.......................................................14
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING
AND CONSUMMATION..........................................................15
Section 7.01. The Closing and Certain Conditions..................................15
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME....................................16
Section 8.01. Of Each Party Other Than the Company................................16
ARTICLE IX INDEMNIFICATION...........................................................17
Section 9.01. Indemnification Rights and Obligations..............................17
i
<PAGE>
ARTICLE X LIMITATIONS ON COMPETITION................................................17
ARTICLE XI GENERAL PROVISIONS........................................................17
Section 11.01. Treatment of Confidential Information...............................17
Section 11.02. Restrictions on Transfer of TMI Common Stock........................17
Section 11.03. Brokers and Agents..................................................18
Section 11.04. Assignment; No Third Party Beneficiaries............................19
Section 11.05. Entire Agreement; Amendment; Waivers................................19
Section 11.06. Counterparts........................................................19
Section 11.07. Expenses............................................................19
Section 11.08. Notices.............................................................20
Section 11.09. Governing Law.......................................................21
Section 11.10. Exercise of Rights and Remedies.....................................21
Section 11.11. Time................................................................21
Section 11.12. Reformation and Severability........................................21
Section 11.13. Remedies Cumulative.................................................22
Section 11.14. Respecting the IPO..................................................22
Section 11.15. Joinder of Sellards.................................................22
Section 11.16. Disclaimer by Independent Fiduciary.................................22
ARTICLE XII TERMINATION...............................................................22
Section 12.01. Termination of This Agreement.......................................22
Section 12.02. Liabilities in Event of Termination.................................23
ARTICLE XIII MATTERS RELATING TO THE PLAN AND ESCROW FUND..............................24
13.01. Compliance Efforts........................................................24
13.02. Plan Related Claims.......................................................24
13.03. Payments from Escrow Fund.................................................25
13.04. Voting of Escrowed Shares.................................................26
13.05. Duration of Escrow Agreement..............................................26
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Sun Acquisition, Inc., a Texas corporation and a wholly owned subsidiary of TMI
("Newco"), Sun Medical, Inc., a Texas corporation (the "Company"), Greg H.
Sellards, as Trustee of the Sun Medical, Inc. Employee Stock Ownership Trust,
the sole stockholder of the Company (the "Stockholder"), and Consulting
Fiduciaries, Inc., the independent fiduciary of the Sun Medical, Inc.
Employee Stock Ownership Plan (the "Independent Fiduciary").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii) TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the
Company, the "Founding Companies") under agreements similar to this
Agreement entered into among those entities, their equity owners, TMI
and subsidiaries of TMI (collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its common
stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
A:2.4
1
<PAGE>
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules, Annexes
and Exhibits, as each of them may be amended, modified or supplemented
from time to time under their provisions or the provisions of this
Agreement.
"BUSINESS CORPORATION ACT" means the Texas Business Corporation
Act.
"CEILING AMOUNT" means (i) on or before the first anniversary of
the IPO Closing Date, $11 million, and (ii) thereafter, $5.5 million
less the amount of all Damages paid or which have become payable by the
party or the parties in question with respect to indemnification claims
made on or before the first anniversary of the IPO Closing Date.
"CLOSING DATE INDEBTEDNESS" means the aggregate unpaid principal
balance of (i) the Sellards Note, (ii) the Ealy Note, and (iii) the TCB
Note, in each case at the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there
shall be included the forms of certificates of officers, the opinions of
counsel and certain other documents to be delivered at the Closing as
provided in Article VII.
"COMPANY COMMON STOCK" means the common stock, no par value, of
the Company.
"CONTINGENT CASH CONSIDERATION" means $1,500,000.
"CONTINGENT STOCK CONSIDERATION" means 35,714 shares of TMI
Common Stock.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"CYSCO" means Cysco Enterprises, Inc., a Texas corporation.
A:2.4
2
<PAGE>
"CYSCO NOTE PAYABLE" means the indebtedness (both principal and
accrued, unpaid interest) owed by the Company to Cysco, under (i) the
Promissory Note of the Company dated February 15, 1997, payable to the
order of Cysco in the original principal amount of $325,000 and (ii) the
related Note Agreement of even date therewith between Cysco and the
Company.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and the Stockholder and delivered to TMI prior to the
execution and delivery of this Agreement, in which either (a) exceptions
are taken to each of certain of the representations and warranties made
by the Company and the Stockholder in this Agreement or (b) it is
confirmed that no exception is taken to that representation and
warranty.
"DOL" means the United States Department of Labor.
"EALY NOTE" means the Stockholder's promissory note dated January
2, 1992, originally payable to the order of Ronald Ealy in the original
principal amount of $1,185,000, the outstanding principal balance of
which was $514,000 at June 30, 1997, which promissory note was assigned
by Ronald Ealy to Sellards on January 2, 1995, and is now held by
Sellards.
"ESCROW AGENT" means the bank or other financial institution to
be jointly designated by TMI and the Independent Fiduciary to serve as
the escrow agent under the Escrow Agreement.
"ESCROW AGREEMENT" means the Escrow Agreement to be entered into
on the IPO Closing Date among the Company, the Independent Fiduciary and
the Escrow Agent as contemplated in Section 2.07.
"ESCROW FUND" means (i) the Contingent Cash Consideration, (ii)
the Contingent Stock Consideration, and (iii) all interest and dividends
on the Contingent Cash Consideration and the Contingent Stock
Consideration, and all proceeds thereof, earned, paid or realized while
the same are on deposit with the Escrow Agent.
"ESCROWED SHARES" means all shares of TMI Common Stock included
in the Contingent Stock Consideration and deposited in escrow under the
Escrow Agreement.
"EXISTING RELATED PARTY LEASE" means the Lease Agreement
presently in effect between Dual Development, as lessor, and the
Company, as lessee, under which the Company now leases the premises at
1179 Corporate Drive West #100, Arlington, Texas.
"FIDUCIARY ENGAGEMENT LETTER" means the letter agreement dated
August 26, 1997, between TMI and the Independent Fiduciary under which
the Independent Fiduciary was engaged to act as independent fiduciary of
the Plan.
A:2.4
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<PAGE>
"FSA RECEIVABLE" means the note receivable of the Company from
Foundation Surgery Affiliation.
"INDEPENDENT FIDUCIARY" means Consulting Fiduciaries, Inc., the
independent fiduciary of the Plan and Trust.
"INITIAL CASH CONSIDERATION" means an amount of cash equal to (i)
the Maximum Cash Consideration minus (ii) the Contingent Cash
Consideration.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited balance
sheets of the Company at December 31, 1995 and 1996 and the related
audited statements of operations, stockholders' equity and cash flows
for each of the Company's three fiscal years in the three-year period
ended December 31, 1996, together with the related audit report of
Arthur Andersen LLP, and (b) the Current Balance Sheet and the related
unaudited statements of operations, stockholders' equity and cash flows
for the six-month period ended on the Current Balance Sheet.
"INITIAL STOCK CONSIDERATION" means 485,000 shares of TMI Common
Stock.
"LOAN REPAYMENT SHARES" means shares of TMI Common Stock which
TMI shall issue and deliver to Sellards in partial payment of the
Sellards Note as provided in Section 2.08, which number of shares shall
be determined by (i) first subtracting (a) $726,000 from (b) the unpaid
balance of principal on the Sellards Note at the Closing Date, and (ii)
then dividing the result thus obtained by $14.
"MAJORITY STOCKHOLDERS" means the Stockholder.
"MAXIMUM CASH CONSIDERATION" means an amount of cash equal to (i)
$2,861,000 minus (ii) the amount of the Closing Date Indebtedness.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENT" means the Employment Agreement entered
into as of September 9, 1997, between TMI and Sellards.
"NEW LEASE AGREEMENT" means the Lease Agreement to be executed
and delivered by the Company and Dual Development at or before the
Closing, to be effective as of the Effective Time, and to be in the form
of Exhibit 1.01-C attached to this Agreement, by which the Company, from
and after the Effective Time, will lease the real property now leased by
it under the Existing Related Party Lease.
"NEWCO" means Sun Acquisition, Inc., a Texas corporation.
A:2.4
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<PAGE>
"PLAN" means the Sun Medical, Inc. Employee Stock Ownership Plan.
"PLAN DOCUMENTS" means all agreements, documents and instruments
creating, evidencing or governing the Plan, the Trust or both.
"PLAN PARTICIPANTS" means all individuals, estates, trusts, and
entities who are now, have ever been or may later become entitled to
receive any benefit under the Plan, including (i) all past and present
participants in the Plan, (ii) all persons who as a result of a
qualified domestic relations order or otherwise have succeeded, once
succeeded, or may later succeed, to all or part of a past or present
Plan participant's interest in the Plan, (iii) the estate,
beneficiaries, heirs, legatees, devisees, personal legal
representatives, and "qualified spouses" (as that term is defined in the
Plan Documents) of all deceased Plan participants and of all deceased
persons who one succeeded to all or part of any Plan participant's
interest in the Plan, and (iv) all guardians or other personal legal
representatives of any past or present participant in the Plan or of any
person who has or once succeeded, or may later succeed, to all or part
of any past or present participant's interest in the Plan, and who is,
in any such case, incompetent or otherwise under a legal disability.
"PLAN RELATED CLAIMS" means all claims, demands or assessments
made or asserted by the IRS, the DOL, any other Governmental Authority,
any Plan Participant or any other Person based upon, arising out of or
under or relating to:
(i) any Prohibited Transaction engaged in by the Company,
any past or present Company Subsidiary, the Plan, the Trustee,
any past trustee of the Plan, or any other past or present
fiduciary of the Plan;
(ii) any failure of the Plan to have been qualified under
Section 401(a) of the Code, or exempt from U.S. federal income
Taxes under Section 501(a) of the Code, at any time prior to the
Effective Time or thereafter if attributable to acts or omissions
occurring prior to the Effective Time;
(iii) the making of any contributions to the Plan by the
Company or any past or present Company Subsidiary which were not
deductible for U.S. federal income tax purposes, for any taxable
period ending on or before the Effective Time;
(iv) any breaches of fiduciary duty on the part of any
past or present Plan fiduciary;
(v) any other failure of the Company, any past or present
Company Subsidiary, the Trustee, any past trustee of the Plan
Trust, or any other past or present fiduciary of the Plan to
comply with ERISA or the Code with respect to the Plan; or
A:2.4
5
<PAGE>
(vi) any sanctions, Taxes, fees, penalties and interest
imposed under the Code, ERISA or other applicable Law in respect
of any of the foregoing.
"PLAN RELATED DAMAGES" means all Damages paid, suffered or
incurred by the Company or the TMI Indemnified Parties in connection
with or as a result of any Plan Related Claim, determined without regard
to the Threshold Amount.
"PLAN TRUST" means the Sun Medical, Inc. Employee Stock
Ownership Trust.
"PRO RATA SHARE" means 100%.
"REJUVENA" means Rejuvena Corporation, a Texas corporation.
"REJUVENA EQUITY SECURITIES" means (i) all shares of Capital
Stock of Rejuvena owned by the Company and (ii) all options held by the
Company for the purchase of shares of Capital Stock of Rejuvena.
"REJUVENA NOTE AGREEMENT" means the Note Agreement dated October
25, 1996, between the Company and Rejuvena.
"REJUVENA NOTE RECEIVABLE" means the unpaid principal of and all
unpaid accrued interest on all convertible promissory notes issued to
the Company under the Rejuvena Note Agreement.
"RESPONSIBLE OFFICER" means Sellards.
"SCHEDULED AGREEMENTS" means the agreements described in
Schedule 4.11.
"SELLARDS" means Greg H. Sellards in his individual capacity.
"SELLARDS' TCB LOAN" means the loan to Sellards from TCB
evidenced by Sellards' Installment Promissory Note dated December 31,
1995, payable to the order of TCB, the outstanding principal balance of
which was $514,000 at June 30, 1997.
"SELLARDS NOTE" means the Stockholder's promissory note dated
January 2, 1992, payable to the order of Sellards in the original
principal amount of $2,765,000, the outstanding principal balance of
which was $1,436,000 at June 30, 1997.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholder and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
A:2.4
6
<PAGE>
"TCB" means Texas Commerce Bank National Association.
"TCB NOTE" means the Stockholder's promissory note dated July 31,
1991, payable to the order of TCB in the original principal amount of
$350,000, the outstanding principal balance of which was $75,000 at June
30, 1997.
"TERRITORY" has the meaning specified in Section 10.01.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of distributing medical or healthcare products to
hospitals, clinics, physicians, laboratories, pharmacies, alternate care
sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and which was called on by any of the Company, TMI
or a Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any
of them has made an acquisition analysis.
"THRESHOLD AMOUNT" means $220,000.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"TRUSTEE" means Greg H. Sellards, in his capacity as Trustee of
the Stockholder.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and conditions
of this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Texas.
Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business
A:2.4
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<PAGE>
Corporation Act, (b) Newco will cease to exist as a separate legal entity, (c)
the articles of incorporation of the Company will be amended to change its
authorized capital stock to 1,000 shares, par value $1.00 per share, of Common
Stock, (d) the Company will be the Surviving Corporation and, as such, will, all
with the effect provided by the Business Corporation Act, (i) possess all the
properties and rights, and be subject to all the restrictions and duties, of the
Company and Newco and (ii) be governed by the laws of the State of Texas, (e)
the Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law, in the case of the articles of incorporation or (ii)
their terms, in the case of the bylaws) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the Persons named in Schedule 2.03, and those Persons will hold the
office of director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Texas and the Charter Documents of the Surviving
Corporation, and (g) the initial officers of the Surviving Corporation will be
as set forth in Schedule 2.03, and each of those Persons will serve in each
office specified for that Person in Schedule 2.03, subject to the provisions of
the Charter Documents of the Surviving Corporation, until that Person's
successor is duly elected to, and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time will (i) be
converted into the right to receive, without interest, on
surrender of the certificate evidencing those shares, (a) an
amount of cash equal to the Initial Cash Consideration, (b) the
Initial Stock Consideration, and (c) such Contingent Cash
Consideration, Contingent Stock Consideration and other cash and
property from time to time included in the Escrow Fund as may
from time to time be paid or distributed to the Stockholder under
the terms of Section 2.07, Article XIII of this Agreement, and
the Escrow Agreement (all of which are herein collectively called
the "Merger Consideration"), (ii) cease to be outstanding and to
exist, and (iii) be canceled and retired;
(ii) each share of Company Common Stock held in the
treasury of the Company or any Company Subsidiary will (i) cease
to be outstanding and to exist and (ii) be canceled and retired;
and
(iii) each share of Newco Common Stock issued and
outstanding immediately prior to the Effective Time will be
converted into one share of Common Stock, par value $1.00 per
share, of the Surviving Corporation, and the shares of Common
Stock of the Surviving Corporation issued on conversion will
constitute all the issued and outstanding shares of Capital Stock
of the Surviving Corporation.
A:2.4
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<PAGE>
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) the Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI
will pay and issue, or cause to be paid and issued, to the Stockholder,
in each case, subject to the provisions of Section 2.06, the Initial
Cash Consideration and the Initial Stock Consideration; and (ii) until
any certificate representing Company Common Stock has been surrendered
and replaced pursuant to this Section 2.05, that certificate will, for
all purposes, be deemed to evidence ownership of the number of whole
shares of TMI Common Stock included in the Initial Stock Consideration.
All shares of TMI Common Stock included in the Initial Stock
Consideration will be deemed for all purposes to have been issued by TMI
at the Effective Time. All cash included in the Initial Cash
Consideration shall be paid by TMI's company check or checks, one or
more wire transfers to accounts designated by the respective
Stockholders at least two New York business days before the IPO Closing
Date, or by certified or official bank check or checks, at TMI's option.
(b) The Stockholder will deliver to TMI (or any agent that may be
appointed by TMI for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by
the Stockholder, duly endorsed in blank by him, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and
other revenue stamps, acquired at his expense, affixed and canceled.
Each Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the
stock powers accompanying, the certificates representing Company Common
Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to shares of TMI Common
Stock, included in the Initial Stock Consideration and payable to the
holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates representing shares of Company
Common Stock for which such shares of TMI Common Stock have been issued
in the Merger until those certificates are surrendered as provided
herein, but (i) on such surrender TMI will cause to be paid, to the
Person in whose name the certificates representing such shares of TMI
Common Stock shall then be issued, the amount of dividends or other
distributions previously paid with respect to such whole shares of TMI
Common Stock with a record date, or which have accrued, subsequent to
the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional
A:2.4
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<PAGE>
shares pursuant to Section 2.06 and (ii) at the appropriate payment date
or as soon as practicable thereafter, TMI will cause to be paid to that
Person the amount of dividends or other distributions with a record
date, or which have been accrued, subsequent to the Effective Time, but
which are not payable until a date subsequent to surrender, which are
payable with respect to such whole shares of TMI Common Stock, subject
in all cases to any applicable escheat laws. No interest will be payable
with respect to the payment of such dividends or other distributions or
cash for and in lieu of fractional shares on surrender of outstanding
certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
Section 2.07. ESCROW OF CONTINGENT MERGER CONSIDERATION.
(a) At the Effective Time:
(i) the Company and the Independent Fiduciary shall
execute and deliver, and shall cause the Escrow Agent to execute
and deliver, an Escrow Agreement in substantially the form of
Exhibit 1.02-D attached to this Agreement; and
(ii) the Company shall deposit with the Escrow Agent, to
be held and distributed by the Escrow Agent as provided in the
Escrow Agreement and Article XIII of this Agreement, (a) a
certificate or certificates evidencing the Contingent Stock
Consideration and (b) the Contingent Cash Consideration.
(b) The Escrowed Shares shall:
(i) be issued and outstanding shares of TMI Common Stock
and shall appear as such on the balance sheet of TMI;
(ii) be entitled, PRO RATA with all other holders of TMI
Common Stock, to all dividends declared with respect to the TMI
Common Stock; and
(iii) have voting rights equal to the voting rights of
all other issued and outstanding shares of TMI Common Stock.
However, no part of the Escrow Fund, while held by the Escrow
Agent under the Escrow Agreement, shall be considered to be assets of
the Plan for purposes of ERISA, and neither the Plan nor any Plan
Participant shall have any interest therein unless and until, and
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except to the extent, that property included in the Escrow Fund is
distributed to the Stockholder under the terms of Article XIII and the
Escrow Agreement.
Section 2.08. ASSUMPTION AND PAYMENT OF CLOSING DATE INDEBTEDNESS. On
the IPO Closing Date, effective as of the Effective Time, the Company shall
assume and agree to pay in full, in the manner provided in this Section 2.08,
the Closing Date Indebtedness. Immediately after the Effective Time and the
Company's assumption of the Closing Date Indebtedness, the Company shall pay,
and TMI shall provide to the Company the cash funds and Loan Repayment Shares
required by the Company in order to enable it to pay:
(i) in cash, the entire unpaid principal balance of, and
all unpaid interest on, the TCB Note;
(ii) in cash, the entire unpaid principal balance of,
and all unpaid interest on, the Ealy Note; and
(iii) the entire unpaid principal balance of, and all
unpaid interest on, the Sellards Note, such amount to be paid (a)
in cash, to the extent of $726,000 plus the amount of unpaid
interest on the entire principal balance of the Sellards Note,
and (b) by the issuance to Sellards of the Loan Repayment Shares,
to the extent of the remaining balance thereof.
Section 2.09. SELLARDS APPLICATION OF NOTE PROCEEDS. Immediately upon
the payment by the Company of the Sellards Note as provided in Section 2.08,
Sellards, out of the cash proceeds of such payment, shall pay in full the entire
unpaid principal balance of, and all accrued unpaid interest on, the Sellards'
TCB Loan, and shall release and cause to be released any pledge of or security
interest in any shares of Company Common Stock securing payment of the Ealy
Note, the Sellards' Note, or the Sellards' TCB Loan.
Section 2.10. PAYMENT OF SERP OBLIGATION TO SELLARDS. On the IPO Closing
Date, immediately following the Effective Time, the Company shall pay to
Sellards, and TMI shall provide to the Company any cash funds it may require in
order to pay to Sellards, the sum of $139,000 in full payment and satisfaction
of the Company's obligation to Sellards under the Company's Supplemental
Executive Retirement Plan.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
Section 3.01. BY THE STOCKHOLDER. The Stockholder represents and
warrants to TMI that all the following representations and warranties in this
Article III are true and correct:
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(a) (i) the Stockholder will be acquiring the shares of TMI
Common Stock included in the Merger Consideration solely for the
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute (other than as specifically contemplated
in Section 11.02), sell or otherwise dispose of any of those shares in
connection with any distribution; (ii) the Stockholder is not a party to
any agreement or other arrangement for the disposition of any shares of
TMI Common Stock other than this Agreement, the Escrow Agreement, the
Stockholders Agreement, the Registration Rights Agreement and as
specifically contemplated in Section 11.02; (iii) the Stockholder is an
"accredited investor" as defined in Securities Act Rule 501 (a); (iv)
the Stockholder (A) is able to bear the economic risk of an investment
in the TMI Common Stock to be acquired by the Stockholder pursuant to
this Agreement, (B) can afford to sustain a total loss of that
investment, (C) has such knowledge and experience in financial and
business matters that the Stockholder is capable of evaluating the
merits and risks of the proposed investment in the TMI Common Stock, (D)
has had an adequate opportunity to ask questions and receive answers
from the officers of TMI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
TMI, the plans for the operations of the business of TMI, the business,
operations and financial condition of the Other Founding Companies and
any plans of TMI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his or her satisfaction;
(b) the Trustee is the duly named and serving trustee of the
Trust, the execution and delivery of this Agreement and the other
Transaction Documents on behalf of the Trust are within the powers of
the Trustee, and the performance by the Stockholder of this Agreement
and each of the other Transaction Documents is within the powers and
purposes of the Stockholder under all Plan Documents, true and correct
copies of all of which have been delivered to TMI;
(c) neither the execution, delivery nor performance by the
Stockholder of this Agreement or any other Transaction Document (i) will
result in a violation of or breach of, or conflict with, any of the Plan
Documents or (ii) constitute a Prohibited Transaction for which an
exemption from the prohibitions or taxes imposed by Section 406 of ERISA
or Section 4975 of the Code is not provided;
(d) except for fees and expenses payable to the Independent
Fiduciary for services rendered in such capacity, neither the Trustee
nor any other fiduciary of the Plan or the Trust has received any
consideration for his own personal account from any party dealing with
the Plan or the Trust in connection with this Agreement or the
transactions contemplated herein;
(e) the Plan has received a written opinion from an independent
financial advisor or appraiser that satisfies the requirements of
Section 401(a)(28)(C) of the Code to the effect
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that the terms of the Merger are fair to the present Plan Participants,
and that "adequate consideration" for purposes of Section 408 of ERISA
will be received by the Plan Participants in connection with the Merger,
and the opinion has not been withdrawn or rescinded;
(f) the present Participants have voted in accordance with the
Plan Documents, and Section 409(e) of the Code, to direct the
Independent Fiduciary to direct the Trustee to vote at least two-thirds
shares of Company Common Stock in favor of the Merger, and the
Independent Fiduciary has directed the Trustee to vote such shares in
favor of the Merger; and
(g) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDER
Section 4.01. BY THE COMPANY AND THE STOCKHOLDER. The Company and the
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Texas,
and the Company (i) is a corporation duly organized, validly existing
and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted, and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than its
Organization State) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except where
the failure to be so qualified, singly or in the aggregate, would not
have a Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
500,000 shares of Company Common Stock, of which 166,887 shares have
been issued and are now outstanding and no shares are held by the
Company as treasury shares, and no outstanding Derivative Securities of
the Company exist;
(c) the Plan and the Trust have been duly authorized, organized
and established by all necessary corporate action on the part of the
Company, the Plan is a legal and valid employee stock ownership plan
within the meaning of Section 4975(e)(7) of the Code and
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Treasury Regulation Section 54.4975-11, and the Trust is exempt from
taxation under Section 501 of the Code;
(d) the issued and outstanding shares of Company Common Stock
owned by the Stockholder are qualifying employer securities under
Section 409(1) of the Code; and
(e) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.01. BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and the Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article VI is hereby incorporated herein by this reference)
to be performed or observed by that party.
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the
IPO Closing Date (including, as permitted by the Business Corporation
Act (A) the execution of a Certificate of Merger meeting the
requirements of the Business Corporation Act and providing that the
Merger will become effective on the IPO Closing Date and (B) the filing
of the Certificate with the Secretary of State of the State of Texas,
(ii) verify the existence and ownership of the certificates evidencing
the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the
Merger and the other transactions contemplated hereby are conditioned by
the provisions of this Article VII (all those actions collectively being
the "Closing"). The Closing will take place at the offices of Porter &
Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston
time, or at such later time on the IPO Pricing Date as TMI shall specify
by written notice to the Stockholder. The actions taken at the Closing
will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Initial Stock Consideration or the
Initial Cash Consideration pursuant to Section 2.05. Instead, on the IPO
Closing Date, the Certificate of Merger will become effective pursuant
to Section 2.02, and all transactions contemplated by this Agreement to
be closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal
to the cash portion of the Merger Consideration) will be closed or
completed, as the case may be. During the period from the Closing to the
IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDER. The obligations of the Company and the Stockholder with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholder
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) each of the Stockholders Agreement, the New Lease Agreement and the
New Employment Agreements then shall be in full force and effect; (ii)
the fairness opinion referred to in Section 3.01(d) shall not have been
withdrawn or rescinded; and (iii) all the conditions set forth in
Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are
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subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of the following conditions:
(i) the Company shall have delivered to TMI a copy of the articles of
incorporation, as amended to the date of the Closing and certified by
the Secretary of State of the State of Texas as of a Current Date, of
the Company; (ii) the Company shall have collected in full, in cash, the
entire unpaid balance of the Rejuvena Note Receivable, (iii) the
Rejuvena Note Agreement shall have been terminated with no further
obligation thereunder on the part of the Company, (iv) the Company shall
have transferred to Rejuvena, as consideration for the payment in full
of the Rejuvena Note Receivable and the termination of the Rejuvena Note
Agreement, all of the Rejuvena Equity Securities, (v) the Company shall
have collected in full, in cash, the entire unpaid balance of the FSA
Receivable, (vi) the Company shall have paid in full, in cash, the Cysco
Note Payable, (vii) the Existing Related Party Lease Agreement shall
have been terminated with no further obligation thereunder on the part
of its parties, (viii) the New Lease Agreement shall have been executed
and delivered by Dual Development and shall then be in effect, (ix) the
fairness opinion referred to in Section 3.0(d) shall not have been
withdrawn or rescinded, and (x) all the conditions set forth in Sections
7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the New Employment Agreements
and the New Lease Agreement then shall be in full force and effect; and
(ii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
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ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of
Article IX of the Uniform Provisions hereby is incorporated herein by this
reference.
ARTICLE X
LIMITATIONS ON COMPETITION
[Intentionally Omitted]
ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "Restricted Period") the Stockholder will
not voluntarily, except pursuant to and in accordance with the
applicable provisions of the Registration Rights Agreement: (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (A) any shares of TMI Common Stock included in the
Merger Consideration or (B) any interest in (including any option to buy
or sell) any of those shares of TMI Common Stock, in whole or in part
and TMI will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of TMI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of TMI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED, HOWEVER,
that this Section 11.02 shall not restrict any transfer of TMI Common
Stock acquired by the Stockholder in connection with the Merger to any
of the Participants who are entitled to a distribution thereof under the
terms of the Plan Documents and who agree in writing to be bound by the
provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the TMI Common Stock delivered to the Stockholder as part of
the Merger Consideration will bear a legend
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substantially in the form set forth below and containing such other
information as TMI may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWOYEAR PERIOD ENDING ON [DATE THAT IS THE SECOND ANNIVERSARY
OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER
PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) The Stockholder (i) acknowledges that the shares of TMI
Common Stock to be delivered to the Stockholder as part of the Merger
Consideration (A) have not been and, except pursuant to the Registration
Rights Agreement, if applicable, will not be registered under the
Securities Act and therefore may not be resold by the Stockholder
without compliance with the Securities Act and (B) will, as a result of
their restrictions on transferability which are imposed by this
Agreement during the Restricted Period, have a value materially less at
the Effective Time than the value of then freely tradeable shares of TMI
Common Stock, and (ii) covenants that none of the shares of TMI Common
Stock issued to the Stockholder as part of the Merger Consideration will
be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of TMI Common Stock
issued as part of the Merger Consideration will bear the following
legend in addition to the legend prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER
APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
as part of the Merger Consideration to the Stockholder will bear any
legend required by the securities or blue sky laws of the state in which
the Stockholder resides.
Section 11.03. BROKERS AND AGENTS. Sellards and the Stockholder
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any
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broker or similar agent in connection with the transactions contemplated hereby
and agrees, without regard to the Threshold Amount limitations set forth in
Article IX, to indemnify TMI against all Damage Claims arising out of claims for
any and all fees and commissions of brokers or similar agents employed or
promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and all successor trustees of the Trust). Neither this
Agreement nor any other Transaction Document is intended, or shall be construed,
deemed or interpreted, to confer on any Person not a party hereto or thereto any
rights or remedies hereunder or thereunder, except as provided in Section
6.05(b) or 11.14, in Article IX or as otherwise provided expressly herein or
therein.
Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholder, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Stockholder, the Company and TMI. The waiver of
any of the terms and conditions of this Agreement shall not be construed or
interpreted as, or deemed to be, a waiver of any of its other term or
conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) the fees,
expenses and disbursements of Counsel for the Company and the Stockholder
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date, (b) the Company will
pay any fees, expenses and disbursements of any counsel (other than Counsel for
the Company and the Stockholder) incurred in connection with the subject matter
of this Agreement and the Registration Statement on or before the IPO Closing
Date, up to a maximum of $25,000 in the aggregate, and (c) the Stockholder will
pay from funds of the Trust, and not from funds of the Company or any Company
Subsidiary, (i) all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby, and (ii) the fees, expenses and disbursements in excess of
$25,000 in the aggregate, of any counsel (other than Counsel for the Company and
the Stockholder) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date. The
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Stockholder will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, the Stockholder acknowledges that the
Stockholder, and not the Company or TMI or the Surviving Corporation, will pay
all Taxes due upon receipt of the consideration payable to the Stockholder
pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder
shall be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for
purposes of this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii) if to the Stockholder, addressed to the Stockholder in
care of the Independent Fiduciary at:
c/o Consulting Fiduciary, Inc.
2745 Riverwoods Road
Riverwoods, Illinois 60015
Attn: David L. Heald
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(iii) if to the Company, addressed to it at:
Sun Medical, Inc.
1179 Corporate Drive West, Suite 100
Arlington, Texas 76006
Attn: M. Douglas Archer, President
with copies (which shall not constitute notice for
purposes of this Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER,
THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES
THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
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Section 11.13. REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholder acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholder or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of the Stockholder to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to either of the Company and the
Stockholder with respect to any disclosure contained in the Registration
Statement.
Section 11.15. JOINDER OF SELLARDS. Sellards joins in the execution of
this Agreement to evidence his agreement to the provisions of Section 2.09 and
the representation made by him in Section 11.03.
Section 11.16. DISCLAIMER BY INDEPENDENT FIDUCIARY. The parties to this
Agreement acknowledge that the Independent Fiduciary, in its corporate capacity,
(i) has not independently investigated or verified the truth, accuracy or
completeness of, and shall have no liability or responsibility for or in respect
of, any of the representations and warranties made by the Company or the
Stockholder in this Agreement, and (ii) is not a party to this Agreement, and
(iii) has no obligation and makes no undertaking under this Agreement.
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the
Company;
A:2.4
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<PAGE>
(ii) by the Stockholder or the Company, on the one hand,
or by TMI, on the other hand, if the transactions contemplated by
this Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful failure
of the party (or in the case of the Stockholder and the Company,
any of them) seeking to terminate this Agreement to perform or
adhere to any agreement required hereby to be performed or
adhered to by it prior to or at the Closing or thereafter on the
IPO Closing Date;
(iii) by the Stockholder or the Company, on the one hand,
or by TMI, on the other hand, if a material breach or default
shall be made by the other party (or in the case of the
Stockholder and the Company, any of them) in the observance or in
the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by TMI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement
is terminated pursuant to its terms after the Closing and prior
to the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York
City business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Texas, but before the IPO has
been consummated, TMI will take all actions that Counsel for the Company
and the Stockholders advises TMI are required by the applicable laws of
the State of Texas to rescind the Merger.
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b) the
Stockholder shall be liable for any breach by the Stockholder of any covenant
made by the Stockholder in this Agreement and for any breach by the Stockholder
of any representation and warranty made by the Stockholder in Article III and
which the Stockholder knew was untrue or inaccurate at the date of this
Agreement, and (c) the Company shall be liable for any breach by the Company of
any covenant made by the Company in this Agreement and for any breach by the
Company of any representation and warrant made by the Company in Article IV and
which the Company knew as untrue or inaccurate at the date of this Agreement,
and (d) TMI shall be liable for any breach by TMI of any covenant made by TMI in
this Agreement and for any breach
A:2.4
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<PAGE>
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
ARTICLE XIII
MATTERS RELATING TO THE PLAN AND ESCROW FUND
13.01. COMPLIANCE EFFORTS. Beginning as soon as practicable after the
date the Registration Statement is initially filed, the Company and the
Independent Fiduciary shall jointly seek to identify and expeditiously resolve
all actual and potential Plan Related Claims and all other matters which the
Company or the Independent Fiduciary reasonably believe could result in any Plan
Related Damages. In that regard, the Company, as the Plan sponsor, with the
endorsement and cooperation of the Independent Fiduciary, shall voluntarily
disclose to the IRS all matters identified by the Company for disclosure to the
IRS, and shall seek to have such matters resolved with the IRS under the
voluntary Closing Agreement Program contemplated in Revenue Procedure 94-16 (the
"CAP Proceedings"), toward the end that the Company and the IRS will enter into
a Closing Agreement by which all Plan Related Claims in favor of the IRS will be
fully and finally settled and resolved (the "Plan Closing Agreement"). The
Independent Fiduciary, shall be entitled to attend and participate in all
discussions and negotiations between the Company and the IRS in connection with
the CAP Proceedings, and the Company agrees that it will not enter into a
Closing Agreement without the consent and approval of the Independent Fiduciary,
which the Independent Fiduciary agrees shall not be unreasonably withheld.
The Company, as the Plan sponsor, with the endorsement and cooperation
of the Independent Fiduciary, may also voluntarily disclose to the DOL such
matters relating to the Plan as the Company may consider appropriate for
disclosure, in which case (i) the Independent Fiduciary shall have the right to
attend and participate in all discussions and negotiations between the Company
and the DOL relating to the Plan and (ii) the Company agrees that it will not
enter into any settlement with the DOL without the consent and approval of the
Independent Fiduciary, which shall not be unreasonably withheld.
13.02. PLAN RELATED CLAIMS. If after the Effective Date, a Plan Related
Claim is asserted against the Company or any other TMI Indemnified Party, the
Company shall give the Independent Fiduciary written notice of the asserted
claim (a "Section 13.02 Notice"). Upon its receipt of a Section 13.02 Notice,
the Independent Fiduciary shall notify the Company in writing that the
Independent Fiduciary either (i) approves of the payment of the Plan Related
Claim described in the Section 13.02 Notice or (ii) objects to the payment of
such Plan Related Claim. If by such notice the Independent Fiduciary approves
the payment of the Plan Related Claim, then the Company and the Independent
Fiduciary shall jointly instruct the Escrow Agent in writing to pay the Plan
Related Claim from the Escrow Fund. If by such notice the Independent Fiduciary
objects to the payment of the Plan Related Claim, then:
A:2.4
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<PAGE>
(i) the Company, through counsel of its choosing, shall assume,
control and be responsible for the defense of the Plan Related Claim;
(ii) the Independent Fiduciary, through counsel of its choosing,
shall be entitled to participate in, but not control, the defense of the
Plan Related Claim; and
(iii) the Company shall not settle the Plan Related Claim without
the consent and approval of the Independent Fiduciary, which the
Independent Fiduciary agrees shall not be unreasonably withheld.
To the extent not in contravention of his fiduciary duties to the Plan
Participants, the Independent Fiduciary shall not authorize the Trustee to make
distributions to those Plan Participants who become eligible for distributions
in accordance with the terms of the Plan Documents until all Plan Related Claims
have been fully and finally resolved.
13.03. PAYMENTS FROM ESCROW FUND. The Company and the Independent
Fiduciary agree that there shall be paid from the Escrow Fund, and that they
shall jointly and timely instruct the Escrow Agent to pay from the Escrow Fund:
(i) all costs and expenses, including legal, accounting and other
professional fees incurred by the Company, any other TMI Indemnified
Party, or the Independent Fiduciary in connection with (a) the CAP
Proceedings and (b) the defense, negotiation, compromise or settlement
of any Plan Related Claim;
(ii) all amounts required to be paid by the Company under any
Closing Agreement or other agreement entered into between the Company
and the IRS or the DOL in accordance with the provisions of Section
13.01;
(iii) all amounts required to be paid by the Company in
connection with any settlement of a Plan Related Claim made in
accordance with the provisions of Section 13.02;
(iv) all Plan Related Damages resulting from any final judgment
rendered against the Company in respect of any Plan Related Claims; and
(v) all amounts with respect to which the Independent Fiduciary
is entitled to be indemnified by TMI under the terms of the Fiduciary
Engagement Letter.
All amounts required to be paid from the Escrow Fund shall be paid out
of the cash included in the Escrow Fund for as long as the cash is sufficient
for that purpose. Once all cash included in the Escrow Fund is paid or
distributed by the Escrow Agent, then in each instance thereafter when a payment
is required to be made from the Escrow Fund, (i) TMI shall make such payment and
(ii) TMI and the Independent Fiduciary shall instruct the Escrow Agent to
deliver to TMI a number of Escrowed Shares equal to (a) the amount so paid by
TMI divided by (b) $14.
A:2.4
25
<PAGE>
13.04. VOTING OF ESCROWED SHARES. All Escrowed Shares shall be voted by
the Escrow Agent upon the direction of the Independent Fiduciary, which may be
through the Independent Fiduciary's direction to the Trustee, for as long as
they are held by the Escrow Agent under the Escrow Agreement.
13.05. DURATION OF ESCROW AGREEMENT. The Escrow Agreement shall remain
in effect until the earliest to occur of (i) the first date upon which all
property held in the Escrow Fund shall have been distributed by the Escrow Agent
in accordance with the terms of this Article XIII and Article IV and (ii) the
date specified in a notice to the Escrow Agent jointly signed by the Company and
the Independent Fiduciary as the date of termination of the Escrow Agreement and
the date as of which all property remaining in the Escrow Fund shall be
distributed to the Stockholder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
Chief Executive Officer
PLAN FIDUCIARY:
CONSULTING FIDUCIARIES, INC., as
independent fiduciary of the Sun
Medical, Inc. Employee Stock
Ownership Plan and Trust
By: /s/ DAVID L. HEALD
David L. Heald, Principal
SUN ACQUISITION, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
President
A:2.4
26
<PAGE>
SUN MEDICAL, INC.
By: /s/ M. DOUGLAS ARCHER
M. Douglas Archer, President
STOCKHOLDER:
Greg H. Sellards, as Trustee of the
Sun Medical, Inc. Employee Stock
Ownership Trust
JOINDER
Greg H. Sellards, in his individual capacity, hereby joins in the
execution of this Agreement to evidence his agreement set forth in Section 2.09
of this Agreement and the representation made by him in Section 11.03 of this
Agreement.
/s/ GREG H. SELLARDS
Greg H. Sellards, Individually
A:2.4
27
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthtech Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties
Omnimedical, Inc.
Professional Equipment Company
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Medical Inc.
Wilson Medical Specialties, Inc.
A:2.4
28
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Chief Executive Officer: R. Tucker Coop
President: Greg H. Sellards
Vice President: William C. Klintworth
Vice President: Walter D. Wallach
Vice President, Secretary
and Treasurer Lance C. Ruud
A:2.4
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
Greg H. Sellards, as Trustee of c/o Greg H. Sellards, Trustee
the Sun Medical, Inc. Employee 1179 Corporate Drive West, #100
Stock Ownership Trust Arlington, Texas 76006
C. Each outstanding share of Company Common Stock shall be converted
into .00000059 of the Merger Consideration.
A:2.4
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. The Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NUMBER OF SHARES
NAME CLASS OWNED
---- ----- ----------------
Greg H. Sellards, as Trustee
of the Sun Medical, Inc.
Employee Stock Ownership Trust Common 166,887
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
None
A:2.4
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms, subject to
the following provisions of this Schedule:
1. The New Lease Agreement
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to THC to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
Sun Acquisition, Inc.
Sun Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause
the following Stockholder Guarantees to be terminated:
None
EXHIBIT 2.5
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
CUSTOM ACQUISITION, INC.
CUSTOM MEDICAL SPECIALTIES, INC.
AND
ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS..............................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................4
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................5
Section 2.06. Fractional Shares..........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER............................................7
Section 3.01. By the Stockholder.........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS............................7
Section 4.01. By the Company and the Stockholder.........................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO.............8
Section 5.01. By TMI and Newco............................................8
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO
CLOSING AND CONSUMMATION....................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................10
Section 8.01. Of Each Party Other Than the Company......................10
ARTICLE IX INDEMNIFICATION............................................10
Section 9.01. Indemnification Rights and Obligations....................10
ARTICLE X LIMITATIONS ON COMPETITION.................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
Section 10.03. Reasonable Restraint.....................................12
Section 10.04. Severability; Reformation................................12
Section 10.05. Independent Covenant.....................................12
i
<PAGE>
Section 10.06. Materiality..............................................12
ARTICLE XI GENERAL PROVISIONS.........................................12
Section 11.01. Treatment of Confidential Information....................12
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................14
Section 11.04. Assignment; No Third Party Beneficiaries.................14
Section 11.05. Entire Agreement; Amendment; Waivers.....................14
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................15
Section 11.09. Governing Law............................................16
Section 11.10. Exercise of Rights and Remedies..........................16
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................17
Section 11.14. Respecting the IPO.......................................17
ARTICLE XII TERMINATION................................................17
Section 12.01. Termination of This Agreement............................17
Section 12.02. Liabilities in Event of Termination......................18
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Custom Acquisition, Inc., an Indiana corporation and a wholly owned subsidiary
of TMI ("Newco"), Custom Medical Specialties, Inc., an Indiana corporation (the
"Company"), and the persons listed on the signature pages of this Agreement
under the caption "Stockholders" (collectively and even if just one person, the
"Stockholders," and each of those persons (if more than one), individually, a
"Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii) TMI, VIA mergers involving TMI subsidiaries, will
acquire the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the Company,
the "Founding Companies") under agreements similar to this Agreement entered
into among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its
common stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
1
<PAGE>
"AAA RELATED INDEBTEDNESS" means all indebtedness of the Company
incurred to fund distributions to the Stockholder made during the period
January 1, 1997 to the IPO Closing Date from the Company's Accumulated
Adjustment Account.
"ACCUMULATED ADJUSTMENT ACCOUNT" means the accumulated adjustment
account maintained by the Company under Section 1368(e)(1) of the Code
and representing the undistributed retained earnings of the Company on
which the Stockholders have paid U.S.
federal income taxes.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules, Annexes
and Exhibits, as each of them may be amended, modified or supplemented
from time to time under their provisions or the provisions of this
Agreement.
"BUSINESS CORPORATION ACT" means the Indiana Business Corporation
Law.
"CEILING AMOUNT" means (i) on or before the first anniversary of
the IPO Closing Date, $8 million, and (ii) thereafter, $4 million less
the amount of all Damages paid or which have been payable by the party
or parties in question with respect to indemnification claims made on or
before the first anniversary of the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there
shall be included the forms of certificates of officers, the opinions of
counsel and certain other documents to be delivered at the Closing as
provided in Article VII.
"COMPANY COMMON STOCK" means the common stock, no par value per
share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to TMI prior to
the execution and delivery of this Agreement, in which either (a)
exceptions are taken to each of certain of the representations
2
<PAGE>
and warranties made by the Company and the Stockholders in this
Agreement or (b) it is confirmed that no exception is taken to that
representation and warranty.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited balance
sheets of the Company at December 31, 1995 and 1996 and the related
audited statements of operations, stockholders' equity and cash flows
for each of the Company's three fiscal years in the three-year period
ended December 31, 1996, together with the related audit report of
Arthur Andersen LLP, and (b) the Current Balance Sheet and the related
unaudited statements of operations, stockholders' equity and cash flows
for the six-month period ended on the Current Balance Sheet Date.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENT" means the Employment Agreement entered
into as of September 9, 1997, between TMI and Michael W. Thomas.
"NEWCO" means Custom Acquisition, Inc. an Indiana corporation.
"PRO RATA SHARE" means 100%.
"RESPONSIBLE OFFICER" means Michael W. Thomas.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $160,000.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of distributing medical or healthcare products to
hospitals, clinics, physicians, laboratories,
3
<PAGE>
pharmacies, alternate care sites or other medical or healthcare
facilities or conceiving, designing, developing or testing
technologically advanced medical or healthcare products, and which was
called on by any of the Company, TMI or a Subsidiary of the Company or
TMI in connection with the possible acquisition by any of them of that
Entity or with respect to which any of them has made an acquisition
analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions
of this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Indiana.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of Indiana, (e) the Charter Documents of the Company then in
effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law, in the
case of the articles of incorporation or (ii) their terms, in the case of the
bylaws) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the Persons named in
Schedule 2.03, and those Persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Indiana and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those Persons will serve in each office specified for
that Person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that Person's successor is duly elected to,
and, if necessary, qualified for, that office.
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Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of TMI Common Stock set forth or determined as
provided in Schedule 2.04 (the "Merger Consideration"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
(ii) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(iii)each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI
will pay and issue, or cause to be paid and issued, to each Stockholder,
in each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company
Common Stock has been surrendered and replaced pursuant to this Section
2.05, that certificate will, for all purposes, be deemed to evidence
ownership of the number of whole shares of TMI Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant
to Section 2.04. All shares of TMI Common Stock issuable in the Merger
will be deemed for all purposes to have been issued by TMI at the
Effective Time. All cash included in the Merger Consideration shall be
paid by TMI's company check or checks, one or more wire transfers to
accounts designated by the respective Stockholders at least two New York
business days before the IPO Closing Date, or by certified or official
bank check or checks, at TMI's option.
(b) Each Stockholder will deliver to TMI (or any agent that may
be appointed by TMI for purposes of this Section 2.05) on or before the
IPO Closing Date the certificates representing Company Common Stock
owned by the Stockholder, duly endorsed in blank
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by him, or accompanied by duly executed stock powers in blank, and with
all necessary transfer tax and other revenue stamps, acquired at his
expense, affixed and canceled. Each Stockholder shall cure any
deficiencies in the endorsement of the certificates or other documents
of conveyance respecting, or in the stock powers accompanying, the
certificates representing Company Common Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of TMI Common Stock have
been issued in the Merger until those certificates are surrendered as
provided herein, but (i) on such surrender TMI will cause to be paid, to
the Person in whose name the certificates representing such shares of
TMI Common Stock shall then be issued, the amount of dividends or other
distributions previously paid with respect to such whole shares of TMI
Common Stock with a record date, or which have accrued, subsequent to
the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to
Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, TMI will cause to be paid to that Person the
amount of dividends or other distributions with a record date, or which
have been accrued, subsequent to the Effective Time, but which are not
payable until a date subsequent to surrender, which are payable with
respect to such whole shares of TMI Common Stock, subject in all cases
to any applicable escheat laws. No interest will be payable with respect
to the payment of such dividends or other distributions or cash for and
in lieu of fractional shares on surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY THE STOCKHOLDER. The Stockholder represents and warrants
to TMI that all the following representations and warranties in this Article III
are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution; (ii)
the Stockholder is not a party to any agreement or other arrangement for
the disposition of any shares of TMI Common Stock other than this
Agreement, the Stockholders Agreement and the Registration
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Rights Agreement; (iii) unless otherwise specified on Schedule 3.01, the
Stockholder is an "accredited investor" as defined in Securities Act
Rule 501 (a); (iv) the Stockholder (A) is able to bear the economic risk
of an investment in the TMI Common Stock to be acquired by him or her
pursuant to this Agreement, (B) can afford to sustain a total loss of
that investment, (C) has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the TMI Common Stock, (D) has had an
adequate opportunity to ask questions and receive answers from the
officers of TMI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
TMI, the plans for the operations of the business of TMI, the business,
operations and financial condition of the Other Founding Companies and
any plans of TMI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND THE STOCKHOLDER. The Company and the
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
Indiana, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted, and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than its
Organization State) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except where
the failure to be so qualified, singly or in the aggregate, would not
have a Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
1,000 shares of Company Common Stock, of which 75.5 shares have been
issued and are now outstanding and 24.5 shares are held by the Company
as treasury shares, and no outstanding Derivative Securities of the
Company exist;
(c) the Company has made an election with the IRS to be taxed as
an S corporation within the meaning of Section 1361 of the Code, and
that election is in effect. The Company
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owns no assets the disposition of which would cause the Company to have
a net recognized built-in gain within the meaning of Section 1374 of the
Code. The Company has no item of income that has not been taken into
account by the Company and that would be treated as a recognized
built-in gain under Section 1374(d)(5) of the Code. The transfer of the
Company's assets pursuant to the Merger shall not cause the Company to
be liable for any federal, state, city or local taxes; and
(d) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Indiana, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article VI is hereby incorporated herein by this reference)
to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the
IPO Closing Date (including, as permitted by the Business Corporation
Act (A) the execution of a Certificate of Merger meeting the
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requirements of the Business Corporation Act and providing that the
Merger will become effective on the IPO Closing Date and (B) the filing
of the Certificate with the Secretary of State of the State of Indiana),
(ii) verify the existence and ownership of the certificates evidencing
the Company Common Stock to be exchanged for the Merger Consideration
pursuant to Section 2.05, and (iii) satisfy the document delivery
requirements to which the obligations of the parties to effect the
Merger and the other transactions contemplated hereby are conditioned by
the provisions of this Article VII (all those actions collectively being
the "Closing"). The Closing will take place at the offices of Porter &
Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston
time, or at such later time on the IPO Pricing Date as TMI shall specify
by written notice to the Stockholder. The actions taken at the Closing
will not include the completion of either the Merger or the delivery of
the Company Common Stock or the Merger Consideration pursuant to Section
2.05. Instead, on the IPO Closing Date, the Certificate of Merger will
become effective pursuant to Section 2.02, and all transactions
contemplated by this Agreement to be closed or completed on or before
the IPO Closing Date, including the surrender of the Company Common
Stock in exchange for the Merger Consideration (including a certified
check or checks in an amount equal to the cash portion of the Merger
Consideration) will be closed or completed, as the case may be. During
the period from the Closing to the IPO Closing Date, this Agreement may
be terminated by the parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) each of the Stockholders Agreement and the New Employment Agreement
then shall be in full force and effect; and (ii) all the conditions set
forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to TMI a
copy of the articles of incorporation, as amended to the date of the
Closing and certified by the Secretary of State of the State of Indiana
as of a Current Date, of the Company; and (ii) the Company shall have
working capital (defined as the excess of its current assets over its
current liabilities, but not including in current liabilities the then
current portion of any AAA Related Indebtedness) of at least $1.1
million at the IPO Closing Date, and (iii) all the conditions set forth
in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth
in Sections 7.02(b) and 7.04(b).
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(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article
IX of the Uniform Provisions hereby is incorporated herein by this reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business selling
any products or providing any services in competition with the Company,
any Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the
territory surrounding a facility shall be: (i) the city, town or village
in which the facility is located, (ii) the county or parish in which the
facility is located, (iii) the counties or parishes contiguous to the
county or parish in which the facility is located, (iv) the area located
within 100 miles of the facility and (v) the area in
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which the facility regularly makes sales or provides services, all of
such locations being herein collectively called the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or TMI in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or TMI, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or TMI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or TMI within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
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Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "Restricted Period") no Stockholder
voluntarily will, except pursuant to and in accordance with the
applicable provisions of the Registration Rights Agreement: (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (A) any shares of TMI Common Stock received by any
Stockholder in the Merger or (B) any interest in (including any option
to buy or sell) any of those shares of TMI Common Stock, in whole or in
part and TMI will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of TMI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of TMI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED, HOWEVER,
that this Section 11.02 shall not restrict any transfer of TMI Common
Stock acquired by a Stockholder pursuant to Section 2.04 to any of that
Stockholder's Related Persons who agree in writing to be bound by the
provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the TMI Common Stock delivered to each Stockholder pursuant
to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as TMI may deem necessary or
appropriate:
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EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if
applicable, will not be registered under the Securities Act and
therefore may not be resold by that Stockholder without compliance with
the Securities Act and (B) will, as a result of their restrictions on
transferability which are imposed by this Agreement during the
Restricted Period, have a value materially less at the Effective Time
than the value of then freely tradeable shares of TMI Common Stock, and
(ii) covenants that none of the shares of TMI Common Stock issued to
that Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all the applicable provisions of the
Securities Act and the rules and regulations of the SEC and applicable
state securities laws and regulations. All certificates evidencing
shares of TMI Common Stock issued pursuant to Section 2.04 will bear the
following legend in addition to the legend prescribed by Section
11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER
APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend
required by the securities or blue sky laws of the state in which that
Stockholder resides.
Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
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Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date, (b) the Company will
pay any fees, expenses and disbursements of any counsel (other than Counsel for
the Company and the Stockholders) incurred in connection with the subject matter
of this Agreement and the Registration Statement on or before the IPO Closing
Date, up to a maximum of $25,000 in the aggregate, and (c) the Stockholders will
pay from personal funds, and not from funds of the Company or any Company
Subsidiary, (i) all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby, and (ii) the fees, expenses and disbursements in excess of
$25,000 in the aggregate, of any counsel (other than Counsel for the Company and
the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or TMI or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall
be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex,
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telegram, facsimile or courier service, when actually received by the party to
whom notice is sent or (b) if delivered by mail (whether actually received or
not), at the close of business on the third Houston, Texas business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may designate
by written notice to all other parties in accordance herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii) if to the Stockholder, addressed to him at his
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Custom Medical Specialties, Inc.
1445 Brookville Way
Indianapolis, Indiana 46239
Attn: Michael W. Thomas
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
15
<PAGE>
THEREOF, PROVIDED, HOWEVER, THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS
THEREUNDER OF THE PARTIES THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF INDIANA WITHOUT REGARD
TO THE CONFLICTS OF LAW PROVISIONS THEREOF AND (B) MATTERS PERTAINING SOLELY TO
THE MERGER SHALL BE GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
16
<PAGE>
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by TMI, on the other hand, if a material breach or
default shall be made by the other party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by TMI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to
the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York
City business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Indiana, but before the IPO has
been consummated, TMI will take all actions that Counsel for the Company
and the Stockholders advises TMI are required by the applicable laws of
the State of Indiana to rescind the Merger.
17
<PAGE>
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
CUSTOM ACQUISITION, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr., President
CUSTOM MEDICAL SPECIALTIES, INC.
By: /s/ MICHAEL W. THOMAS
Michael W. Thomas, President
18
<PAGE>
STOCKHOLDER:
/s/ MICHAEL W. THOMAS
Michael W. Thomas
19
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Chief Executive Officer: R. Tucker Coop
President: Michael W. Thomas
Vice President: William C. Klintworth, Jr.
Vice President: Walter D. Wallach
Vice President, Secretary
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
- -------- --------
Michael W. Thomas 1445 Brookville Way, Indianapolis, Indiana
C. The aggregate Merger Consideration shall be comprised of (i) an
amount of cash equal to $3,100,000 less the unpaid principal balance of the AAA
Related Indebtedness at the IPO Closing Date and (ii) 350,000 shares of TMI
Common Stock.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
---- ----- ----------------------
Michael W. Thomas Common 75.5
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. Stockholder is a party to a consulting agreement with Bird
Products Corporation under which he is entitled to direct
payment by Bird of a 5% commission for sales of Bird products to
Vencor, Inc.
2. Stockholder is the owner of certain proprietary rights in a
respiratory breathing tube suspension strap which has not yet
been manufactured or sold.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms, subject to
the following provisions of this Schedule:
None
<PAGE>
SCHEDULE 6.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Healthcare Corporation
Custom Acquisition, Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.03 are used
herein as therein defined.
B. The Company may enter into a Loan Agreement with National City Bank
prior to the Closing to provide a loan to Custom Medical in an amount up to
$1,500,000, which amount is not reflected on the Current Balance Sheet.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Healthcare Corporation
Custom Acquisition, Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
1. Cash distributions may be made to the Stockholder so long as
such distributions do not cause the Company to fail to meet the
closing date minimum working capital requirement set forth in
Section 7.01(c) of the Agreement.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to THC to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. Concurrently with the Effective Time, TMI will cause the AAA Related
Indebtedness to be paid in full and any guarantee or collateral provided by the
Stockholder with respect to such indebtedness to be released.
C. Within 30 days following the Effective Time, TMI will cause the
Stockholder to be removed as trustee of the Company's 401(k) plan.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Custom Acquisition Inc.
Custom Medical Specialties, Inc.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.6
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
KENTEC ACQUISITION, INC.
KENTEC MEDICAL, INC.
AND
ITS SOLE STOCKHOLDER
1
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................5
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................6
Section 2.06. Fractional Shares..........................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER.............................................7
Section 3.01. By each Stockholder........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS..............................8
Section 4.01. By the Company and Each Stockholder........................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
TMI AND NEWCO.................................................9
Section 5.01. By TMI and Newco............................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME.....................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO
CLOSING AND CONSUMMATION......................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................11
Section 8.01. Of Each Party Other Than the Company......................11
ARTICLE IX INDEMNIFICATION..............................................11
Section 9.01. Indemnification Rights and Obligations....................11
ARTICLE X LIMITATIONS ON COMPETITION...................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
i
<PAGE>
Section 10.03. Reasonable Restraint.....................................12
Section 10.04. Severability; Reformation................................12
Section 10.05. Independent Covenant.....................................12
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS........................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................14
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................15
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................17
Section 11.14. Respecting the IPO.......................................17
ARTICLE XII TERMINATION..................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Kentec Acquisition, Inc., a California corporation and a wholly owned subsidiary
of TMI ("Newco"), KENTEC MEDICAL, INC., a California corporation (the
"Company"), and Kent J. Wilken and Carol L. Wilken, as Co-Trustees of the Kent
J. Wilken and Carol L. Wilken Family Trust dated January 18, 1984, the sole
stockholder of the Company (herein called the "Stockholder" or the
"Stockholders" even though a single stockholder).
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii)TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying Addendum
I (each an "Other Founding Company" and, collectively with the Company, the
"Founding Companies") under agreements similar to this Agreement entered into
among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its common
stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
1
<PAGE>
"AGREEMENT" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Schedules, Annexes and
Exhibits, as each of them may be amended, modified or supplemented from
time to time under their provisions or the provisions of this Agreement.
"BUSINESS CORPORATION ACT" means the California General Corporation
Act.
"CEILING AMOUNT" means (i) on or before the first anniversary of the
IPO Closing Date, $6.5 million, and (ii) thereafter, $3.25 million less
the amount of all Damages paid or which have become payable by the party
or parties in question with respect to claims for indemnification made on
or before the first anniversary of the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there shall
be included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"COMPANY COMMON STOCK" means the common stock, $1 par value per
share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the audited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on the
date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and each of the Stockholders and delivered to TMI prior to the
execution and delivery of this Agreement, in which either (a) exceptions
are taken to each of certain of the representations and warranties made by
the Company and the Stockholders in this Agreement or (b) it is confirmed
that no exception is taken to that representation and warranty.
"EXISTING RELATED PARTY LEASE AGREEMENTS" means (i) the Industrial
Real Estate Lease dated July 1, 1994, between Wilken, as lessor, and the
Company, as lessee, under which the Company leases from Wilken the
premises located at 17909-17911 Fitch in Irvine, California, and (ii) the
Industrial Real Estate Lease dated July 1, 1994, between Wilken, as
2
<PAGE>
lessor, and the Company, as lessee, under which the Company leases from
Wilken the premises located at 17871 Fitch in Irvine, California,
together.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited balance sheet
of the Company at June 30, 1997 and the related audited statements of
operations, stockholder's equity and cash flows for each of the Company's
fiscal year ended June 30, 1997, together with the related audit report of
Arthur Andersen LLP, and (b) the unaudited balance sheets of the Company
at June 30, 1995 and 1996, and the related unaudited statements of
operations, stockholder's equity and cash flows for each of the Company's
two fiscal years then ended.
"MAJORITY STOCKHOLDERS" means the Stockholder.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTs" means the Employment Agreements entered
into as of September 9, 1997, between TMI and Wilken, Steve Becsi and
Bryan Flaherty, respectively.
"NEW LEASE AGREEMENTS" means the Lease Agreements to be executed and
delivered by the Company and Wilken at or before the Closing, to be
effective as of the Effective Time, and to be in the form of Exhibits
1.02-C and 1.02-D, respectively, attached to this Agreement, by which the
Company, from and after the Effective Time, will lease from Wilken the
real property now leased under the Existing Related Party Lease
Agreements.
"NEWCO" means Kentec Acquisition, Inc., a California corporation.
"PRO RATA SHARE" means for each Stockholder the fraction expressed
as a percentage and set forth in Schedule 2.04, (a) the numerator of which
is the number of shares of outstanding Company Common Stock owned by that
Stockholder, as set forth in Schedule 2.04, and (b) the denominator of
which is the total number of shares of outstanding Company Common Stock
owned by all Stockholders, as set forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means Kent J. Wilken.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section 10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
3
<PAGE>
"STOCKHOLDER OPTIONS" means the options the Stockholder has granted
to Steve Besci, Bryan Flaherty, and Robert R. Bartlett, respectively, for
the purchase of and aggregate 155,238 shares of the TMI Common Stock
included in the Merger Consideration.
"SURVIVING CORPORATION" means the Company, which is to be designated
in the Certificate of Merger as the surviving corporation of the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $130,000.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of distributing medical or healthcare products to hospitals,
clinics, physicians, laboratories, pharmacies, alternate care sites or
other medical or healthcare facilities or conceiving, designing,
developing or testing technologically advanced medical or healthcare
products, and which was called on by any of the Company, TMI or a
Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any of
them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"TRUSTEES" means Kent J. Wilken and Carol L. Wilken in their
capacities as trustees of the Stockholder.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
"WILKEN" means Kent J. Wilken, in his individual capacity.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions of
this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of California.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the
4
<PAGE>
Certificate of Merger does not specify another time, 8:00 a.m., eastern time, on
the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of California, (e) the Charter Documents of the Company then
in effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law, in the
case of the articles of incorporation or (ii) their terms, in the case of the
bylaws) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the Persons named in
Schedule 2.03, and those Persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of California and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those Persons will serve in each office specified for
that Person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that Person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of TMI Common Stock set forth or determined as provided
in Schedule 2.04 (the "Merger Consideration"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
(ii) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(iii)each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving Corporation,
and the shares of Common Stock of the Surviving Corporation issued on
conversion will constitute all the issued and outstanding shares of
Capital Stock of the Surviving Corporation.
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Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will,
on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI will
pay and issue, or cause to be paid and issued, to each Stockholder, in
each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company Common
Stock has been surrendered and replaced pursuant to this Section 2.05,
that certificate will, for all purposes, be deemed to evidence ownership
of the number of whole shares of TMI Common Stock included in the Merger
Consideration payable in respect of that certificate pursuant to Section
2.04. All shares of TMI Common Stock issuable in the Merger will be deemed
for all purposes to have been issued by TMI at the Effective Time. All
cash included in the Merger Consideration shall be paid by TMI's company
check or checks, one or more wire transfers to accounts designated by the
respective Stockholders at least two New York business days before the IPO
Closing Date, or by certified or official bank check or checks, at TMI's
option.
(b) Each Stockholder will deliver to TMI (or any agent that may be
appointed by TMI for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by
the Stockholder, duly endorsed in blank by him, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and
other revenue stamps, acquired at his expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will be
paid to the holder of any unsurrendered certificates representing shares
of Company Common Stock for which shares of TMI Common Stock have been
issued in the Merger until those certificates are surrendered as provided
herein, but (i) on such surrender TMI will cause to be paid, to the Person
in whose name the certificates representing such shares of TMI Common
Stock shall then be issued, the amount of dividends or other distributions
previously paid with respect to such whole shares of TMI Common Stock with
a record date, or which have accrued, subsequent to the Effective Time,
but prior to surrender, and the amount of any cash payable to such Person
for and in lieu of fractional shares pursuant to Section 2.06 and (ii) at
the appropriate payment date or as soon as practicable thereafter, TMI
will cause to be paid to that Person the amount of dividends
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or other distributions with a record date, or which have been accrued,
subsequent to the Effective Time, but which are not payable until a date
subsequent to surrender, which are payable with respect to such whole
shares of TMI Common Stock, subject in all cases to any applicable escheat
laws. No interest will be payable with respect to the payment of such
dividends or other distributions or cash for and in lieu of fractional
shares on surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of this
Article II, no fractional shares of TMI Common Stock will be issued, and any
Stockholder otherwise entitled to receive a fractional share of TMI Common Stock
but for this Section 2.06 will instead be entitled to receive a cash payment for
and in lieu thereof in the amount (rounded to the nearest whole cent) equal to
that Person's fractional interest in a share of TMI Common Stock multiplied by
the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to himself
or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI Common
Stock to be issued pursuant to Section 2.04 to the Stockholder solely for
the Stockholder's account, for investment purposes only and with no
current intention or plan to distribute, sell or otherwise dispose of any
of those shares in connection with any distribution; (ii) except as
described in the Stockholder Options, true and correct copies of which
have been delivered to TMI by the Stockholder, the Stockholder is not a
party to any agreement or other arrangement for the disposition of any
shares of TMI Common Stock other than this Agreement, the Stockholders
Agreement and the Registration Rights Agreement; (iii) unless otherwise
specified on Schedule 3.01, the Stockholder is an "accredited investor" as
defined in Securities Act Rule 501 (a); (iv) the Stockholder (A) is able
to bear the economic risk of an investment in the TMI Common Stock to be
acquired by him or her pursuant to this Agreement, (B) can afford to
sustain a total loss of that investment, (C) has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of the proposed investment in the TMI
Common Stock, (D) has had an adequate opportunity to ask questions and
receive answers from the officers of TMI concerning any and all matters
relating to the transactions contemplated by this Agreement, including the
background and experience of the current and proposed officers and
directors of TMI, the plans for the operations of the business of TMI, the
business, operations and financial condition of the Other Founding
Companies and any plans of TMI for additional acquisitions, and (E) has
asked all questions of the nature described in preceding clause (D), and
all those questions have been answered to his or her satisfaction;
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(b) the Trustees are the duly named and serving trustees of the
Stockholder, the execution and delivery by the Trustees of this Agreement
are within the powers of the Trustees, and the performance by the
Stockholder of this Agreement are within the powers and purposes of the
Stockholder under the terms of all documents creating, evidencing or
governing the Stockholder, true and correct copies of all of which have
been delivered to the Company by the Stockholder, and neither the
execution, delivery nor performance by the Stockholder of this Agreement
will violate, constitute a breach of, or conflict with any documents
creating, evidencing or governing the Stockholder; and
(c) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
California, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted, and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than its
Organization State) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except where the
failure to be so qualified, singly or in the aggregate, would not have a
Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
75,000 shares of Company Common Stock, of which 46,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist; and
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act (A)
the execution of a Certificate of Merger meeting the requirements of the
Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
with the Secretary of State of the State of California), (ii) verify the
existence and ownership of the certificates evidencing the Company Common
Stock to be exchanged for the Merger Consideration pursuant to Section
2.05, and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII
(all those actions collectively being the "Closing"). The Closing will
take place at the offices of Porter & Hedges, L.L.P., 700 Louisiana,
Houston, Texas at 10:00 a.m., Houston time, or at such later time on the
IPO Pricing Date as TMI shall specify by written notice to Kent J. Wilken.
The actions taken at
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the Closing will not include the completion of either the Merger or the
delivery of the Company Common Stock or the Merger Consideration pursuant
to Section 2.05. Instead, on the IPO Closing Date, the Certificate of
Merger will become effective pursuant to Section 2.02, and all
transactions contemplated by this Agreement to be closed or completed on
or before the IPO Closing Date, including the surrender of the Company
Common Stock in exchange for the Merger Consideration (including a
certified check or checks in an amount equal to the cash portion of the
Merger Consideration) will be closed or completed, as the case may be.
During the period from the Closing to the IPO Closing Date, this Agreement
may be terminated by the parties only pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set forth
in Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Stockholders Agreement, the New Lease Agreements and the New Employment
Agreements then shall be in full force and effect; and (ii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before the
date of the Closing, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to TMI a copy
of the articles of incorporation, as amended to the date of the Closing
and certified by the Secretary of State of the State of California as of a
Current Date, of the Company; and (ii) all the conditions set forth in
Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions to
be taken on the IPO Closing Date are subject to the satisfaction on that
date of the following conditions: (i) the Existing Related Party Lease
Agreements shall have been terminated without any further liability
thereunder on the part of the Company, (ii) the New Employment Agreements
and the New Lease Agreements then shall be in full force and effect; and
(iii) all the conditions set forth in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article IX
of the Uniform Provisions hereby is incorporated herein by this reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, (iv) the area located within 100
miles of the facility and (v) the area in which the facility regularly
makes sales or provides services, all of such locations being herein
collectively called the "Territory");
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(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or TMI in any managerial capacity with the
purpose or intent of attracting that person from the employ of the
Company, any Company Subsidiary or TMI, provided that the Stockholder may
call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or TMI within the Territory, (i) for the purpose of soliciting
or selling any product or service in competition with the Company, any
Company Subsidiary or TMI within the Territory and (ii) with the knowledge
of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X are
intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this
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Agreement, and the existence of any claim or cause of action of any Restricted
Stockholder against TMI, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by TMI of any covenant in this
Article X. It is specifically agreed that the period specified in Section 10.01
shall be computed in the case of each Restricted Stockholder by excluding from
that computation any time during which that Restricted Stockholder is in
violation of any provision of Section 10.01. The covenants contained in this
Article X shall not be affected by any breach of any other provision of this
Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary of
the IPO Closing Date (the "Restricted Period") no Stockholder voluntarily
will, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of
(A) any shares of TMI Common Stock received by any Stockholder in the
Merger or (B) any interest in (including any option to buy or sell) any of
those shares of TMI Common Stock, in whole or in part and TMI will have no
obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or
not with respect to any shares of TMI Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of TMI Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); PROVIDED, HOWEVER, that this Section 11.02 shall not
restrict (i) any transfer of TMI Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who
agree in writing to be bound by the provisions of Section 11.01 and this
Section 11.02 or (ii) any transfer of such TMI Common Stock to any holder
of a Stockholder Option upon the exercise thereof if the transferee
optionholder agrees in writing to be bound by the provisions of Section
11.01 and this Section 11.02, and if the transfer is made in compliance
with all state and federal securities laws. The certificates evidencing
the TMI Common Stock delivered to each Stockholder
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pursuant to Section 2.05 will bear a legend substantially in the form set
forth below and containing such other information as TMI may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND
THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING
DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold by that Stockholder without compliance with the Securities Act and
(B) will, as a result of their restrictions on transferability which are
imposed by this Agreement during the Restricted Period, have a value
materially less at the Effective Time than the value of then freely
tradeable shares of TMI Common Stock, and (ii) covenants that none of the
shares of TMI Common Stock issued to that Stockholder pursuant to Section
2.04 will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations
of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of TMI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
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Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and
the rights of its parties may not be assigned (except by operation of law) and
shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, (a) TMI will pay (i) the fees, expenses and disbursements of
TMI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by TMI and Newco under this Agreement, including the
costs of preparing the Registration Statement, and (ii) the fees, expenses and
disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date, (b) the Company will pay any fees,
expenses and disbursements of any counsel (other than Counsel for the Company
and the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date, up
to a maximum of $25,000 in the aggregate, and (c) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, (i)
all sales, use, transfer and other similar taxes and fees (collectively,
"Transfer Taxes") incurred in connection with the transactions contemplated
hereby, and (ii) the fees, expenses and disbursements in excess of $25,000 in
the aggregate, of any counsel
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(other than Counsel for the Company and the Stockholders) incurred in connection
with the subject matter of this Agreement and the Registration Statement on or
before the IPO Closing Date. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or TMI or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall be
in writing, and shall be deemed to be delivered and received (a) if personally
delivered or if delivered by telex, telegram, facsimile or courier service, when
actually received by the party to whom notice is sent or (b) if delivered by
mail (whether actually received or not), at the close of business on the third
Houston, Texas business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate party or
parties, at the address of such party set forth below (or at such other address
as such party may designate by written notice to all other parties in accordance
herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii)if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
KENTEC MEDICAL, INC.
17871 Fitch
Irvine, California 92614
Attn: Kent J. Wilken, President
16
<PAGE>
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO WILL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE GOVERNED BY THE
BUSINESS CORPORATION ACT.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the
17
<PAGE>
Registration Statement will become effective or that the IPO will occur at a
particular price or within a particular range of prices or occur at all; (b)
neither TMI or any of its Representatives nor any prospective underwriters in
the IPO will have any liability to the Company, the Stockholders or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that TMI will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to January 31, 1998) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the Merger, has been or will be made independent of, and without reliance on,
any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to TMI or the IPO. The Underwriter shall have no obligation
to any of the Company and the Stockholders with respect to any disclosure
contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii)by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions contemplated
by this Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful failure of
the party (or in the case of the Stockholders and the Company, any
of them) seeking to terminate this Agreement to perform or adhere to
any agreement required hereby to be performed or adhered to by it
prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if a material breach or default
shall be made by the other party (or in the case of the Stockholders
and the Company, any of them) in the observance or in the due and
timely performance of any of the covenants, agreements or conditions
contained herein; or
(iv)by TMI if it is entitled to do so as provided in Section
6.07;
(b) This Agreement may be terminated after the Closing solely:
18
<PAGE>
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii)automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this
Section 12.01 after the Certificate of Merger has been filed with the
Secretary of State of the State of California, but before the IPO has been
consummated, TMI will take all actions that Counsel for the Company and
the Stockholders advises TMI are required by the applicable laws of the
State of California to rescind the Merger.
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
Chief Executive Officer
KENTEC ACQUISITION, INC.
By: /s/ William C. Klintworth, Jr.
William C. Klintworth, Jr.,
President
19
<PAGE>
KENTEC MEDICAL, INC.
By: /s/ Kent J. Wilken
Kent J. Wilken, President
STOCKHOLDER:
/s/ KENT J. WILKEN
Kent J. Wilken, as Co-Trustee of the Kent
J. Wilken and Carol L. Wilken Family
Trust dated January 18, 1984
/s/ CAROL L. WILKEN
Carol L. Wilken, as Co-Trustee of the
Kent J. Wilken and Carol L. Wilken Family
Trust dated January 18, 1984
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthtech Technology Delivery, Inc.
KENTEC MEDICAL, INC.
MegaTech Medical, Inc.
New England Medical Specialties
Omni Medical, Inc.
Professional Equipment Company
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Kent J. Wilken
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Chief Executive Officer: R. Tucker Coop
President: Kent J. Wilken
Vice President: Walter D. Wallach
Vice President: William C. Klintworth, Jr.
Vice President, Secretary
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
Kent J. Wilken and Carol L. Wilken, as
Co-Trustees of the Kent J. Wilken and 6 Beacon Bay
Carol L. Wilken Family Trust dated Newport Beach,
January 18, 1984. California 92660
C. The aggregate Merger Consideration shall consist of (i) $3,240,000 cash
and (ii) 232,857 shares of TMI Common Stock.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC. .
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
Kent J. Wilken and Carol L. Common 46,000
Wilken, as Co-Trustees of the
Kent J. Wilken and Carol L.
Wilken Family Trust dated
January 18, 1984
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. Kent J. Wilken has leased to the Company the real property covered
by the Existing Related Party Lease Agreements described in the
captioned Agreement.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue in
effect past the date of the Closing in accordance with its terms, subject to the
following provisions of this Schedule:
1. The New Lease Agreements defined and described in the captioned
agreement.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
1. The Company may distribute to the Stockholder, as a dividend, the
Company's membership in the Santa Ana Country Club.
2. The Company may distribute to the Stockholder, as a dividend, the
Company's interest in the split-dollar life insurance policy in the
face amount of $1 million insuring the life of Kent J. Wilken.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC. .
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as are
necessary and satisfactory to TMI to dispose, prior to the Effective Time, of
the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, THC will cause the
following Stockholder Guarantees to be terminated:
None
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Kentec Acquisition, Inc.
KENTEC MEDICAL, INC.
and
the Stockholder Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.7
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
PFS ACQUISITION, INC.
PRODUCTS FOR SURGERY, INC.
AND
ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................5
Section 2.03. Certain Effects of the Merger..............................5
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................6
Section 2.06. Fractional Shares..........................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER.............................................7
Section 3.01. By each Stockholder........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS..............................8
Section 4.01. By the Company and Each Stockholder........................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO...............9
Section 5.01. By TMI and Newco............................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME.....................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING
AND CONSUMMATION..............................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................11
Section 8.01. Of Each Party Other Than the Company......................11
ARTICLE IX INDEMNIFICATION..............................................11
Section 9.01. Indemnification Rights and Obligations....................11
ARTICLE X LIMITATIONS ON COMPETITION...................................12
Section 10.01. Prohibited Activities....................................12
Section 10.02. Damages..................................................13
Section 10.03. Reasonable Restraint.....................................13
i
<PAGE>
Section 10.04. Severability; Reformation................................13
Section 10.05. Independent Covenant.....................................13
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS...........................................14
Section 11.01. Treatment of Confidential Information....................14
Section 11.02. Restrictions on Transfer of TMI Common Stock.............14
Section 11.03. Brokers and Agents.......................................15
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................16
Section 11.06. Counterparts.............................................16
Section 11.07. Expenses..................................................16
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................18
Section 11.11. Time.....................................................18
Section 11.12. Reformation and Severability.............................18
Section 11.13. Remedies Cumulative......................................18
Section 11.14. Respecting the IPO.......................................18
ARTICLE XII TERMINATION..................................................19
Section 12.01. Termination of This Agreement............................19
Section 12.02. Liabilities in Event of Termination......................20
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"), PFS
Acquisition, Inc., a Texas corporation and a wholly owned subsidiary of TMI
("Newco"), Products for Surgery, Inc., a Texas corporation (the "Company"), and
the persons listed on the signature pages of this Agreement under the caption
"Stockholders" (collectively, the "Stockholders," and each of those persons,
individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii)TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the
Company, the "Founding Companies") under agreements similar to this
Agreement entered into among those entities, their equity owners, TMI and
subsidiaries of TMI (collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its common
stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
1
<PAGE>
"AGREEMENT" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Schedules, Annexes and
Exhibits, as each of them may be amended, modified or supplemented from
time to time under their provisions or the provisions of this Agreement.
"BT&B" means BT&B Leasing, a Related Party of the Stockholders.
"BUSINESS CORPORATION ACT" means the Texas Business Corporation Act.
"CASH MERGER CONSIDERATION" means all amount of cash equal to
$2,500,000 minus the amount of the Closing Date Indebtedness.
"CEILING AMOUNT" means (i) on or before the first anniversary of the
IPO Closing Date, $5,350,000, and (ii) thereafter, $2,675,000 less the
amount of all Damages paid or which have become payable by the party or
parties in question with respect to indemnification claims made on or
before the first anniversary of the IPO Closing Date.
"CLOSING DATE INDEBTEDNESS" means the aggregate outstanding balance
at the IPO Closing Date of all principal of and interest on the Company's
revolving line of credit facility with Central Bank and Trust of Fort
Worth, Texas.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there shall
be included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"COMPANY COMMON STOCK" means the common stock, par value $.10 per
share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited consolidated balance
sheet of the Company and the Company Subsidiaries at June 30, 1997, which
is included in the Initial Financial Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on the
date of the Closing.
2
<PAGE>
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and each of the Stockholders and delivered to TMI prior to the
execution and delivery of this Agreement, in which either (a) exceptions
are taken to each of certain of the representations and warranties made by
the Company and the Stockholders in this Agreement or (b) it is confirmed
that no exception is taken to that representation and warranty.
"EXISTING BT&B LEASE AGREEMENT" means the lease agreement presently
in effect between the Company and BT&B under which the Company leases the
office and warehouse facility located at 4800 S.E. Loop 820, Forest Hill,
Texas 76140.
"INITIAL FINANCIAL STATEMENTS" means (a) the audited consolidated
balance sheet of the Company and the Company Subsidiaries at June 30,
1997, and the related audited consolidated statements of operations,
stockholders' equity and cash flows for fiscal year ended June 30, 1997,
together with the related audit report of Arthur Andersen LLP, and (b) the
unaudited consolidated balance sheets and the related unaudited
consolidated statements of operations, stockholders' equity and cash flows
of the Company and the Company Subsidiaries at June 30, 1995 and 1996, and
for each of the Company's fiscal years then ended.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTS" means the four Employment Agreements
entered into as of September 9, 1997, between TMI and the respective
Stockholders.
"NEW LEASE AGREEMENT" means the Lease Agreement to be executed and
delivered by the Company and BT&B at or before the Closing, to be
effective as of the Effective Time, and to be in the form of Exhibit
1.02-C attached to this Agreement, by which the Company, from and after
the Effective Time, will lease from BT&B the real property now leased
under the Existing BT&B Lease Agreement.
"NEWCO" means PFS Acquisition, Inc., a Texas corporation.
"PRO RATA SHARE" means for each Stockholder the fraction expressed
as a percentage and set forth in Schedule 2.04, (a) the numerator of which
is the number of shares of outstanding Company Common Stock owned by that
Stockholder, as set forth in Schedule 2.04, and (b) the denominator of
which is the total number of shares of outstanding Company Common Stock
owned by all Stockholders, as set forth in Schedule 2.04.
3
<PAGE>
"RESPONSIBLE OFFICER" means H. A. Lawhon.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section 10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCK MERGER CONSIDERATION" means 203,571 shares of TMI Common
Stock.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be designated
in the Certificate of Merger as the surviving corporation of the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $107,000.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of distributing medical or healthcare products to hospitals,
clinics, physicians, laboratories, pharmacies, alternate care sites or
other medical or healthcare facilities or conceiving, designing,
developing or testing technologically advanced medical or healthcare
products, and which was called on by any of the Company, TMI or a
Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any of
them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.01. CERTIFICATE OF MERGER. Subject to the terms and conditions
of this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Texas.
4
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Section 2.02. THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.03. CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of Texas, (e) the Charter Documents of the Company then in
effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law, in the
case of the articles of incorporation or (ii) their terms, in the case of the
bylaws) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the Persons named in
Schedule 2.03, and those Persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Texas and the Charter Documents of the Surviving Corporation, and (g)
the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those Persons will serve in each office specified for
that Person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that Person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.04. EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, (a) the amount of the Cash Merger Consideration
and (b) the Stock Merger Consideration (together, the "Merger
Consideration"), with the shares of Company Common Stock held by the
respective Stockholders to be converted into the right to receive the
portion of the Cash Merger Consideration and the portion of the Stock
Merger Consideration set forth or determined as provided in Schedule 2.04,
(ii) cease to be outstanding and to exist, and (iii) be canceled and
retired;
(ii) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
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(iii)each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving Corporation,
and the shares of Common Stock of the Surviving Corporation issued on
conversion will constitute all the issued and outstanding shares of
Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.05. DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will,
on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI will
pay and issue, or cause to be paid and issued, to each Stockholder, in
each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company Common
Stock has been surrendered and replaced pursuant to this Section 2.05,
that certificate will, for all purposes, be deemed to evidence ownership
of the number of whole shares of TMI Common Stock included in the Merger
Consideration payable in respect of that certificate pursuant to Section
2.04. All shares of TMI Common Stock issuable in the Merger will be deemed
for all purposes to have been issued by TMI at the Effective Time. All
cash included in the Merger Consideration shall be paid by TMI's company
check or checks, one or more wire transfers to accounts designated by the
respective Stockholders at least two New York business days before the IPO
Closing Date, or by certified or official bank check or checks, at TMI's
option.
(b) Each Stockholder will deliver to TMI (or any agent that may be
appointed by TMI for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by
the Stockholder, duly endorsed in blank by him, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and
other revenue stamps, acquired at his expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will be
paid to the holder of any unsurrendered certificates representing shares
of Company Common Stock for which shares of TMI Common Stock have been
issued in the Merger until those certificates are surrendered as provided
herein, but (i) on such surrender TMI will cause to be paid, to the Person
in whose name the
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certificates representing such shares of TMI Common Stock shall then be
issued, the amount of dividends or other distributions previously paid
with respect to such whole shares of TMI Common Stock with a record date,
or which have accrued, subsequent to the Effective Time, but prior to
surrender, and the amount of any cash payable to such Person for and in
lieu of fractional shares pursuant to Section 2.06 and (ii) at the
appropriate payment date or as soon as practicable thereafter, TMI will
cause to be paid to that Person the amount of dividends or other
distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent
to surrender, which are payable with respect to such whole shares of TMI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or
other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
Section 2.06. FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.01. BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI Common
Stock to be issued pursuant to Section 2.04 to the Stockholder solely for
the Stockholder's account, for investment purposes only and with no
current intention or plan to distribute, sell or otherwise dispose of any
of those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of TMI Common Stock other than this Agreement, the
Stockholders Agreement and the Registration Rights Agreement; (iii) unless
otherwise specified on Schedule 3.01, the Stockholder is an "accredited
investor" as defined in Securities Act Rule 501 (a); (iv) the Stockholder
(A) is able to bear the economic risk of an investment in the TMI Common
Stock to be acquired by him or her pursuant to this Agreement, (B) can
afford to sustain a total loss of that investment, (C) has such knowledge
and experience in financial and business matters that he or she is capable
of evaluating the merits and risks of the proposed investment in the TMI
Common Stock, (D) has had an adequate opportunity to ask questions and
receive answers from the officers of TMI concerning any and all matters
relating to the transactions
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contemplated by this Agreement, including the background and experience of
the current and proposed officers and directors of TMI, the plans for the
operations of the business of TMI, the business, operations and financial
condition of the Other Founding Companies and any plans of TMI for
additional acquisitions, and (E) has asked all questions of the nature
described in preceding clause (D), and all those questions have been
answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.01. BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Texas, and
the Company (i) is a corporation duly organized, validly existing and in
good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted, and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than its Organization
State) in which it owns or leases property or in which the carrying on of
its business as now conducted so requires except where the failure to be
so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
500,000 shares of Company Common Stock, of which 105,880 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.01. BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.01. OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article VI is hereby incorporated herein by this reference)
to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.01. THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act (A)
the execution of a Certificate of Merger meeting the requirements of the
Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
with the Secretary of State of the State of Texas), (ii) verify the
existence and ownership of the certificates evidencing the Company Common
Stock to be exchanged for the Merger Consideration pursuant to Section
2.05, and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII
(all those actions collectively being the "Closing"). The Closing will
take place at the offices of Porter & Hedges, L.L.P., 700 Louisiana,
Houston, Texas at 10:00 a.m., Houston time, or at such later time on the
IPO Pricing Date as TMI shall specify by written notice to [NAME OF
STOCKHOLDER REPRESENTATIVE].
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The actions taken at the Closing will not include the completion of either
the Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing Date,
the Certificate of Merger will become effective pursuant to Section 2.02,
and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash
portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set forth
in Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) each of the
Stockholders Agreement, the Lease Agreement and the New Employment
Agreements then shall be in full force and effect; and (ii) all the
conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before the
date of the Closing, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to TMI a copy
of the articles of incorporation, as amended to the date of the Closing
and certified by the Secretary of State of the State of Texas as of a
Current Date, of the Company; (ii) the Existing BT&B Lease Agreement shall
have been terminated without any further liability thereunder on the part
of the Company, (ii) the New Employment Agreements and the New Lease
Agreements shall then be in full force and effect, (iii) all personal
property now leased by BT&B to the Company shall have been transferred to
the Company without any consideration paid by the Company or any Company
Subsidiary, (iv) BT&B shall have assumed the payment of the Company's
outstanding loan under life insurance policies on the lives of the
Stockholders in exchange for the Company's forgiveness of a like amount
owed it by BT&B, (v) the lease arrangement between the Company and Thomas
J. Madsen for the lease of the real property located at 1434 N. Sam
Houston Parkway North, Suite 180, Houston, Texas shall have been
terminated without any further liability on the part of the Company, and
(vi) all the conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions to
be taken on the IPO Closing Date are subject to the satisfaction on that
date of the following conditions: (i) the Employment Agreement then shall
be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
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(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.01. OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.01. INDEMNIFICATION RIGHTS AND OBLIGATIONS.
(a) The text of Article IX of the Uniform Provisions, as modified by
this Section 9.01 hereby is incorporated herein by this reference.
(b) Notwithstanding, and in supplementation of, Sections 9.03
through 9.07:
(i) subject to the provisions of this Section 9.08, the
Stockholders covenant and agree that they, jointly and severally,
will indemnify each TMI Indemnified Party against, and hold each TMI
Indemnified Party harmless from and in respect of, all Damages that
arise from, are based on or relate or otherwise are attributable to
any claims or assessments against the Company for state sales taxes
payable in respect of sales of goods or services made by the Company
or any of its Subsidiaries during any period ended on or before
Current Balance Sheet Date, whether or not reserved against in any
balance sheet included in the Financial Statements, to the extent
that the aggregate amount of all such Damages (herein called
"Section 9.08 Indemnified Damages") exceed $100,000, and then only
to the extent of that excess;
(ii)the amount of the Section 9.08 Indemnified Damages as to
which the Stockholders shall be required under clause (i) of this
Section 9.08 to indemnify the TMI Indemnified Parties shall not be
reduced as a result of any limitation set forth in the first
sentence of paragraph (a) of Section 9.07, and shall not be
considered as TMI Indemnified Losses for purposes of the first
sentence of Section 9.07(a); and
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(iii) the amount of the Section 9.08 Indemnified Damages in
respect of which the Stockholders shall be required under clause (i)
of this Section 9.08 to indemnify the TMI Indemnified Parties shall
be taken into account and included for purposes of determining the
aggregate joint and several liability of the Company and the
Stockholders, and the aggregate liability of each Stockholder under
this Agreement, under the second sentence of Section 9.07(a) of this
Agreement.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.01. PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, (iv) the area located within 100
miles of the facility and (v) the area in which the facility regularly
makes sales or provides services, all of such locations being herein
collectively called the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or TMI in any managerial capacity with the
purpose or intent of attracting that person from the employ of the
Company, any Company Subsidiary or TMI, provided that the Stockholder may
call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or TMI within the Territory, (i) for the purpose of soliciting
or selling any product or service in competition with the Company, any
Company Subsidiary or TMI within the Territory and (ii) with the knowledge
of that customer relationship; or
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(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.02. DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.03. REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.04. SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
Section 10.05. INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.06. MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.01. TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.02. RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary of
the IPO Closing Date (the "Restricted Period") no Stockholder voluntarily
will, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of
(A) any shares of TMI Common Stock received by any Stockholder in the
Merger or (B) any interest in (including any option to buy or sell) any of
those shares of TMI Common Stock, in whole or in part and TMI will have no
obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or
not with respect to any shares of TMI Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of TMI Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); PROVIDED, HOWEVER, that this Section 11.02 shall not
restrict any transfer of TMI Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who
agree in writing to be bound by the provisions of Section 11.01 and this
Section 11.02. The certificates evidencing the TMI Common Stock delivered
to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other
information as TMI may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND
THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING
DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
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RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold by that Stockholder without compliance with the Securities Act and
(B) will, as a result of their restrictions on transferability which are
imposed by this Agreement during the Restricted Period, have a value
materially less at the Effective Time than the value of then freely
tradeable shares of TMI Common Stock, and (ii) covenants that none of the
shares of TMI Common Stock issued to that Stockholder pursuant to Section
2.04 will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations
of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of TMI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
Section 11.03. BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.04. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
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Section 11.05. ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.06. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.07. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date, (b) the Company will
pay any fees, expenses and disbursements of any counsel (other than Counsel for
the Company and the Stockholders) incurred in connection with the subject matter
of this Agreement and the Registration Statement on or before the IPO Closing
Date, up to a maximum of $25,000 in the aggregate, and (c) the Stockholders will
pay from personal funds, and not from funds of the Company or any Company
Subsidiary, (i) all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby, and (ii) the fees, expenses and disbursements in excess of
$25,000 in the aggregate, of any counsel (other than Counsel for the Company and
the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or TMI or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.08. NOTICES. All notices required or permitted hereunder shall
be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
16
<PAGE>
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical, Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.:William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
4800 SE Loop 820
Forest Hills, TX 76140
Telecopy No.: (713) 228-4935
Attn: Mr. H. A. Lawhon
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.09. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER,
THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES
THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CONFLICTS OF LAW
PROVISIONS THEREOF
17
<PAGE>
AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE GOVERNED BY THE
BUSINESS CORPORATION ACT.
Section 11.10. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11. TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12. REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13. REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14. RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
18
<PAGE>
ARTICLE XII
TERMINATION
Section 12.01. TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii)by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions contemplated
by this Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful failure of
the party (or in the case of the Stockholders and the Company, any
of them) seeking to terminate this Agreement to perform or adhere to
any agreement required hereby to be performed or adhered to by it
prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if a material breach or default
shall be made by the other party (or in the case of the Stockholders
and the Company, any of them) in the observance or in the due and
timely performance of any of the covenants, agreements or conditions
contained herein; or
(iv)by TMI if it is entitled to do so as provided in Section
6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii)automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this
Section 12.01 after the Certificate of Merger has been filed with the
Secretary of State of the State of Texas, but before the IPO has been
consummated, TMI will take all actions that Counsel for the Company and
the Stockholders advises TMI are required by the applicable laws of the
State of Texas to rescind the Merger.
19
<PAGE>
Section 12.02. LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
PFS ACQUISITION, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
President
PRODUCTS FOR SURGERY, INC.
By: /s/ H. A. LAWHON
H. A. Lawhon, President
20
<PAGE>
STOCKHOLDERS:
/s/ H. A. LAWHON
H. A. Lawhon
21
<PAGE>
/s/ R. BRYAN GREGORY
R. Bryan Gregory
/s/ THOMAS J. MADSEN
Thomas J. Madsen
/s/ ROBERT L. WAHLENMAIER
Robert L. Wahlenmaier
22
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
23
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President: R. Tucker Coop
Vice President: William C. Klintworth, Jr.
Vice President: Walter D. Wallach
Vice President, Secretary,
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
H.A. Lawhon 7207Saquaro Lake Court
Arlington, Texas 76016
R. Bryan Gregory 15600 Bakers Landing Rd. #1
Houston, Texas 77079
Thomas J. Madsen 117 Ammann Rd.
Boerne, Texas 78006-6873
220 North 96th Pl.
Robert L. Wahlenmaier Scottsdale, AZ 85255
C. The shares of Company Common Stock owned and held by H.A. Lawhon shall
be converted into the right to receive .266667 of the Cash Merger Consideration
and .381002 of the Stock Merger Consideration, the shares of Company Common
Stock owned and held by R. Bryan Gregory shall be converted into the right to
receive .444444 of the Cash Merger Consideration and .240651 of the Stock Merger
Consideration, and the shares of Company Common Stock owned and held by Robert
L. Wahlenmaier shall be converted into the right to receive .144444 of the Cash
Merger Consideration and .154386 of the Stock Merger Consideration, and the
shares of Company Common Stock owned and held by Thomas J. Madsen shall be
converted into the right to receive .144444 of the Cash Merger Consideration and
.223961 of the Stock Merger Consideration.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NUMBER OF
NAME CLASS SHARES OWNED
H.A. Lawhon Common 36,000
R. Bryan Gregory Common 36,000
Thomas J. Madsen Common 18,000
Robert L. Wahlenmaier Common 15,880
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. American Surgical Supply Company: Bryan Gregory, Robert
Wahlenmaier, H.A. Lawhon, and Tom Madsen own a combined 10.44% of this
company, which distributes medical supplies and equipment.
2. BT&B Leasing: Lawhon, Gregory and Madsen own 100% of this
company. BT&T and PFS have entered into transactions within the last three
years which exceed $20,000 in value. These transactions include the lease
of real and personal property by PFS from BT&B and the purchase of
inventory by BT&T from PFS.
3. Medical Supply Service Corporation, L.L.C.: Robert Wahlenmaier
owns 33.3% of the stock of this company which sells perfusion supplies and
equipment and a membrane oxygenator to hospitals in competition with TMI .
MSSC also leases warehouse space and purchases management services form
PFS. MSSC pays PFS approximately $3,500 - 4,000 a month to PFS for these
services.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue in
effect past the date of the Closing in accordance with its terms, subject to the
following provisions of this Schedule:
1. The New Lease Agreement
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as are
necessary and satisfactory to TMI to dispose, prior to the Effective Time, of
the following assets:
1. The life insurance policies on the lives of the Stockholders
referenced in Section 7.01(c) of the captioned Agreement shall be
transferred to the respective Stockholders in exchange for the
assumption of indebtedness of the Company as contemplated in Section
7.01(c) of the captioned Agreement.
2. The shares of stock in Metro Flow, Inc. owned by the Company and
described in Section 4.06 of the Disclosure Statement shall be
transferred to H. A. Lawhon in exchange for nominal consideration.
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause the
following Stockholder Guarantees to be terminated:
1. All guarantees of the Closing Date Indebtedness.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical, Inc.
PFS Acquisition, Inc.
Products for Surgery, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.8
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
MEGATECH ACQUISITION, INC.
MEGATECH MEDICAL, INC.
AND
ITS STOCKHOLDERS
1
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................4
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................5
Section 2.06. Fractional Shares..........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER.............................................7
Section 3.01. By each Stockholder........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS..............................8
Section 4.01. By the Company and Each Stockholder........................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO...............9
Section 5.01. By TMI and Newco............................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME........................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS
TO CLOSING AND CONSUMMATION...................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIIICOVENANTS FOLLOWING THE EFFECTIVE TIME..........................11
Section 8.01. Of Each Party Other Than the Company......................11
ARTICLE IX INDEMNIFICATION.................................................11
Section 9.01. Indemnification Rights and Obligations....................11
ARTICLE X LIMITATIONS ON COMPETITION...................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
Section 10.03. Reasonable Restraint.....................................12
i
<PAGE>
Section 10.04. Severability; Reformation................................12
Section 10.05. Independent Covenant.....................................13
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS...........................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................14
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................15
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................17
Section 11.14. Respecting the IPO.......................................17
ARTICLE XII TERMINATION.....................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Megatech Acquisition, Inc., a Maryland corporation and a wholly owned subsidiary
of TMI ("Newco"), MEGATECH MEDICAL, INC., a Maryland corporation (the
"Company"), and the persons listed on the signature pages of this Agreement
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii)TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying Addendum
I (each an "Other Founding Company" and, collectively with the Company, the
"Founding Companies") under agreements similar to this Agreement entered into
among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its common
stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
1
<PAGE>
"AAA RELATED INDEBTEDNESS" means all indebtedness of the Company
incurred to fund distributions to the Stockholders made during the period
January 1, 1997 to the IPO Closing Date from the Company's Accumulated
Adjustment Account.
"ACCUMULATED ADJUSTMENT ACCOUNT" means the accumulated adjustment
account maintained by the Company under Section 1368(e)(1) of the Code and
representing the undistributed retained earnings of the Company on which
the Stockholders have paid U.S.
federal income taxes.
"AGREEMENT" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Schedules, Annexes and
Exhibits, as each of them may be amended, modified or supplemented from
time to time under their provisions or the provisions of this Agreement.
"CEILING AMOUNT" means (i) on or before the first anniversary of the
IPO Closing Date, $5.6 million, and (ii) thereafter, $2.8 million less the
amount of all Damages paid or which have become payable by the party or
parties in question with respect to all indemnification claims made on or
before the first anniversary of the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there shall
be included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"COMPANY COMMON STOCK" means the common stock, par value $1.00 per
share, of the Company, including both its Class A and Class B Common
Stock.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on the
date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and each of the Stockholders and delivered to TMI prior to the
execution and delivery of this Agreement, in which either (a) exceptions
are taken to each of certain of the representations
2
<PAGE>
and warranties made by the Company and the Stockholders in this Agreement
or (b) it is confirmed that no exception is taken to that representation
and warranty.
"INITIAL FINANCIAL STATEMENTS" means (a) the unaudited balance sheet
of the Company at December 31, 1995 and the unaudited statements of
operations, stockholders' equity and cash flows for each of the Company's
two fiscal years included in the two-year period then ended, (b) the
audited balance sheet of the Company at December 31, 1996 and the related
audited statements of operations, stockholders' equity and cash flows for
the Company's fiscal year ended December 31, 1996, together with the
related audit report of Arthur Andersen LLP, and (c) the Current Balance
Sheet and the related unaudited statements of operations, stockholders'
equity and cash flows for the six month period ended on the Current
Balance Sheet.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"MGCL" means the General Corporation Law of Maryland.
"NEWCO" means Megatech Acquisition, Inc., a Maryland corporation.
"PRO RATA SHARE" means for each Stockholder the fraction expressed
as a percentage and set forth in Schedule 2.04, (a) the numerator of which
is the number of shares of outstanding Company Common Stock owned by that
Stockholder, as set forth in Schedule 2.04, and (b) the denominator of
which is the total number of shares of outstanding Company Common Stock
owned by all Stockholders, as set forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means Marvin L. Marks.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section 10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be designated
in the Certificate of Merger as the surviving corporation of the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
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"THRESHOLD AMOUNT" means $112,000.
"TMI" means Triad Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of distributing medical or healthcare products to hospitals,
clinics, physicians, laboratories, pharmacies, alternate care sites or
other medical or healthcare facilities or conceiving, designing,
developing or testing technologically advanced medical or healthcare
products, and which was called on by any of the Company, TMI or a
Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any of
them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions of
this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the State
Department of Assessments and Taxation.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the MGCL, (b) Newco will cease to exist as a separate legal
entity, (c) the articles of incorporation of the Company will be amended to
change its authorized capital stock to 1,000 shares, par value $1.00 per share,
of Common Stock, (d) the Company will be the Surviving Corporation and, as such,
will, all with the effect provided by the MGCL, (i) possess all the properties
and rights, and be subject to all the restrictions and duties, of the Company
and Newco and (ii) be governed by the laws of the State of Maryland, (e) the
Charter Documents of the Company then in effect (after giving effect to the
amendment of the Company's articles of incorporation specified in clause (c) of
this sentence) will become and thereafter remain (until changed in accordance
with (i) applicable law, in the case of the articles of incorporation or (ii)
their terms, in the case of the bylaws) the Charter Documents of the Surviving
Corporation, (f) the initial board of directors of the Surviving Corporation
will be the
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Persons named in Schedule 2.03, and those Persons will hold the office of
director of the Surviving Corporation subject to the provisions of the
applicable laws of the State of Maryland and the Charter Documents of the
Surviving Corporation, and (g) the initial officers of the Surviving Corporation
will be as set forth in Schedule 2.03, and each of those Persons will serve in
each office specified for that Person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
Person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of TMI Common Stock set forth or determined as provided
in Schedule 2.04 (the "Merger Consideration"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
(ii) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(iii)each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving Corporation,
and the shares of Common Stock of the Surviving Corporation issued on
conversion will constitute all the issued and outstanding shares of
Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will,
on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI will
pay and issue, or cause to be paid and issued, to each Stockholder, in
each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company Common
Stock has been surrendered and replaced pursuant to this Section 2.05,
that certificate will, for all purposes, be deemed to evidence ownership
of the number of whole shares of TMI Common Stock included in the Merger
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Consideration payable in respect of that certificate pursuant to Section
2.04. All shares of TMI Common Stock issuable in the Merger will be deemed
for all purposes to have been issued by TMI at the Effective Time. All
cash included in the Merger Consideration shall be paid by TMI's company
check or checks, one or more wire transfers to accounts designated by the
respective Stockholders at least two New York business days before the IPO
Closing Date, or by certified or official bank check or checks, at TMI's
option.
(b) Each Stockholder will deliver to TMI (or any agent that may be
appointed by TMI for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by
the Stockholder, duly endorsed in blank by him, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and
other revenue stamps, acquired at his expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will be
paid to the holder of any unsurrendered certificates representing shares
of Company Common Stock for which shares of TMI Common Stock have been
issued in the Merger until those certificates are surrendered as provided
herein, but (i) on such surrender TMI will cause to be paid, to the Person
in whose name the certificates representing such shares of TMI Common
Stock shall then be issued, the amount of dividends or other distributions
previously paid with respect to such whole shares of TMI Common Stock with
a record date, or which have accrued, subsequent to the Effective Time,
but prior to surrender, and the amount of any cash payable to such Person
for and in lieu of fractional shares pursuant to Section 2.06 and (ii) at
the appropriate payment date or as soon as practicable thereafter, TMI
will cause to be paid to that Person the amount of dividends or other
distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent
to surrender, which are payable with respect to such whole shares of TMI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or
other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of this
Article II, no fractional shares of TMI Common Stock will be issued, and any
Stockholder otherwise entitled to receive a fractional share of TMI Common Stock
but for this Section 2.06 will instead be entitled to receive a cash payment for
and in lieu thereof in the amount (rounded to the nearest whole cent) equal to
that Person's fractional interest in a share of TMI Common Stock multiplied by
the IPO Price.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to himself
or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI Common
Stock to be issued pursuant to Section 2.04 to the Stockholder solely for
the Stockholder's account, for investment purposes only and with no
current intention or plan to distribute, sell or otherwise dispose of any
of those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of TMI Common Stock other than this Agreement, the
Stockholders Agreement and the Registration Rights Agreement; (iii) unless
otherwise specified on Schedule 3.01, the Stockholder is an "accredited
investor" as defined in Securities Act Rule 501 (a); (iv) the Stockholder
(A) is able to bear the economic risk of an investment in the TMI Common
Stock to be acquired by him or her pursuant to this Agreement, (B) can
afford to sustain a total loss of that investment, (C) has such knowledge
and experience in financial and business matters that he or she is capable
of evaluating the merits and risks of the proposed investment in the TMI
Common Stock, (D) has had an adequate opportunity to ask questions and
receive answers from the officers of TMI concerning any and all matters
relating to the transactions contemplated by this Agreement, including the
background and experience of the current and proposed officers and
directors of TMI, the plans for the operations of the business of TMI, the
business, operations and financial condition of the Other Founding
Companies and any plans of TMI for additional acquisitions, and (E) has
asked all questions of the nature described in preceding clause (D), and
all those questions have been answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are hereby agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of Maryland,
and the Company (i) is a corporation duly organized, validly existing and
in good standing under the laws of that State, (ii) has all requisite
corporate power and authority under those laws and its Charter Documents
to own or lease and to operate its properties and to carry on its business
as now conducted, and (iii) is duly qualified and in good standing as a
foreign corporation in all jurisdictions (other than its Organization
State) in which it owns or leases property or in which the carrying on of
its business as now conducted so requires except where the failure to be
so qualified, singly or in the aggregate, would not have a Material
Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of (i)
50,000 shares of Class A Common Stock, of which 2,000 shares have been
issued and are now outstanding and (ii) 50,000 shares of Class B Common
Stock, of which 1,800 shares have been issued and are now outstanding and
200 shares are held by the Company as treasury shares; and no outstanding
Derivative Securities of the Company exist;
(c) the Company has made an election with the IRS to be taxed as an
S corporation within the meaning of Section 1361 of the Code, and that
election is in effect. The Company owns no assets the disposition of which
would cause the Company to have a net recognized built-in gain within the
meaning of Section 1374 of the Code. The Company has no item of income
that has not been taken into account by the Company and that would be
treated as a recognized built-in gain under Section 1374(d)(5) of the
Code. The transfer of the Company's assets pursuant to the Merger shall
not cause the Company to be liable for any federal, state, city or local
taxes; and
(d) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the MGCL (A) the execution of
Articles of Merger meeting the requirements of the MGCL and providing that
the Merger will become effective on the IPO Closing Date and (B) the
filing of the Articles with the State Department of Assessments and
Taxation, (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05, and (iii) satisfy the document
delivery requirements to which the obligations of the parties to effect
the Merger and the other transactions contemplated hereby are conditioned
by the provisions of this Article VII (all those actions collectively
being the "Closing"). The Closing will take place at the offices of Porter
& Hedges, L.L.P., 700 Louisiana, Houston, Texas at 10:00 a.m., Houston
time, or at such later time on the IPO Pricing Date as TMI shall specify
by written notice to Marvin L. Marks. The actions taken at the Closing
will not include the completion
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of either the Merger or the delivery of the Company Common Stock or the
Merger Consideration pursuant to Section 2.05. Instead, on the IPO Closing
Date, the Certificate of Merger will become effective pursuant to Section
2.02, and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash
portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set forth
in Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) the
Stockholders Agreement then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before the
date of the Closing, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to TMI a copy
of the articles of incorporation, as amended to the date of the Closing
and certified by the State Department of Assessments and Taxation of the
State of Maryland as of a Current Date, of the Company; and (ii) all the
conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions to
be taken on the IPO Closing Date are subject to the satisfaction on that
date of the following conditions: (i) the Employment Agreement then shall
be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article IX
of the Uniform Provisions hereby is incorporated herein by this reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the territory
surrounding a facility shall be: (i) the city, town or village in which
the facility is located, (ii) the county or parish in which the facility
is located, (iii) the counties or parishes contiguous to the county or
parish in which the facility is located, (iv) the area located within 100
miles of the facility and (v) the area in
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which the facility regularly makes sales or provides services, all of such
locations being herein collectively called the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or TMI in any managerial capacity with the
purpose or intent of attracting that person from the employ of the
Company, any Company Subsidiary or TMI, provided that the Stockholder may
call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or TMI within the Territory, (i) for the purpose of soliciting
or selling any product or service in competition with the Company, any
Company Subsidiary or TMI within the Territory and (ii) with the knowledge
of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
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Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X are
intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary of
the IPO Closing Date (the "Restricted Period") no Stockholder voluntarily
will, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of
(A) any shares of TMI Common Stock received by any Stockholder in the
Merger or (B) any interest in (including any option to buy or sell) any of
those shares of TMI Common Stock, in whole or in part and TMI will have no
obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or
not with respect to any shares of TMI Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of TMI Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); PROVIDED, HOWEVER, that this Section 11.02 shall not
restrict any transfer of TMI Common Stock acquired by a Stockholder
pursuant to Section 2.04 to any of that Stockholder's Related Persons who
agree in writing to be bound by the provisions of Section 11.01 and this
Section 11.02. The certificates evidencing the TMI Common Stock delivered
to each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the
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form set forth below and containing such other information as TMI may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND
THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING
DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold by that Stockholder without compliance with the Securities Act and
(B) will, as a result of their restrictions on transferability which are
imposed by this Agreement during the Restricted Period, have a value
materially less at the Effective Time than the value of then freely
tradeable shares of TMI Common Stock, and (ii) covenants that none of the
shares of TMI Common Stock issued to that Stockholder pursuant to Section
2.04 will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations
of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of TMI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
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Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and
the rights of its parties may not be assigned (except by operation of law) and
shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, (a) TMI will pay (i) the fees, expenses and disbursements of
TMI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by TMI and Newco under this Agreement, including the
costs of preparing the Registration Statement, and (ii) the fees, expenses and
disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date, (b) the Company will pay any fees,
expenses and disbursements of any counsel (other than Counsel for the Company
and the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date, up
to a maximum of $25,000 in the aggregate, and (c) the Stockholders will pay from
personal funds, and not from funds of the Company or any Company Subsidiary, (i)
all sales, use, transfer and other similar taxes and fees (collectively,
"Transfer Taxes") incurred in connection with the transactions contemplated
hereby, and (ii) the fees, expenses and disbursements in excess of $25,000 in
the aggregate, of any counsel
15
<PAGE>
(other than Counsel for the Company and the Stockholders) incurred in connection
with the subject matter of this Agreement and the Registration Statement on or
before the IPO Closing Date. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or TMI or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall be
in writing, and shall be deemed to be delivered and received (a) if personally
delivered or if delivered by telex, telegram, facsimile or courier service, when
actually received by the party to whom notice is sent or (b) if delivered by
mail (whether actually received or not), at the close of business on the third
Houston, Texas business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate party or
parties, at the address of such party set forth below (or at such other address
as such party may designate by written notice to all other parties in accordance
herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
AttnWilliam C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii)if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
MEGATECH MEDICAL, INC.
1720 Belmont Avenue
Baltimore, Maryland 21244-2544
Attn: Marvin L. Marks
16
<PAGE>
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO WILL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF MARYLAND WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE GOVERNED BY THE
BUSINESS CORPORATION ACT.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the
17
<PAGE>
Registration Statement will become effective or that the IPO will occur at a
particular price or within a particular range of prices or occur at all; (b)
neither TMI or any of its Representatives nor any prospective underwriters in
the IPO will have any liability to the Company, the Stockholders or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that TMI will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to January 31, 1998) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the Merger, has been or will be made independent of, and without reliance on,
any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to TMI or the IPO. The Underwriter shall have no obligation
to any of the Company and the Stockholders with respect to any disclosure
contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii)by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions contemplated
by this Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful failure of
the party (or in the case of the Stockholders and the Company, any
of them) seeking to terminate this Agreement to perform or adhere to
any agreement required hereby to be performed or adhered to by it
prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if a material breach or default
shall be made by the other party (or in the case of the Stockholders
and the Company, any of them) in the observance or in the due and
timely performance of any of the covenants, agreements or conditions
contained herein; or
(iv) by TMI if it is entitled to do so as provided in Section
6.07;
(b) This Agreement may be terminated after the Closing solely:
18
<PAGE>
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii)automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this
Section 12.01 after the Articles of Merger has been filed with the
Maryland State Department of Assessments and Taxation, but before the IPO
has been consummated, TMI will take all actions that Counsel for the
Company and the Stockholders advises TMI are required by the applicable
laws of the State of Maryland to rescind the Merger.
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
Chief Executive Officer
MEGATECH ACQUISITION, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
President
19
<PAGE>
MEGATECH MEDICAL, INC.
By: /s/ MARVIN L. MARKS
Marvin L. Marks, President
STOCKHOLDERS:
/s/ MARVIN L. MARKS
Marvin L. Marks
/s/ RACHEL J. FRIED
Rachel J. Fried
/s/ JONATHAN MARKS
Jonathan Marks
/s/ JAMIE MARKS
Jamie Marks
/s/ ADAM MARKS
Adam Marks
/s/ ADAM MARKS
Adam Marks, as Custodian for
Zachary Marks
/s/ DONNA D. FRIED
Donna D. Fried, as Custodian for
Matthew Fried
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
Chief Executive OfR. Tucker Coop
President: Marvin Marks
Vice President:William C. Klintworth, Jr.
Vice President:Walter D. Wallach
Vice President, Secretary,
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
Marvin Marks 11 Whitebridge Court, Baltimore, MD 21208
Rachael Fried 11 Whitebridge Court, Baltimore, MD 21208
Donna D. Fried, as 11 Whitebridge Court, Baltimore, MD 21208
custodian for
Matthew Fried
Jonathan Marks c/o Grateful Graphics
208 Utah St., Suite 201
San Francisco, CA 94103
Jamie Marks 2811 California Street, San Francisco, CA 94115
Adam Marks 12140 Velvet Hills Drive, Owings Mills, MD 21117
Adam Marks, as
Custodian for
Zachary Marks 12140 Velvet Hills Drive, Owings Mills, MD 21117
C. The aggregate Merger Consideration shall be comprised of (i) an amount
of cash equal to $1,400,000 less the greater of (x) the unpaid principal balance
of, and all accrued, unpaid interest on, the AAA Related Indebtedness at the IPO
Closing Date and (y) the sum of (1) the aggregate amount of all 1996 AAA
Distributions (as defined in clause (i) of Paragraph B of Schedule 6.04) made by
the Company to the Stockholders in accordance with Schedule 6.04 and (2) the
amount by which the aggregate amount of all 1997 AAA Distributions (as defined
in clause (ii) of Paragraph B of Schedule 6.04) made by the Company to the
Stockholders in accordance with Schedule 6.04 exceeds 40% of all amounts which
are accumulated in the Company's Accumulated Adjustment Account after December
31, 1996 in respect of earnings of the Company for all taxable periods beginning
on or after January 1, 1997, and (ii) 300,000 shares of TMI Common Stock.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Unless otherwise specified on Schedule 3.01, each Stockholder is an
"accredited investor" as defined in Securities AThe following Stockholders are
not "accredited investors."
Rachael Fried
Donna D. Fried, as custodian for Matthew Fried
Jamie Marks
Adam Marks
Adam Marks, as Custodian for Zachary Marks
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
Marvin Marks Class A 2,000
Class B 1,404
Rachael J. Fried Class B 66
Donna D. Fried, as custodian Class B 66
for Matthew Fried
Jonathan Marks Class B 66
Jamie Marks Class B 66
Adam Marks Class B 66
Adam Marks, as Custodian
for Zachary Marks Class B 66
C. The 66 shares of Class B Common Stock owned by each Matthew Fried and
Zachary Marks are owned beneficially by such persons. The record owners of these
shares are Donna D. Fried and Adam Marks, respectively, who own the shares as
custodians for the beneficial owners.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholders are, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. JAJ Enterprises, Ltd., d/b/a S.O.S. Technologies ("SOS"), is
wholly owned by the Stockholders. SOS leases emergency oxygen units and
provides training in oxygen usage, first aid and CPR. In 1996, SOS paid
the Company approximately $135,000 for office and warehouse space as well
as for administration, accounting and management services rendered.
2. Biko Enterprises, Inc. ("Biko") was wholly owned by Marvin L.
Marks and Adam Marks. Biko distributed first aid supplies through
facilities used and otherwise occupied by the Company. In 1994, the
business assets of Biko were sold to an unaffiliated party. Neither the
Company or the Stockholders nor any affiliate thereof has any continuing
interest or involvement in the distribution of first aid and supplies.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue in
effect past the date of the Closing in accordance with its terms, subject to the
following provisions of this Schedule:
None
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Healthcare Corporation
Megatech Acquisition, Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
(i) the Company may distribute to the Stockholders such amounts, not
to exceed $1,400,000, as shall represent the excess of (x) the balance in
the Company's Accumulated Adjustment Account at December 31, 1996
accumulated in respect of earnings of the Company for all taxable periods
ended on or before that date over (y) all amounts distributed to the
Stockholders on or after January 1, 1997, and before the date of the
captioned Agreement, in respect of earnings of the Company for all taxable
periods ended on or before December 31, 1996 (all amounts previously or
hereafter so distributed under this clause (i) being referred to as the
"1996 AAA DISTRIBUTIONS");
(ii) the Company may distribute to the Stockholders amounts not
exceeding the excess of (x) $1,400,000 over (y) the sum of (a) aggregate
amount of all 1996 AAA Distribution, and (b) the excess of (i) all amounts
which accumulated in the Company's Accumulated Adjustment Account after
December 31, 1996 in respect of earnings of the Company for all taxable
periods beginning on or after January 1, 1997 over (2) all amounts
distributed to the Stockholders on or after January 1, 1997 and before the
date of the captioned Agreement in respect of earnings of the Company for
all taxable periods beginning on or after January 1, 1997 (all amounts
previously or hereafter so distributed under this clause (ii) being
referred to as the "1997 AAA DISTRIBUTIONS"); and
(iii)the Company may distribute to Marvin L. Marks, as a dividend, a
$1,000,000 life insurance policy issued by Berkshire Life, Policy Number
987266, original policy date 8-2-93, the 1997 premiums for which policy
have been paid by the Company, provided that Mr. Marks assumes payment of
all future premiums due on policy.
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as are
necessary and satisfactory to TMI to dispose, prior to the Effective Time, of
the following assets:
1. The Company will sell to Marvin L. Marks, for $20,000 cash, the
company automobile now used by Mr. Marks.
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause the
following Stockholder Guarantees to be terminated:
1. Any guaranty by any Stockholder of the AAA Related Indebtedness.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Megatech Acquisition Inc.
MegaTech Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.9
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
OMNI ACQUISITION, INC.
OMNI MEDICAL, INC.
AND
ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS..............................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................4
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................5
Section 2.06. Fractional Shares..........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER............................................7
Section 3.01. By each Stockholder........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS............................8
Section 4.01. By the Company and Each Stockholder........................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF
TMI AND NEWCO...............................................9
Section 5.01. By TMI and Newco............................................9
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO
CLOSING AND CONSUMMATION....................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................11
Section 8.01. Of Each Party Other Than the Company......................11
ARTICLE IX INDEMNIFICATION............................................11
Section 9.01. Indemnification Rights and Obligations....................11
ARTICLE X LIMITATIONS ON COMPETITION.................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
i
<PAGE>
Section 10.03. Reasonable Restraint.....................................12
Section 10.04. Severability; Reformation................................12
Section 10.05. Independent Covenant.....................................12
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS.........................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................14
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................15
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................17
Section 11.14. Respecting the IPO.......................................17
ARTICLE XII TERMINATION................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Omni Acquisition, Inc., a Washington corporation and a wholly owned subsidiary
of TMI ("Newco"), Omni Medical, Inc., a Washington corporation (the "Company"),
and the persons listed on the signature pages of this Agreement under the
caption "Stockholders" (collectively, the "Stockholders," and each of those
persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii) TMI, VIA mergers involving TMI subsidiaries, will
acquire the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the Company,
the "Founding Companies") under agreements similar to this Agreement entered
into among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its
common stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
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"ACCUMULATED ADJUSTMENT ACCOUNT" means the accumulated adjustment
account maintained by the Company under Section 1368(e)(1) of the Code
and representing the undistributed retained earnings of the Company on
which the Stockholders have paid U.S.
federal income taxes.
"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules, Annexes
and Exhibits, as each of them may be amended, modified or supplemented
from time to time under their provisions or the provisions of this
Agreement.
"BUSINESS CORPORATION ACT" means the Washington Business
Corporation Act.
"CEILING AMOUNT" means (i) on or before the first anniversary of
the IPO Closing Date, $3 million, and (ii) thereafter, $1.5 million less
the amount of all Damages paid or which have become payable by the party
or parties in question with respect to claims for indemnification made
on or before the first anniversary of the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there
shall be included the forms of certificates of officers, the opinions of
counsel and certain other documents to be delivered at the Closing as
provided in Article VII.
"COMPANY COMMON STOCK" means the common stock, par value $1 per
share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to TMI prior to
the execution and delivery of this Agreement, in which either (a)
exceptions are taken to each of certain of the representations and
warranties made by the Company and the Stockholders in this Agreement or
(b) it is confirmed that no exception is taken to that representation
and warranty.
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"INITIAL FINANCIAL STATEMENTS" means (a) the audited balance
sheets of the Company at December 31, 1995 and 1996 and the related
audited statements of operations, stockholders' equity and cash flows
for each of the Company's three fiscal years in the three-year period
ended December 31, 1996, together with the related audit report of
Arthur Andersen LLP, and (b) the Current Balance Sheet and the related
unaudited statements of operations, stockholders' equity and cash flows
for the six-month period ended on the Current Balance Sheet Date.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENTs" means the two Employment Agreements
entered into as of September 9, 1997, between TMI and Edward Berman and
William G. Graue, respectively.
"NEWCO" means Omni Acquisition, Inc., a Washington corporation.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company Common
Stock owned by that Stockholder, as set forth in Schedule 2.04, and (b)
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders, as set forth in Schedule
2.04.
"RESPONSIBLE OFFICER" means either of William G. Graue or Edward
Berman.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"SEAFIRST INDEBTEDNESS" means all indebtedness of the Company to
Seafirst National Bank incurred after January 1, 1997 to fund
distributions to the Stockholders made after that date from the
Company's Accumulated Adjustment Account.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
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"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $60,000.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of distributing medical or healthcare products to
hospitals, clinics, physicians, laboratories, pharmacies, alternate care
sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and which was called on by any of the Company, TMI
or a Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any
of them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions
of this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Washington.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of Washington, (e) the Charter Documents of the Company then
in effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable
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law, in the case of the articles of incorporation or (ii) their terms, in the
case of the bylaws) the Charter Documents of the Surviving Corporation, (f) the
initial board of directors of the Surviving Corporation will be the Persons
named in Schedule 2.03, and those Persons will hold the office of director of
the Surviving Corporation subject to the provisions of the applicable laws of
the State of Washington and the Charter Documents of the Surviving Corporation,
and (g) the initial officers of the Surviving Corporation will be as set forth
in Schedule 2.03, and each of those Persons will serve in each office specified
for that Person in Schedule 2.03, subject to the provisions of the Charter
Documents of the Surviving Corporation, until that Person's successor is duly
elected to, and, if necessary, qualified for, that office.
Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of TMI Common Stock set forth or determined as
provided in Schedule 2.04 (the "Merger Consideration"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
(ii) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(iii) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI
will pay and issue, or cause to be paid and issued, to each Stockholder,
in each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company
Common Stock has been surrendered and replaced
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pursuant to this Section 2.05, that certificate will, for all purposes,
be deemed to evidence ownership of the number of whole shares of TMI
Common Stock included in the Merger Consideration payable in respect of
that certificate pursuant to Section 2.04. All shares of TMI Common
Stock issuable in the Merger will be deemed for all purposes to have
been issued by TMI at the Effective Time. All cash included in the
Merger Consideration shall be paid by TMI's company check or checks, one
or more wire transfers to accounts designated by the respective
Stockholders at least two New York business days before the IPO Closing
Date, or by certified or official bank check or checks, at TMI's option.
(b) Each Stockholder will deliver to TMI (or any agent that may
be appointed by TMI for purposes of this Section 2.05) on or before the
IPO Closing Date the certificates representing Company Common Stock
owned by the Stockholder, duly endorsed in blank by him, or accompanied
by duly executed stock powers in blank, and with all necessary transfer
tax and other revenue stamps, acquired at his expense, affixed and
canceled. Each Stockholder shall cure any deficiencies in the
endorsement of the certificates or other documents of conveyance
respecting, or in the stock powers accompanying, the certificates
representing Company Common Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of TMI Common Stock have
been issued in the Merger until those certificates are surrendered as
provided herein, but (i) on such surrender TMI will cause to be paid, to
the Person in whose name the certificates representing such shares of
TMI Common Stock shall then be issued, the amount of dividends or other
distributions previously paid with respect to such whole shares of TMI
Common Stock with a record date, or which have accrued, subsequent to
the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to
Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, TMI will cause to be paid to that Person the
amount of dividends or other distributions with a record date, or which
have been accrued, subsequent to the Effective Time, but which are not
payable until a date subsequent to surrender, which are payable with
respect to such whole shares of TMI Common Stock, subject in all cases
to any applicable escheat laws. No interest will be payable with respect
to the payment of such dividends or other distributions or cash for and
in lieu of fractional shares on surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution; (ii)
the Stockholder is not a party to any agreement or other arrangement for
the disposition of any shares of TMI Common Stock other than this
Agreement, the Stockholders Agreement and the Registration Rights
Agreement; (iii) unless otherwise specified on Schedule 3.01, the
Stockholder is an "accredited investor" as defined in Securities Act
Rule 501 (a); (iv) the Stockholder (A) is able to bear the economic risk
of an investment in the TMI Common Stock to be acquired by him or her
pursuant to this Agreement, (B) can afford to sustain a total loss of
that investment, (C) has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the TMI Common Stock, (D) has had an
adequate opportunity to ask questions and receive answers from the
officers of TMI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
TMI, the plans for the operations of the business of TMI, the business,
operations and financial condition of the Other Founding Companies and
any plans of TMI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
Washington, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted, and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than its
Organization State) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except where
the failure to be so qualified, singly or in the aggregate, would not
have a Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
50,000 shares of Company Common Stock, of which 1,700 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the Company has made an election with the IRS to be taxed as
an S corporation within the meaning of Section 1361 of the Code, and
that election is in effect. The Company owns no assets the disposition
of which would cause the Company to have a net recognized built-in gain
within the meaning of Section 1374 of the Code. The Company has no item
of income that has not been taken into account by the Company and that
would be treated as a recognized built-in gain under Section 1374(d)(5)
of the Code. The transfer of the Company's assets pursuant to the Merger
shall not cause the Company to be liable for any federal, state, city or
local taxes; and
(d) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Washington, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article VI is hereby incorporated herein by this reference)
to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the
IPO Closing Date (including, as permitted by the Business Corporation
Act (A) the execution of a Certificate of Merger meeting the
requirements of the Business Corporation Act and providing that the
Merger will become effective on the IPO Closing Date and (B) the filing
of the Certificate with the Secretary of State of the State of
Washington), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05, and (iii) satisfy the document
delivery requirements to which the obligations of the parties to effect
the Merger and the other transactions contemplated hereby are
conditioned by the provisions of this Article VII (all those actions
collectively being the "Closing"). The Closing will take place at the
offices of Porter & Hedges, L.L.P., 700 Louisiana, Houston, Texas at
10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as TMI shall specify by written notice to Edward Berman. The actions
taken
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at the Closing will not include the completion of either the Merger or
the delivery of the Company Common Stock or the Merger Consideration
pursuant to Section 2.05. Instead, on the IPO Closing Date, the
Certificate of Merger will become effective pursuant to Section 2.02,
and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash
portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) each of the Stockholders Agreement and the New Employment Agreement
then shall be in full force and effect; and (ii) all the conditions set
forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to TMI a
copy of the articles of incorporation, as amended to the date of the
Closing and certified by the Secretary of State of the State of
Washington as of a Current Date, of the Company; and (ii) all the
conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth
in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
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ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article
IX of the Uniform Provisions hereby is incorporated herein by this reference.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business selling
any products or providing any services in competition with the Company,
any Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the
territory surrounding a facility shall be: (i) the city, town or village
in which the facility is located, (ii) the county or parish in which the
facility is located, (iii) the counties or parishes contiguous to the
county or parish in which the facility is located, (iv) the area located
within 100 miles of the facility and (v) the area in which the facility
regularly makes sales or provides services, all of such locations being
herein collectively called the "Territory");
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(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or TMI in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or TMI, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or TMI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or TMI within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this
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Agreement, and the existence of any claim or cause of action of any Restricted
Stockholder against TMI, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by TMI of any covenant in this
Article X. It is specifically agreed that the period specified in Section 10.01
shall be computed in the case of each Restricted Stockholder by excluding from
that computation any time during which that Restricted Stockholder is in
violation of any provision of Section 10.01. The covenants contained in this
Article X shall not be affected by any breach of any other provision of this
Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "Restricted Period") no Stockholder
voluntarily will, except pursuant to and in accordance with the
applicable provisions of the Registration Rights Agreement: (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (A) any shares of TMI Common Stock received by any
Stockholder in the Merger or (B) any interest in (including any option
to buy or sell) any of those shares of TMI Common Stock, in whole or in
part and TMI will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of TMI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of TMI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED, HOWEVER,
that this Section 11.02 shall not restrict any transfer of TMI Common
Stock acquired by a Stockholder pursuant to Section 2.04 to any of that
Stockholder's Related Persons who agree in writing to be bound by the
provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the TMI Common Stock delivered to each Stockholder pursuant
to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as TMI may deem necessary or
appropriate:
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EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if
applicable, will not be registered under the Securities Act and
therefore may not be resold by that Stockholder without compliance with
the Securities Act and (B) will, as a result of their restrictions on
transferability which are imposed by this Agreement during the
Restricted Period, have a value materially less at the Effective Time
than the value of then freely tradeable shares of TMI Common Stock, and
(ii) covenants that none of the shares of TMI Common Stock issued to
that Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all the applicable provisions of the
Securities Act and the rules and regulations of the SEC and applicable
state securities laws and regulations. All certificates evidencing
shares of TMI Common Stock issued pursuant to Section 2.04 will bear the
following legend in addition to the legend prescribed by Section
11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER
APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend
required by the securities or blue sky laws of the state in which that
Stockholder resides.
Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
14
<PAGE>
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date, (b) the Company will
pay any fees, expenses and disbursements of any counsel (other than Counsel for
the Company and the Stockholders) incurred in connection with the subject matter
of this Agreement and the Registration Statement on or before the IPO Closing
Date, up to a maximum of $25,000 in the aggregate, and (c) the Stockholders will
pay from personal funds, and not from funds of the Company or any Company
Subsidiary, (i) all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby, and (ii) the fees, expenses and disbursements in excess of
$25,000 in the aggregate, of any counsel (other than Counsel for the Company and
the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or TMI or the Surviving
15
<PAGE>
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall
be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
Omni Medical, Inc.
4138 148th Avenue NE
Redmond, Washington 98052
Attn: Edward Berman
16
<PAGE>
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER,
THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES
THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF WASHINGTON WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the
17
<PAGE>
Registration Statement will become effective or that the IPO will occur at a
particular price or within a particular range of prices or occur at all; (b)
neither TMI or any of its Representatives nor any prospective underwriters in
the IPO will have any liability to the Company, the Stockholders or any of their
respective Affiliates or associates for any failure of (i) the Registration
Statement to become effective (provided, however, that TMI will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to January 31, 1998) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the Merger, has been or will be made independent of, and without reliance on,
any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to TMI or the IPO. The Underwriter shall have no obligation
to any of the Company and the Stockholders with respect to any disclosure
contained in the Registration Statement.
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by TMI, on the other hand, if a material breach or
default shall be made by the other party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by TMI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
18
<PAGE>
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to
the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York
City business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Washington, but before the IPO
has been consummated, TMI will take all actions that Counsel for the
Company and the Stockholders advises TMI are required by the applicable
laws of the State of Washington to rescind the Merger.
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
OMNI ACQUISITION, INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr., President
19
<PAGE>
OMNI MEDICAL, INC.
By:/s/ WILLIAM G. GRAUE
William G. Graue, President
STOCKHOLDERS:
/s/ WILLIAM G. GRAUE
William G. Graue
/s/ EDWARD BERMAN
Edward Berman
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President: R. Tucker Coop
Vice President: William C. Klintworth, Jr.
Vice President: Walter D. Wallach
Vice President, Secretary
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
- ----------------- ----------
William G. Graue 1737 Lake Ave. South
Renton, WA 98055
Edward Berman 4521 103rd Lane NE
Kirkland, Washington 98033
C. The aggregate Merger Consideration shall be comprised of (i) an
amount of cash equal to $1,200,000 less the greater of (x) the unpaid principal
balance of, and all accrued, unpaid interest on, the Seafirst Indebtedness at
the IPO Closing Date and (y) the sum of (1) the amount by which the aggregate
amount of all 1996 AAA Distributions (as defined in clause (i) of Paragraph B of
Schedule 6.04) made by the Company to the Stockholders in accordance with
Schedule 6.04 exceeds 47% of all amounts which accumulated in the Company's
Accumulated Adjustment Account in respect of earnings of the Company (other than
Meadox Earnings, as defined in clause (iii) of Paragraph B of Schedule 6.04) for
the taxable year ended December 31, 1996, and (2) the amount by which the
aggregate amount of all 1997 AAA Distributions (as defined in clause (ii) of
Paragraph B of Schedule 6.04) made by the Company to the Stockholders in
accordance with Schedule 6.04 exceeds 47% of all amounts which are accumulated
in the Company's Accumulated Adjustment Account after December 31, 1996 in
respect of earnings of the Company (other than Meadox Earnings) for all taxable
periods beginning on or after January 1, 1997, and (ii) 128,571 shares of TMI
Common Stock.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
---- ----- ----------------------
William G. Graue Common 850
Edward Berman Common 850
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
None
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms, subject to
the following provisions of this Schedule:
None
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Healthcare Corporation
Omni Acquisition, Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
(i) the Company may distribute to the Stockholders such amounts,
not to exceed $1,200,000, as shall represent the excess of (x) the
balance in the Company's Accumulated Adjustment Account at December 31,
1996 accumulated in respect of earnings of the Company for the taxable
years ended on or before December 31, 1996 over (y) all amounts
distributed to the Stockholders on or after January 1, 1997, and before
the date of the captioned Agreement, in respect of earnings of the
Company for all taxable year periods ended on or before December 31,
1996 (all amounts previously or hereafter so distributed under this
clause (i) being referred to as the "1996 AAA DISTRIBUTIONS");
(ii) the Company may distribute to the Stockholders amounts not
exceeding the excess of (x) $1,200,000 over (y) the sum of (a) aggregate
amount of all 1996 AAA Distributions and (b) the excess of (1) all
amounts which accumulated in the Company's Accumulated Adjustment
Account after December 31, 1996 in respect of earnings (other than
Meadox Earnings, as defined below) of the Company for all taxable
periods beginning on or after January 1, 1997 over (2) all amounts
distributed to the Stockholders on or after January 1, 1997 and before
the date of the captioned Agreement in respect of earnings (other than
Meadox Earnings, as defined below) of the Company for all taxable
periods beginning on or after January 1, 1997 (all amounts previously or
hereafter so distributed under this clause (ii) being referred to as the
"1997 AAA DISTRIBUTIONS"); and
(iii)the Company may distribute to the Stockholders, and there
shall not be included in the calculations made under clause (ii) above,
100% of all 1997 earnings of the Company which are represented by
payments made to the Company by Meadox Medicals, Inc. under the
non-competition agreement between the Company and Meadox Medicals, Inc.
("MEADOX EARNINGS").
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to THC to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, THC will cause
the following Stockholder Guarantees to be terminated:
The guarantees by William G .Graue and Edward Berman of the Seafirst
Indebtedness.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Omni Acquisition Inc.
Omni Medical, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.10
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
NEMS ACQUISITION, INC.
NEW ENGLAND MEDICAL SPECIALTIES, INC.
AND
ITS STOCKHOLDERS
1
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS...................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS................................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................4
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................5
Section 2.06. Fractional Shares..........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER...................................................6
Section 3.01. By each Stockholder........................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS..............................7
Section 4.01. By the Company and Each Stockholder........................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO...............8
Section 5.01. By TMI and Newco............................................8
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME.....................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION.................................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.......................10
Section 8.01. Of Each Party Other Than the Company......................10
ARTICLE IX INDEMNIFICATION..............................................11
Section 9.01. Indemnification Rights and Obligations....................11
Section 9.08. Certain Indemnified Damages ..............................11
ARTICLE X LIMITATIONS ON COMPETITION...................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
i
<PAGE>
Section 10.03. Reasonable Restraint.....................................12
Section 10.04. Severability; Reformation................................13
Section 10.05. Independent Covenant.....................................13
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS........................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................15
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................15
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................18
Section 11.14. Respecting the IPO.......................................18
ARTICLE XII TERMINATION..................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
NEMS Acquisition, Inc., a Connecticut corporation and a wholly owned subsidiary
of TMI ("Newco"), New England Medical Specialties, Inc., a Connecticut
corporation (the "Company"), and the persons listed on the signature pages of
this Agreement under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii)TMI, VIA mergers involving TMI subsidiaries, will acquire
the stock of all or some of the entities identified in the accompanying Addendum
I (each an "Other Founding Company" and, collectively with the Company, the
"Founding Companies") under agreements similar to this Agreement entered into
among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its common
stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
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"AGREEMENT" means this Agreement, including the Disclosure Statement
relating to this Agreement and all attached Schedules, Annexes and
Exhibits, as each of them may be amended, modified or supplemented from
time to time under their provisions or the provisions of this Agreement.
"BUSINESS CORPORATION ACT" means the Connecticut Business
Corporation Act.
"CASH CONSIDERATION" means an amount of cash equal to $947,500 minus
the Closing Date Indebtedness.
"CEILING AMOUNT" means (i) on or before the first anniversary of the
IPO Closing Date, $2.19 million, and (ii) thereafter, $1.095 million less
the amount of all Damages paid or which have become payable by the party
or parties in question with respect to indemnification claims made on or
before the first anniversary of the IPO Closing Date.
"CLOSING DATE INDEBTEDNESS" means the aggregate unpaid balance (both
principal and accrued interest outstanding) at the IPO Closing Date under
(i) the Company's $120,000 line of credit facility at Fleet National Bank
and (ii) the Company's $360,000 term credit facility with Fleet National
Bank.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there shall
be included the forms of certificates of officers, the opinions of counsel
and certain other documents to be delivered at the Closing as provided in
Article VII.
"COMPANY COMMON STOCK" means the common stock, no par value , of the
Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at July 31, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means July 31, 1997.
"CURRENT DATE" means any day during the 20-day period ending on the
date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by the
Company and each of the Stockholders and delivered to TMI prior to the
execution and delivery of this Agreement, in which either (a) exceptions
are taken to each of certain of the representations
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and warranties made by the Company and the Stockholders in this Agreement
or (b) it is confirmed that no exception is taken to that representation
and warranty.
"ENTERPRISE VALUE" means the total purchase price to be paid, or
$2.19 million.
"INITIAL FINANCIAL STATEMENTS" means (a) the unaudited balance
sheets of the Company at October 31, 1994, 1995 and 1996 and the related
unaudited statements of income, retained earnings and cash flows for each
of the Company's three fiscal years in the three-year period ended October
31, 1996, together with the related accountants' review report of Barron,
Yanaros & Caruso, P.C., and (b) the Current Balance Sheet and the related
unaudited statements of income, retained earnings and cash flows for the
nine month period ended on the Current Balance Sheet.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEWCO" means NEMS Acquisition, Inc., a Connecticut corporation.
"PRO RATA SHARE" means for each Stockholder the fraction expressed
as a percentage and set forth in Schedule 2.04, (a) the numerator of which
is the number of shares of outstanding Company Common Stock owned by that
Stockholder, as set forth in Schedule 2.04, and (b) the denominator of
which is the total number of shares of outstanding Company Common Stock
owned by all Stockholders, as set forth in Schedule 2.04.
"RESPONSIBLE OFFICER" means Peter A. Miller.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section 10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be designated
in the Certificate of Merger as the surviving corporation of the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $43,800.
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"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of the
businesses of distributing medical or healthcare products to hospitals,
clinics, physicians, laboratories, pharmacies, alternate care sites or
other medical or healthcare facilities or conceiving, designing,
developing or testing technologically advanced medical or healthcare
products, and which was called on by any of the Company, TMI or a
Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any of
them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions of
this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Connecticut.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of Connecticut, (e) the Charter Documents of the Company then
in effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law, in the
case of the articles of incorporation or (ii) their terms, in the case of the
bylaws) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the Persons named in
Schedule 2.03, and those Persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of
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Connecticut and the Charter Documents of the Surviving Corporation, and (g) the
initial officers of the Surviving Corporation will be as set forth in Schedule
2.03, and each of those Persons will serve in each office specified for that
Person in Schedule 2.03, subject to the provisions of the Charter Documents of
the Surviving Corporation, until that Person's successor is duly elected to,
and, if necessary, qualified for, that office.
Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, (a) an amount of cash equal to the Cash Merger
Consideration and (b) 88,750 shares of TMI Common Stock (collectively, the
"Merger Consideration"), (ii) cease to be outstanding and to exist, and
(iii) be canceled and retired;
(ii) each share of Company Common Stock held in the treasury of the
Company or any Company Subsidiary will (i) cease to be outstanding and to
exist and (ii) be canceled and retired; and
(iii)each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving Corporation,
and the shares of Common Stock of the Surviving Corporation issued on
conversion will constitute all the issued and outstanding shares of
Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock, will,
on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI will
pay and issue, or cause to be paid and issued, to each Stockholder, in
each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company Common
Stock has been surrendered and replaced pursuant to this Section 2.05,
that certificate will, for all purposes, be deemed to evidence ownership
of the number of whole shares of TMI Common Stock included in the Merger
Consideration payable in respect of that certificate pursuant to Section
2.04. All shares of TMI Common Stock issuable in the Merger will be deemed
for all purposes to have been
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issued by TMI at the Effective Time. All cash included in the Merger
Consideration shall be paid by TMI's company check or checks, one or more
wire transfers to accounts designated by the respective Stockholders at
least two New York business days before the IPO Closing Date, or by
certified or official bank check or checks, at TMI's option.
(b) Each Stockholder will deliver to TMI (or any agent that may be
appointed by TMI for purposes of this Section 2.05) on or before the IPO
Closing Date the certificates representing Company Common Stock owned by
the Stockholder, duly endorsed in blank by him, or accompanied by duly
executed stock powers in blank, and with all necessary transfer tax and
other revenue stamps, acquired at his expense, affixed and canceled. Each
Stockholder shall cure any deficiencies in the endorsement of the
certificates or other documents of conveyance respecting, or in the stock
powers accompanying, the certificates representing Company Common Stock
delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will be
paid to the holder of any unsurrendered certificates representing shares
of Company Common Stock for which shares of TMI Common Stock have been
issued in the Merger until those certificates are surrendered as provided
herein, but (i) on such surrender TMI will cause to be paid, to the Person
in whose name the certificates representing such shares of TMI Common
Stock shall then be issued, the amount of dividends or other distributions
previously paid with respect to such whole shares of TMI Common Stock with
a record date, or which have accrued, subsequent to the Effective Time,
but prior to surrender, and the amount of any cash payable to such Person
for and in lieu of fractional shares pursuant to Section 2.06 and (ii) at
the appropriate payment date or as soon as practicable thereafter, TMI
will cause to be paid to that Person the amount of dividends or other
distributions with a record date, or which have been accrued, subsequent
to the Effective Time, but which are not payable until a date subsequent
to surrender, which are payable with respect to such whole shares of TMI
Common Stock, subject in all cases to any applicable escheat laws. No
interest will be payable with respect to the payment of such dividends or
other distributions or cash for and in lieu of fractional shares on
surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of this
Article II, no fractional shares of TMI Common Stock will be issued, and any
Stockholder otherwise entitled to receive a fractional share of TMI Common Stock
but for this Section 2.06 will instead be entitled to receive a cash payment for
and in lieu thereof in the amount (rounded to the nearest whole cent) equal to
that Person's fractional interest in a share of TMI Common Stock multiplied by
the IPO Price.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to himself
or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI Common
Stock to be issued pursuant to Section 2.04 to the Stockholder solely for
the Stockholder's account, for investment purposes only and with no
current intention or plan to distribute, sell or otherwise dispose of any
of those shares in connection with any distribution; (ii) the Stockholder
is not a party to any agreement or other arrangement for the disposition
of any shares of TMI Common Stock other than this Agreement, the
Stockholders Agreement and the Registration Rights Agreement; (iii) unless
otherwise specified on Schedule 3.01, the Stockholder is an "accredited
investor" as defined in Securities Act Rule 501 (a); (iv) the Stockholder
(A) is able to bear the economic risk of an investment in the TMI Common
Stock to be acquired by him or her pursuant to this Agreement, (B) can
afford to sustain a total loss of that investment, (C) has such knowledge
and experience in financial and business matters that he or she is capable
of evaluating the merits and risks of the proposed investment in the TMI
Common Stock, (D) has had an adequate opportunity to ask questions and
receive answers from the officers of TMI concerning any and all matters
relating to the transactions contemplated by this Agreement, including the
background and experience of the current and proposed officers and
directors of TMI, the plans for the operations of the business of TMI, the
business, operations and financial condition of the Other Founding
Companies and any plans of TMI for additional acquisitions, and (E) has
asked all questions of the nature described in preceding clause (D), and
all those questions have been answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth therein are hereby agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
Connecticut, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted, and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than its
Organization State) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except where the
failure to be so qualified, singly or in the aggregate, would not have a
Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
5,000 shares of Company Common Stock, of which 1,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Connecticut, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto will comply with each covenant
for which provision is made in Article VI of the Uniform Provisions (the text of
which Article VI is hereby incorporated herein by this reference) to be
performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the IPO
Closing Date (including, as permitted by the Business Corporation Act (A)
the execution of a Certificate of Merger meeting the requirements of the
Business Corporation Act and providing that the Merger will become
effective on the IPO Closing Date and (B) the filing of the Certificate
with the Secretary of State of the State of Connecticut), (ii) verify the
existence and ownership of the certificates evidencing the Company Common
Stock to be exchanged for the Merger Consideration pursuant to Section
2.05, and (iii) satisfy the document delivery requirements to which the
obligations of the parties to effect the Merger and the other transactions
contemplated hereby are conditioned by the provisions of this Article VII
(all those actions collectively being the "Closing"). The Closing will
take place at the offices of Porter & Hedges, L.L.P., 700 Louisiana,
Houston, Texas at 10:00 a.m., Houston time, or at such later time on the
IPO Pricing Date as TMI shall specify by written notice to Peter A.
Miller. The actions taken at the Closing will not include the completion
of either the Merger or the delivery of the Company Common Stock or the
Merger Consideration pursuant to Section 2.05. Instead, on the IPO Closing
Date, the Certificate of Merger will become effective pursuant to Section
2.02, and all transactions contemplated by this Agreement to be closed or
completed on or before the IPO Closing Date, including the surrender of
the Company Common Stock in exchange for the Merger Consideration
(including a certified check or checks in an amount equal to the cash
portion of the Merger Consideration) will be closed or completed, as the
case may be. During the period from the Closing to the IPO Closing Date,
this Agreement may be terminated by the parties only pursuant to Section
12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set forth
in
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Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject to
the satisfaction on that date of the following conditions: (i) the
Stockholders Agreement then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before the
date of the Closing, or waiver by them pursuant to Section 11.05, of the
following conditions: (i) the Company shall have delivered to TMI a copy
of the articles of incorporation, as amended to the date of the Closing
and certified by the Secretary of State of the State of Connecticut as of
a Current Date, of the Company; and (ii) all the conditions set forth in
Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions to
be taken on the IPO Closing Date are subject to the satisfaction on that
date of the following conditions: (i) the Employment Agreement then shall
be in full force and effect; and (ii) all the conditions set forth in
Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS.
(a) The text of Article IX of the Uniform Provisions hereby is
incorporated herein by this reference.
(b) Notwithstanding, and in supplementation of, Sections 9.03
through 9.07:
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(i) subject to the provisions of this paragraph (b), the
Stockholders covenant and agree that they, jointly and severally, will
indemnify each TMI Indemnified Party against, and hold each TMI
Indemnified Party harmless from and in respect of, all Damages that arise
from, are based on or relate or otherwise are attributable to any claims
or assessments against the Company for state sales taxes payable in
respect of sales of goods or services made by the Company or any of its
Subsidiaries during any period ended on or before the Current Balance
Sheet Date, whether or not reserved against in any balance sheet included
in the Financial Statements, to the extent that the aggregate amount of
all such Damages (herein called "Specially Indemnified Damages") exceed
$100,000, and then only to the extent of that excess;
(ii) the amount of the Specially Indemnified Damages as to which the
Stockholders shall be required under clause (i) of this Section 9.08 to
indemnify the TMI Indemnified Parties shall not be reduced as a result of
any limitation set forth in the first sentence of paragraph (a) of Section
9.07, and shall not be considered as TMI Indemnified Losses for purposes
of the first sentence of Section 9.07(a); and
(iii)the amount of the Specially Indemnified Damages in respect of
which the Stockholders shall be required under clause (i) of this Section
9.08 to indemnify the TMI Indemnified Parties shall be taken into account
and included for purposes of determining the aggregate joint and several
liability of the Company and the Stockholders, and the aggregate liability
of each Stockholder under this Agreement, under the second sentence of
Section 9.07(a) of this Agreement.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a sales
representative or distributor of any kind, in any business selling any
products or providing any services in competition with the Company, any
Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective
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Time (for purposes of this Article X, the territory surrounding a facility
shall be: (i) the city, town or village in which the facility is located,
(ii) the county or parish in which the facility is located, (iii) the
counties or parishes contiguous to the county or parish in which the
facility is located, (iv) the area located within 100 miles of the
facility and (v) the area in which the facility regularly makes sales or
provides services, all of such locations being herein collectively called
the "Territory");
(b) call on any natural person who is at that time employed by the
Company, any Company Subsidiary or TMI in any managerial capacity with the
purpose or intent of attracting that person from the employ of the
Company, any Company Subsidiary or TMI, provided that the Stockholder may
call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time within
one year prior to that time was, a customer of the Company, any Company
Subsidiary or TMI within the Territory, (i) for the purpose of soliciting
or selling any product or service in competition with the Company, any
Company Subsidiary or TMI within the Territory and (ii) with the knowledge
of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto,
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including that Restricted Stockholder, acknowledge their mutual intention and
agreement that those restrictions be enforced to the fullest extent the court
deems reasonable, and thereby shall be reformed to that extent as applied to
that Restricted Stockholder and any other Restricted Stockholder similarly
situated.
Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X are
intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally and
not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto will
comply with each covenant for which provision is made in Section 11.01 of the
Uniform Provisions (the text of which Section hereby is incorporated herein by
this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary of
the IPO Closing Date (the "Restricted Period") no Stockholder voluntarily
will, except pursuant to and in accordance with the applicable provisions
of the Registration Rights Agreement: (i) sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint or otherwise dispose of
(A) any shares of TMI Common Stock received by any Stockholder in the
Merger or (B) any interest in (including any option to buy or sell) any of
those shares of TMI Common Stock, in whole or in part and TMI will have no
obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or
not with respect to any shares of TMI Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning the
shares of TMI Common Stock acquired pursuant to Section 2.04 (including,
for example engaging in put, call, short-sale, straddle or similar market
transactions); PROVIDED, HOWEVER, that this Section 11.02 shall not
restrict
13
<PAGE>
any transfer of TMI Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the TMI Common Stock delivered to each
Stockholder pursuant to Section 2.05 will bear a legend substantially in
the form set forth below and containing such other information as TMI may
deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE AND
THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD
ENDING ON [DATE THAT IS THE SECOND ANNIVERSARY OF THE IPO CLOSING
DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if applicable,
will not be registered under the Securities Act and therefore may not be
resold by that Stockholder without compliance with the Securities Act and
(B) will, as a result of their restrictions on transferability which are
imposed by this Agreement during the Restricted Period, have a value
materially less at the Effective Time than the value of then freely
tradeable shares of TMI Common Stock, and (ii) covenants that none of the
shares of TMI Common Stock issued to that Stockholder pursuant to Section
2.04 will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations
of the SEC and applicable state securities laws and regulations. All
certificates evidencing shares of TMI Common Stock issued pursuant to
Section 2.04 will bear the following legend in addition to the legend
prescribed by Section 11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED
IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER APPLICABLE
SECURITIES LAWS.
14
<PAGE>
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and
the rights of its parties may not be assigned (except by operation of law) and
shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, (a) TMI will pay (i) the fees, expenses and disbursements of
TMI and Newco and their Representatives which are incurred in connection with
the subject matter of this Agreement and any amendments thereto, including all
costs and expenses incurred in the performance of and compliance with all
conditions to be performed by TMI and Newco under this Agreement, including the
costs of preparing the Registration Statement, and (ii) the fees, expenses and
disbursements of Counsel for the Company and the Stockholders incurred in
connection with the subject matter of this Agreement and the Registration
Statement on or before the IPO Closing Date, (b) the Company will pay any fees,
expenses and disbursements of any counsel (other than Counsel for the Company
and the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date, up
to a maximum of $25,000 in the
15
<PAGE>
aggregate, and (c) the Stockholders will pay from personal funds, and not from
funds of the Company or any Company Subsidiary, (i) all sales, use, transfer and
other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby, and (ii) the fees,
expenses and disbursements in excess of $25,000 in the aggregate, of any counsel
(other than Counsel for the Company and the Stockholders) incurred in connection
with the subject matter of this Agreement and the Registration Statement on or
before the IPO Closing Date. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or TMI or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall be
in writing, and shall be deemed to be delivered and received (a) if personally
delivered or if delivered by telex, telegram, facsimile or courier service, when
actually received by the party to whom notice is sent or (b) if delivered by
mail (whether actually received or not), at the close of business on the third
Houston, Texas business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate party or
parties, at the address of such party set forth below (or at such other address
as such party may designate by written notice to all other parties in accordance
herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii)if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
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<PAGE>
(iii) if to the Company, addressed to it at:
New England Medical Specialties, Inc.
354 Old Whitfield Street
P.O. Box 329
Guildford, Connecticut 06437
Attn: Peter A. Miller
with copies (which shall not constitute notice for purposes of this
Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER, THAT: (A) ARTICLE X
AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES THERETO WILL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF CONNECTICUT WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS
THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE GOVERNED BY THE
BUSINESS CORPORATION ACT.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
17
<PAGE>
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii)by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions contemplated
by this Agreement to take place at the Closing shall not have been
consummated by January 31, 1998, unless the failure of such
transactions to be consummated results from the willful failure of
the party (or in the case of the Stockholders and the Company, any
of them) seeking to terminate this Agreement to perform or adhere to
any agreement required hereby to be performed or adhered to by it
prior to or at the Closing or thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if a material breach or default
shall be made by the other party (or in the case of the Stockholders
and the Company, any of them) in the
18
<PAGE>
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein; or
(iv)by TMI if it is entitled to do so as provided in Section
6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to the
consummation of the IPO; or
(ii)automatically and without action on the part of any party
hereto if the IPO is not consummated within 15 New York City
business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section 12.01,
the Merger will be deemed for all purposes to have been abandoned and of
no force or effect. If this Agreement is terminated pursuant to this
Section 12.01 after the Certificate of Merger has been filed with the
Secretary of State of the State of Connecticut, but before the IPO has
been consummated, TMI will take all actions that Counsel for the Company
and the Stockholders advises TMI are required by the applicable laws of
the State of Connecticut to rescind the Merger.
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRIAD MEDICAL INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
Chief Executive Officer
NEMS ACQUISITION, INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.,
William C. Klintworth, Jr.,
President
NEW ENGLAND MEDICAL SPECIALTIES, INC.
By: /s/ PETER A. MILLER
Peter A. Miller, President
STOCKHOLDERS:
/s/ PETER A. MILLER
Peter A. Miller
/s/ PETER P. EULE
Peter P. Eule
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President R. Tucker Coop
Vice President William C. Klintworth, Jr.
Vice President Walter D. Wallach
Vice President, Secretary,
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
Peter A. Miller 21 Barberry Lane, Madison, CT 06443
Peter P. Eule 27 Rurer Road, Clinton, CT 06413
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
Peter A. Miller Common 500
Peter P. Eule Common 500
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. The Stockholders own all of the outstanding capital stock of
Professional Equipment Company.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue in
effect past the date of the Closing in accordance with its terms, subject to the
following provisions of this Schedule:
None
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as are
necessary and satisfactory to TMI to dispose, prior to the Effective Time, of
the following assets:
1. On or before the Closing Date, the Company will sell to Peter
Miller the 1992 Chrysler Sundance owned by the Company, for a
cash consideration equal to the current fair market value of
the vehicle.
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause the
following Stockholder Guarantees to be terminated:
1. All Stockholder Guarantees of the Closing Date Indebtedness
(including all such guarantees by a spouse of a Stockholder).
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
NEMS Acquisition, Inc.
New England Medical Specialties, Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
EXHIBIT 2.11
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
PROFESSIONAL ACQUISITION, INC.
PROFESSIONAL EQUIPMENT CO., INC.
AND
ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS..............................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................4
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................5
Section 2.06. Fractional Shares..........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH
STOCKHOLDER.................................................6
Section 3.01. By each Stockholder........................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS............................7
Section 4.01. By the Company and Each Stockholder........................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO.............8
Section 5.01. By TMI and Newco............................................8
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...................9
Section 6.01. Of Each Party..............................................9
ARTICLE VII THE CLOSING AND CONDITIONS TO CLOSING AND
CONSUMMATION...............................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................10
Section 8.01. Of Each Party Other Than the Company......................10
ARTICLE IX INDEMNIFICATION............................................11
Section 9.01. Indemnification Rights and Obligations....................11
Section 9.08. Certain Indemnified Damages ...............................11
ARTICLE X LIMITATIONS ON COMPETITION.................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
i
<PAGE>
Section 10.03. Reasonable Restraint.....................................12
Section 10.04. Severability; Reformation................................13
Section 10.05. Independent Covenant.....................................13
Section 10.06. Materiality..............................................13
ARTICLE XI GENERAL PROVISIONS.........................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................15
Section 11.04. Assignment; No Third Party Beneficiaries.................15
Section 11.05. Entire Agreement; Amendment; Waivers.....................15
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................16
Section 11.09. Governing Law............................................17
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................18
Section 11.14. Respecting the IPO.......................................18
ARTICLE XII TERMINATION................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Professional Acquisition, Inc., a Connecticut corporation and a wholly owned
subsidiary of TMI ("Newco"), Professional Equipment Co., Inc., a Connecticut
corporation (the "Company"), and the persons listed on the signature pages of
this Agreement under the caption "Stockholders" (collectively, the
"Stockholders," and each of those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii) TMI, VIA mergers involving TMI subsidiaries, will
acquire the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the Company,
the "Founding Companies") under agreements similar to this Agreement entered
into among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its
common stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
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"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules, Annexes
and Exhibits, as each of them may be amended, modified or supplemented
from time to time under their provisions or the provisions of this
Agreement.
"BUSINESS CORPORATION ACT" means the Connecticut Business
Corporation Act.
"CASH MERGER CONSIDERATION" means an amount of cash equal to
$1,055,000 minus the Closing Date Indebtedness.
"CEILING AMOUNT" means (i) on or before the first anniversary of
the IPO Closing Date, $1.74 million, and (ii) thereafter, $870,000 less
the amount of all Damages paid or which have been payable by the parties
in question with respect to claims for indemnification on or before the
first anniversary of the IPO Closing Date.
"CLOSING DATE INDEBTEDNESS" means the aggregate unpaid balance
(both principal and accrued interest outstanding) at the IPO Closing
Date under (i) the Company's $60,000 revolving line of credit facility
with Fleet National Bank, (ii) the Company's $440,000 term debt facility
with Fleet National Bank, and (iii) the Company's automobile loans.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there
shall be included the forms of certificates of officers, the opinions of
counsel and certain other documents to be delivered at the Closing as
provided in Article VII.
"COMPANY COMMON STOCK" means the common stock, no par value
$10.00 per share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to TMI prior to
the execution and delivery of this
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Agreement, in which either (a) exceptions are taken to each of certain
of the representations and warranties made by the Company and the
Stockholders in this Agreement or (b) it is confirmed that no exception
is taken to that representation and warranty.
"INITIAL FINANCIAL STATEMENTS" means (a) the unaudited balance
sheets of the Company at March 31, 1996 and 1997 and the related
unaudited statements of income, retained earnings and cash flows for
each of the Company's three fiscal years in the three-year period ended
March 31, 1997, and (b) the Current Balance Sheet and the related
unaudited statements of income and retained earnings and cash flows for
the three-month period ended on the Current Balance Sheet.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEWCO" means Professional Acquisition, Inc., a Connecticut
corporation.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company Common
Stock owned by that Stockholder, as set forth in Schedule 2.04, and (b)
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders, as set forth in Schedule
2.04.
"RESPONSIBLE OFFICER" means Peter P. Eule.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $348,000.
"TMI" means Triad Medical Inc., a Delaware corporation.
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"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of distributing medical or healthcare products to
hospitals, clinics, physicians, laboratories, pharmacies, alternate care
sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and which was called on by any of the Company, TMI
or a Subsidiary of the Company or TMI in connection with the possible
acquisition by any of them of that Entity or with respect to which any
of them has made an acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions
of this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Connecticut.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of Connecticut, (e) the Charter Documents of the Company then
in effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law, in the
case of the articles of incorporation or (ii) their terms, in the case of the
bylaws) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the Persons named in
Schedule 2.03, and those Persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Connecticut and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those Persons will
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serve in each office specified for that Person in Schedule 2.03, subject to the
provisions of the Charter Documents of the Surviving Corporation, until that
Person's successor is duly elected to, and, if necessary, qualified for, that
office.
Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, (a) the Cash Merger Consideration and (b)
48,929 shares of TMI Common Stock (collectively, the "Merger
Consideration"), (ii) cease to be outstanding and to exist, and (iii) be
canceled and retired;
(ii) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(iii) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI
will pay and issue, or cause to be paid and issued, to each Stockholder,
in each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company
Common Stock has been surrendered and replaced pursuant to this Section
2.05, that certificate will, for all purposes, be deemed to evidence
ownership of the number of whole shares of TMI Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant
to Section 2.04. All shares of TMI Common Stock issuable in the Merger
will be deemed for all purposes to have been issued by TMI at the
Effective Time. All cash included in the Merger Consideration shall be
paid by TMI's company check or checks, one or more wire transfers to
accounts
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designated by the respective Stockholders at least two New York business
days before the IPO Closing Date, or by certified or official bank check
or checks, at TMI's option.
(b) Each Stockholder will deliver to TMI (or any agent that may
be appointed by TMI for purposes of this Section 2.05) on or before the
IPO Closing Date the certificates representing Company Common Stock
owned by the Stockholder, duly endorsed in blank by him, or accompanied
by duly executed stock powers in blank, and with all necessary transfer
tax and other revenue stamps, acquired at his expense, affixed and
canceled. Each Stockholder shall cure any deficiencies in the
endorsement of the certificates or other documents of conveyance
respecting, or in the stock powers accompanying, the certificates
representing Company Common Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of TMI Common Stock have
been issued in the Merger until those certificates are surrendered as
provided herein, but (i) on such surrender TMI will cause to be paid, to
the Person in whose name the certificates representing such shares of
TMI Common Stock shall then be issued, the amount of dividends or other
distributions previously paid with respect to such whole shares of TMI
Common Stock with a record date, or which have accrued, subsequent to
the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to
Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, TMI will cause to be paid to that Person the
amount of dividends or other distributions with a record date, or which
have been accrued, subsequent to the Effective Time, but which are not
payable until a date subsequent to surrender, which are payable with
respect to such whole shares of TMI Common Stock, subject in all cases
to any applicable escheat laws. No interest will be payable with respect
to the payment of such dividends or other distributions or cash for and
in lieu of fractional shares on surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
(a) (i) the Stockholder will be acquiring the shares of TMI
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution; (ii)
the Stockholder is not a party to any agreement or other arrangement for
the disposition of any shares of TMI Common Stock other than this
Agreement, the Stockholders Agreement and the Registration Rights
Agreement; (iii) unless otherwise specified on Schedule 3.01, the
Stockholder is an "accredited investor" as defined in Securities Act
Rule 501 (a); (iv) the Stockholder (A) is able to bear the economic risk
of an investment in the TMI Common Stock to be acquired by him or her
pursuant to this Agreement, (B) can afford to sustain a total loss of
that investment, (C) has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the TMI Common Stock, (D) has had an
adequate opportunity to ask questions and receive answers from the
officers of TMI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
TMI, the plans for the operations of the business of TMI, the business,
operations and financial condition of the Other Founding Companies and
any plans of TMI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
Connecticut, and the Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of that State, (ii)
has all requisite corporate power and authority under those laws and its
Charter Documents to own or lease and to operate its properties and to
carry on its business as now conducted, and (iii) is duly qualified and
in good standing as a foreign corporation in all jurisdictions (other
than its Organization State) in which it owns or leases property or in
which the carrying on of its business as now conducted so requires
except where the failure to be so qualified, singly or in the aggregate,
would not have a Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
5,000 shares of Company Common Stock, of which 1,000 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Connecticut, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
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ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article VI is hereby incorporated herein by this reference)
to be performed or observed by that party.
ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the
IPO Closing Date (including, as permitted by the Business Corporation
Act (A) the execution of a Certificate of Merger meeting the
requirements of the Business Corporation Act and providing that the
Merger will become effective on the IPO Closing Date and (B) the filing
of the Certificate with the Secretary of State of the State of
Connecticut), (ii) verify the existence and ownership of the
certificates evidencing the Company Common Stock to be exchanged for the
Merger Consideration pursuant to Section 2.05, and (iii) satisfy the
document delivery requirements to which the obligations of the parties
to effect the Merger and the other transactions contemplated hereby are
conditioned by the provisions of this Article VII (all those actions
collectively being the "Closing"). The Closing will take place at the
offices of Porter & Hedges, L.L.P., 700 Louisiana, Houston, Texas at
10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as TMI shall specify by written notice to Peter P. Eule. The actions
taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing
Date, the Certificate of Merger will become effective pursuant to
Section 2.02, and all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal
to the cash portion of the Merger Consideration) will be closed or
completed, as the case may be. During the period from the Closing to the
IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in
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Sections 7.02(a) and 7.03. The obligations of the Stockholders with
respect to the actions to be taken on the IPO Closing Date are subject
to the satisfaction on that date of the following conditions: (i) the
Stockholders Agreement then shall be in full force and effect; and (ii)
all the conditions set forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to TMI a
copy of the articles of incorporation, as amended to the date of the
Closing and certified by the Secretary of State of the State of
Connecticut as of a Current Date, of the Company; and (ii) all the
conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the Employment Agreement then
shall be in full force and effect; and (ii) all the conditions set forth
in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY. From and after the
Effective Time, subject to the waiver provisions of Section 11.05, each party
hereto (other than the Company) will comply with each covenant for which
provision is made in Article VIII of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) to be performed or
observed by that party.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS.
(a) The text of Article IX of the Uniform Provisions hereby is
incorporated herein by this reference.
(b) Notwithstanding, and in supplementation of, Sections 9.03
through 9.07:
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(i) subject to the provisions of this paragraph (b), the
Stockholders covenant and agree that they, jointly and severally, will
indemnify each TMI Indemnified Party against, and hold each TMI
Indemnified Party harmless from and in respect of, all Damages that
arise from, are based on or relate or otherwise are attributable to any
claims or assessments against the Company for state sales taxes payable
in respect of sales of goods or services made by the Company or any of
its Subsidiaries during any period ended on or before the Current
Balance Sheet Date, whether or not reserved against in any balance sheet
included in the Financial Statements, to the extent that the aggregate
amount of all such Damages (herein called "Specially Indemnified
Damages") exceed $100,000, and then only to the extent of that excess;
(ii) the amount of the Specially Indemnified Damages as to which
the Stockholders shall be required under clause (i) of this Section 9.08
to indemnify the TMI Indemnified Parties shall not be reduced as a
result of any limitation set forth in the first sentence of paragraph
(a) of Section 9.07, and shall not be considered as TMI Indemnified
Losses for purposes of the first sentence of Section 9.07(a); and
(iii)the amount of the Specially Indemnified Damages in respect
of which the Stockholders shall be required under clause (i) of this
Section 9.08 to indemnify the TMI Indemnified Parties shall be taken
into account and included for purposes of determining the aggregate
joint and several liability of the Company and the Stockholders, and the
aggregate liability of each Stockholder under this Agreement, under the
second sentence of Section 9.07(a) of this Agreement.
ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business selling
any products or providing any services in competition with the Company,
any Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective
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Time (for purposes of this Article X, the territory surrounding a
facility shall be: (i) the city, town or village in which the facility
is located, (ii) the county or parish in which the facility is located,
(iii) the counties or parishes contiguous to the county or parish in
which the facility is located, (iv) the area located within 100 miles of
the facility and (v) the area in which the facility regularly makes
sales or provides services, all of such locations being herein
collectively called the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or TMI in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or TMI, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or TMI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or TMI within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto,
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including that Restricted Stockholder, acknowledge their mutual intention and
agreement that those restrictions be enforced to the fullest extent the court
deems reasonable, and thereby shall be reformed to that extent as applied to
that Restricted Stockholder and any other Restricted Stockholder similarly
situated.
Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "Restricted Period") no Stockholder
voluntarily will, except pursuant to and in accordance with the
applicable provisions of the Registration Rights Agreement: (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (A) any shares of TMI Common Stock received by any
Stockholder in the Merger or (B) any interest in (including any option
to buy or sell) any of those shares of TMI Common Stock, in whole or in
part and TMI will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of TMI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of TMI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED, HOWEVER,
that this Section 11.02 shall not restrict
13
<PAGE>
any transfer of TMI Common Stock acquired by a Stockholder pursuant to
Section 2.04 to any of that Stockholder's Related Persons who agree in
writing to be bound by the provisions of Section 11.01 and this Section
11.02. The certificates evidencing the TMI Common Stock delivered to
each Stockholder pursuant to Section 2.05 will bear a legend
substantially in the form set forth below and containing such other
information as TMI may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP
ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if
applicable, will not be registered under the Securities Act and
therefore may not be resold by that Stockholder without compliance with
the Securities Act and (B) will, as a result of their restrictions on
transferability which are imposed by this Agreement during the
Restricted Period, have a value materially less at the Effective Time
than the value of then freely tradeable shares of TMI Common Stock, and
(ii) covenants that none of the shares of TMI Common Stock issued to
that Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all the applicable provisions of the
Securities Act and the rules and regulations of the SEC and applicable
state securities laws and regulations. All certificates evidencing
shares of TMI Common Stock issued pursuant to Section 2.04 will bear the
following legend in addition to the legend prescribed by Section
11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER
APPLICABLE SECURITIES LAWS.
14
<PAGE>
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend
required by the securities or blue sky laws of the state in which that
Stockholder resides.
Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date, (b) the Company will
pay any fees, expenses and disbursements of any counsel (other than Counsel for
the Company and the Stockholders) incurred in connection with the subject matter
of this Agreement and the Registration Statement on or before the IPO Closing
Date, up to a maximum of $25,000 in the
15
<PAGE>
aggregate, and (c) the Stockholders will pay from personal funds, and not from
funds of the Company or any Company Subsidiary, (i) all sales, use, transfer and
other similar taxes and fees (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated hereby, and (ii) the fees,
expenses and disbursements in excess of $25,000 in the aggregate, of any counsel
(other than Counsel for the Company and the Stockholders) incurred in connection
with the subject matter of this Agreement and the Registration Statement on or
before the IPO Closing Date. The Stockholders will file all necessary
documentation and Returns with respect to all Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or TMI or the Surviving
Corporation, will pay all Taxes due upon receipt of the consideration payable to
that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall
be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
16
<PAGE>
(iii) if to the Company, addressed to it at:
Professional Equipment Co., Inc.
354 Old Whitfield Street
P.O. Box 329
Guildford, Connecticut 06437
Attn: Peter P. Eule
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER,
THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES
THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF CONNECTICUT WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
17
<PAGE>
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by TMI, on the other hand, if a material breach or
default shall be made by the other party (or in the case of the
Stockholders and the Company, any of them) in the
18
<PAGE>
observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein; or
(iv) by TMI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to
the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York
City business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Connecticut, but before the IPO
has been consummated, TMI will take all actions that Counsel for the
Company and the Stockholders advises TMI are required by the applicable
laws of the State of Connecticut to rescind the Merger.
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
PROFESSIONAL ACQUISITION, INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr., President
PROFESSIONAL EQUIPMENT CO., INC.
By:/s/ PETER P. EULE
Peter P. Eule, President
STOCKHOLDERS:
/s/ PETER P. EULE
Peter P. Eule
/s/ PETER A. MILLER
Peter A. Miller
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
Wilson Medical Specialties, Inc.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President: R. Tucker Coop
Vice President: William C. Klintworth, Jr.
Vice President: Walter D. Wallach
Vice President, Secretary,
and Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
---- -------
Peter A. Miller 21 Barberry Lane, Madison, CT 06443
Peter P. Eule 27 River Road, Clinton, CT 06413
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder is an "accredited investor" as defined in Securities
Act Rule 501(a).
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NAME CLASS NUMBER OF SHARES OWNED
---- ----- ----------------------
Peter A. Miller Common 500
Peter P. Eule Common 500
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
1. The Stockholders own all of the outstanding capital stock of New
England Medical Specialties, Inc.
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms, subject to
the following provisions of this Schedule:
None
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
Triad Healthcare Corporation
Professional Acquisition, Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to TMI to dispose, prior to the Effective Time,
of the following assets:
1. The Company will sell to one of the Stockholders the 1996 Ford
Explorer owned by the Company, for a purchase price equal to its
fair market value at the date of sale, which may be payable in
cash or in a combination of cash and the assumption of the loan
balance on the vehicle.
2. The Company will sell to one of the Stockholders the 1997
Oldsmobile Bravada owned by the Company, for a purchase price
equal to its fair market value at the date of sale, which may be
payable in cash or in a combination of cash and the assumption
of the loan balance on the vehicle.
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause
the following Stockholder Guarantees to be terminated:
1. All Stockholder Guarantees of the Closing Date Indebtedness
(including all such guarantees by a spouse of a Stockholder).
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Professional Acquisition Inc.
Professional Equipment Co., Inc.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
None
EXHIBIT 2.12
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 9, 1997
BY AND AMONG
TRIAD MEDICAL INC.
WILSON ACQUISITION, INC.
WILSON MEDICAL SPECIALTIES, INC.
AND
ITS STOCKHOLDERS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................1
Section 1.01. Certain Defined Terms......................................1
ARTICLE II THE MERGER AND RELATED MATTERS..............................4
Section 2.01. Certificate of Merger......................................4
Section 2.02. The Effective Time.........................................4
Section 2.03. Certain Effects of the Merger..............................4
Section 2.04. Effect of the Merger on Capital Stock......................5
Section 2.05. Delivery, Exchange and Payment.............................5
Section 2.06. Fractional Shares..........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
EACH STOCKHOLDER............................................6
Section 3.01. By each Stockholder........................................6
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS............................7
Section 4.01. By the Company and Each Stockholder........................7
ARTICLE V REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO.............8
Section 5.01. By TMI and Newco............................................8
ARTICLE VI COVENANTS EXTENDING TO THE EFFECTIVE TIME...................8
Section 6.01. Of Each Party..............................................8
ARTICLE VII THE CLOSING AND CONDITIONS
TO CLOSING AND CONSUMMATION.................................9
Section 7.01. The Closing and Certain Conditions.........................9
ARTICLE VIII COVENANTS FOLLOWING THE EFFECTIVE TIME.....................10
Section 8.01. Of Each Party Other Than the Company......................10
ARTICLE IX INDEMNIFICATION............................................10
Section 9.01. Indemnification Rights and Obligations....................10
ARTICLE X LIMITATIONS ON COMPETITION.................................11
Section 10.01. Prohibited Activities....................................11
Section 10.02. Damages..................................................12
Section 10.03. Reasonable Restraint.....................................12
i
<PAGE>
Section 10.04. Severability; Reformation................................12
Section 10.05. Independent Covenant.....................................12
Section 10.06. Materiality..............................................12
ARTICLE XI GENERAL PROVISIONS.........................................13
Section 11.01. Treatment of Confidential Information....................13
Section 11.02. Restrictions on Transfer of TMI Common Stock.............13
Section 11.03. Brokers and Agents.......................................14
Section 11.04. Assignment; No Third Party Beneficiaries.................14
Section 11.05. Entire Agreement; Amendment; Waivers.....................14
Section 11.06. Counterparts.............................................15
Section 11.07. Expenses.................................................15
Section 11.08. Notices..................................................15
Section 11.09. Governing Law............................................16
Section 11.10. Exercise of Rights and Remedies..........................17
Section 11.11. Time.....................................................17
Section 11.12. Reformation and Severability.............................17
Section 11.13. Remedies Cumulative......................................17
Section 11.14. Respecting the IPO.......................................17
ARTICLE XII TERMINATION................................................18
Section 12.01. Termination of This Agreement............................18
Section 12.02. Liabilities in Event of Termination......................19
ii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as
of September 9, 1997, among TRIAD Medical Inc., a Delaware corporation ("TMI"),
Wilson Acquisition, Inc., a Washington corporation and a wholly owned subsidiary
of TMI ("Newco"), WILSON MEDICAL SPECIALTIES, INC., a Washington corporation
(the "Company"), and the persons listed on the signature pages of this Agreement
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement wish to effect a business combination
pursuant to which:
(i) Newco will merge into the Company (the "Merger") on the
terms and subject to the conditions of this Agreement;
(ii) TMI, VIA mergers involving TMI subsidiaries, will
acquire the stock of all or some of the entities identified in the accompanying
Addendum I (each an "Other Founding Company" and, collectively with the Company,
the "Founding Companies") under agreements similar to this Agreement entered
into among those entities, their equity owners, TMI and subsidiaries of TMI
(collectively, the "Other Agreements"); and
(iii) TMI will effect a public offering of shares of its
common stock.
The respective boards of directors of TMI, Newco and the Company have
approved and adopted this Agreement to effect a transaction subject to Section
351 of the Code.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and undertakings contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the meanings assigned to them below in this Section 1.01.
Capitalized terms used in this Agreement but not defined in this Section 1.01
have the meanings assigned to them in the Preliminary Statement or in Article I
of the Uniform Provisions (the text of which is by this reference incorporated
in this Agreement), as the case may be.
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"AGREEMENT" means this Agreement, including the Disclosure
Statement relating to this Agreement and all attached Schedules, Annexes
and Exhibits, as each of them may be amended, modified or supplemented
from time to time under their provisions or the provisions of this
Agreement.
"BUSINESS CORPORATION ACT" means the Washington Business
Corporation Act.
"CEILING AMOUNT" means (i) on or before the first anniversary of
the IPO Closing Date, $2 million, and (ii) thereafter, $1 million less
the amount of all Damages paid or which have become payable by the party
or parties in question with respect to indemnification claims made on or
before the first anniversary of the IPO Closing Date.
"CLOSING MEMORANDUM" means the form of closing memorandum to be
prepared by TMI for the Closing under this Agreement in which there
shall be included the forms of certificates of officers, the opinions of
counsel and certain other documents to be delivered at the Closing as
provided in Article VII.
"COMPANY COMMON STOCK" means the common stock, par value $.01 per
share, of the Company.
"COUNSEL FOR TMI AND NEWCO" means Porter & Hedges, L.L.P.
"COUNSEL FOR THE COMPANY AND THE STOCKHOLDERS" means Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of the
Company at June 30, 1997, which is included in the Initial Financial
Statements.
"CURRENT BALANCE SHEET DATE" means June 30, 1997.
"CURRENT DATE" means any day during the 20-day period ending on
the date of the Closing.
"DISCLOSURE STATEMENT" means the written statement executed by
the Company and each of the Stockholders and delivered to TMI prior to
the execution and delivery of this Agreement, in which either (a)
exceptions are taken to each of certain of the representations and
warranties made by the Company and the Stockholders in this Agreement or
(b) it is confirmed that no exception is taken to that representation
and warranty.
"INITIAL FINANCIAL STATEMENTS" means (a) the unaudited balance
sheets of the Company at December 31, 1995 and 1996 and the related
unaudited statements of operations, stockholders' equity and cash flows
for each of the Company's three fiscal years in the three-year period
ended December 31, 1996, and (b) the Current Balance Sheet and the
related
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unaudited statements of operations, stockholders' equity and cash flows
for the six-month period ended on the Current Balance Sheet.
"MAJORITY STOCKHOLDERS" means any Stockholder or combination of
Stockholders who at the date of this Agreement own shares of Company
Common Stock representing more than two-thirds of the total number of
shares of Company Common Stock outstanding at the date of this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.04.
"NEW EMPLOYMENT AGREEMENT" means the Employment Agreement entered
into as of September 9, 1997, between TMI and Kim F. Wilson.
"NEWCO" means Wilson Acquisition, Inc., a Washington corporation.
"PRO RATA SHARE" means for each Stockholder the fraction
expressed as a percentage and set forth in Schedule 2.04, (a) the
numerator of which is the number of shares of outstanding Company Common
Stock owned by that Stockholder, as set forth in Schedule 2.04, and (b)
the denominator of which is the total number of shares of outstanding
Company Common Stock owned by all Stockholders, as set forth in Schedule
2.04.
"RESPONSIBLE OFFICER" means Kim F. Wilson.
"RESTRICTED STOCKHOLDER" has the meaning specified in Section
10.01.
"SCHEDULED AGREEMENTS" means the agreements described in Schedule
4.11.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement entered
into as of September 9, 1997, among TMI, the Stockholders and the other
Persons party thereto.
"SURVIVING CORPORATION" means the Company, which is to be
designated in the Certificate of Merger as the surviving corporation of
the Merger.
"TERRITORY" has the meaning specified in Section 10.01.
"THRESHOLD AMOUNT" means $40,000.
"TMI" means TRIAD Medical Inc., a Delaware corporation.
"TMI ACQUISITION CANDIDATE" means any Entity engaged in any of
the businesses of distributing medical or healthcare products to
hospitals, clinics, physicians, laboratories, pharmacies, alternate care
sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products,
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and which was called on by any of the Company, TMI or a Subsidiary of
the Company or TMI in connection with the possible acquisition by any of
them of that Entity or with respect to which any of them has made an
acquisition analysis.
"TRANSFER TAXES" has the meaning specified in Section 11.07.
"UNIFORM PROVISIONS" means the Uniform Provisions of TMI for the
Acquisition of Founding Companies attached as Annex 1 to this Agreement.
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 CERTIFICATE OF MERGER. Subject to the terms and conditions
of this Agreement, the Company will cause a Certificate of Merger to be duly
executed and delivered on or promptly after the date of the Closing to the
Secretary of State of the State of Washington.
Section 2.2 THE EFFECTIVE TIME. The effective time of the Merger (the
"Effective Time") will be the time on the IPO Closing Date which the Certificate
of Merger specifies or, if the Certificate of Merger does not specify another
time, 8:00 a.m., eastern time, on the IPO Closing Date.
Section 2.3 CERTAIN EFFECTS OF THE MERGER. At and as of the Effective
Time, (a) Newco will be merged with and into the Company in accordance with the
provisions of the Business Corporation Act, (b) Newco will cease to exist as a
separate legal entity, (c) the articles of incorporation of the Company will be
amended to change its authorized capital stock to 1,000 shares, par value $1.00
per share, of Common Stock, (d) the Company will be the Surviving Corporation
and, as such, will, all with the effect provided by the Business Corporation
Act, (i) possess all the properties and rights, and be subject to all the
restrictions and duties, of the Company and Newco and (ii) be governed by the
laws of the State of Washington, (e) the Charter Documents of the Company then
in effect (after giving effect to the amendment of the Company's articles of
incorporation specified in clause (c) of this sentence) will become and
thereafter remain (until changed in accordance with (i) applicable law, in the
case of the articles of incorporation or (ii) their terms, in the case of the
bylaws) the Charter Documents of the Surviving Corporation, (f) the initial
board of directors of the Surviving Corporation will be the Persons named in
Schedule 2.03, and those Persons will hold the office of director of the
Surviving Corporation subject to the provisions of the applicable laws of the
State of Washington and the Charter Documents of the Surviving Corporation, and
(g) the initial officers of the Surviving Corporation will be as set forth in
Schedule 2.03, and each of those Persons will serve in each office specified for
that Person in Schedule 2.03, subject to the provisions of the Charter Documents
of the Surviving Corporation, until that Person's successor is duly elected to,
and, if necessary, qualified for, that office.
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Section 2.4 EFFECT OF THE MERGER ON CAPITAL STOCK. As of the Effective
Time, as a result of the Merger and without any action on the part of any holder
thereof:
(i) the shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time will (i) be converted into the
right to receive, without interest, on surrender of the certificate
evidencing those shares, the amount of cash and the number of whole and
fractional shares of TMI Common Stock set forth or determined as
provided in Schedule 2.04 (the "Merger Consideration"), (ii) cease to be
outstanding and to exist, and (iii) be canceled and retired;
(ii) each share of Company Common Stock held in the treasury of
the Company or any Company Subsidiary will (i) cease to be outstanding
and to exist and (ii) be canceled and retired; and
(iii) each share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into one share
of Common Stock, par value $1.00 per share, of the Surviving
Corporation, and the shares of Common Stock of the Surviving Corporation
issued on conversion will constitute all the issued and outstanding
shares of Capital Stock of the Surviving Corporation.
Each holder of a certificate representing shares of Company Common Stock
immediately prior to the Effective Time will, as of the Effective Time and
thereafter, cease to have any rights respecting those shares other than the
right to receive, without interest, the Merger Consideration and the additional
cash, if any, owing with respect to those shares as provided in Section 2.06.
Section 2.5 DELIVERY, EXCHANGE AND PAYMENT.
(a) At or after the Effective Time: (i) each Stockholder, as the
holder of certificates representing shares of Company Common Stock,
will, on surrender of his certificates to TMI (or any agent which may be
appointed by TMI for purposes of this Section 2.05), receive, and TMI
will pay and issue, or cause to be paid and issued, to each Stockholder,
in each case, subject to the provisions of Section 2.06, the Merger
Consideration; and (ii) until any certificate representing Company
Common Stock has been surrendered and replaced pursuant to this Section
2.05, that certificate will, for all purposes, be deemed to evidence
ownership of the number of whole shares of TMI Common Stock included in
the Merger Consideration payable in respect of that certificate pursuant
to Section 2.04. All shares of TMI Common Stock issuable in the Merger
will be deemed for all purposes to have been issued by TMI at the
Effective Time. All cash included in the Merger Consideration shall be
paid by TMI's company check or checks, one or more wire transfers to
accounts designated by the respective Stockholders at least two New York
business days before the IPO Closing Date, or by certified or official
bank check or checks, at TMI's option.
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(b) Each Stockholder will deliver to TMI (or any agent that may
be appointed by TMI for purposes of this Section 2.05) on or before the
IPO Closing Date the certificates representing Company Common Stock
owned by the Stockholder, duly endorsed in blank by him, or accompanied
by duly executed stock powers in blank, and with all necessary transfer
tax and other revenue stamps, acquired at his expense, affixed and
canceled. Each Stockholder shall cure any deficiencies in the
endorsement of the certificates or other documents of conveyance
respecting, or in the stock powers accompanying, the certificates
representing Company Common Stock delivered by him.
(c) No dividends (or interest) or other distributions declared or
earned after the Effective Time with respect to TMI Common Stock and
payable to the holders of record thereof after the Effective Time will
be paid to the holder of any unsurrendered certificates representing
shares of Company Common Stock for which shares of TMI Common Stock have
been issued in the Merger until those certificates are surrendered as
provided herein, but (i) on such surrender TMI will cause to be paid, to
the Person in whose name the certificates representing such shares of
TMI Common Stock shall then be issued, the amount of dividends or other
distributions previously paid with respect to such whole shares of TMI
Common Stock with a record date, or which have accrued, subsequent to
the Effective Time, but prior to surrender, and the amount of any cash
payable to such Person for and in lieu of fractional shares pursuant to
Section 2.06 and (ii) at the appropriate payment date or as soon as
practicable thereafter, TMI will cause to be paid to that Person the
amount of dividends or other distributions with a record date, or which
have been accrued, subsequent to the Effective Time, but which are not
payable until a date subsequent to surrender, which are payable with
respect to such whole shares of TMI Common Stock, subject in all cases
to any applicable escheat laws. No interest will be payable with respect
to the payment of such dividends or other distributions or cash for and
in lieu of fractional shares on surrender of outstanding certificates.
Section 2.6 FRACTIONAL SHARES. Notwithstanding any other provision of
this Article II, no fractional shares of TMI Common Stock will be issued, and
any Stockholder otherwise entitled to receive a fractional share of TMI Common
Stock but for this Section 2.06 will instead be entitled to receive a cash
payment for and in lieu thereof in the amount (rounded to the nearest whole
cent) equal to that Person's fractional interest in a share of TMI Common Stock
multiplied by the IPO Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Section 3.1 BY EACH STOCKHOLDER. Each Stockholder, severally as to
himself or herself only, represents and warrants to TMI that all the following
representations and warranties in this Article III are true and correct:
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(a) (i) the Stockholder will be acquiring the shares of TMI
Common Stock to be issued pursuant to Section 2.04 to the Stockholder
solely for the Stockholder's account, for investment purposes only and
with no current intention or plan to distribute, sell or otherwise
dispose of any of those shares in connection with any distribution; (ii)
the Stockholder is not a party to any agreement or other arrangement for
the disposition of any shares of TMI Common Stock other than this
Agreement, the Stockholders Agreement and the Registration Rights
Agreement; (iii) unless otherwise specified on Schedule 3.01, the
Stockholder is an "accredited investor" as defined in Securities Act
Rule 501 (a); (iv) the Stockholder (A) is able to bear the economic risk
of an investment in the TMI Common Stock to be acquired by him or her
pursuant to this Agreement, (B) can afford to sustain a total loss of
that investment, (C) has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the TMI Common Stock, (D) has had an
adequate opportunity to ask questions and receive answers from the
officers of TMI concerning any and all matters relating to the
transactions contemplated by this Agreement, including the background
and experience of the current and proposed officers and directors of
TMI, the plans for the operations of the business of TMI, the business,
operations and financial condition of the Other Founding Companies and
any plans of TMI for additional acquisitions, and (E) has asked all
questions of the nature described in preceding clause (D), and all those
questions have been answered to his or her satisfaction; and
(b) the representations and warranties contained in Article III
of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) are true and correct, and the
agreements set forth therein are hereby agreed to.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Section 4.1 BY THE COMPANY AND EACH STOCKHOLDER. The Company and each
Stockholder jointly and severally represent and warrant to, and agree with, TMI
that all the following representations and warranties in this Article IV are
true and correct:
(a) the Organization State of the Company is the State of
Washington, and the Company (i) is a corporation duly organized, validly
existing and in good standing under the laws of that State, (ii) has all
requisite corporate power and authority under those laws and its Charter
Documents to own or lease and to operate its properties and to carry on
its business as now conducted, and (iii) is duly qualified and in good
standing as a foreign corporation in all jurisdictions (other than its
Organization State) in which it owns or leases property or in which the
carrying on of its business as now conducted so requires except
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where the failure to be so qualified, singly or in the aggregate, would
not have a Material Adverse Effect;
(b) the authorized Capital Stock of the Company is comprised of
50,000 shares of Company Common Stock, of which 20,400 shares have been
issued and are now outstanding and no shares are held by the Company as
treasury shares, and no outstanding Derivative Securities of the Company
exist;
(c) the representations and warranties contained in Article IV of
the Uniform Provisions (the text of which Article hereby is incorporated
herein by this reference) are true and correct, and the agreements set
forth in that Article IV are agreed to.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TMI AND NEWCO
Section 5.1 BY TMI AND NEWCO. TMI and Newco jointly and severally
represent and warrant to the Company and each Stockholder that all the following
representations and warranties in this Article V are true and correct: (a) Newco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Washington, (b) no Derivative Securities of Newco are
outstanding, (c) Newco has been organized for the sole purpose of participating
in the Merger and has not, and will not, engage in any activities other than
those necessary to effectuate the Merger, and (d) the representations and
warranties contained in Article V of the Uniform Provisions (the text of which
Article hereby is incorporated herein by this reference) are true and correct.
ARTICLE VI
COVENANTS EXTENDING TO THE EFFECTIVE TIME
Section 6.1 OF EACH PARTY. Until the Effective Time, subject to the
waiver provisions of Section 11.05, each party hereto will comply with each
covenant for which provision is made in Article VI of the Uniform Provisions
(the text of which Article VI is hereby incorporated herein by this reference)
to be performed or observed by that party.
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ARTICLE VII
THE CLOSING AND CONDITIONS TO CLOSING AND CONSUMMATION
Section 7.1 THE CLOSING AND CERTAIN CONDITIONS.
(a) THE CLOSING. On or before the IPO Pricing Date, the parties
hereto will take all actions necessary to (i) effect the Merger on the
IPO Closing Date (including, as permitted by the Business Corporation
Act (A) the execution of a Certificate of Merger meeting the
requirements of the Business Corporation Act and providing that the
Merger will become effective on the IPO Closing Date and (B) the filing
of the Certificate with the Secretary of State of the State of
Washington), (ii) verify the existence and ownership of the certificates
evidencing the Company Common Stock to be exchanged for the Merger
Consideration pursuant to Section 2.05, and (iii) satisfy the document
delivery requirements to which the obligations of the parties to effect
the Merger and the other transactions contemplated hereby are
conditioned by the provisions of this Article VII (all those actions
collectively being the "Closing"). The Closing will take place at the
offices of Porter & Hedges, L.L.P., 700 Louisiana, Houston, Texas at
10:00 a.m., Houston time, or at such later time on the IPO Pricing Date
as TMI shall specify by written notice to Kim F. Wilson. The actions
taken at the Closing will not include the completion of either the
Merger or the delivery of the Company Common Stock or the Merger
Consideration pursuant to Section 2.05. Instead, on the IPO Closing
Date, the Certificate of Merger will become effective pursuant to
Section 2.02, and all transactions contemplated by this Agreement to be
closed or completed on or before the IPO Closing Date, including the
surrender of the Company Common Stock in exchange for the Merger
Consideration (including a certified check or checks in an amount equal
to the cash portion of the Merger Consideration) will be closed or
completed, as the case may be. During the period from the Closing to the
IPO Closing Date, this Agreement may be terminated by the parties only
pursuant to Section 12.01 (b)(i).
(b) CERTAIN CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The obligations of the Company and the Stockholders with
respect to the actions to be taken by them at or before the Closing are
subject to the satisfaction on or before the date of the Closing, or
waiver by them pursuant to Section 11.05, of all the conditions set
forth in Sections 7.02(a) and 7.03. The obligations of the Stockholders
with respect to the actions to be taken on the IPO Closing Date are
subject to the satisfaction on that date of the following conditions:
(i) each of the Stockholders Agreement and the New Employment Agreement
then shall be in full force and effect; and (ii) all the conditions set
forth in Sections 7.02(b) and 7.03.
(c) CERTAIN CONDITIONS TO THE OBLIGATIONS OF TMI AND NEWCO. The
obligations of TMI and Newco with respect to actions to be taken by them
at or before the Closing are subject to the satisfaction on or before
the date of the Closing, or waiver by them pursuant to Section 11.05, of
the following conditions: (i) the Company shall have delivered to TMI
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a copy of the articles of incorporation, as amended to the date of the
Closing and certified by the Secretary of State of the State of
Washington as of a Current Date, of the Company; and (ii) all the
conditions set forth in Sections 7.02(a) and 7.04(a).
(d) The obligations of TMI and Newco with respect to the actions
to be taken on the IPO Closing Date are subject to the satisfaction on
that date of the following conditions: (i) the New Employment Agreement
then shall be in full force and effect; and (ii) all the conditions set
forth in Sections 7.02(b) and 7.04(b).
(e) The text of Article VII of the Uniform Provisions hereby is
incorporated herein by this reference.
ARTICLE VIII
COVENANTS FOLLOWING THE EFFECTIVE TIME
Section 8.1 OF EACH PARTY OTHER THAN THE COMPANY.
(a) From and after the Effective Time, subject to the waiver
provisions of Section 11.05, each party hereto (other than the Company)
will comply with each covenant for which provision is made in Article
VIII of the Uniform Provisions (the text of which Article hereby is
incorporated herein by this reference) to be performed or observed by
that party.
(b) The Company agrees that it shall, and TMI agrees that the
Company may, continue to employ Janice L. Wilson, in the capacity in
which she currently serves the Company, for a period of not less than 18
months following the IPO Closing Date (unless she becomes unwilling to
serve), at an annual salary of not less than $60,000 per annum.
ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION RIGHTS AND OBLIGATIONS. The text of Article
IX of the Uniform Provisions hereby is incorporated herein by this reference.
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ARTICLE X
LIMITATIONS ON COMPETITION
Section 10.1 PROHIBITED ACTIVITIES. Each Stockholder identified on
Schedule 10.01 (each a "Restricted Stockholder"), and, in the case of paragraphs
(b) and (d) below of this Section 10.01, each Stockholder, severally agrees that
he will not during the period beginning on the date hereof and ending on the
third anniversary of the date hereof, directly or indirectly, for any reason,
for his own account or on behalf of or together with any other Person:
(a) engage as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor of or in, whether as
an employee, independent contractor, consultant or advisor, or as a
sales representative or distributor of any kind, in any business selling
any products or providing any services in competition with the Company,
any Company Subsidiary or TMI or any Subsidiary of TMI (TMI and its
Subsidiaries collectively being "TMI" for purposes of this Article X)
within any territory surrounding any sales office or distribution center
(each a "facility") in which any of the Company or the Company
Subsidiaries was engaged in business on the date hereof or immediately
prior to the Effective Time (for purposes of this Article X, the
territory surrounding a facility shall be: (i) the city, town or village
in which the facility is located, (ii) the county or parish in which the
facility is located, (iii) the counties or parishes contiguous to the
county or parish in which the facility is located, (iv) the area located
within 100 miles of the facility and (v) the area in which the facility
regularly makes sales or provides services, all of such locations being
herein collectively called the "Territory");
(b) call on any natural person who is at that time employed by
the Company, any Company Subsidiary or TMI in any managerial capacity
with the purpose or intent of attracting that person from the employ of
the Company, any Company Subsidiary or TMI, provided that the
Stockholder may call on and hire any of his Immediate Family Members;
(c) call on any Person that at that time is, or at any time
within one year prior to that time was, a customer of the Company, any
Company Subsidiary or TMI within the Territory, (i) for the purpose of
soliciting or selling any product or service in competition with the
Company, any Company Subsidiary or TMI within the Territory and (ii)
with the knowledge of that customer relationship; or
(d) call on any TMI Acquisition Candidate, with the knowledge of
that Person's status as an TMI Acquisition Candidate, for the purpose of
acquiring that Person or arranging the acquisition of that Person by any
Person other than TMI.
Notwithstanding the foregoing, any Restricted Stockholder may own and hold as a
passive investment up to 6% of the outstanding Capital Stock of a competing
Entity if that class of Capital Stock is publicly traded.
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Section 10.2 DAMAGES. Because of the difficulty of measuring economic
losses to TMI as a result of any breach by a Restricted Stockholder of his
covenants in Section 10.01, and because of the immediate and irreparable damage
that could be caused to TMI for which it would have no other adequate remedy,
each Restricted Stockholder agrees that TMI may enforce the provisions of
Section 10.01 by injunctions and restraining orders against that Restricted
Stockholder if he breaches any of those provisions.
Section 10.3 REASONABLE RESTRAINT. The parties hereto each agree that
Sections 10.01 and 10.02 impose a reasonable restraint on the Restricted
Stockholders in light of the activities and business of TMI on the date hereof,
the current business plans of TMI and the investment by each Restricted
Stockholder in TMI as a result of the Merger.
Section 10.4 SEVERABILITY; REFORMATION. The covenants in this Article X
are severable and separate, and the unenforceability of any specific covenant in
this Article X is not intended by any party hereto to, and shall not, affect the
provisions of any other covenant in this Article X. If any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in Section 10.01 are unreasonable as applied to any Restricted
Stockholder, the parties hereto, including that Restricted Stockholder,
acknowledge their mutual intention and agreement that those restrictions be
enforced to the fullest extent the court deems reasonable, and thereby shall be
reformed to that extent as applied to that Restricted Stockholder and any other
Restricted Stockholder similarly situated.
Section 10.5 INDEPENDENT COVENANT. All the covenants in this Article X
are intended by each party hereto to, and shall, be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of any Restricted Stockholder against TMI, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by TMI of any covenant in this Article X. It is specifically agreed
that the period specified in Section 10.01 shall be computed in the case of each
Restricted Stockholder by excluding from that computation any time during which
that Restricted Stockholder is in violation of any provision of Section 10.01.
The covenants contained in this Article X shall not be affected by any breach of
any other provision of this Agreement by any party hereto.
Section 10.6 MATERIALITY. The Company and each Stockholder, severally
and not jointly with any other Person, hereby agree that this Article X is a
material and substantial part of the transactions contemplated hereby.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1 TREATMENT OF CONFIDENTIAL INFORMATION. Each party hereto
will comply with each covenant for which provision is made in Section 11.01 of
the Uniform Provisions (the text of which Section hereby is incorporated herein
by this reference) to be performed or observed by that party.
Section 11.2 RESTRICTIONS ON TRANSFER OF TMI COMMON STOCK.
(a) During the two-year period ending on the second anniversary
of the IPO Closing Date (the "Restricted Period") no Stockholder
voluntarily will, except pursuant to and in accordance with the
applicable provisions of the Registration Rights Agreement: (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or
otherwise dispose of (A) any shares of TMI Common Stock received by any
Stockholder in the Merger or (B) any interest in (including any option
to buy or sell) any of those shares of TMI Common Stock, in whole or in
part and TMI will have no obligation to, and shall not, treat any such
attempted transfer as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of TMI Common
Stock or any interest therein, the intent or effect of which is to
reduce the risk of owning the shares of TMI Common Stock acquired
pursuant to Section 2.04 (including, for example engaging in put, call,
short-sale, straddle or similar market transactions); PROVIDED, HOWEVER,
that this Section 11.02 shall not restrict any transfer of TMI Common
Stock acquired by a Stockholder pursuant to Section 2.04 to any of that
Stockholder's Related Persons who agree in writing to be bound by the
provisions of Section 11.01 and this Section 11.02. The certificates
evidencing the TMI Common Stock delivered to each Stockholder pursuant
to Section 2.05 will bear a legend substantially in the form set forth
below and containing such other information as TMI may deem necessary or
appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER, THE HOLDER OF THIS CERTIFICATE
AND THE OTHER PARTIES THERETO, THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE, ASSIGNMENT,
EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING
THE TWO-YEAR PERIOD ENDING ON [DATE THAT IS THE SECOND
ANNIVERSARY OF THE IPO CLOSING DATE] (THE "RESTRICTED PERIOD").
ON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE
ISSUER AGREES TO REMOVE THIS
13
<PAGE>
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of TMI Common Stock to be
delivered to that Stockholder pursuant to Section 2.04 (A) have not been
and, except pursuant to the Registration Rights Agreement, if
applicable, will not be registered under the Securities Act and
therefore may not be resold by that Stockholder without compliance with
the Securities Act and (B) will, as a result of their restrictions on
transferability which are imposed by this Agreement during the
Restricted Period, have a value materially less at the Effective Time
than the value of then freely tradeable shares of TMI Common Stock, and
(ii) covenants that none of the shares of TMI Common Stock issued to
that Stockholder pursuant to Section 2.04 will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all the applicable provisions of the
Securities Act and the rules and regulations of the SEC and applicable
state securities laws and regulations. All certificates evidencing
shares of TMI Common Stock issued pursuant to Section 2.04 will bear the
following legend in addition to the legend prescribed by Section
11.02(a):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THAT LAW AND OTHER
APPLICABLE SECURITIES LAWS.
In addition, certificates evidencing shares of TMI Common Stock issued
pursuant to Section 2.04 to each Stockholder will bear any legend
required by the securities or blue sky laws of the state in which that
Stockholder resides.
Section 11.3 BROKERS AND AGENTS. The Stockholders jointly and severally
represent and warrant to TMI that the Company has not directly or indirectly
employed or become obligated to pay any broker or similar agent in connection
with the transactions contemplated hereby and agree, without regard to the
Threshold Amount limitations set forth in Article IX, to indemnify TMI against
all Damage Claims arising out of claims for any and all fees and commissions of
brokers or similar agents employed or promised payment by the Company.
Section 11.4 ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
and the rights of its parties may not be assigned (except by operation of law)
and shall be binding on and inure to the benefit of the parties hereto, the
successors of TMI, and the heirs and legal representatives of the Stockholders
(and, in the case of any trust, the successor trustees of that trust). Neither
this Agreement nor any other Transaction Document is intended, or shall be
construed, deemed or interpreted, to confer on any Person not a party hereto or
thereto any rights or remedies hereunder or thereunder, except as provided in
Section 6.05(b) or 11.14, in Article IX or as otherwise provided expressly
herein or therein.
14
<PAGE>
Section 11.5 ENTIRE AGREEMENT; AMENDMENT; WAIVERS. This Agreement
constitutes the entire agreement and understanding among the Stockholders, the
Company, Newco and TMI and supersede all prior agreements and understandings,
both written and oral, relating to the subject matter of this Agreement. This
Agreement may be amended, modified or supplemented, and any right hereunder may
be waived, if, but only if, that amendment, modification, supplement or waiver
is in writing and signed by the Majority Stockholders, the Company and TMI. The
waiver of any of the terms and conditions of this Agreement shall not be
construed or interpreted as, or deemed to be, a waiver of any of its other term
or conditions.
Section 11.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be an original, but all of which together will
constitute one and the same instrument.
Section 11.7 EXPENSES. Whether or not the transactions contemplated
hereby are consummated, (a) TMI will pay (i) the fees, expenses and
disbursements of TMI and Newco and their Representatives which are incurred in
connection with the subject matter of this Agreement and any amendments thereto,
including all costs and expenses incurred in the performance of and compliance
with all conditions to be performed by TMI and Newco under this Agreement,
including the costs of preparing the Registration Statement, and (ii) the fees,
expenses and disbursements of Counsel for the Company and the Stockholders
incurred in connection with the subject matter of this Agreement and the
Registration Statement on or before the IPO Closing Date, (b) the Company will
pay any fees, expenses and disbursements of any counsel (other than Counsel for
the Company and the Stockholders) incurred in connection with the subject matter
of this Agreement and the Registration Statement on or before the IPO Closing
Date, up to a maximum of $25,000 in the aggregate, and (c) the Stockholders will
pay from personal funds, and not from funds of the Company or any Company
Subsidiary, (i) all sales, use, transfer and other similar taxes and fees
(collectively, "Transfer Taxes") incurred in connection with the transactions
contemplated hereby, and (ii) the fees, expenses and disbursements in excess of
$25,000 in the aggregate, of any counsel (other than Counsel for the Company and
the Stockholders) incurred in connection with the subject matter of this
Agreement and the Registration Statement on or before the IPO Closing Date. The
Stockholders will file all necessary documentation and Returns with respect to
all Transfer Taxes. In addition, each Stockholder acknowledges that he, and not
the Company or TMI or the Surviving Corporation, will pay all Taxes due upon
receipt of the consideration payable to that Stockholder pursuant to Article II.
Section 11.8 NOTICES. All notices required or permitted hereunder shall
be in writing, and shall be deemed to be delivered and received (a) if
personally delivered or if delivered by telex, telegram, facsimile or courier
service, when actually received by the party to whom notice is sent or (b) if
delivered by mail (whether actually received or not), at the close of business
on the third Houston, Texas business day next following the day when placed in
the mail, postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at such other
address as such party may designate by written notice to all other parties in
accordance herewith):
15
<PAGE>
(i) if to TMI or Newco, addressed to it at:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Telecopy No.: (714) 770-0727
Attn.: William C. Klintworth, Jr.,
Chief Executive Officer
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Attn: James M. Harbison, Jr.
Telecopy No.: (713) 228-4935
(ii) if to the Stockholders, addressed to them at their
addresses set forth in Schedule 2.04; and
(iii) if to the Company, addressed to it at:
WILSON MEDICAL SPECIALTIES, INC.
14360 NE 21st Street
Bellevue , Washington 98007
Attn: Kim F. Wilson
with copies (which shall not constitute notice for purposes of
this Agreement) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopy No.: (713) 236-0822
Attn: Douglas Y. Bech
SECTION 11.9 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE, WITH THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF, PROVIDED, HOWEVER,
THAT: (A) ARTICLE X AND THE RIGHTS AND OBLIGATIONS THEREUNDER OF THE PARTIES
THERETO WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF WASHINGTON WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF AND (B) MATTERS PERTAINING SOLELY TO THE MERGER SHALL BE
GOVERNED BY THE BUSINESS CORPORATION ACT.
16
<PAGE>
Section 11.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise
provided herein, no delay or omission in the exercise of any right, power or
remedy accruing to any party hereto as a result of any breach or default
hereunder by any other party hereto shall impair any such right, power or
remedy, nor shall it be construed, deemed or interpreted as a waiver of or
acquiescence in any such breach or default, or of any similar breach or default
occurring later; nor shall any waiver of any single breach or default be
construed, deemed or interpreted as a waiver of any other breach or default
hereunder occurring before or after that waiver.
Section 11.11 TIME. Time is of the essence in the performance of this
Agreement in all respects.
Section 11.12 REFORMATION AND SEVERABILITY. If any provision of this
Agreement is invalid, illegal or unenforceable, that provision shall, to the
extent possible, be modified in such manner as to be valid, legal and
enforceable but so as to most nearly retain the intent of the parties hereto as
expressed herein, and if such a modification is not possible, that provision
shall be severed from this Agreement, and in either case the validity, legality
and enforceability of the remaining provisions of this Agreement shall not in
any way be affected or impaired thereby.
Section 11.13 REMEDIES CUMULATIVE. Except as otherwise specifically
provided in Section 9.06, no right, remedy or election given by any term of this
Agreement shall be deemed exclusive, but each shall be cumulative with all other
rights, remedies and elections available at law or in equity.
Section 11.14 RESPECTING THE IPO. Each of the Company and the
Stockholders acknowledges and agrees that: (a) no firm commitment, binding
agreement or promise or other assurance of any kind, whether express or implied,
oral or written, exists at the date hereof that the Registration Statement will
become effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither TMI or any of its
Representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective Affiliates
or associates for any failure of (i) the Registration Statement to become
effective (provided, however, that TMI will use its reasonable best efforts to
cause the Registration Statement to become effective prior to January 31, 1998)
or (ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, or to vote in favor of or consent to the Merger, has been or
will be made independent of, and without reliance on, any statements, opinions
or other communications of, or due diligence investigations that have been or
will be made or performed by, any prospective underwriter relative to TMI or the
IPO. The Underwriter shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
17
<PAGE>
ARTICLE XII
TERMINATION
Section 12.1 TERMINATION OF THIS AGREEMENT.
(a) This Agreement may be terminated at any time prior to the
Closing solely:
(i) by the mutual written consent of TMI and the Company;
(ii) by the Majority Stockholders or the Company, on the one
hand, or by TMI, on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall
not have been consummated by January 31, 1998, unless the failure
of such transactions to be consummated results from the willful
failure of the party (or in the case of the Stockholders and the
Company, any of them) seeking to terminate this Agreement to
perform or adhere to any agreement required hereby to be
performed or adhered to by it prior to or at the Closing or
thereafter on the IPO Closing Date;
(iii) by the Majority Stockholders or the Company, on the
one hand, or by TMI, on the other hand, if a material breach or
default shall be made by the other party (or in the case of the
Stockholders and the Company, any of them) in the observance or
in the due and timely performance of any of the covenants,
agreements or conditions contained herein; or
(iv) by TMI if it is entitled to do so as provided in
Section 6.07;
(b) This Agreement may be terminated after the Closing solely:
(i) by TMI or the Company if the Underwriting Agreement is
terminated pursuant to its terms after the Closing and prior to
the consummation of the IPO; or
(ii) automatically and without action on the part of any
party hereto if the IPO is not consummated within 15 New York
City business days after the date of the Closing.
(c) If this Agreement is terminated pursuant to this Section
12.01, the Merger will be deemed for all purposes to have been abandoned
and of no force or effect. If this Agreement is terminated pursuant to
this Section 12.01 after the Certificate of Merger has been filed with
the Secretary of State of the State of Washington, but before the IPO
has been consummated, TMI will take all actions that Counsel for the
Company and the Stockholders advises TMI are required by the applicable
laws of the State of Washington to rescind the Merger.
18
<PAGE>
Section 12.2 LIABILITIES IN EVENT OF TERMINATION. If this Agreement is
terminated pursuant to Section 12.01, there shall be no liability or obligation
on the part of any party hereto except (a) as provided in Section 11.07, (b)
each Stockholder shall be severally liable for any breach by that Stockholder of
any covenant made severally by that Stockholder in this Agreement and for any
breach by that Stockholder of any representation and warranty made by that
Stockholder severally in Article III and which that Stockholder knew was untrue
or inaccurate at the date of this Agreement, and (c) the Company shall be liable
for any breach by the Company of any covenant made by the Company in this
Agreement and for any breach by the Company of any representation and warrant
made by the Company in Article IV and which the Company knew as untrue or
inaccurate at the date of this Agreement, and (d) TMI shall be liable for any
breach by TMI of any covenant made by TMI in this Agreement and for any breach
by TMI of any representation and warranty made by TMI in Article V and which TMI
knew was untrue or inaccurate at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
WILSON ACQUISITION, INC.
By:/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr., President
WILSON MEDICAL SPECIALTIES, INC.
By:/s/ KIM F. WILSON
Kim F. Wilson, President
19
<PAGE>
STOCKHOLDERS:
/s/ KIM F. WILSON
Kim F. Wilson
/s/ JANICE L. WILSON
Janice L. Wilson
/s/ MYKEN NUNES
Myken Nunes
/s/ ROBB R. WILSON
Robb R. Wilson
20
<PAGE>
ADDENDUM 1
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALTIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Addendum which are defined in the
captioned Agreement to which this is an Addendum are used herein as therein
defined.
B. The Founding Companies are:
Custom Medical Specialties, Inc.
Healthcare Technology Delivery, Inc.
Kentec Medical, Inc.
MegaTech Medical, Inc.
New England Medical Specialties, Inc.
Omni Medical, Inc.
Professional Equipment Co., Inc.
Products for Surgery, Inc.
Sun Medical, Inc.
TRIAD Holdings, Inc.
WILSON MEDICAL SPECIALITIES, INC.
<PAGE>
SCHEDULE 2.03
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.03 are used
herein as therein defined.
B. The directors of the Surviving Corporation immediately after the
Effective Time are as follows:
William C. Klintworth, Jr.
R. Tucker Coop
Lance C. Ruud
C. The officers of the Surviving Corporation immediately following the
Effective Time are as follows:
President: R. Tucker Coop
Vice President: William C. Klintworth, Jr.
Vice President: Lance C. Ruud
Vice President: Walter D. Wallach
Secretary: Lance C. Ruud
Treasurer: Lance C. Ruud
<PAGE>
SCHEDULE 2.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 2.04 are used
herein as therein defined.
B. The name and address of each Stockholder are as follows:
NAME ADDRESS
---- -------
Kim F. Wilson 13413 NE 37th Place
Bellevue, WA 98005
Janice L. Wilson 13413 NE 37th Place
Bellevue, WA 98005
Myken Nunes 8134 NE 125th Street
Kirkland, WA 98034
13413 NE 37th Place
Robb R. Wilson Bellevue, WA 98005
C. The Merger Consideration shall consist of (i) cash in the amount of
$720,000 and (ii) 91,429 shares of TMI Common Stock.
<PAGE>
SCHEDULE 3.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.01 are used
herein as therein defined.
B. Each Stockholder, other than those listed below, is an "accredited
investor" as defined in Securities Act Rule 501(a).
Myken Nunes
Robb R. Wilson
<PAGE>
SCHEDULE 3.02
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.02 are used
herein as therein defined.
B. The following table sets forth the ownership of the Company's Capital
Stock:
NUMBER OF
NAME CLASS SHARES OWNED
---- ----- ------------
Kim F. Wilson Common 9,180
Janice L. Wilson Common 9,180
Myken Nunes Common 1,020
Robb R. Wilson Common 1,020
C. No exception is taken to the representations and warranties made in
Section 3.02 of the captioned Agreement.
<PAGE>
SCHEDULE 3.07
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 3.07 are used
herein as therein defined.
B. The Stockholder is, alone or with one or more other Persons, the
controlling Affiliate of the following Entity, business or trade (other than the
Company and the Company Subsidiaries, if the Stockholder is an Affiliate of the
Company) that is (a) engaged in any line of business which is the same as or
similar to any line of business in which the Company or any Company Subsidiary
is engaged or (b) is, or has within the three year period ending on the date of
the captioned Agreement, engaged in any transaction with the Company or any
Company Subsidiary except for (i) transactions in the ordinary course of
business of the Company or that Company Subsidiary and (ii) any single
transaction (or series of related transactions) involving property or services
having a value, or the payment of money, of less than $20,000:
None
<PAGE>
SCHEDULE 4.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 4.11 are used
herein as therein defined.
B. The following Related Party Agreement will be permitted to continue
in effect past the date of the Closing in accordance with its terms, subject to
the following provisions of this Schedule:
1 The Company shall continue to honor its retirement benefit
obligation to Russell A. Wilson by continuing to pay the
premiums, which at present amount to $198 a month, on the Group
Health Co-Operative of Puget Sound health insurance policy for
Mr. Wilson and his wife, and shall replace such coverage with
comparable coverage should the present coverage for any reason
be terminated.
<PAGE>
SCHEDULE 6.04
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.04 are used
herein as therein defined.
B. The Company and the Company Subsidiaries may make the following
Restricted Payments prior to the Effective Time:
None
<PAGE>
SCHEDULE 6.11
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 6.11 are used
herein as therein defined.
B. The Company will make all arrangements and take all such actions as
are necessary and satisfactory to TMI to dispose, prior to the Effective Time,
of the following assets:
None
<PAGE>
SCHEDULE 8.05
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 8.05 are used
herein as therein defined.
B. At or within 120 days following the Effective Time, TMI will cause
the following Stockholder Guarantees to be terminated:
XIII Kim F. Wilson's guaranty of the Company's line of credit
with Wells Fargo Bank.
XIV Kim F. Wilson's guaranty of the Lease Agreement dated July
21, 1995, between the Company, as lessee, and the lessors named therein,
under which the Company leases the premises at 14360 NE 21st Street,
Bellevue, Washington.
<PAGE>
SCHEDULE 10.01
to the
Agreement and Plan of Reorganization
dated as of September 9, 1997
by and among
TRIAD Medical Inc.
Wilson Acquisition, Inc.
WILSON MEDICAL SPECIALITIES, INC.
and
the Stockholders Named Therein
A. Words and terms used in this Schedule which are defined in the
captioned Agreement to which this Schedule is attached as Schedule 10.01 are
used herein as therein defined.
B. The following Stockholders are Restricted Stockholders:
Janice L. Wilson
Myken Nunes
Robb R. Wilson
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of __________________, 1997, among TRIAD Medical, Inc., a Delaware
corporation ("TMI"), and each person listed on the signature pages of this
Agreement under the caption "Stockholders" (each a "Stockholder" and,
collectively, the "Stockholders").
WHEREAS, pursuant to various acquisition agreements entered into with TMI
(collectively, the "Acquisition Agreements"), each of the Stockholders has
received on the date hereof shares of common stock, par value $.001 per share,
of TMI ("Common Stock");
WHEREAS, certain of the Stockholders are the holders of Warrants for the
purchase of an aggregate 125,000 shares of Common Stock (the "Warrants"); and
WHEREAS, in order to induce the Stockholders to enter into their
respective Acquisition Agreements, TMI has agreed to provide registration rights
on the terms set forth in this Agreement for the benefit of the Stockholders;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the meanings
assigned to them in this Section 1 or in the parts of this Agreement referred to
below:
ANNUAL DEMAND PERIOD: the period in any year while this Agreement is in
effect which follows the date that is 91 days after the end of TMI's immediately
preceding fiscal year.
CODE: the Internal Revenue Code of 1986, as amended, and any successor
thereto.
COMMISSION: the Securities and Exchange Commission, and any successor
thereto.
DEMAND REGISTRATION: as defined in Section 3.
EFFECTIVE TIME: as defined in Section 3.
EXCHANGE ACT: the Securities Exchange Act of 1934, as amended, and any
successor thereto, and the rules and regulations thereunder.
EXEMPT OFFERING: as defined in Section 2.
INSTITUTIONAL STOCKHOLDER: either of Equus II Incorporated or PENMAN
Private Equity and Mezzanine Fund, L.P.
1
<PAGE>
REGISTRABLE COMMON: shares of Common Stock that were issued to the
Stockholders pursuant to the Acquisition Agreements or that were issued, or are
issuable, upon any exercise of any of the Warrants, and any additional shares of
Common Stock issued or distributed in respect of any other shares of Registrable
Common by way of a stock dividend or distribution or stock split or in
connection with a combination of shares, recapitalization, reorganization,
merger, consolidation or otherwise. For purposes of this Agreement, shares of
Registrable Common will cease to be Registrable Common when and to the extent
that (i) a registration statement covering such shares has been declared
effective under the Securities Act and such shares have been disposed of
pursuant to such effective registration statement, (ii) such shares are sold
pursuant to Rule 144 or become saleable under Rule 144(k), or (iii) such shares
have been otherwise transferred to a person or entity that is not a Stockholder,
other than pursuant to Section 11.
REGISTRATION NOTICE: as defined in Section 2.
REQUESTING HOLDERS: as defined in Section 3.
RESTRICTED PERIOD: as defined in Section 3.
RULE 144: Securities Act Rule 144 (or any similar or successor provision
under the Securities Act).
SECURITIES ACT: the Securities Act of 1933, as amended, and any successor
thereto, and the rules and regulations thereunder.
SELLING STOCKHOLDER: as defined in Section 12.
2. PIGGYBACK REGISTRATION RIGHTS. At any time after the second anniversary
of the date of this Agreement and before December 31, 2010, whenever TMI
proposes to register any Common Stock for its own account (or for the account of
a holder or holders of shares of Common Stock) under the Securities Act for a
public offering for cash, other than a registration relating to the offering or
issuance of shares in connection with (i) employee compensation or benefit plans
or (ii) one or more acquisition transactions under a Registration Statement on
Form S-4 under the Securities Act (or a successor to Form S-4) (any such
offering or issuance being an "Exempt Offering"), TMI will give each Stockholder
written notice of its intent to do so (a "Registration Notice") at least 30 days
prior to the filing of the related registration statement with the Commission.
Such notice shall specify the approximate date on which TMI proposes to file
such registration statement and shall contain a statement that the Stockholders
are entitled to participate in such offering and shall set forth the number of
shares of Registrable Common that represents the best estimate of the lead
managing underwriter (or if not known or applicable, TMI) that will be available
for sale by the holders of Registrable Common in the proposed offering. Each
Stockholder shall be entitled to participate on the same terms and conditions as
TMI in the public offering to which the Registration Notice relates and to offer
and sell shares of Registrable Common therein only to the extent provided in
this Section 2. Each Stockholder desiring to participate in such offering shall
2
<PAGE>
notify TMI no later than 20 days following receipt of the Registration Notice of
the aggregate number of shares of Registrable Common that such Stockholder then
desires to sell in the offering. Each Stockholder desiring to participate in
such public offering may include shares of Registrable Common in the
registration statement relating to the offering, to the extent that the
inclusion of such shares shall not reduce the number of shares of Common Stock
to be offered and sold by TMI to be included therein. If the lead managing
underwriter selected by TMI for a public offering determines and notifies TMI in
writing that, in view of marketing factors, the inclusion of all shares of
Registrable Common requested to be included in the offering would adversely
affect the offering and therefore require a limitation on the number of shares
of Registrable Common to be offered and sold in such offering, there shall be
included in the offering only that number of shares of Registrable Common, if
any, that such lead managing underwriter reasonably and in good faith believes
will not jeopardize the success of the offering, in which case (i) the number of
shares of Registrable Common to be offered and sold by holders desiring to
participate in the offering, shall be allocated among such holders on a PRO RATA
basis based on their holdings of Registrable Common assuming full exercise of
all then outstanding Warrants, and (ii) if the registration statement relating
to the offering has been filed by the Company in response to a demand for
registration by a holder or holders of Common Stock (whether pursuant to this
Agreement or any other agreement), then the holder or holders of Common Stock so
demanding registration shall be entitled to priority over the holders of
Registrable Common exercising their registration rights pursuant to this Section
2, and the number of shares of Registrable Common requested to be included in
such registration pursuant to this Section 2 shall be reduced or eliminated
before any such other holder of Common Stock demanding registration shall be
required to exclude any shares from such registration. TMI shall also have the
right at any time to reduce the number of shares requested by any Stockholder to
be included in such registration to the extent that TMI reasonably concludes
that inclusion of such shares is likely to jeopardize the non-recognition status
under the Code of any acquisition transaction consummated pursuant to any of the
Acquisition Agreements; PROVIDED, HOWEVER, that any determination to exclude
shares from any such registration pursuant to this provision shall be based on
written advice of tax counsel to TMI or its independent accountants.
3. DEMAND REGISTRATION RIGHTS. At any time after the period ending on the
second anniversary of the date of this Agreement (the "Restricted Period") and
before December 31, 2003, the holders of at least 51% of the shares of
Registrable Common outstanding at the date of this Agreement (including the
shares issuable upon exercise of the Warrants) (such number of outstanding
shares to be appropriately adjusted from time to time in the case of
subdivisions and combinations which increase or decrease the number of
outstanding shares of Common Stock) may request (the Stockholders making such
request are herein referred to as the "Requesting Holders") in writing that TMI
file a registration statement under the Securities Act covering the registration
of all, or, if less than all, of at least one million, shares of Registrable
Common then held by such Stockholders or then issuable upon the exercise of then
outstanding Warrants held by such Stockholder (a "Demand Registration"). Within
ten days of the receipt of such request, TMI shall give written notice of such
request to all other Stockholders and shall use its best efforts to effect as
soon as practicable the registration under the Securities Act in accordance with
Section 4 hereof (including without limitation, the execution of an undertaking
to file post-effective amendments) of
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all shares of Registrable Common which the Stockholders request be registered
within 30 days after the mailing of such notice, PROVIDED, HOWEVER, that (i) TMI
shall not be obligated to cause a registration statement respecting a Demand
Registration to (a) be initially filed sooner than ten days prior to the
beginning of an Annual Demand Period, or (b) initially become effective under
the Securities Act as of any time that is not within an Annual Demand Period,
(ii) TMI shall not be obligated to effect a Demand Registration if it is not
eligible to use Form S-3 under the Securities Act, and (iii) TMI shall be
obligated to effect only one Demand Registration pursuant to this Section 3. In
connection with a Demand Registration, the holders of a majority of shares of
Registrable Common included in such Demand Registration, in their sole
discretion, shall determine whether (a) to proceed with, withdraw from or
terminate such offering, (b) to select, subject to the approval of TMI (which
approval shall not be unreasonably withheld), a managing underwriter or
underwriters to administer such offering, (c) to enter into an underwriting
agreement for such offering, and (d) to take such actions as may be necessary to
close the sale of Registrable Common contemplated by such offering, including
waiving any conditions to closing such sale that may not have been fulfilled. If
such holders exercise their discretion under this paragraph to terminate a
proposed Demand Registration, the terminated Demand Registration shall not
constitute the Demand Registration under this Section 3, if the determination to
terminate such Demand Registration (i) follows the exercise by TMI of any of its
rights provided by the last two paragraphs of this Section 3 or (ii) results
from a material adverse change in the condition (financial or other), results of
operations, prospects or properties of the Company. Notwithstanding the
foregoing, a registration will not count as the Demand Registration under this
Section 3 until such registration has become effective and unless either (i) the
Requesting Holders are able to register and sell all of the shares of
Registrable Common requested by them to be included in such registration or (ii)
such registration statement has remained effective for at least 90 days.
Notwithstanding the preceding paragraph, if TMI shall furnish to the
Requesting Holders a certificate signed by the President of TMI stating that, in
the good faith judgment of the Board of Directors of TMI, it would have a
material adverse effect on TMI's plans to issue debt or equity securities or
consummate a transaction if such registration statement were to be filed and it
is therefore beneficial to defer the filing of such registration statement, TMI
shall have the right to defer such filing for a period of not more than 90 days
after receipt of the request of the Requesting Holders. TMI shall promptly give
notice to the holders of Registrable Common at the end of any delay period under
this paragraph.
Notwithstanding the preceding two paragraphs, if at the time of any
request by the Requesting Holders for a Demand Registration, TMI has fixed plans
to file within 90 days after such request for the sale of any of its securities
in a public offering under the Securities Act (other than an Exempt Offering),
no Demand Registration shall be initiated under this Section 3 until 90 days
after the effective date of such registration unless TMI is no longer proceeding
diligently to effect such registration; PROVIDED that TMI shall provide the
holders of Registrable Common the right to participate in such public offering
pursuant and subject to Section 2.
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4. REGISTRATION PROCEDURES. In connection with registrations under
Sections 2 and 3, and subject to the terms and conditions contained therein, TMI
shall (a) prepare and file with the Commission as soon as reasonably
practicable, a registration statement with respect to the Registrable Common and
use its best efforts to cause such registration to promptly become and remain
effective for a period of at least 120 days (or such shorter period during which
holders shall have sold all Registrable Common which they requested to be
registered); PROVIDED, HOWEVER, that such 120-day period shall be extended for a
period equal to the period that a Stockholder agrees to refrain from selling any
securities included in such registration in accordance with Section 8 during
which the Stockholders may not make sales under such registration statement, (b)
prepare and file with the Commission such amendments (including post-effective
amendments) to such registration statement and supplements to the related
prospectus to reflect appropriately the plan of distribution of the securities
registered thereunder until the completion of the distribution contemplated by
such registration statement or for so long thereafter as a dealer is required by
law to deliver a prospectus in connection with the offer and sale of the shares
of Registrable Common covered by such registration statement and/or as shall be
necessary so that neither such registration statement nor the related prospectus
shall contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and so that such registration statement and the related
prospectus will otherwise comply with applicable legal requirements; (c) provide
to any Stockholder requesting to include shares of Registrable Common in such
registration statement and a single counsel for all holders of Registrable
Common requesting to include shares of Registrable Common in such registration
statement, which counsel shall be selected by the holders of a majority of
shares of Registrable Common requested to be included in such registration
statement and shall be reasonably satisfactory to TMI, an opportunity to review
and provide comments with respect to such registration statement (and any
post-effective amendment thereto) prior to such registration statement (or
post-effective amendment) becoming effective; (d) use its best efforts to
register and qualify the Registrable Common covered by such registration
statement under applicable securities or "Blue Sky" laws of such jurisdictions
as the holders shall reasonably request for the distribution of the Registrable
Common; (e) take such other actions as are reasonable and necessary to comply
with the requirements of the Securities Act; (f) furnish such number of
prospectuses (including preliminary prospectuses) and documents incident thereto
as a Stockholder from time to time may reasonably request; (g) provide to any
Stockholder requesting to include Registrable Common in such registration
statement and any managing underwriter participating in any distribution
thereof, and to any attorney, accountant or other agent retained by such
Stockholder or managing underwriter, reasonable access to appropriate officers
and directors of TMI to ask questions and to obtain information reasonably
requested by any such Stockholder, managing underwriter, attorney, accountant or
other agent in connection with such registration statement or any amendment
thereto; PROVIDED, HOWEVER, that (i) in connection with any such access or
request, any such requesting persons shall cooperate to the extent reasonably
practicable to minimize any disruption to the operation by TMI of its business
and (ii) any records, information or documents shall be kept confidential by
such requesting persons, unless (A) such records, information or documents are
in the public domain or otherwise publicly available or (B) disclosure of such
records, information or documents is required by court or administrative order
or by applicable law (including, without limitation, the Securities Act); (h)
notify each Stockholder and
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the managing underwriters participating in the distribution pursuant to such
registration statement promptly (i) when TMI is informed that such registration
statement or any post-effective amendment to such registration statement becomes
effective, (ii) of any request by the Commission for an amendment or any
supplement to such registration statement or any related prospectus, (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
such registration statement or of any order preventing or suspending the use of
any related prospectus or the initiation or threat of any proceeding for that
purpose, (iv) of the suspension of the qualification of any shares of
Registrable Common included in such registration statement for sale in any
jurisdiction or the initiation or threat of a proceeding for that purpose, (v)
of any determination by TMI that any event has occurred which makes untrue any
statement of a material fact made in such registration statement or any related
prospectus or which requires the making of a change in such registration
statement or any, related prospectus in order that the same will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and (vi) of the completion of the distribution contemplated by such registration
statement if it relates to an offering by TMI; (i) in the event of the issuance
of any stop order suspending the effectiveness of such registration statement or
of any order suspending or preventing the use of any related prospectus or
suspending the qualification of any shares of Registrable Common included in
such registration statement for sale in any jurisdiction, use its best efforts
to obtain its withdrawal; (j) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, but not later than fifteen months after the
effective date of such registration statement, an earnings statement covering
the period of at least twelve months beginning with the first full fiscal
quarter after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11 (a) of the Securities Act;
(k) use its best efforts to cause all shares of Registrable Common included in
such registration statement to be listed on any securities exchange (including,
for this purpose, the Nasdaq National Market) on which the Common Stock is then
listed at the initiation of TMI; (l) use its best efforts to obtain an opinion
from legal counsel (which may include the General Counsel of TMI) in customary
form and covering such matters of the type customarily covered by opinions as
the underwriters, if any, may reasonably request; (m) provide a transfer agent
and registrar for all such Registrable Common not later than the effective date
of such registration statement; (n) enter into such customary agreements
(including an underwriting agreement in customary form) as the underwriters, if
any, may reasonably request in order to expedite or facilitate the disposition
of such shares of Registrable Common; and (o) use its best efforts to obtain a
"comfort letter" from TMI's independent public accountants in customary form and
covering such matters of the type customarily covered by comfort letters as the
underwriters, if any, may reasonably request. As used in this Section 4 and
elsewhere herein, the term "underwriters" does not include any Stockholder.
5. UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Section 2 or 3 covering an underwritten registered public offering, TMI and
each participating Stockholder agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
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underwriter and companies of TMI's size and investment stature, including
provisions for indemnification by TMI and each Selling Stockholder as more fully
described in Section 12.
6. AVAILABILITY OF RULE 144. Notwithstanding anything contained herein to
the contrary, (including Sections 2 and 3), TMI shall not be obligated to
register shares of Registrable Common held by any Stockholder when the resale
provisions of Rule 144(k) are available to such Stockholder or such Stockholder
is otherwise entitled to sell the shares of Registrable Common held by him or
her in a brokerage transaction without registration under the Securities Act and
without limitation as to volume or manner of sale or both.
7. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
shares of Registrable Common held by the Stockholders to the public without
registration, TMI agrees to:
(a) make and keep public information available (as those terms are
understood and defined in Rule 144) at all times from and after 90 days
following the effective date of the registration statement;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of TMI under the
Securities Act and the Exchange Act at any time that it is subject to such
reporting requirements;
(c) so long as a Stockholder owns any Warrants or shares of
Registrable Common, furnish to the Stockholder forthwith upon request a
written statement by TMI as to its compliance with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act (at any
time that it is subject to such reporting requirements), a copy of the
most recent annual or quarterly report of TMI, and such other reports and
documents filed in accordance with such reporting requirements as a
Stockholder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Stockholder to sell any such
securities without registration; and
(d) if required by the transfer agent and registrar for the Common
Stock, use reasonable diligence to obtain an opinion from legal counsel
(which may include the General Counsel of TMI) addressed to such transfer
agent and registrar, with respect to any sale of shares of Registerable
Common pursuant to Rule 144 (or, at the option of TMI, pay the reasonable
fees and expenses of legal counsel retained by a Stockholder to provide
such an opinion).
8. MARKET STANDOFF.
(a) In consideration of the granting to Stockholders of the
registration rights pursuant to this Agreement, each Stockholder agrees
that, for so long as such Stockholder holds shares of Registrable Common,
except as permitted by Sections 2 and 3, such
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Stockholder will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of
Common Stock in the ten days prior to the effectiveness of any
registration (other than relating to an Exempt Offering) of Common Stock
for sale to the public and for up to 90 days following the effectiveness
of such registration.
(b) Except for Exempt Offerings or in connection with the
acquisition by TMI of another company or business, TMI shall not offer to
sell or sell any shares of capital stock of TMI during the 90-day period
immediately following the commencement of an underwritten public offering
of shares of Registrable Common pursuant to a Demand Registration.
9. REGISTRATION EXPENSES. All expenses incurred in connection with any
registration, qualification and compliance under this Agreement (including,
without limitation, all registration, filing, qualification, legal, printing and
accounting fees, and including all reasonable fees of one counsel acting on
behalf of all holders of the securities being registered in such registration)
shall be borne by TMI. All underwriting commissions and discounts applicable to
shares of Registrable Common included in the registrations under this Agreement
shall be borne by the holders of the securities so registered PRO RATA on the
basis of the number of shares so registered. Subject to the foregoing, all
expenses incident to TMI's performance of or compliance with this Agreement,
including, without limitation, all filing fees, fees and expenses of compliance
with securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Common), printing expenses, messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
TMI's officers and employees performing legal or accounting duties), the fees
and expenses applicable to shares of Registrable Common included in connection
with the listing of the securities to be registered on each securities exchange
(including, for this purpose, the Nasdaq National Market) on which similar
securities issued by TMI are then listed at the initiation of TMI, registrar and
transfer agents' fees and fees and disbursements of counsel for TMI and its
independent certified public accountants, securities act liability insurance of
TMI and its officers and directors (if TMI elects to obtain such insurance), the
fees and expenses of any special experts retained by TMI in connection with such
registration and fees and expenses of other persons retained by TMI and incurred
in connection with each registration hereunder (but not including, without
limitation, any underwriting fees, discounts or commissions attributable to the
sale of Registrable Common, and transfer taxes, if any), will be borne by TMI.
10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable
Common may participate in any underwritten registration hereunder unless such
holder (a) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, custody agreements, indemnities, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
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11. TRANSFER OF REGISTRATION RIGHTS; ADDITIONAL GRANTS OF REGISTRATION
RIGHTS. The registration rights provided to the holders of Registrable Common
under Sections 2 and 3 hereof may not be transferred to any other person or
entity, except that (i) a Stockholder may transfer his or its rights hereunder
to another Stockholder or pursuant to the laws of descent and distribution and
(ii) either Institutional Stockholder may transfer its rights under this
Agreement to its partners or stockholders (who may in turn transfer their
respective rights under this Agreement to their respective partners or
stockholders) in connection with any liquidating distribution or other
distribution in kind by an Institutional Stockholder (or its partners or
stockholders) to its partners or its stockholders of shares of Registerable
Common or Warrants; PROVIDED, HOWEVER, that, in any such case, such transferees
are bound by and subject to the terms and conditions contained herein. The
Company may, without the prior consent of the Stockholders, extend the
registration rights provided for in this Agreement to additional persons or
entities who become holders of Common Stock subsequent to the date of this
Agreement by entering into one or more addenda to this Agreement with any such
stockholders, and, upon execution of any such addenda, any stockholder that is a
party thereto shall thereafter be a "Stockholder" for purposes of this Agreement
and any shares of Common Stock referred to therein as such shall be shares of
"Registrable Common" for purposes of this Agreement. Nothing herein shall limit
the ability of TMI to grant to any person or entity any registration or similar
rights in the future with respect to Common Stock or other securities of TMI
(whether pursuant to the foregoing provision or otherwise), provided that if any
such person or entity has the right to include any of its shares of Common Stock
in a demand registration made pursuant to Section 3 of this Agreement, the
holders of Registrable Common shall have priority over any such person or entity
with respect to the latter's shares of Common Stock sought to be included in
such demand registration (and the agreement between TMI and any such person or
entity will provide for such priority cutback).
12. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. TMI agrees to indemnify and hold
harmless each Stockholder who sells shares of Registrable Common in a
registered offering pursuant to either Section 2 or Section 3 (a "Selling
Stockholder"), from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable legal expenses) arising out
of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus
relating to the Registrable Common or in any amendment or supplement
thereto or in any related preliminary prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such untrue
statement or omission or allegation thereof based upon information
furnished in writing to TMI by such Selling Stockholder or on such Selling
Stockholder's behalf expressly for use therein. In connection with an
underwritten offering of shares of Registrable Common, TMI will indemnify
any underwriters of the Registrable Common, their partners, officers and
directors and each person who controls such underwriters (within the
meaning of either Section 15 of the Securities Act or Section 20 of
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the Exchange Act) on substantially the same basis as that of the
indemnification of the Selling Stockholders provided in this Section
12(a). Notwithstanding the foregoing, TMI's indemnification obligations
with respect to any preliminary prospectus shall not inure to the benefit
of any Selling Stockholder or underwriter with respect to any loss, claim,
damage, liability (or actions in respect thereof) or expense arising out
of or based on any untrue statement or alleged untrue statement or
omission or alleged omission to state a material fact in such preliminary
prospectus, in any case where (i) a copy of the prospectus used to confirm
sales of shares of Registrable Common was not sent or given to the person
asserting such loss, claim, damage or liability at or prior to the written
confirmation of the sale to such person and (ii) such untrue statement or
alleged untrue statement or omission or alleged omission was corrected in
such prospectus.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt
by a Selling Stockholder of notice of any claim or the commencement of any
action or proceeding brought or asserted against such Selling Stockholder
in respect of which indemnity may be sought from TMI, such Selling
Stockholder shall notify TMI in writing of the claim or the commencement
of that action or proceeding; PROVIDED, HOWEVER, that the failure to so
notify TMI shall not relieve TMI from any liability that it may have to
the Selling Stockholder otherwise than pursuant to the indemnification
provisions of this Agreement. If any such claim or action or proceeding
shall be brought against a Selling Stockholder and such Selling
Stockholder shall have duly notified TMI thereof, TMI shall have the right
to assume the defense thereof, including the employment of counsel. Such
Selling Stockholder shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Selling
Stockholder unless (i) TMI has agreed to pay such fees and expenses or
(ii) the named parties to any such action or proceeding include both such
Selling Stockholder and TMI, and such Selling Stockholder shall have been
advised by counsel that there may be one or more legal defenses available
to such Selling Stockholder which are different from or additional to
those available to TMI, in which case, if such Selling Stockholder
notifies TMI in writing that it elects to employ separate counsel at the
expense of TMI, TMI shall not have the right to assume the defense of such
action or proceeding on behalf of such Selling Stockholder; it being
understood, however, that TMI shall not, in connection with any one such
action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses
of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for all Selling Stockholders. TMI shall not be
liable for any settlement of any such action or proceeding effected
without TMI's written consent (which consent shall not be unreasonably
withheld).
(c) INDEMNIFICATION BY HOLDERS OF REGISTRABLE COMMON. In connection
with any registration in which a Selling Stockholder is participating,
such Selling Stockholder will furnish to TMI in writing such information
and affidavits as TMI reasonably requests for use in connection with any
related registration statement or prospectus. Each Selling
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Stockholder agrees to indemnify and hold harmless TMI, its directors and
officers who sign the registration statement relating to shares of
Registrable Common offered by such Selling Stockholder and each person, if
any, who controls TMI within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from TMI to such Selling Stockholder, but only with
respect to information concerning such Selling Stockholder furnished in
writing by such Selling Stockholder or on such Selling Stockholder's
behalf, in such person's capacity as a stockholder of the Company or his
designee, expressly for use in any registration statement or prospectus
relating to shares of Registrable Common offered by such Selling
Stockholder, or any amendment or supplement thereto, or any related
preliminary prospectus. In case any action or proceeding shall be brought
against TMI or its directors or officers, or any such controlling person,
in respect of which indemnity may be sought against such Selling
Stockholder, such Selling Stockholder shall have the rights and duties
given to TMI, and TMI or its directors or officers or such controlling
persons shall have the rights and duties given to such Selling
Stockholder, by the preceding paragraph. Each Selling Stockholder also
agrees to indemnify and hold harmless any underwriters of the Registrable
Common, their partners, officers and directors and each person who
controls such underwriters (within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act) on substantially the
same basis as that of the indemnification of TMI provided in this Section
12(c). Notwithstanding anything to the contrary herein, in no event shall
the amount paid or payable by any Selling Stockholder under this Section
12(c) exceed the amount of proceeds received by such Selling Stockholder
from the offering of the Registrable Common.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 12 is unavailable to any indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to herein, then
each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified parties in connection with the
actions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnified party or indemnified parties and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. TMI and the Selling
Stockholders agree that it would not be just and equitable if contribution
pursuant to this Section 12(d) were determined by PRO RATA allocation or
by any other method of allocation that does not take account of the
equitable considerations referred to in this Section 12(d). No person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. If
indemnification is available under this Section 12, the indemnifying
parties shall indemnify each indemnified party to the full extent
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provided in Sections 12(a) and (c) without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable
consideration provided for in this Section 12(d).
13. MISCELLANEOUS
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not
be given, unless TMI has obtained the written consent of holders of at
least 51% of the shares of Registrable Common then outstanding.
(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by telex or telecopy, or
registered or certified mail (return receipt requested), postage prepaid,
or courier to the parties at the following addresses (or at such other
address for any party as shall be specified by like notice), PROVIDED that
notices of a change of address shall be effective only upon receipt
thereof. Notices sent by mail shall be effective when answered back,
notices sent by telecopier shall be effective when receipt is
acknowledged, and notices sent by courier guaranteeing next day delivery
shall be effective on the next business day after timely delivery by the
courier. Notices shall be sent to the following addresses:
(i) if to a Stockholder, at the most current address given by
such Stockholder to TMI in a writing making specific reference to
this Agreement (and, if the Stockholder is PENMAN Private Equity and
Mezzanine Fund, L.P., with a copy to Roger Wilen, Esq., Altheimer &
Gray, 10 South Wacker Drive, Suite 4000, Chicago, Illinois
60606-7482); and
(ii) if to TMI, at the following address:
TRIAD Medical Inc.
23161 Mill Creek Drive, Suite 300
Laguna Hills, California 92653
Att.: William C. Klintworth, Jr.
Telecopy: (714) 770-0292
with a copy to: Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Att.: James M. Harbison, Jr.
Telecopy: (713) 226-1331
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(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the heirs, executors, administrators,
successors and assigns of each of the parties.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) SECTION REFERENCES. Unless the context requires otherwise,
references in this Agreement to "Sections" are to Sections of this
Agreement.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
WHOLLY WITHIN THAT STATE.
(h) SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all the rights and privileges of
the Stockholders shall be enforceable to the fullest extent permitted by
law.
(i) ENTIRE AGREEMENT; TERMINATION. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter. This Agreement, except the
provisions of Section 12 (which shall survive until the expiration of the
applicable statutes of limitations) and this Section 13, shall terminate
and be of no further force or effect on December 31, 2010.
13
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TMI:TRIAD MEDICAL INC.
By:
William C. Klintworth, Jr.
Chief Executive Officer
STOCKHOLDERS:
____________________________________________
____________________________________________
____________________________________________
____________________________________________
____________________________________________
14
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EQUUS II INCORPORATED
By:________________________________________
Name:______________________________________
Title:_____________________________________
15
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PENMAN PRIVATE EQUITY AND
MEZZANINE FUND, L.P.
By:________________________________________
Name:______________________________________
Title:_____________________________________
16
EXHIBIT 10.1
TRIAD MEDICAL INC.
1997 INCENTIVE PLAN
EFFECTIVE SEPTEMBER 8, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. GENERAL PROVISIONS RELATING TO PLAN GOVERNANCE,
COVERAGE AND BENEFITS...................................1
1.1 Purpose........................................................1
1.2 Definitions....................................................2
(a) Appreciation............................................2
(b) Authorized Officer......................................2
(c) Board...................................................2
(d) Cause...................................................2
(e) Change in Control.......................................2
(f) Code....................................................2
(g) Committee...............................................3
(h) Common Stock............................................3
(i) Company.................................................3
(j) Consultant..............................................3
(k) Covered Employee........................................3
(l) Deferred Stock..........................................4
(m) Disability..............................................4
(n) Employee................................................4
(o) Employment..............................................4
(p) Exchange Act............................................5
(q) Fair Market Value.......................................5
(r) Grantee.................................................5
(s) Incentive Award.........................................5
(t) Incentive Agreement.....................................5
(u) Incentive Stock Option..................................5
(v) Independent SAR.........................................6
(w) Insider.................................................6
(x) IPO.....................................................6
(y) IPO Closing Date........................................6
(z) Nonstatutory Stock Option...............................6
(aa) Option Price............................................6
(bb) Other Stock-Based Award.................................6
(cc) Outside Director........................................6
(dd) Parent..................................................6
(ee) Performance-Based Exception.............................6
(ff) Performance Period......................................7
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(gg) Performance Share or Performance Unit...................7
(hh) Plan....................................................7
(ii) Restricted Stock........................................7
(jj) Restricted Stock Award..................................7
(kk) Restriction Period......................................7
(ll) Retirement..............................................7
(mm) Share...................................................7
(nn) Share Pool..............................................7
(oo) Spread..................................................7
(pp) Stock Appreciation Right or SAR.........................8
(qq) Stock Option or Option..................................8
(rr) Subsidiary..............................................8
(ss) Supplemental Payment....................................8
(tt) Tandem SAR..............................................8
1.3 Plan Administration............................................8
(a) Authority of the Committee..............................8
(b) Meetings................................................8
(c) Decisions Binding.......................................9
(d) Modification of Outstanding Incentive Awards............9
(e) Delegation of Authority.................................9
(f) Expenses of Committee...................................9
(g) Surrender of Previous Incentive Awards.................10
(h) Indemnification........................................10
1.4 Shares of Common Stock Available for Incentive Awards.........10
1.5 Share Pool Adjustments for Awards and Payouts.................11
1.6 Common Stock Available. .....................................12
1.7 Participation.................................................12
(a) Eligibility............................................12
(b) Incentive Stock Option Eligibility.....................13
1.8 Types of Incentive Awards.....................................13
SECTION 2. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS............13
2.1 Grant of Stock Options........................................13
2.2 Stock Option Terms............................................14
(a) Written Agreement......................................14
(b) Number of Shares.......................................14
(c) Exercise Price.........................................14
(d) Term...................................................14
(e) Exercise...............................................14
(f) Incentive Stock Options................................14
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2.3 Stock Option Exercises........................................15
(a) Method of Exercise and Payment.........................15
(b) Restrictions on Share Transferability..................16
(c) Notification with respect to Incentive Stock Options...16
(d) Proceeds of Option Exercise............................16
2.4 Stock Appreciation Rights in Tandem with
Nonstatutory Stock Options....................................16
(a) Grant..................................................16
(b) General Provisions.....................................16
(c) Exercise...............................................17
(d) Settlement.............................................17
2.5 Stock Appreciation Rights Independent of Nonstatutory
Stock Options.................................................17
(a) Grant..................................................17
(b) General Provisions.....................................17
(c) Exercise...............................................17
(d) Settlement.............................................18
2.6 Reload Options................................................18
2.7 Supplemental Payment on Exercise of Nonstatutory Stock
Options or Stock Appreciation Rights..........................18
SECTION 3. RESTRICTED STOCK.......................................19
3.1 Award of Restricted Stock.....................................19
(a) Grant..................................................19
(b) Immediate Transfer Without Immediate Delivery
of Restricted Stock....................................19
3.2 Restrictions..................................................20
(a) Forfeiture of Restricted Stock.........................20
(b) Issuance of Certificates...............................20
(c) Removal of Restrictions................................21
3.3 Delivery of Shares of Common Stock............................21
3.4 Supplemental Payment on Vesting of Restricted Stock...........21
SECTION 4. PERFORMANCE UNITS AND PERFORMANCE SHARES...............21
4.1 Performance Based Awards......................................21
(a) Grant..................................................21
(b) Performance Criteria...................................22
(c) Modification...........................................22
(d) Payment................................................22
(e) Special Rule for Covered Employees.....................22
4.2 Supplemental Payment on Vesting of Performance Units
or Performance Shares.........................................23
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SECTION 5. OTHER STOCK-BASED AWARDS...............................23
5.1 Grant of Other Stock-Based Awards.............................23
5.2 Other Stock-Based Award Terms.................................24
(a) Written Agreement......................................24
(b) Purchase Price.........................................24
(c) Performance Criteria and Other Terms...................24
(d) Payment................................................24
(e) Dividends..............................................24
SECTION 6. PROVISIONS RELATING TO PLAN PARTICIPATION..............25
6.1 Plan Conditions...............................................25
(a) Incentive Agreement....................................25
(b) No Right to Employment.................................25
(c) Securities Requirements................................25
6.2 Transferability...............................................26
(a) Non-Transferable Awards and Options....................26
(b) Ability to Exercise Rights.............................26
6.3 Rights as a Stockholder.......................................26
(a) No Stockholder Rights..................................26
(b) Representation of Ownership............................26
6.4 Listing and Registration of Shares of Common Stock............27
6.5 Change in Stock and Adjustments...............................27
(a) Changes in Law or Circumstances........................27
(b) Exercise of Corporate Powers...........................27
(c) Recapitalization of the Company........................28
(d) Reorganization of the Company..........................28
(e) Issue of Common Stock by the Company...................28
(f) Acquisition of the Company.............................29
(g) Assumption of Outstanding Incentive Awards
under the Plan.........................................29
(h) Assumption of Incentive Awards by a Successor..........30
6.6 Termination of Employment, Death, Disability and Retirement...30
(a) Termination of Employment..............................30
(b) Termination of Employment for Cause....................31
(c) Retirement.............................................31
(d) Disability or Death....................................31
(e) Continuation...........................................32
6.7 Change in Control.............................................32
6.8 Exchange of Incentive Awards..................................34
6.9 Financing.....................................................34
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SECTION 7. GENERAL................................................35
7.1 Funding and Liability of Company..............................35
7.2 Withholding Taxes.............................................35
(a) Tax Withholding........................................35
(b) Share Withholding......................................35
(c) Incentive Stock Options................................36
(d) Loans..................................................36
7.3 No Guarantee of Tax Consequences..............................36
7.4 Designation of Beneficiary by Participant.....................36
7.5 Deferrals.....................................................36
7.6 Amendment and Termination.....................................37
7.7 Requirements of Law...........................................37
7.8 Rule 16b-3 Securities Law Compliance..........................38
7.9 Compliance with Code Section 162(m)...........................38
7.10 Successors....................................................38
7.11 Miscellaneous Provisions......................................38
7.12 Severability..................................................39
7.13 Gender, Tense and Headings....................................39
7.14 Governing Law.................................................39
7.15 Effective Date................................................39
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TRIAD HEALTHCARE CORPORATION
1997 INCENTIVE PLAN
SECTION 1.
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of the Company and its Subsidiaries and to increase stockholder value
by: (a) encouraging the commitment of selected key Employees, Consultants and
Outside Directors, (b) motivating superior performance of key Employees,
Consultants and Outside Directors by means of long-term performance related
incentives, (c) encouraging and providing key Employees, Consultants and Outside
Directors with a program for obtaining ownership interests in the Company which
link and align their personal interests to those of the Company's stockholders,
(d) attracting and retaining key Employees, Consultants and Outside Directors by
providing competitive incentive compensation opportunities, and (e) enabling key
Employees, Consultants and Outside Directors to share in the long-term growth
and success of the Company.
The Plan provides for payment of various forms of incentive compensation
and, therefore, is not intended to be a plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA). The Plan shall be
interpreted, construed and administered consistent with its status as a plan
that is not subject to ERISA.
Subject to approval by the Company's stockholders pursuant to SECTION
7.15, the Plan shall become effective as of September 8, 1997 (the "EFFECTIVE
DATE"). The Plan shall remain in effect, subject to the right of the Board to
amend or terminate the Plan at any time pursuant to SECTION 7.13, until all
Shares subject to the Plan have been purchased or acquired according to its
provisions. However, in no event may an Incentive Award be granted under the
Plan after the expiration of ten (10) years from the Effective Date. Any
Incentive Award granted prior to the Effective Date will be subject to the
receipt of stockholder approval of the Plan.
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1.2 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) APPRECIATION. The difference between the option exercise
price per share of the Nonstatutory Stock Option to which a Tandem SAR
relates and the Fair Market Value of a share of Common Stock on the date
of exercise of the Tandem SAR.
(b) AUTHORIZED OFFICER. The Chairman of the Board or the Chief
Executive Officer of the Company or any other senior officer of the
Company to whom either of them delegate the authority to execute any
Incentive Agreement for and on behalf of the Company. No officer or
director shall be an Authorized Officer with respect to any Incentive
Agreement for himself.
(c) BOARD. The Board of Directors of the Company.
(d) CAUSE. When used in connection with the termination of a
Grantee's Employment, shall mean the termination of the Grantee's
Employment by the Company by reason of (i) the conviction of the Grantee
by a court of competent jurisdiction as to which no further appeal can
be taken of a crime involving moral turpitude or a felony; (ii) the
proven commission by the Grantee of an act of fraud upon the Company;
(iii) the willful and proven misappropriation of any funds or property
of the Company by the Grantee; (iv) the willful, continued and
unreasonable failure by the Grantee to perform the material duties
assigned to him; (v) the knowing engagement by the Grantee in any
direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then
in effect; (vi) the knowing engagement by the Grantee, without the
written approval of the Board, in any activity which competes with the
business of the Company or which would result in a material injury to
the business, reputation or goodwill of the Company; or (vii) the
knowing and intentional engagement in any activity which would
constitute a material violation of the provisions of the Company's
policies and procedures manual, if any, then in effect.
(e) CHANGE IN CONTROL. Any of the events described in and subject
to SECTION 6.7.
(f) CODE. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder by the
appropriate governmental authority. References herein to any provision
of the Code shall refer to any successor provision thereto.
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<PAGE>
(g) COMMITTEE. A committee appointed by the Board consisting of
not less than two directors who fulfill the "non-employee director"
requirements of Rule 16b-3 under the Exchange Act and the "outside
director" requirements of Section 162(m) of the Code. Without
limitation, the Committee may be the Compensation Committee of the
Board, or any subcommittee of the Compensation Committee, provided that
the members of the Committee satisfy the requirements of the previous
sentence. The Board shall have the power to fill vacancies on the
Committee arising by resignation, death, removal or otherwise. The
Board, in its sole discretion, may bifurcate the powers and duties of
the Committee among one or more separate committees, or retain all
powers and duties of the Committee in a single Committee. The members of
the Committee shall serve at the discretion of the Board.
Notwithstanding the preceding paragraph, the term "Committee" as
used in the Plan with respect to any Incentive Award for an Outside
Director shall refer to the Board. In the case an Incentive Award for an
Outside Director, the Board shall have all the powers and
responsibilities of the Committee hereunder as to such Incentive Award,
and any actions as to such Incentive Award may be acted upon only by the
Board (unless it otherwise designates in its discretion). When the Board
exercises its authority to act in the capacity as the Committee
hereunder with respect to an Incentive Award for an Outside Director, it
shall so designate with respect to any action that it undertakes in its
capacity as the Committee.
(h) COMMON STOCK. The common stock of the Company, $.001 par
value per share, and any class of common stock into which such common
shares may hereafter be converted, reclassified or recapitalized.
(i) COMPANY. TRIAD Medical Inc., a corporation organized under
the laws of the State of Delaware, and any successor in interest
thereto.
(j) CONSULTANT. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee, or any other individual
who is not an Outside Director or employee of the Company (or any Parent
or Subsidiary) and who, in the opinion of the Committee, is in a
position to contribute materially to the growth or financial success of
the Company (or any Parent or Subsidiary).
(k) COVERED EMPLOYEE. A named executive officer who is one of the
group of covered employees as defined in Section 162(m) of the Code and
Treasury Regulation ss. 1.162-27(c) (or its successor).
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(l) DEFERRED STOCK. Shares of Common Stock to be issued or
transferred to a Grantee under an Other Stock-Based Award granted
pursuant to SECTION 5 at the end of a specified deferral period, as set
forth in the Incentive Agreement pertaining thereto.
(m) DISABILITY. As determined by the Committee in its discretion
exercised in good faith, a physical or mental condition of the Employee
that would entitle him to payment of disability income payments under
the Company's long term disability insurance policy or plan for
employees, as then effective, if any; or in the event that the Grantee
is not covered, for whatever reason, under the Company's long-term
disability insurance policy or plan, "Disability" means a permanent and
total disability as defined in Section 22(e)(3) of the Code. A
determination of Disability may be made by a physician selected or
approved by the Committee and, in this respect, the Grantee shall submit
to an examination by such physician upon request.
(n) EMPLOYEE. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in
the opinion of the Committee, is one of a select group of executive
officers, other officers, or other key personnel of the Company (or any
Parent or Subsidiary), who is in a position to contribute materially to
the growth and development and to the financial success of the Company
(or any Parent or Subsidiary), including, without limitation, officers
who are members of the Board.
(o) EMPLOYMENT. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive
Award in any transaction described in Section 424(a) of the Code, or by
a parent corporation or a subsidiary corporation of such corporation
issuing or assuming such Incentive Award, as the parent-subsidiary
relationship shall be determined at the time of the corporate action
described in Section 424(a) of the Code. In this regard, neither the
transfer of a Grantee from Employment by the Company to Employment by
any Parent or Subsidiary, nor the transfer of a Grantee from Employment
by any Parent or Subsidiary to Employment by the Company, shall be
deemed to be a termination of Employment of the Grantee. Moreover, the
Employment of a Grantee shall not be deemed to have been terminated
because of absence from active Employment on account of temporary
illness or during authorized vacation or during temporary leaves of
absence from active Employment granted for reasons of professional
advancement, education, health, or government service, or during
military leave for any period (if the Grantee returns to active
Employment within 90 days after the termination of military leave), or
during any period required to be treated as a leave of absence by virtue
of any applicable statute, Company personnel policy or agreement.
Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan will also include compensatory
services performed by a
4
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Consultant for the Company (or any Parent or Subsidiary) as well as
membership on the Board by an Outside Director.
(p) EXCHANGE ACT. The Securities Exchange Act of 1934, as
amended.
(q) FAIR MARKET VALUE. The fair market value of one share of
Common Stock on the date in question, which is deemed to be (i) the
closing sales price on the immediately preceding business day of a share
of Common Stock as reported on the principal securities exchange on
which Shares are then listed or admitted to trading, or (ii) if not so
reported, the average of the closing bid and asked prices for a Share on
the immediately preceding business day as quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
or (iii) if not quoted on NASDAQ, the average of the closing bid and
asked prices for a Share as quoted by the National Quotation Bureau's
"Pink Sheets" or the National Association of Securities Dealers' OTC
Bulletin Board System. If there was no public trade of Common Stock on
the date in question, Fair Market Value shall be determined by reference
to the last preceding date on which such a trade was so reported.
If the Common Stock is not traded in accordance with clauses (i),
(ii) or (iii) of the preceding paragraph at the time a determination of
its Fair Market Value is required to be made hereunder, the
determination of Fair Market Value for purposes of the Plan shall be
made by the Committee in its discretion exercised in good faith. In this
respect, the Committee may rely on such financial data, valuations or
experts as it deems advisable under the circumstances.
(r) GRANTEE. Any Employee, Consultant or Outside Director who is
granted an Incentive Award under the Plan.
(s) INCENTIVE AWARD. A grant of an award under the Plan to a
Grantee, including any Nonstatutory Stock Option, Incentive Stock
Option, Reload Option, Stock Appreciation Right, Restricted Stock Award,
Performance Unit, Performance Share, or Other Stock-Based Award, as well
as any Supplemental Payment.
(t) INCENTIVE AGREEMENT. The written agreement entered into
between the Company and the Grantee setting forth the terms and
conditions pursuant to which an Incentive Award is granted under the
Plan, as such agreement is further defined in SECTION 6.1(A).
(u) INCENTIVE STOCK OPTION. A Stock Option granted by the
Committee to an Employee under SECTION 2 which is designated by the
Committee as an Incentive Stock
5
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Option and intended to qualify as an Incentive Stock Option under
Section 422 of the Code.
(v) INDEPENDENT SAR. A Stock Appreciation Right described in
SECTION 2.5.
(w) INSIDER. An individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of
the Company's equity securities that is registered pursuant to Section
12 of the Exchange Act, all as defined under Section 16 of the Exchange
Act.
(x) IPO. The first time a registration statement filed under the
Securities Act of 1933 and respecting an underwritten primary offering
by the Company of shares of Common Stock is declared effective under
that Act and the shares registered by that registration statement are
issued and sold by the Company (otherwise than pursuant to the exercise
of any over-allotment option).
(y) IPO CLOSING DATE. The date on which the Company signs the
underwriting agreement regarding the IPO.
(z) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
Committee to a Grantee under SECTION 2 which is not designated by the
Committee as an Incentive Stock Option.
(aa) OPTION PRICE. The exercise price at which a Share may be
purchased by the Grantee of a Stock Option.
(bb) OTHER STOCK-BASED AWARD. An award granted by the Committee
to a Grantee under SECTION 5.1 that is valued in whole or in part by
reference to, or is otherwise based upon, Common Stock.
(cc) OUTSIDE DIRECTOR. A member of the Board who is not, at the
time of grant of an Incentive Award, an employee of the Company or any
Parent or Subsidiary.
(dd) PARENT. Any corporation (whether now or hereafter existing)
which constitutes a "parent" of the Company, as defined in Section
424(e) of the Code.
(ee) PERFORMANCE-BASED EXCEPTION. The performance-based exception
from the tax deductibility limitations of Section 162(m) of the Code, as
prescribed in Code ss. 162(m) and Treasury Regulation ss. 1.162-27(e)
(or its successor).
6
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(ff) PERFORMANCE PERIOD. A period of time determined by the
Committee over which performance is measured for the purpose of
determining a Grantee's right to and the payment value of any
Performance Unit, Performance Share or Other Stock-Based Award.
(gg) PERFORMANCE SHARE OR PERFORMANCE UNIT. An Incentive Award
representing a contingent right to receive cash or shares of Common
Stock (which may be Restricted Stock) at the end of a Performance Period
and which, in the case of Performance Shares, is denominated in Common
Stock, and, in the case of Performance Units, is denominated in cash
values.
(hh) PLAN. The TRIAD Medical Inc. 1997 Incentive Plan as set
forth herein and as it may be amended from time to time.
(ii) RESTRICTED STOCK. Shares of Common Stock issued or
transferred to a Grantee pursuant to SECTION 3.
(jj) RESTRICTED STOCK AWARD. An authorization by the Committee to
issue or transfer Restricted Stock to a Grantee.
(kk) RESTRICTION PERIOD. The period of time determined by the
Committee and set forth in the Incentive Agreement during which the
transfer of Restricted Stock by the Grantee is restricted.
(ll) RETIREMENT. The voluntary termination of Employment from the
Company or any Parent or Subsidiary constituting retirement for age on
any date after the Employee attains the normal retirement age of 65
years, or such other age as may be designated by the Committee in the
Employee's Incentive Agreement..
(mm) SHARE. A share of the Common Stock of the Company.
(nn) SHARE POOL. The number of shares authorized for issuance
under SECTION 1.4, as adjusted for awards and payouts under SECTION 1.5
and as adjusted for changes in corporate capitalization under SECTION
6.5.
(oo) SPREAD. The difference between the exercise price per Share
specified in any Independent SAR grant and the Fair Market Value of a
Share on the date of exercise of the Independent SAR.
7
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(pp) STOCK APPRECIATION RIGHT OR SAR. A Tandem SAR described in
SECTION 2.4 or an Independent SAR described in SECTION 2.5.
(qq) STOCK OPTION OR OPTION. Pursuant to SECTION 2, (i) an
Incentive Stock Option granted to an Employee, or (ii) a Nonstatutory
Stock Option granted to an Employee, Consultant or Outside Director,
whereunder the Grantee has the right to purchase Shares of Common Stock.
In accordance with Section 422 of the Code, no Consultant or Outside
Director shall be granted an Incentive Stock Option.
(rr) SUBSIDIARY. Any corporation (whether now or hereafter
existing) which constitutes a "subsidiary" of the Company, as defined in
Section 424(f) of the Code.
(ss) SUPPLEMENTAL PAYMENT. Any amount, as described in SECTIONS
2.7, 3.5, 4.2 AND/OR 5.2, dedicated to payment of income taxes that are
payable by the Grantee on an Incentive Award.
(tt) TANDEM SAR. A Stock Appreciation Right that is granted in
connection with a related Stock Option pursuant to SECTION 2.4, the
exercise of which shall require forfeiture of the right to purchase a
Share under the related Stock Option (and when a Share is purchased
under the Stock Option, the Tandem SAR shall similarly be canceled).
1.3 PLAN ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. Except as may be limited by law
and subject to the provisions herein, the Committee shall have full
power to (i) select Grantees who shall participate in the Plan; (ii)
determine the sizes, duration and types of Incentive Awards; (iii)
determine the terms and conditions of Incentive Awards and Incentive
Agreements; (iv) determine whether any Shares subject to Incentive
Awards will be subject to any restrictions on transfer; (v) construe and
interpret the Plan and any Incentive Agreement or other agreement
entered into under the Plan; and (vi) establish, amend, or waive rules
for the Plan's administration. Further, the Committee shall make all
other determinations which may be necessary or advisable for the
administration of the Plan.
(b) MEETINGS. The Committee shall designate a chairman from among
its members who shall preside at all of its meetings, and shall
designate a secretary, without regard to whether that person is a member
of the Committee, who shall keep the minutes of the proceedings and all
records, documents, and data pertaining to its administration of the
Plan. Meetings shall be held at such times and places as shall be
determined by the Committee and the Committee may hold telephonic
meetings. The Committee may take any action otherwise proper under the
Plan by the affirmative vote, taken with or without
8
<PAGE>
a meeting, of a majority of its members. The Committee may authorize any
one or more of their members or any officer of the Company to execute
and deliver documents on behalf of the Committee.
(c) DECISIONS BINDING. All determinations and decisions made by
the Committee shall be made in its discretion pursuant to the provisions
of the Plan, and shall be final, conclusive and binding on all persons
including the Company, its shareholders, Employees, Grantees, and their
estates and beneficiaries. The Committee's decisions and determinations
with respect to any Incentive Award need not be uniform and may be made
selectively among Incentive Awards and Grantees, whether or not such
Incentive Awards are similar or such Grantees are similarly situated.
(d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to the
stockholder approval requirements of SECTION 7.7 if applicable, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award, eliminate or make less restrictive
any restrictions contained in an Incentive Award, waive any restriction
or other provisions of an Incentive Award, or otherwise amend or modify
an Incentive Award in any manner that is either (i) not adverse to the
Grantee to whom such Incentive Award was granted or (ii) consented to by
such Grantee. The Committee may grant an Incentive Award to an
individual who it expects to become an Employee within the next six
months, with such Incentive Award being subject to such individual
actually becoming an Employee within such time period, and subject to
such other terms and conditions as may be established by the Committee
in its discretion.
(e) DELEGATION OF AUTHORITY. The Committee may delegate to the
Chief Executive Officer and to other senior officers of the Company its
duties under this Plan pursuant to such conditions or limitations as the
Committee may establish from time to time, except that the Committee may
not delegate to any person the authority to grant Incentive Awards to,
or take other action with respect to, Grantees who are subject to
Section 16 of the Exchange Act or Section 162(m) of the Code.
(f) EXPENSES OF COMMITTEE. The Committee may employ legal
counsel, including, without limitation, independent legal counsel and
counsel regularly employed by the Company, and other agents as the
Committee may deem appropriate for the administration of the Plan. The
Committee may rely upon any opinion or computation received from any
such counsel or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including, without limitation,
meeting expenses and professional fees, shall be paid by the Company.
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(g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may, in
its absolute discretion, grant Incentive Awards to Grantees on the
condition that such Grantees surrender to the Committee for cancellation
such other Incentive Awards (including, without limitation, Incentive
Awards with higher exercise prices) as the Committee directs. Incentive
Awards granted on the condition precedent of surrender of outstanding
Incentive Awards shall not count against the limits set forth in SECTION
1.4 until such time as such previous Incentive Awards are surrendered
and cancelled.
(h) INDEMNIFICATION. Each person who is or was a member of the
Committee, or of the Board, shall be indemnified by the Company against
and from any damage, loss, liability, cost and expense that may be
imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may be
a party or in which he may be involved by reason of any action taken or
failure to act under the Plan, except for any such act or omission
constituting willful misconduct or gross negligence. Such person shall
be indemnified by the Company for all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of
any judgment in any such action, suit, or proceeding against him,
provided he shall give the Company an opportunity, at its own expense,
to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Articles of Incorporation or
Bylaws, as a matter of law, or otherwise, or any power that the Company
may have to indemnify them or hold them harmless.
1.4 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under SECTION 6.5, there shall be available for
Incentive Awards under this Plan granted wholly or partly in Common Stock
(including rights or Options that may be exercised for or settled in Common
Stock) an aggregate of the greater of (a) 1,130,000 Shares of Common Stock or
(b) 12.5% of the number of Shares of Common Stock issued and outstanding on the
last day of each calendar quarter. No more than 500,000 Shares shall be
available for grants of Incentive Awards to Outside Directors. No more than
1,130,000 Shares shall be available for grants of Incentive Stock Options to
Employees only.
The number of Shares of Common Stock that are the subject of Incentive
Awards under this Plan, that are forfeited or terminated, expire unexercised,
are settled in cash in lieu of Common Stock or in a manner such that all or some
of the Shares covered by an Incentive Award are not issued to a Grantee or are
exchanged for Incentive Awards that do not involve Common Stock, shall again
immediately become available for Incentive Awards hereunder. The Committee may
from time to time adopt and observe such procedures concerning the counting of
Shares
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against the Plan maximum as it may deem appropriate. The Board and the
appropriate officers of the Company shall from time to time take whatever
actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
Shares are available for issuance pursuant to Incentive Awards.
Unless and until the Committee determines that a particular Incentive
Award granted to a Covered Employee is not intended to comply with the
Performance-Based Exception, the following rules shall apply to grants of
Incentive Awards to Covered Employees:
(a) Subject to adjustment as provided in SECTION 6.5, the maximum
aggregate number of Shares of Common Stock (including Stock Options,
SARs, Restricted Stock, Performance Units and Performance Shares paid
out in Shares, or Other Stock-Based Awards paid out in Shares) that may
be granted or that may vest, as applicable, in any calendar year
pursuant to any Incentive Award held by any individual Covered Employee
shall be five hundred thousand (500,000) Shares.
(b) The maximum aggregate cash payout (including SARs,
Performance Units and Performance Shares paid out in cash, or Other
Stock-Based Awards paid out in cash) with respect to Incentive Awards
granted in any calendar year which may be made to any Covered Employee
shall be one million dollars ($1,000,000).
(c) With respect to any Stock Option or Stock Appreciation Right
granted to a Covered Employee that is canceled or repriced, the number
of Shares subject to such Stock Option or Stock Appreciation Right shall
continue to count against the maximum number of Shares that may be the
subject of Stock Options or Stock Appreciation Rights granted to such
Covered Employee hereunder and, in this regard, such maximum number
shall be determined in accordance with Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above shall
be construed and administered so as to comply with the Performance-Based
Exception.
1.5 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.
The following Incentive Awards and payouts shall reduce, on a one Share
for one Share basis, the number of Shares authorized for issuance under the
Share Pool:
(a) Stock Option;
(b) SAR (except a Tandem SAR);
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(c) Restricted Stock;
(d) A payout of a Performance Share in Shares;
(e) A payout of a Performance Unit in Shares; and
(f) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A Payout of an SAR, Tandem SAR, Restricted Stock Award, or
Other Stock-Based Award in the form of cash;
(b) A cancellation, termination, expiration, forfeiture, or lapse
for any reason (with the exception of the termination of a Tandem SAR
upon exercise of the related Stock Option, or the termination of a
related Stock Option upon exercise of the corresponding Tandem SAR) of
any Shares subject to an Incentive Award; and
(c) Payment of an Option Price with previously acquired Shares or
by withholding Shares which otherwise would be acquired on exercise
(i.e., the Share Pool shall be increased by the number of Shares turned
in or withheld as payment of the Option Price).
1.6 COMMON STOCK AVAILABLE.
The Common Stock available for issuance or transfer under the Plan shall
be made available from Shares now or hereafter (i) held in the treasury of the
Company, (ii) authorized but unissued shares, or (iii) shares to be purchased or
acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.
1.7 PARTICIPATION
(a) ELIGIBILITY. The Committee shall from time to time designate
those Employees, Consultants and/or Outside Directors, if any, to be
granted Incentive Awards under the Plan, the type of Incentive Awards
granted, the number of Shares, Stock Options, rights or units, as the
case may be, which shall be granted to each such person, and any other
terms or conditions relating to the Incentive Awards as it may deem
appropriate to the extent consistent with the provisions of the Plan. A
Grantee who has
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been granted an Incentive Award may, if otherwise eligible, be granted
additional Incentive Awards at any time.
(b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or Outside
Director shall be eligible for the grant of any Incentive Stock Option.
In addition, no Employee shall be eligible for the grant of any
Incentive Stock Option who owns or would own immediately before the
grant of such Incentive Stock Option, directly or indirectly, stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, or any Parent or
Subsidiary. This restriction does not apply if, at the time such
Incentive Stock Option is granted, the Incentive Stock Option exercise
price is at least one hundred and ten percent (110%) of the Fair Market
Value on the date of grant and the Incentive Stock Option by its terms
is not exercisable after the expiration of five (5) years from the date
of grant. For the purpose of the immediately preceding sentence, the
attribution rules of Section 424(d) of the Code shall apply for the
purpose of determining an Employee's percentage ownership in the Company
or any Parent or Subsidiary. This paragraph shall be construed
consistent with the requirements of Section 422 of the Code.
1.8 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options, Stock
Appreciation Rights and Supplemental Payments as described in SECTION 2,
Restricted Stock and Supplemental Payments as described in SECTION 3,
Performance Units, Performance Shares and Supplemental Payments as described in
SECTION 4, Other Stock-Based Awards and Supplemental Payments as described in
SECTION 5, or any combination of the foregoing.
SECTION 2.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant Stock Options to Employees,
Consultants and/or Outside Directors in accordance with the terms and conditions
of the Plan, and with such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall determine in its
discretion. Successive grants may be made to the same Grantee whether or not any
Stock Option previously granted to such person remains unexercised.
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2.2 STOCK OPTION TERMS
(a) WRITTEN AGREEMENT. Each grant of an Stock Option shall be
evidenced by a written Incentive Agreement. Among its other provisions,
each Incentive Agreement shall set forth the extent to which the Grantee
shall have the right to exercise the Stock Option following termination
of the Grantee's Employment. Such provisions shall be determined in the
discretion of the Committee, shall be included in the Grantee's
Incentive Agreement, need not be uniform among all Stock Options issued
pursuant to the Plan.
(b) NUMBER OF SHARES. Each Stock Option shall specify the number
of Shares of Common Stock to which it pertains.
(c) EXERCISE PRICE. The exercise price per Share of Common Stock
under each Stock Option shall be determined by the Committee; provided,
however, that in the case of an Incentive Stock Option, such exercise
price shall not be less than 100% of the Fair Market Value per Share on
the date the Incentive Stock Option is granted. To the extent that the
Stock Option is intended to qualify for the Performance-Based Exception,
the exercise price shall not be less than 100% of the Fair Market Value
per Share on the date the Stock Option is granted. Each Stock Option
shall specify the method of exercise which shall be consistent with the
requirements of SECTION 2.3(A).
(d) TERM. The Committee shall fix the term of each Stock Option
which shall be not more than ten (10) years from the date of grant. In
the event no term is fixed, such term shall be ten (10) years from the
date of grant.
(e) EXERCISE. The Committee shall determine the time or times at
which a Stock Option may be exercised in whole or in part. Each Stock
Option may specify the required period of continuous Employment and/or
the performance objectives to be achieved before the Stock Option or
portion thereof will become exercisable. Each Stock Option, the exercise
of which, or the timing of the exercise of which, is dependent, in whole
or in part, on the achievement of designated performance objectives, may
specify a minimum level of achievement in respect of the specified
performance objectives below which no Stock Options will be exercisable
and a method for determining the number of Stock Options that will be
exercisable if performance is at or above such minimum but short of full
achievement of the performance objectives. All such terms and conditions
shall be set forth in the Incentive Agreement.
(f) INCENTIVE STOCK OPTIONS. Notwithstanding any contrary
provision in the Plan, to the extent that the aggregate Fair Market
Value (determined as of the time the Incentive Stock Option is granted)
of the Shares of Common Stock with respect to which
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Incentive Stock Options are exercisable for the first time by any
Grantee during any single calendar year (under the Plan and any other
stock option plans of the Company and its Subsidiaries or Parent)
exceeds the sum of $100,000, such Incentive Stock Option shall be
treated as a Nonstatutory Stock Option, and not an Incentive Stock
Option, but all other terms and provisions of such Stock Option shall
remain unchanged. This paragraph shall be applied by taking Incentive
Stock Options into account in the order in which they are granted.
2.3 STOCK OPTION EXERCISES
(a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be
exercised by the delivery of a signed written notice of exercise to the
Company as of a date set by the Company in advance of the effective date
of the proposed exercise. The notice shall set forth the number of
Shares with respect to which the Option is to be exercised, accompanied
by full payment for the Shares.
The Option Price upon exercise of any Stock Option shall be
payable to the Company in full either: (i) in cash or its equivalent, or
(ii) subject to prior approval by the Committee, by tendering previously
acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which
are tendered by an Insider, if applicable, must have been held by the
Insider for at least six (6) months prior to their tender to satisfy the
Option Price), or (iii) subject to prior approval by the Committee, by
withholding Shares which otherwise would be acquired on exercise having
an aggregate Fair Market Value at the time of exercise equal to the
total Option Price, or (iv) subject to prior approval by the Committee,
by a combination of (i), (ii), and (iii) above. Any payment in Shares of
Common Stock shall be effected by the delivery of such Shares to the
Secretary of the Company, duly endorsed in blank or accompanied by stock
powers duly executed in blank, together with any other documents as the
Secretary shall require from time to time.
The Committee also may allow (i) "cashless exercise" as permitted
under Federal Reserve Board's Regulation T, 12 CFR Part 220 (or its
successor), and subject to applicable securities law restrictions and
tax withholdings, or (ii) by any other means which the Committee, in its
discretion, determines to be consistent with the Plan's purpose and
applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to or on behalf of
the Grantee, in the name of the Grantee or other appropriate recipient,
Share certificates for the number of Shares purchased under the Stock
Option. Such delivery shall be effected for all purposes when
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a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to Grantee or other
appropriate recipient.
During the lifetime of a Grantee, each Option granted to him
shall be exercisable only by the Grantee or a broker-dealer acting on
his behalf pursuant to a cashless exercise under the foregoing
provisions of this SECTION 2.3(A). No Option shall be assignable or
transferable by Grantee otherwise than by will or by the laws of descent
and distribution.
(b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the exercise
of a Stock Option as it may deem advisable, including, without
limitation, restrictions under (i) any buy/sell agreement or right of
first refusal, (ii) any applicable federal securities laws, (iii) the
requirements of any stock exchange or market upon which such Shares are
then listed and/or traded, or (iv) any blue sky or state securities law
applicable to such Shares.
(c) NOTIFICATION WITH RESPECT TO INCENTIVE STOCK OPTIONS.
Notwithstanding any other provision of the Plan, a Grantee who disposes
of Shares of Common Stock acquired upon the exercise of an Incentive
Stock Option by a sale or exchange either (i) within two (2) years after
the date of the grant of the Incentive Stock Option under which the
Shares were acquired or (ii) within one (1) year after the transfer of
such Shares to him pursuant to exercise, shall promptly notify the
Company of such disposition, the amount realized and his adjusted basis
in such Shares.
(d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
Company from the sale of Shares pursuant to Stock Options exercised
under the Plan shall be used for general corporate purposes.
2.4 STOCK APPRECIATION RIGHTS IN TANDEM WITH NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may, at the time of grant of a
Nonstatutory Stock Option, or at any time thereafter during the term of
the Nonstatutory Stock Option, grant Stock Appreciation Rights with
respect to all or any portion of the Shares of Common Stock covered by
such Nonstatutory Stock Option. A Stock Appreciation Right in tandem
with a Nonstatutory Stock Option is referred to herein as a "TANDEM
SAR."
(b) GENERAL PROVISIONS. The terms and conditions of each Tandem
SAR shall be evidenced by an Incentive Agreement. The Option Price per
Share of a Tandem SAR shall be fixed in the Incentive Agreement and
shall not be less than one hundred percent
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(100%) of the Fair Market Value of a Share on the grant date of the
Nonstatutory Stock Option to which it relates.
(c) EXERCISE. A Tandem SAR may be exercised at any time the
Nonstatutory Stock Option to which it relates is then exercisable, but
only to the extent such Nonstatutory Stock Option is exercisable, and
shall otherwise be subject to the conditions applicable to such
Nonstatutory Stock Option. When a Tandem SAR is exercised, the
Nonstatutory Stock Option to which it relates shall terminate to the
extent of the number of Shares with respect to which the Tandem SAR is
exercised. Similarly, when a Nonstatutory Stock Option is exercised, the
Tandem SARs relating to the Shares covered by such Nonstatutory Stock
Option exercise shall terminate. Any Tandem SAR which is outstanding on
the last day of the term of the related Nonstatutory Stock Option shall
be automatically exercised on such date for cash, without the need for
any action by the Grantee, to the extent of any Appreciation.
(d) SETTLEMENT. Upon exercise of a Tandem SAR, the holder shall
receive, for each Share with respect to which the Tandem SAR is
exercised, an amount equal to the Appreciation. The Appreciation shall
be payable in cash, Common Stock, or a combination of both, as specified
in the Incentive Agreement (or in the discretion of the Committee if not
so specified). The Appreciation shall be paid within 30 calendar days of
the exercise of the Tandem SAR. The number of Shares of Common Stock
which shall be issuable upon exercise of a Tandem SAR shall be
determined by dividing (1) by (2), where (1) is the number of Shares as
to which the Tandem SAR is exercised multiplied by the Appreciation in
such shares and (2) is the Fair Market Value of a Share on the exercise
date.
2.5 STOCK APPRECIATION RIGHTS INDEPENDENT OF NONSTATUTORY STOCK OPTIONS
(a) GRANT. The Committee may grant Stock Appreciation Rights
independent of Nonstatutory Stock Options ("INDEPENDENT SARS").
(b) GENERAL PROVISIONS. The terms and conditions of each
Independent SAR shall be evidenced by an Incentive Agreement. The
exercise price per share of Common Stock shall be not less than one
hundred percent (100%) of the Fair Market Value of a Share of Common
Stock on the date of grant of the Independent SAR. The term of an
Independent SAR shall be determined by the Committee.
(c) EXERCISE. Independent SARs shall be exercisable at such time
and subject to such terms and conditions as the Committee shall specify
in the Incentive Agreement for the Independent SAR grant.
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(d) SETTLEMENT. Upon exercise of an Independent SAR, the holder
shall receive, for each Share specified in the Independent SAR grant, an
amount equal to the Spread. The Spread shall be payable in cash, Common
Stock, or a combination of both, in the discretion of the Committee or
as specified in the Incentive Agreement. The Spread shall be paid within
30 calendar days of the exercise of the Independent SAR. The number of
Shares of Common Stock which shall be issuable upon exercise of an
Independent SAR shall be determined by dividing (1) by (2), where (1) is
the number of Shares as to which the Independent SAR is exercised
multiplied by the Spread in such Shares and (2) is the Fair Market Value
of a Share on the exercise date.
2.6 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options that permit the Grantee to
purchase an additional number of Shares equal to the number of previously owned
Shares surrendered by the Grantee to pay all or a portion of the Option Price
upon exercise of his Stock Options.
2.7 SUPPLEMENTAL PAYMENT ON EXERCISE OF NONSTATUTORY STOCK OPTIONS OR STOCK
APPRECIATION RIGHTS
The Committee, either at the time of grant or as of the time of exercise
of any Nonstatutory Stock Option or Stock Appreciation Right, may provide in the
Incentive Agreement for a Supplemental Payment by the Company to the Grantee
with respect to the exercise of any Nonstatutory Stock Option or Stock
Appreciation Right. The Supplemental Payment shall be in the amount specified by
the Committee, which amount shall not exceed the amount necessary to pay the
federal and state income tax payable with respect to both the exercise of the
Nonstatutory Stock Option and/or Stock Appreciation Right and the receipt of the
Supplemental Payment, assuming the holder is taxed at either the maximum
effective income tax rate applicable thereto or at a lower tax rate as deemed
appropriate by the Committee. The Committee shall have the discretion to grant
Supplemental Payments that are payable solely in cash or Supplemental Payments
that are payable in cash, Common Stock, or a combination of both, as determined
by the Committee at the time of payment.
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SECTION 3.
RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK
(a) GRANT. In consideration of the performance of Employment by
any Grantee who is an Employee, Consultant or Outside Director, Shares
of Restricted Stock may be awarded under the Plan by the Committee with
such restrictions during the Restriction Period as the Committee may
designate in its discretion, any of which restrictions may differ with
respect to each particular Grantee. Restricted Stock shall be awarded
for no additional consideration or such additional consideration as the
Committee may determine, which consideration may be less than, equal to
or more than the Fair Market Value of the shares of Restricted Stock on
the grant date. The terms and conditions of each grant of Restricted
Stock shall be evidenced by an Incentive Agreement.
(b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF RESTRICTED
STOCK. Unless otherwise specified in the Grantee's Incentive Agreement,
each Restricted Stock Award shall constitute an immediate transfer of
the record and beneficial ownership of the Shares of Restricted Stock to
the Grantee in consideration of the performance of services as an
Employee, Consultant or Outside Director, as applicable, entitling such
Grantee to all voting and other ownership rights in such Shares.
As specified in the Incentive Agreement, a Restricted Stock Award
may limit the Grantee's dividend rights during the Restriction Period in
which the shares of Restricted Stock are subject to a "substantial risk
of forfeiture" (within the meaning given to such term under Code Section
83) and restrictions on transfer. In the Incentive Agreement, the
Committee may apply any restrictions to the dividends that the Committee
deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Shares of Restricted Stock granted
to a Covered Employee is designed to comply with the requirements of the
Performance-Based Exception, the Committee may apply any restrictions it
deems appropriate to the payment of dividends declared with respect to
such Shares of Restricted Stock, such that the dividends and/or the
Shares of Restricted Stock maintain eligibility for the
Performance-Based Exception. In the event that any dividend constitutes
a derivative security or an equity security pursuant to the rules under
Section 16 of the Exchange Act, such dividend shall be subject to a
vesting period equal to the remaining vesting period of the Shares of
Restricted Stock with respect to which the dividend is paid.
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Shares awarded pursuant to a grant of Restricted Stock may be
issued in the name of the Grantee and held, together with a stock power
endorsed in blank, by the Committee or Company (or their delegates) or
in trust or in escrow pursuant to an agreement satisfactory to the
Committee, as determined by the Committee, until such time as the
restrictions on transfer have expired. All such terms and conditions
shall be set forth in the particular Grantee's Incentive Agreement. The
Company or Committee (or their delegates) shall issue to the Grantee a
receipt evidencing the certificates held by it which are registered in
the name of the Grantee.
3.2 RESTRICTIONS
(a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded to a
Grantee may be subject to the following restrictions until the
expiration of the Restriction Period: (i) a restriction that constitutes
a "substantial risk of forfeiture" (as defined in Code Section 83), or a
restriction on transferability; (ii) unless otherwise specified by the
Committee in the Incentive Agreement, the Restricted Stock that is
subject to restrictions which are not satisfied shall be forfeited and
all rights of the Grantee to such Shares shall terminate; and (iii) any
other restrictions that the Committee determines in advance are
appropriate, including, without limitation, rights of repurchase or
first refusal in the Company or provisions subjecting the Restricted
Stock to a continuing substantial risk of forfeiture in the hands of any
transferee. Any such restrictions shall be set forth in the particular
Grantee's Incentive Agreement.
(b) ISSUANCE OF CERTIFICATES. Reasonably promptly after the date
of grant with respect to Shares of Restricted Stock, the Company shall
cause to be issued a stock certificate, registered in the name of the
Grantee to whom such Shares of Restricted Stock were granted, evidencing
such Shares; provided, however, that the Company shall not cause to be
issued such a stock certificate unless it has received a stock power
duly endorsed in blank with respect to such Shares. Each such stock
certificate shall bear the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS,
TERMS AND CONDITIONS (INCLUDING FORFEITURE AND
RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE TRIAD
MEDICAL INC. 1997 INCENTIVE PLAN AND AN INCENTIVE
AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER OF
SUCH SHARES AND TRIAD MEDICAL INC. A COPY OF THE PLAN AND
INCENTIVE AGREEMENT ARE ON FILE IN THE OFFICE OF THE
SECRETARY OF TRIAD MEDICAL INC.
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Such legend shall not be removed from the certificate evidencing such
Shares of Restricted Stock until such Shares vest pursuant to the terms
of the Incentive Agreement.
(c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion,
shall have the authority to remove any or all of the restrictions on the
Restricted Stock if it determines that, by reason of a change in
applicable law or another change in circumstance arising after the grant
date of the Restricted Stock, such action is appropriate.
3.3 DELIVERY OF SHARES OF COMMON STOCK
Subject to withholding taxes under SECTION 7.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
been satisfied shall be delivered to the Grantee or other appropriate recipient
free of restrictions. Such delivery shall be effected for all purposes when the
Company shall have deposited such certificate in the United States mail,
addressed to the Grantee or other appropriate recipient.
3.4 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or vesting of Restricted
Stock, may provide for a Supplemental Payment by the Company to the holder in an
amount specified by the Committee, which amount shall not exceed the amount
necessary to pay the federal and state income tax payable with respect to both
the vesting of the Restricted Stock and receipt of the Supplemental Payment,
assuming the Grantee is taxed at either the maximum effective income tax rate
applicable thereto or at a lower tax rate as deemed appropriate by the
Committee. The Committee shall have the discretion to grant Supplemental
Payments that are payable solely in cash or Supplemental Payments that are
payable in cash, Common Stock, or a combination of both, as determined by the
Committee at the time of payment.
SECTION 4.
PERFORMANCE UNITS AND PERFORMANCE SHARES
4.1 PERFORMANCE BASED AWARDS
(a) GRANT. The Committee is authorized to grant Performance Units
and Performance Shares to selected Grantees who are Employees or
Consultants. Each grant of Performance Units and/or Performance Shares
shall be evidenced by an Incentive Agreement in such amounts and upon
such terms as shall be determined by the Committee.
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The Committee may make grants of Performance Units or Performance Shares
in such a manner that more than one Performance Period is in progress
concurrently. For each Performance Period, the Committee shall establish
the number of Performance Units or Performance Shares and their
contingent values which may vary depending on the degree to which
performance criteria established by the Committee are met.
(b) PERFORMANCE CRITERIA. At the beginning of each Performance
Period, the Committee shall (i) establish for such Performance Period
specific financial or non-financial performance objectives that the
Committee believes are relevant to the Company's business objectives;
(ii) determine the value of a Performance Unit or the number of Shares
under a Performance Share grant relative to performance objectives; and
(iii) notify each Grantee in writing of the established performance
objectives and, if applicable, the minimum, target, and maximum value of
Performance Units or Performance Shares for such Performance Period.
(c) MODIFICATION. If the Committee determines, in its discretion
exercised in good faith, that the established performance measures or
objectives are no longer suitable to the Company's objectives because of
a change in the Company's business, operations, corporate structure,
capital structure, or other conditions the Committee deems to be
appropriate, the Committee may modify the performance measures and
objectives to the extent it considers to be necessary. The Committee
shall determine whether any such modification would cause the
Performance Unit or Performance Share to fail to qualify for the
Performance-Based Exception.
(d) PAYMENT. The basis for payment of Performance Units or
Performance Shares for a given Performance Period shall be the
achievement of those performance objectives determined by the Committee
at the beginning of the Performance Period as specified in the Grantee's
Incentive Agreement. If minimum performance is not achieved for a
Performance Period, no payment shall be made and all contingent rights
shall cease. If minimum performance is achieved or exceeded, the value
of a Performance Unit or Performance Share may be based on the degree to
which actual performance exceeded the preestablished minimum performance
standards. The amount of payment shall be determined by multiplying the
number of Performance Units or Performance Shares granted at the
beginning of the Performance Period times the final Performance Unit or
Performance Share value. Payments shall be made, in the discretion of
the Committee as specified in the Incentive Agreement, solely in cash or
Common Stock, or a combination of cash and Common Stock, following the
close of the applicable Performance Period.
(e) SPECIAL RULE FOR COVERED EMPLOYEES. The Committee may
establish performance goals applicable to Performance Units or
Performance Shares awarded to
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Covered Employees in such a manner as shall permit payments with respect
thereto to qualify for the Performance-Based Exception. If a Performance
Unit or Performance Share granted to a Covered Employee is intended to
comply with the Performance-Based Exception, the Committee in
establishing performance goals shall be guided by Treasury Regulation
ss. 1.162-27(e)(2) (or its successor).
4.2 SUPPLEMENTAL PAYMENT ON VESTING OF PERFORMANCE UNITS OR PERFORMANCE
SHARES
The Committee, either at the time of grant or at the time of vesting of
Performance Units or Performance Shares, may provide for a Supplemental Payment
by the Company to the Grantee in an amount specified by the Committee, which
amount shall not exceed the amount necessary to pay the federal and state income
tax payable with respect to both the vesting of such Performance Units or
Performance Shares and receipt of the Supplemental Payment, assuming the Grantee
is taxed at either the maximum effective income tax rate applicable thereto or
at a lower tax rate as seemed appropriate by the Committee. The Committee shall
have the discretion to grant Supplemental Payments that are payable in cash,
Common Stock, or a combination of both, as determined by the Committee at the
time of payment.
SECTION 5.
OTHER STOCK-BASED AWARDS
5.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.
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5.2 OTHER STOCK-BASED AWARD TERMS
(a) WRITTEN AGREEMENT. The terms and conditions of each grant of
an Other Stock-Based Award shall be evidenced by an Incentive Agreement.
(b) PURCHASE PRICE. Except to the extent that an Other
Stock-Based Award is granted in substitution for an outstanding
Incentive Award or is delivered upon exercise of a Stock Option, the
amount of consideration required to be received by the Company shall be
either (i) no consideration other than services actually rendered (in
the case of authorized and unissued shares) or to be rendered, or (ii)
in the case of an Other Stock- Based Award in the nature of a purchase
right, consideration (other than services rendered or to be rendered) at
least equal to 50% of the Fair Market Value of the Shares covered by
such grant on the date of grant.
(c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion, the
Committee may specify such criteria, periods or goals for vesting in
Other Stock-Based Awards and payment thereof to the Grantee as it shall
determine; and the extent to which such criteria, periods or goals have
been met shall be determined by the Committee. All terms and conditions
of Other Stock-Based Awards shall be determined by the Committee and set
forth in the Incentive Agreement. The Committee may also provide for a
Supplemental Payment similar to such payment as described in SECTION
4.2.
(d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
Common Stock or other consideration related to such Shares, in a single
payment or in installments on such dates as determined by the Committee,
all as specified in the Incentive Agreement.
(e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall be
entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of Shares covered by the
Other Stock-Based Award, as determined by the Committee and set forth in
the Incentive Agreement. The Committee may also provide in the Incentive
Agreement that such amounts (if any) shall be deemed to have been
reinvested in additional Common Stock.
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SECTION 6.
PROVISIONS RELATING TO PLAN PARTICIPATION
6.1 PLAN CONDITIONS
(a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive Award
is granted shall be required to enter into an Incentive Agreement with
the Company, in such a form as is provided by the Committee. The
Incentive Agreement shall contain specific terms as determined by the
Committee, in its discretion, with respect to the Grantee's particular
Incentive Award. Such terms need not be uniform among all Grantees or
any similarly-situated Grantees. The Incentive Agreement may include,
without limitation, vesting, forfeiture and other provisions particular
to the particular Grantee's Incentive Award, as well as, for example,
provisions to the effect that the Grantee (i) shall not disclose any
confidential information acquired during Employment with the Company,
(ii) shall abide by all the terms and conditions of the Plan and such
other terms and conditions as may be imposed by the Committee, (iii)
shall not interfere with the employment or other service of any
employee, (iv) shall not compete with the Company or become involved in
a conflict of interest with the interests of the Company, (v) shall
forfeit an Incentive Award if terminated for Cause, (vi) shall not be
permitted to make an election under Section 83(b) of the Code when
applicable, and (vii) shall be subject to any other agreement between
the Grantee and the Company regarding Shares that may be acquired under
an Incentive Award including, without limitation, an agreement
restricting the transferability of Shares by Grantee. An Incentive
Agreement shall include such terms and conditions as are determined by
the Committee, in its discretion, to be appropriate with respect to any
individual Grantee. The Incentive Agreement shall be signed by the
Grantee to whom the Incentive Award is made and by an Authorized
Officer.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any instrument
executed pursuant to the Plan shall create any Employment rights
(including without limitation, rights to continued Employment) in any
Grantee or affect the right of the Company to terminate the Employment
of any Grantee at any time without regard to the existence of the Plan.
(c) SECURITIES REQUIREMENTS. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of
1933 of any Shares of Common Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything herein
to the contrary, the Company shall not be obligated to cause to be
issued or delivered any certificates evidencing Shares pursuant to the
Plan unless and until the Company is advised by its counsel that the
issuance and delivery of
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such certificates is in compliance with all applicable laws, regulations
of governmental authorities, and the requirements of any securities
exchange on which Shares are traded. The Committee may require, as a
condition of the issuance and delivery of certificates evidencing Shares
of Common Stock pursuant to the terms hereof, that the recipient of such
Shares make such covenants, agreements and representations, and that
such certificates bear such legends, as the Committee, in its
discretion, deems necessary or desirable.
6.2 TRANSFERABILITY
(a) NON-TRANSFERABLE AWARDS AND OPTIONS. No Incentive Award and
no right under the Plan, contingent or otherwise, will be (i)
assignable, saleable, or otherwise transferable by a Grantee except by
will or by the laws of descent and distribution, or (ii) subject to any
encumbrance, pledge, lien, assignment or charge of any nature.
No transfer by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Committee has been
furnished with a copy of the deceased Grantee's enforceable will or such
other evidence as the Committee deems necessary to establish the
validity of the transfer. Any attempted transfer in violation of this
SECTION 6.2(A) shall be void and ineffective.
(b) ABILITY TO EXERCISE RIGHTS. Subject to a beneficiary
designation pursuant to SECTION 7.5, only the Grantee (or his legal
guardian in the event of Grantee's Disability), or in the event of his
death, his estate, may exercise Stock Options, receive cash payments and
deliveries of Shares, and otherwise assume the rights of the Grantee.
6.3 RIGHTS AS A STOCKHOLDER
(a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in
SECTION 3.1(B) for grants of Restricted Stock, a Grantee of an Incentive
Award (or a permitted transferee of such Grantee) shall have no rights
as a stockholder with respect to any Shares of Common Stock until the
issuance of a stock certificate for such Shares.
(b) REPRESENTATION OF OWNERSHIP. In the case of the exercise of
an Incentive Award by a person or estate acquiring the right to exercise
such Incentive Award by reason of the death or Disability of a Grantee,
the Committee may require reasonable evidence as to the ownership of
such Incentive Award or the authority of such person and may require
such consents and releases of taxing authorities as the Committee may
deem advisable.
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6.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares of Common Stock are
traded. The Committee may, in its discretion, defer the effectiveness of any
exercise of an Incentive Award in order to allow the issuance of Shares of
Common Stock to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Committee shall inform the Grantee in writing of its
decision to defer the effectiveness of the exercise of an Incentive Award.
During the period that the effectiveness of the exercise of an Incentive Award
has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
6.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to SECTION 6.7
(which only applies in the event of a Change in Control), in the event
of any change in applicable laws or any change in circumstances which
results in or would result in any dilution of the rights granted under
the Plan, or which otherwise warrants equitable adjustment because it
interferes with the intended operation of the Plan, then, if the
Committee should determine, in its absolute discretion, that such change
equitably requires an adjustment in the number or kind of shares of
stock or other securities or property theretofore subject, or which may
become subject, to issuance or transfer under the Plan or in the terms
and conditions of outstanding Incentive Awards, such adjustment shall be
made in accordance with such determination. Such adjustments may include
changes with respect to (i) the aggregate number of Shares that may be
issued under the Plan, (ii) the number of Shares subject to Incentive
Awards, and (iii) the price per Share for outstanding Incentive Awards.
Any adjustment under this paragraph of an outstanding Incentive Stock
Option shall be made only to the extent not constituting a
"modification" within the meaning of Section 424(h)(3) of the Code
unless otherwise agreed to by the Grantee in writing. The Committee
shall give notice to each applicable Grantee of such adjustment which
shall be effective and binding.
(b) EXERCISE OF CORPORATE POWERS. The existence of the Plan or
outstanding Incentive Awards hereunder shall not affect in any way the
right or power of the Company or its stockholders to make or authorize
any or all adjustments, recapitalization, reorganization or other
changes in the Company's capital structure or its business or any merger
or consolidation of the Company, or any issue of bonds, debentures,
preferred or
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prior preference stocks ahead of or affecting the Common Stock or the
rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding whether of a similar character or
otherwise.
(c) RECAPITALIZATION OF THE COMPANY. Subject to SECTION 6.7, if
while there are Incentive Awards outstanding, the Company shall effect
any subdivision or consolidation of Shares of Common Stock or other
capital readjustment, the payment of a stock dividend, stock split,
combination of Shares, recapitalization or other increase or reduction
in the number of Shares outstanding, without receiving compensation
therefor in money, services or property, then the number of Shares
available under the Plan and the number of Incentive Awards which may
thereafter be exercised shall (i) in the event of an increase in the
number of Shares outstanding, be proportionately increased and the Fair
Market Value of the Incentive Awards awarded shall be proportionately
reduced; and (ii) in the event of a reduction in the number of Shares
outstanding, be proportionately reduced, and the Fair Market Value of
the Incentive Awards awarded shall be proportionately increased. The
Committee shall take such action and whatever other action it deems
appropriate, in its discretion, so that the value of each outstanding
Incentive Award to the Grantee shall not be adversely affected by a
corporate event described in this subsection (c).
(d) REORGANIZATION OF THE COMPANY. Subject to SECTION 6.7, if the
Company is reorganized, merged or consolidated, or is a party to a plan
of exchange with another corporation, pursuant to which reorganization,
merger, consolidation or exchange, stockholders of the Company receive
any Shares of Common Stock or other securities or property, or if the
Company should distribute securities of another corporation to its
stockholders, each Grantee shall be entitled to receive, in lieu of the
number of unexercised Incentive Awards previously awarded, the number of
Stock Options, Stock Appreciation Rights, Performance Shares or Units,
Restricted Stock shares, or Other Stock-Based Awards, with a
corresponding adjustment to the Fair Market Value of said Incentive
Awards, to which he would have been entitled if, immediately prior to
such corporate action, such Grantee had been the holder of record of a
number of Shares equal to the number of the outstanding Incentive Awards
payable in Shares that were previously awarded to him. For this purpose,
Shares of Restricted Stock shall be treated the same as unrestricted
outstanding Shares of Common Stock. In this regard, the Committee shall
take whatever other action it deems appropriate to preserve the rights
of Grantees holding outstanding Incentive Awards.
(e) ISSUE OF COMMON STOCK BY THE COMPANY. Except as hereinabove
expressly provided in this SECTION 6.5 and subject to SECTION 6.7, the
issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash
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or property, or for labor or services, either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon any
conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of, or Fair
Market Value of, any Incentive Awards then outstanding under previously
granted Incentive Awards; provided, however, in such event, outstanding
Shares of Restricted Stock shall be treated the same as outstanding
unrestricted Shares of Common Stock.
(f) ACQUISITION OF THE COMPANY. Subject to SECTION 6.7, in the
case of any sale of assets, merger, consolidation or combination of the
Company with or into another corporation other than a transaction in
which the Company is the continuing or surviving corporation and which
does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), in the absolute discretion of
the Committee, any Grantee who holds an outstanding Incentive Award
shall have the right (subject to any limitation applicable to the
Incentive Award) thereafter and during the term of the Incentive Award,
to receive upon exercise thereof the Acquisition Consideration (as
defined below) receivable upon the Acquisition by a holder of the number
of Shares which would have been obtained upon exercise of the Incentive
Award immediately prior to the Acquisition. The term "Acquisition
Consideration" shall mean the kind and amount of shares of the surviving
or new corporation, cash, securities, evidence of indebtedness, other
property or any combination thereof receivable in respect of one Share
upon consummation of an Acquisition. The Committee, in its discretion,
shall have the authority to take whatever action it deems appropriate to
effectuate the provisions of this subsection (f).
(g) ASSUMPTION OF OUTSTANDING INCENTIVE AWARDS UNDER THE PLAN.
Notwithstanding any other provision of the Plan, the Committee, in its
absolute discretion, may authorize the assumption and continuation under
the Plan of outstanding and unexercised stock options or other types of
stock-based incentive awards that were granted under a stock option plan
(or other type of stock incentive plan or agreement) that is or was
maintained by a corporation or other entity that was merged into,
consolidated with, or whose stock or assets were acquired by, the
Company as the surviving corporation. Any such action shall be upon such
terms and conditions as the Committee, in its discretion, may deem
appropriate, including provisions to preserve the holder's rights under
the previously granted and unexercised stock option or other stock-based
incentive award, such as, for example, retaining an existing exercise
price under an outstanding stock option. Any such assumption and
continuation of any such previously granted and unexercised incentive
award shall be treated as an outstanding Incentive Award under the Plan
and shall thus count against the number of Shares reserved for issuance
pursuant to SECTION 1.4. With respect to an incentive stock option (as
described in Section 422 of the
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Code) subject to this subsection (g), no adjustment to such option shall
be made to the extent constituting a "modification" within the meaning
of Section 424(h)(3) of the Code unless otherwise agreed to by the
optionee in writing.
(h) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. In the event
of a dissolution or liquidation of the Company, a sale of all or
substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving
corporation, or a merger or consolidation involving the Company in which
the Company is the surviving corporation but the holders of Shares of
Common Stock receive securities of another corporation and/or other
property, including cash, the Committee shall, in its absolute
discretion, have the right and power to:
(i) cancel, effective immediately prior to the occurrence
of such corporate event, each outstanding Incentive Award
(whether or not then exercisable), and, in full consideration of
such cancellation, pay to the Grantee to whom such Incentive
Award was granted an amount in cash equal to the excess of (A)
the value, as determined by the Committee, in its absolute
discretion, of the property (including cash) received by the
holder of a Share of Common Stock as a result of such event over
(B) the exercise price of such Incentive Award, if any; or
(ii) provide for the exchange of each Incentive Award
outstanding immediately prior to such corporate event (whether or
not then exercisable) for an incentive award on some or all of
the property for which such Incentive Award is exchanged and,
incident thereto, make an equitable adjustment as determined by
the Committee, in its absolute discretion, in the exercise price
of the incentive award, if any, or the number of shares or amount
of property (including cash) subject to the incentive award or,
if appropriate, provide for a cash payment to the Grantee to whom
such Incentive Award was granted in consideration for the
exchange of the Incentive Award.
The Committee, in its discretion, shall have the authority to take
whatever action it deems appropriate to effectuate the provisions of
this subsection (h).
6.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, if the Grantee's
Employment is terminated for any reason other than due to his death,
Disability, Retirement or for Cause, any non-vested portion of any Stock
Option or other applicable Incentive Award at the time of such
termination
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shall automatically expire and terminate and no further vesting shall
occur. In such event, except as otherwise expressly provided in his
Incentive Agreement, the Grantee shall be entitled to exercise his
rights only with respect to the portion of the Incentive Award that was
vested as of the termination date for a period that shall end on the
earlier of (i) the expiration date set forth in the Incentive Agreement
with respect to the vested portion of such Incentive Award or (ii) the
date that occurs sixty (60) calendar days after his termination date.
(b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise
expressly provided in the Grantee's Incentive Agreement, in the event of
the termination of a Grantee's Employment for Cause, all vested and
non-vested Stock Options and other Incentive Awards granted to such
Grantee shall expire, and shall not be exercisable, as of the
commencement of business on the date of such termination.
(c) RETIREMENT. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon the Retirement of any Employee who
is a Grantee:
(i) any non-vested portion of any outstanding Option or
other Incentive Award shall immediately terminate and no further
vesting shall occur; and
(ii) any vested Option or other Incentive Award shall
expire on the earlier of (A) the expiration date set forth in the
Incentive Agreement for such Incentive Award; or (B) the
expiration of (1) six months after the date of Retirement in the
case of any Incentive Award other than an Incentive Stock Option,
or (2) three months after the date of Retirement in the case of
an Incentive Stock Option.
(d) DISABILITY OR DEATH. Unless otherwise expressly provided in
the Grantee's Incentive Agreement, upon termination of Employment as a
result of the Grantee's Disability or death:
(i) any nonvested portion of any outstanding Option or
other applicable Incentive Award shall immediately terminate upon
termination of Employment, as applicable, and no further vesting
shall occur; and
(ii) any vested Incentive Award shall expire upon the
earlier of either (A) the expiration date set forth in the
Incentive Agreement or (B) the first anniversary of the Grantee's
termination of Employment, as applicable, as a result of his
Disability or death.
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In the case of any vested Incentive Stock Option held by an
Employee following termination of Employment, notwithstanding the
definition of "Disability" in SECTION 1.2, whether the Employee has
incurred a "Disability" for purposes of determining the length of the
Option exercise period following termination of Employment under this
paragraph (d) shall be determined by reference to Section 22(e)(3) of
the Code to the extent required by Section 422(c)(6) of the Code. The
Committee shall determine whether a Disability for purposes of this
paragraph (d) has occurred.
(e) CONTINUATION. Subject to the conditions and limitations of
the Plan and applicable law and regulation in the event that a Grantee
ceases to be an Employee, Outside Director or Consultant, as applicable,
for whatever reason, the Committee and Grantee may mutually agree with
respect to any outstanding Option or other Incentive Award then held by
the Grantee (i) for an acceleration or other adjustment in any vesting
schedule applicable to the Incentive Award, (ii) for a continuation of
the exercise period following termination for a longer period than is
otherwise provided under such Incentive Award, or (iii) to any other
change in the terms and conditions of the Incentive Award. In the event
of any such change to an outstanding Inventive Award, a written
amendment to the Grantee's Incentive Agreement shall be required.
6.7 CHANGE IN CONTROL
Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below), the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
expressly provided otherwise in the Grantee's Incentive Agreement:
(a) all of the Stock Options and Stock Appreciation Rights then
outstanding shall become 100% vested and immediately and fully
exercisable;
(b) all of the restrictions and conditions of any Restricted
Stock and any Other Stock-Based Awards then outstanding shall be deemed
satisfied, and the Restriction Period with respect thereto shall be
deemed to have expired; and
(c) all of the Performance Shares, Performance Units and any
Other Stock- Based Awards shall become fully vested, deemed earned in
full, and promptly paid within thirty (30) days to the affected Grantees
without regard to payment schedules and notwithstanding that the
applicable performance cycle, retention cycle or other restrictions and
conditions have not been completed or satisfied.
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Notwithstanding any other provision of this Plan, unless expressly
provided otherwise in the Grantee's Incentive Agreement, the provisions of this
SECTION 6.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Awards subject,
however, to the last paragraph of this SECTION 6.7.
For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company
shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "PERSON")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the total
voting power of all the Company's then outstanding securities entitled
to vote generally in the election of directors to the Board; provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any
acquisition by the Company or its Parent or Subsidiaries, (ii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or its Parent or Subsidiaries, or (iii) any
acquisition consummated with the prior approval of the Board.
(b) During the period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board,
and any new director(s) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds of the directors then still in office, who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute a majority of the Board; or
(c) The Company becomes a party to a merger, plan of
reorganization, consolidation or share exchange in which either (i) the
Company will not be the surviving corporation or (ii) the Company will
be the surviving corporation and any outstanding shares of the Company's
common stock will be converted into shares of any other company (other
than a reincorporation or the establishment of a holding company
involving no change of ownership of the Company) or other securities,
cash or other property (excluding payments made solely for fractional
shares); or
(d) The shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other
corporation, and immediately following such merger, plan of
reorganization, consolidation or share exchange the holders of the
voting securities of the Company outstanding immediately prior thereto
hold securities representing fifty percent (50%) or less of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such
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merger, plan of reorganization, consolidation or share exchange;
PROVIDED, HOWEVER, that notwithstanding the foregoing, no Change in
Control shall be deemed to have occurred if one-half (1/2) or more of
the members of the Board of the Company or such surviving entity
immediately after such merger, plan of reorganization, consolidation or
share exchange is comprised of persons who served as directors of the
Company immediately prior to such merger, plan of reorganization,
consolidation or share exchange or who are otherwise designees of the
Company; or
(e) Upon approval by the Company's stockholders of a complete
liquidation and dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company
other than to a Parent or Subsidiary; or
(f) Any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change in Control.
Notwithstanding the occurrence of any of the foregoing events of this
SECTION 6.7 which would otherwise result in a Change in Control, the Board may
determine in its discretion, if it deems it to be in the best interest of the
Company, that an event or events otherwise constituting a Change in Control
shall not be considered a Change in Control. Such determination shall be
effective only if it is made by the Board prior to the occurrence of an event
that otherwise would be or probably would lead to a Change in Control; or after
such event if made by the Board a majority of which is composed of directors who
were members of the Board immediately prior to the event that otherwise would be
or probably would lead to a Change in Control.
6.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.
6.9 FINANCING
The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.
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SECTION 7.
GENERAL
7.1 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company,
the Board nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
7.2 WITHHOLDING TAXES
(a) TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Grantee to remit to the
Company, an amount sufficient to satisfy federal, state, and local
taxes, domestic or foreign, required by law or regulation to be withheld
with respect to any taxable event arising as a result of the Plan or an
Incentive Award hereunder.
(b) SHARE WITHHOLDING. With respect to tax withholding required
upon the exercise of Stock Options or SARs, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event
arising as a result of any Incentive Awards, Grantees may elect, subject
to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares
having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the
transaction. All such elections shall be made in writing, signed by the
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Grantee, and shall be subject to any restrictions or limitations that
the Committee, in its discretion, deems appropriate.
(c) INCENTIVE STOCK OPTIONS. With respect to Shares received by a
Grantee pursuant to the exercise of an Incentive Stock Option, if such
Grantee disposes of any such Shares within (i) two years from the date
of grant of such Option or (ii) one year after the transfer of such
shares to the Grantee, the Company shall have the right to withhold from
any salary, wages or other compensation payable by the Company to the
Grantee an amount sufficient to satisfy federal, state and local tax
withholding requirements attributable to such disqualifying disposition.
(d) LOANS. The Committee may provide for loans, on either a short
term or demand basis, from the Company to a Grantee who is an Employee
or Consultant to permit the payment of taxes required by law.
7.3 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
7.4 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Grantee in writing with
the Committee during the Grantee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee's death shall be paid to
the Grantee's estate.
7.5 DEFERRALS
The Committee may permit a Grantee to defer such Grantee's receipt of
the payment of cash or the delivery of Shares that would, otherwise be due to
such Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance Units, Performance Shares or Other Stock-Based Awards. If any
such deferral election is permitted, the Committee shall, in its discretion,
establish rules and procedures for such payment deferrals to the extent
consistent with the Code.
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7.6 AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate or amend
the Plan at any time; provided, however, that the Board shall not, without the
approval of the stockholders of the Company within the time period required by
applicable law, (a) except as provided in SECTION 6.5, increase the maximum
number of Shares which may be issued under the Plan pursuant to SECTION 1.4, (b)
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan, (c) increase the maximum limits on Incentive Awards to
Covered Employees as set for compliance with the Performance-Based Exception,
(d) extend the term of the Plan, or (e) decrease the authority granted to the
Committee under the Plan in contravention of Rule 16b-3 under the Exchange Act.
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
or (b) the Code (or regulations promulgated thereunder), require stockholder
approval in order to maintain compliance with such listing requirements or to
maintain any favorable tax advantages or qualifications, then the Plan shall not
be amended in such respect without approval of the Company's stockholders.
7.7 REQUIREMENTS OF LAW
The granting of Incentive Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required. Certificates evidencing shares of Common Stock delivered under
this Plan (to the extent that such shares are so evidenced) may be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules and regulations of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
the Common Stock is then listed or to which it is admitted for quotation, and
any applicable federal or state securities law. The Committee may cause a legend
or legends to be placed upon such certificates (if any) to make appropriate
reference to such restrictions.
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7.8 RULE 16B-3 SECURITIES LAW COMPLIANCE
With respect to Insiders, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 under the Exchange Act. Any
ambiguities or inconsistencies in the construction of an Incentive Award or the
Plan shall be interpreted to give effect to such intention. However, to the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void to the extent permitted by law and deemed
advisable by the Committee in its discretion.
7.9 COMPLIANCE WITH CODE SECTION 162(M)
Unless otherwise determined by the Committee with respect to any
particular Incentive Award, it is extended that the Plan comply fully with and
meet all the requirements of Section 162(m) of the Code so that any applicable
types of Incentive Awards that are granted to Covered Employees shall qualify
for the Performance-Based Exception. If any provision of the Plan or an
Incentive Agreement would disqualify the Plan or would not otherwise permit the
Plan or Incentive Award to comply with the Performance-Based Exception as so
intended, such provision shall be construed or deemed amended to conform to the
requirements of the Performance-Based Exception to the extent permitted by
applicable law and deemed advisable by the Committee; provided that no such
construction or amendment shall have an adverse effect on the prior grant of an
Incentive Award or the economic value to a Grantee of any outstanding Incentive
Award.
7.10 SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
7.11 MISCELLANEOUS PROVISIONS
(a) No Employee, Consultant, Outside Director, or other person
shall have any claim or right to be granted an Incentive Award under the
Plan. Neither the Plan, nor any action taken hereunder, shall be
construed as giving any Employee, Consultant, or Outside Director any
right to be retained in the Employment or other service of the Company
or any Parent or Subsidiary.
(b) No Shares of Common Stock shall be issued hereunder unless
counsel for the Company is then reasonably satisfied that such issuance
will be in compliance with federal and state securities laws, if
applicable.
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(c) The expenses of the Plan shall be borne by the Company.
(d) By accepting any Incentive Award, each Grantee and each
person claiming by or through him shall be deemed to have indicated his
acceptance of the Plan.
7.12 SEVERABILITY
In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.
7.13 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings as used herein are inserted solely
for convenience and reference and constitute no part of the interpretation or
construction of the Plan.
7.14 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance
with the laws of the State of Delaware, except as superseded by applicable the
laws of the United States.
7.15 EFFECTIVE DATE
The Plan was adopted by the Board and approved by the requisite number
of stockholders of the Company effective as of September 8, 1997 (the "EFFECTIVE
DATE"). No Incentive Award may be granted under the Plan after September 7,
2007. Notwithstanding anything herein to the contrary, this Plan shall only be
effective upon the IPO Closing Date.
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IN WITNESS WHEREOF, TRIAD Medical Inc. has caused this Plan to be duly
executed in its name and on its behalf by its duly authorized officer, to be
effective as of September 8, 1997.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
Name: William C. Klintworth, Jr.,
Title: Chief Executive Officer
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND WILLIAM C. KLINTWORTH, JR.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and William C. Klintworth, Jr., an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, various
acquisitions subsidiaries which are wholly owned subsidiaries of the Company
(the "Merger Subsidiaries"), and various medical product and service companies
(the "Acquired Companies"), and the stockholders of the Acquired Companies, are
entering into Agreements and Plans of Reorganization (the "Acquisition
Agreements"), under which the Acquired Companies will merge with the Merger
Subsidiaries in a merger (the "Merger") of which the Acquired Companies will be
the surviving corporations and as a result of which the Acquired Companies will
become wholly owned subsidiaries of the Company;
WHEREAS, the Executive serves as a director, officer and/or employee of
the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ
the Executive as Chief Executive Officer of the Company for the duration of the
Employment Term (as hereinafter defined in Section 2 below), to render such
services and to perform such duties as are customarily attendant to such
position or management responsibility to which the Executive is assigned, as
well as such other duties, which are not inconsistent with such position or
management responsibility, as shall from time to time reasonably be requested by
the Board of Directors of the Company (the "Board of Directors") or the officers
of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
United States, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from the United
States.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees
that all prior agreements and contracts, whether written or oral, relating to
the employment of the Executive by the (i) Company, or any of its subsidiaries
and affiliates or (ii) any of the Acquired Companies, shall be terminated
effective as of the commencement of the Employment Term. However, nothing in
this Section 1.4 shall (i) affect accrued vacation, holiday or sick pay accruals
(but only to the extent such accruals were reflected in the Company's or
Acquired Companies financial statements), or (ii) require the Company to cease
to make available to the Executive, and, subject to his meeting all applicable
eligibility requirements, the Executive shall be entitled to continue to be
covered under, all group health, medical and dental insurance policies, plans
and programs maintained by the Company for its employees generally, or (iii)
impair or adversely affect any indemnification rights that Executive may have
under statutes empowering corporations in the Company's or any Acquired Comany's
state of incorporation to indemnify their officers and directors, or under the
Company's or any Acquired Company's bylaws or any written indemnification
agreement between the Executive and the Company or any Acquired Company
implementing such statutory indemnification rights, but only with respect to
third party claims or proceedings that relate to actions taken by Executive as
an officer or director of the Company or any Acquired Company prior to the date
hereof and are disclosed in the Disclosure Statement to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Company or its Stockholders under the Acquisition Agreement.
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2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $150,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive
shall be permitted, during the Employment Term, if and to the extent eligible,
to participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the
Executive office facilities, furniture, fixtures and equipment, secretarial and
support personnel and other management level support services as the Executive
shall reasonably request in connection with his performance of his obligations
under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may
incur reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
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relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with
the use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at is option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose. Such Company furnished automobile or
such allowance shall be comparable to the automobile or allowance that was taken
into account in determining the Merger Consideration that is to be paid by the
Company to the Acquired Company's stockholders pursuant to the Acquisition
Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other
managerial capacity or as an owner, co-owner or other investor or
creditor in or of, or as an employee, independent contractor,
consultant or advisor, or as a sales or manufacturer's representative
or distributor of any kind, in any business selling any products or
providing any services which are sold or offered by the Company, or
have previously been sold or offered by the Company, or any of its then
current or prior vendors or suppliers, on the date the Executive's
employment is terminated, or (B) call on any person or entity, whose
offices are located within the Territory, that at the time is, or at
any time within one year prior to the date of termination of the
Executive's employment was, a customer of the Company, if the Executive
has knowledge of that customer relationship, PROVIDED, HOWEVER, that
nothing in this Section 4.1.1 shall prohibit the Executive from owning,
directly or indirectly, solely as an investment, securities of any
entity traded on any national securities exchange or over-the-counter
market if the Executive is not a controlling person of, or a member of
a group which controls, such entity and does not, directly or
indirectly, own five percent or more of any class of securities of such
entity. As used in this Section 4, the term "Territory"
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<PAGE>
shall mean a radius of 100 miles around the principal office at which
the Executive is employed on the Commencement Date. As used in this
Section 4, the term "Restricted Period" means the period beginning on
the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for
Cause under Section 5.2 or (b) the Executive's voluntary
resignation, the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability
under Section 5.4, the latest to occur of (a) expiration of
the Severance Benefit Period (as defined in Section 5.5) or
(b) the third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of
(a) the fourth (4th) anniversary of the Commencement Date if
he is not eligible for severance benefits under Section 5.5 or
(b) the expiration of the Severance Benefit Period if the
Executive is eligible for severance benefits under Section
5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL
RELATIONSHIPS. During the Restricted Period and thereafter, the
Executive shall keep secret and retain in strict confidence, and shall
not use for the benefit of himself or others, all confidential matters
of the Company, including, without limitation, "know-how," trade
secrets, customer lists, details of client or consultant contracts,
pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans,
new personnel acquisition plans, methods of production and
distribution, technical processes, designs and design projects,
inventions and research projects of the Company learned by the
Executive heretofore or during the Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
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4.1.5 CONSULTANTS OF THE COMPANY. During the
Restricted Period and thereafter for as long as the Executive shall
remain an employee of or consultant to the Company, the Executive shall
not, directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate
such relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not call
on any Acquisition Candidate (as defined below in this Section 4.1.6),
with the knowledge of such Acquisition Candidate's status as such, for
the purpose of acquiring, or arranging the acquisition of, that
Acquisition Candidate by any person or entity other than the Company.
In this Section 4.1.6 "Acquisition Candidate" means any person or
entity engaged in any of the businesses of distributing medical or
healthcare products to hospitals, clinics, physicians, laboratories,
pharmacies, alternate care sites or other medical or healthcare
facilities or conceiving, designing, developing or testing
technologically advanced medical or healthcare products, and (i) which
was called on by the Company, in connection with the possible
acquisition by the Company of that person or entity, or (ii) with
respect to which the Company has made an acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches
or threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to
have the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such
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court shall have the power to reduce the duration or scope of such provision, as
the case may be, and, in its reduced form, such provision shall then be
enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after notice thereof, and which shall include, without limitation,
the willful and continued failure or refusal by Executive to perform the
material duties for which he is employed or which are assigned to him hereunder
or chronic absenteeism; (ii) the Executive has knowingly, willfully and
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendere" to any felony or other serious crime, or
has been convicted or has pleaded "nolo contendere" to a crime involving, or the
Company, or any subsidiary or affiliate thereof is held liable for monetary
damages by a court of competent jurisdiction as a result of the commission by
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Executive of, an act of moral turpitude; or (v) the Executive's alcoholism or
drug addiction, unless Executive agrees to seek treatment from a treatment
program approved by the Company and promptly commences and completes the
program. The determination on behalf of the Company as to whether "cause" exists
shall be made by a majority vote of the Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by the Board of Directors of the Company, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to
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the coverage that is generally available to management personnel from the
Company. If at any time during or after the Employment Term, the Executive's
employment by the Company is terminated by the Executive's death, the Company
will use all commercially reasonable efforts to make available, or to cause to
be made available, to the Executive's dependents, at their expense, health,
medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
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(ii) if to the Executive, to:
W.C. Klintworth, Jr.
2078 Prospector Avenue
Park City, Utah 84060
Telecopy No.: (801) 645-9893
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth
in Section 4.5 hereof, shall be governed by, and construed in accordance with,
the laws of the State of Delaware, without reference to principles governing
choice or conflicts of law.
8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
TRIAD MEDICAL INC.
By: /s/ LANCE RUUD
Lance Ruud, Chief Financial Officer
EXECUTIVE:
/s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND CLYDE BLANKENSHIP, JR.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Clyde Blankenship, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, HTD Acquisition,
Inc., a wholly owned subsidiary of the Company (the "Merger Subsidiary"),
Healthcare Technology Delivery, Inc., a Delaware corporation (the "Acquired
Company"), and the stockholders of the Acquired Company, are entering into an
Agreement and Plan of Reorganization (the "Acquisition Agreement"), under which
the Acquired Company will merge with the Merger Subsidiary in a merger (the
"Merger") of which the Acquired Company will be the surviving corporation and as
a result of which the Acquired Company will become a wholly owned subsidiary of
the Company;
WHEREAS, the Executive is a stockholder and/or serves as a director,
officer and/or employee of the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as a full-time management employee of the Company in a position of
sales and/or operational management responsibility and authority, for the
duration of the Employment Term (as hereinafter defined in Section 2 below), to
render such services and to perform such duties as are customarily attendant to
the position of management responsibility to which the Executive is assigned, as
well as such other duties, which are not inconsistent with the Executive's
status as a management employee of the Company, as shall from time to time
reasonably be requested by the Board of Directors of the Company (the "Board of
Directors") or the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Greater Birmingham Metropolitan Area, and nothing in this Agreement shall
require the Executive to relocate his base of employment or principal place of
residence from the Greater Birmingham Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Acquired Company, or any of its subsidiaries
and affiliates, shall be terminated effective as of the commencement of the
Employment Term. However, nothing in this Section 1.4 shall (i) affect accrued
vacation, holiday or sick pay accruals (but only to the extent such accruals
were reflected in the Acquired Company's financial statements), or (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Acquired Company for
its employees generally, in each case until replacement coverage is provided by
the Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third party claims or
proceedings that relate to actions taken by Executive as an officer or director
of the Acquired Company prior
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to the date hereof and are disclosed in the Disclosure Statement to the
Acquisition Agreement or, if asserted or brought for the first time after the
date hereof, would not constitute a breach of the representations or warranties
of the Acquired Company or its Stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $150,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are
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incurred by the Executive in accordance with the Company's business expense
reimbursement policy, if any, as may be established and modified by the Company
from time to time, and (ii) the Executive provides to the Company a record of
and appropriate receipts for (A) the amount of the expense, (B) the date, place
and nature of the expense, (C) the business reason for the expense and (D) the
names, occupations and other data concerning individuals entertained sufficient
to establish their business relationship to the Company. The Company shall have
no obligation to reimburse the Executive for expenses that are not incurred and
substantiated as required by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at is option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose. Such Company furnished automobile or
such allowance shall be comparable to the automobile or allowance that was taken
into account in determining the Merger Consideration that is to be paid by the
Company to the Acquired Company's stockholders pursuant to the Acquisition
Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on
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any person or entity, whose offices are located within the Territory,
that at the time is, or at any time within one year prior to the date of
termination of the Executive's employment was, a customer of the
Company, if the Executive has knowledge of that customer relationship,
PROVIDED, HOWEVER, that nothing in this Section 4.1.1 shall prohibit the
Executive from owning, directly or indirectly, solely as an investment,
securities of any entity traded on any national securities exchange or
over-the-counter market if the Executive is not a controlling person of,
or a member of a group which controls, such entity and does not,
directly or indirectly, own five percent or more of any class of
securities of such entity. As used in this Section 4, the term
"Territory" shall mean a radius of 100 miles around the principal office
at which the Executive is employed on the Commencement Date. As used in
this Section 4, the term "Restricted Period" means the period beginning
on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company,
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other than purely personal matters, are and shall be the Company's
property and shall be delivered to the Company promptly upon the
termination of the Executive's employment (whether such termination is
for Cause, as hereinafter defined, or otherwise) or at any other time on
request of the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
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4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the
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Executive for Cause. If such right is exercised, the Company's obligation to the
Executive shall be limited to the payment of any unpaid Annual Salary,
Additional Compensation and other benefits, if any, accrued up to the effective
date specified in the Company's notice of termination (which date shall not be
retroactive). As used in this Section 5.2 and elsewhere in this Agreement, the
term "Cause" shall mean that (i) there shall have been a material breach by
Executive of the terms of this Agreement which either is not susceptible of cure
or which is not cured within a period of ten (10) days after notice thereof, and
which shall include, without limitation, the willful and continued failure or
refusal by Executive to perform the material duties for which he is employed or
which are assigned to him hereunder or chronic absenteeism; (ii) the Executive
has knowingly, willfully and persistently failed or refused to follow the
reasonable policies and directives established by the Board of Directors or
executive officers of the Company senior to the Executive; (iii) the Executive
has wrongfully misappropriated money or other assets or properties of the
Company or any subsidiary or affiliate of the Company, or has committed fraud;
(iv) the Executive has been convicted of or plead "nolo contendere" to any
felony or other serious crime, or has been convicted or has pleaded "nolo
contendere" to a crime involving, or the Company, or any subsidiary or affiliate
thereof is held liable for monetary damages by a court of competent jurisdiction
as a result of the commission by Executive of, an act of moral turpitude; or (v)
the Executive's alcoholism or drug addiction, unless Executive agrees to seek
treatment from a treatment program approved by the Company and promptly
commences and completes the program. The determination on behalf of the Company
as to whether "cause" exists shall be made by a majority vote of the Company's
Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports, PROVIDED
THAT if such officer is not R. Tucker Coop, in his capacity as President of the
Company, then such termination shall require the concurrence of either: (a) R.
Tucker Coop, as president of the Company, or, (b) if R. Tucker Coop is no longer
the President of the Company, the Board of Directors, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by
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written notice to the Executive, terminate the Executive's employment hereunder.
If such right is exercised, the Company's obligation to the Executive shall be
as set forth in Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable efforts to make available, or
to cause to be made available, to the Executive's dependents, at their expense,
health, medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate
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of Incorporation, as amended through the date of this Agreement and Section 8 of
Article X of the Company's bylaws as in effect at the date of this Agreement.
The Company shall not cause or permit any rescission of, or amendment to or
modification of, Article X of its Certificate of Incorporation or Section 8 of
Article X of its bylaws after the date hereof to materially reduce, limit or
restrict the indemnification rights of the Executive thereunder, except to the
extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
(ii) if to the Executive, to:
Clyde A. Blankenship, Jr.
5911 Greenwood Parkway
Bessemer, AL 35023
Telecopy No.: (205)481-8182
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified,
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superseded, canceled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Alabama, without reference to principles governing choice
or conflicts of law.
8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.
Chief Executive Officer
EXECUTIVE:
/s/ CLYDE BLANKENSHIP, JR.
Clyde Blankenship, Jr.
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND LANCE C. RUUD
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Lance C. Ruud, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, various
acquisitions subsidiaries which are wholly owned subsidiaries of the Company
(the "Merger Subsidiaries"), and various medical product and service companies
(the "Acquired Companies"), and the stockholders of the Acquired Companies, are
entering into Agreements and Plans of Reorganization (the "Acquisition
Agreements"), under which the Acquired Companies will merge with the Merger
Subsidiaries in a merger (the "Merger") of which the Acquired Companies will be
the surviving corporations and as a result of which the Acquired Companies will
become wholly owned subsidiaries of the Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired
Companies, and the Company, as a condition to its entering into the Acquisition
Agreement and consummating the Merger, is requiring that the Executive agree to
the provisions of this Agreement which restrict the Executive from competing
with the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Senior Vice President, Corporate Finance and Development of the
Company for the duration of the Employment Term (as hereinafter defined in
Section 2 below), to render such services and to
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perform such duties as are customarily attendant to such position or management
responsibility to which the Executive is assigned, as well as such other duties,
which are not inconsistent with such position or management responsibility, as
shall from time to time reasonably be requested by the Board of Directors of the
Company (the "Board of Directors") or the officers of the Company senior to the
Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
United States, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from the United
States.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreements (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $145,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
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3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at is option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the the Company
will give him, trade secrets of, and confidential information concerning, the
Company; (v) the agreements and covenants contained in this Section 4
(collectively, the "Restrictive Covenants") are essential to protect the
Business and the goodwill of the Company; (vi) he has means to support himself
and his dependents other than by engaging in the Business in violation of the
Restrictive Covenants and (vii) the Restrictive Covenants will not impair such
ability. Accordingly, the Executive agrees as follows:
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4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own five percent or more of
any class of securities of such entity. As used in this Section 4, the
term "Territory" shall mean a radius of 100 miles around the principal
office at which the Executive is employed on the Commencement Date. As
used in this Section 4, the term "Restricted Period" means the period
beginning on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes,
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designs and design projects, inventions and research projects of the
Company learned by the Executive heretofore or during the Restricted
Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that
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any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not
provide an adequate remedy to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms,
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to terminate the Executive's employment under this Agreement and discharge the
Executive for Cause. If such right is exercised, the Company's obligation to the
Executive shall be limited to the payment of any unpaid Annual Salary,
Additional Compensation and other benefits, if any, accrued up to the effective
date specified in the Company's notice of termination (which date shall not be
retroactive). As used in this Section 5.2 and elsewhere in this Agreement, the
term "Cause" shall mean that (i) there shall have been a material breach by
Executive of the terms of this Agreement which either is not susceptible of cure
or which is not cured within a period of ten (10) days after notice thereof, and
which shall include, without limitation, the willful and continued failure or
refusal by Executive to perform the material duties for which he is employed or
which are assigned to him hereunder or chronic absenteeism; (ii) the Executive
has knowingly, willfully and persistently failed or refused to follow the
reasonable policies and directives established by the Board of Directors or
executive officers of the Company senior to the Executive; (iii) the Executive
has wrongfully misappropriated money or other assets or properties of the
Company or any subsidiary or affiliate of the Company, or has committed fraud;
(iv) the Executive has been convicted of or plead "nolo contendere" to any
felony or other serious crime, or has been convicted or has pleaded "nolo
contendere" to a crime involving, or the Company, or any subsidiary or affiliate
thereof is held liable for monetary damages by a court of competent jurisdiction
as a result of the commission by Executive of, an act of moral turpitude; or (v)
the Executive's alcoholism or drug addiction, unless Executive agrees to seek
treatment from a treatment program approved by the Company and promptly
commences and completes the program. The determination on behalf of the Company
as to whether "cause" exists shall be made by a majority vote of the Company's
Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) William C. Klintworth, in his capacity as Chief Eexecutive
Officer of the Company, or (ii) the officer of the Company to whom the Executive
directly reports, PROVIDED THAT if such officer is not William C. Klintworth, in
his capacity as Chief Executive Officer of the Company, then such termination
shall require the concurrence of either: (a) William C. Klintworth, as Chief
Executive Officer of the Company, or, (b) if William C. Klintworth is no longer
the Chief executive Officer of the Company, the Board of Directors, shall have
the right, exercisable by serving notice effective in accordance with its terms,
to terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
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5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable efforts to make available, or
to cause to be made available, to the Executive's dependents, at their expense,
health, medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
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8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
(ii) if to the Executive, to:
Lance Ruud
2078 Prospector Avenue
Park City, Utah 84060
Telecopy No.: (801) 645-9893
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without reference to principles governing choice
or conflicts of law.
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8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ LANCE C. RUUD
Lance C. Ruud
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND R. TUCKER COOP
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and R. Tucker Coop, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, various
acquisitions subsidiaries which are wholly owned subsidiaries of the Company
(the "Merger Subsidiaries"), and various medical product and service companies
(the "Acquired Companies"), and the stockholders of the Acquired Companies, are
entering into Agreements and Plans of Reorganization (the "Acquisition
Agreements"), under which the Acquired Companies will merge with the Merger
Subsidiaries in a merger (the "Merger") of which the Acquired Companies will be
the surviving corporations and as a result of which the Acquired Companies will
become wholly owned subsidiaries of the Company;
WHEREAS, the Executive serves as a director, officer and/or employee of
the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as President of the Company for the duration of the Employment Term
(as hereinafter defined in Section 2 below), to render such services and to
perform such duties as are customarily attendant to such position or management
responsibility to which the Executive is assigned, as well as such other duties,
which are not inconsistent with such position or management responsibility, as
shall from time to time reasonably be requested by the Board of Directors of the
Company (the "Board of Directors") or the officers of the Company senior to the
Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
United States, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from the United
States.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all prior agreements and contracts, whether written or oral, relating to the
employment of the Executive by the (i) Company, or any of its subsidiaries and
affiliates or (ii) any of the Acquired Companies, shall be terminated effective
as of the commencement of the Employment Term. However, nothing in this Section
1.4 shall (i) affect accrued vacation, holiday or sick pay accruals (but only to
the extent such accruals were reflected in the Company's or Acquired Companies
financial statements), or (ii) require the Company to cease to make available to
the Executive, and, subject to his meeting all applicable eligibility
requirements, the Executive shall be entitled to continue to be covered under,
all group health, medical and dental insurance policies, plans and programs
maintained by the Company for its employees generally, or (iii) impair or
adversely affect any indemnification rights that Executive may have under
statutes empowering corporations in the Company's or any Acquired Comany's state
of incorporation to indemnify their officers and directors, or under the
Company's or any Acquired Company's bylaws or any written indemnification
agreement between the Executive and the Company or any Acquired Company
implementing such statutory indemnification rights, but only with respect to
third party claims or proceedings that relate to actions taken by Executive as
an officer or director of the Company or any Acquired Company prior to the date
hereof and are disclosed in the Disclosure Statement to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Company or its Stockholders under the Acquisition Agreement.
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2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $176,400 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
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relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at is option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose. Such Company furnished automobile or
such allowance shall be comparable to the automobile or allowance that was taken
into account in determining the Merger Consideration that is to be paid by the
Company to the Acquired Company's stockholders pursuant to the Acquisition
Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own five percent or more of
any class of securities of such entity. As used in this Section 4, the
term "Territory"
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<PAGE>
shall mean a radius of 100 miles around the principal office at which
the Executive is employed on the Commencement Date. As used in this
Section 4, the term "Restricted Period" means the period beginning on
the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
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4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such
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court shall have the power to reduce the duration or scope of such provision, as
the case may be, and, in its reduced form, such provision shall then be
enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after notice thereof, and which shall include, without limitation,
the willful and continued failure or refusal by Executive to perform the
material duties for which he is employed or which are assigned to him hereunder
or chronic absenteeism; (ii) the Executive has knowingly, willfully and
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendere" to any felony or other serious crime, or
has been convicted or has pleaded "nolo contendere" to a crime involving, or the
Company, or any subsidiary or affiliate thereof is held liable for monetary
damages by a court of competent jurisdiction as a result of the commission by
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Executive of, an act of moral turpitude; or (v) the Executive's alcoholism or
drug addiction, unless Executive agrees to seek treatment from a treatment
program approved by the Company and promptly commences and completes the
program. The determination on behalf of the Company as to whether "cause" exists
shall be made by a majority vote of the Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports, PROVIDED
THAT if such officer is not R. Tucker Coop, in his capacity as President of the
Company, then such termination shall require the concurrence of either: (a) R.
Tucker Coop, as president of the Company, or, (b) if R. Tucker Coop is no longer
the President of the Company, the Board of Directors, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
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the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable efforts to make available, or
to cause to be made available, to the Executive's dependents, at their expense,
health, medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
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(ii) if to the Executive, to:
R. Tucker Coop
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714)770-0727
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without reference to principles governing choice
or conflicts of law.
8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ R. TUCKER COOP
R. Tucker Coop
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND WALTER D. WALLACH
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Walter D. Wallach, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, various
acquisitions subsidiaries which are wholly owned subsidiaries of the Company
(the "Merger Subsidiaries"), and various medical product and service companies
(the "Acquired Companies"), and the stockholders of the Acquired Companies, are
entering into Agreements and Plans of Reorganization (the "Acquisition
Agreements"), under which the Acquired Companies will merge with the Merger
Subsidiaries in a merger (the "Merger") of which the Acquired Companies will be
the surviving corporations and as a result of which the Acquired Companies will
become wholly owned subsidiaries of the Company;
WHEREAS, the Executive is a stockholder and/or serves as a director,
officer and/or employee of the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Senior Vice President and Chief Financial Officer of the Company
for the duration of the Employment Term (as hereinafter defined in Section 2
below), to render such services and to perform such duties as are customarily
attendant to such position or management responsibility to which the Executive
is assigned, as well as such other duties, which are not inconsistent with such
position or management responsibility, as shall from time to time reasonably be
requested by the Board of Directors of the Company (the "Board of Directors") or
the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
United States, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from the United
States.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all prior agreements and contracts, whether written or oral, relating to the
employment of the Executive by the (i) Company, or any of its subsidiaries and
affiliates or (ii) any of the Acquired Companies, shall be terminated effective
as of the commencement of the Employment Term. However, nothing in this Section
1.4 shall (i) affect accrued vacation, holiday or sick pay accruals (but only to
the extent such accruals were reflected in the Company's or Acquired Companies
financial statements), or (ii) require the Company to cease to make available to
the Executive, and, subject to his meeting all applicable eligibility
requirements, the Executive shall be entitled to continue to be covered under,
all group health, medical and dental insurance policies, plans and programs
maintained by the Company for its employees generally, or (iii) impair or
adversely affect any indemnification rights that Executive may have under
statutes empowering corporations in the Company's or any Acquired Comany's state
of incorporation to indemnify their officers and directors, or under the
Company's or any Acquired Company's bylaws or any written indemnification
agreement between the Executive and the Company or any Acquired Company
implementing such statutory indemnification rights, but only with respect to
third party claims or proceedings that relate to actions taken by Executive as
an officer or director of the Company or any Acquired Company prior to the date
hereof and are disclosed in the Disclosure Statement to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Company or its Stockholders under the Acquisition Agreement.
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2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $145,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
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relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at is option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose. Such Company furnished automobile or
such allowance shall be comparable to the automobile or allowance that was taken
into account in determining the Merger Consideration that is to be paid by the
Company to the Acquired Company's stockholders pursuant to the Acquisition
Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own five percent or more of
any class of securities of such entity. As used in this Section 4, the
term "Territory"
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<PAGE>
shall mean a radius of 100 miles around the principal office at which
the Executive is employed on the Commencement Date. As used in this
Section 4, the term "Restricted Period" means the period beginning on
the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
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4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such
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court shall have the power to reduce the duration or scope of such provision, as
the case may be, and, in its reduced form, such provision shall then be
enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after notice thereof, and which shall include, without limitation,
the willful and continued failure or refusal by Executive to perform the
material duties for which he is employed or which are assigned to him hereunder
or chronic absenteeism; (ii) the Executive has knowingly, willfully and
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendere" to any felony or other serious crime, or
has been convicted or has pleaded "nolo contendere" to a crime involving, or the
Company, or any subsidiary or affiliate thereof is held liable for monetary
damages by a court of competent jurisdiction as a result of the commission by
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Executive of, an act of moral turpitude; or (v) the Executive's alcoholism or
drug addiction, unless Executive agrees to seek treatment from a treatment
program approved by the Company and promptly commences and completes the
program. The determination on behalf of the Company as to whether "cause" exists
shall be made by a majority vote of the Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports, PROVIDED
THAT if such officer is not R. Tucker Coop, in his capacity as President of the
Company, then such termination shall require the concurrence of either: (a) R.
Tucker Coop, as president of the Company, or, (b) if R. Tucker Coop is no longer
the President of the Company, the Board of Directors, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
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the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable efforts to make available, or
to cause to be made available, to the Executive's dependents, at their expense,
health, medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
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(ii) if to the Executive, to:
Walter D. Wallach
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714)770-0727
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without reference to principles governing choice
or conflicts of law.
8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ WALTER D. WALLACH
Walter D. Wallach
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND MARVIN L. MARKS
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Marvin L. Marks, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, MegaTech
Acquisition, Inc., a wholly owned subsidiary of the Company (the "Merger
Subsidiary"), MegaTech Medical, Inc., a Maryland corporation (the "Acquired
Company"), and the stockholders of the Acquired Company, are entering into an
Agreement and Plan of Reorganization (the "Acquisition Agreement"), under which
the Acquired Company will merge with the Merger Subsidiary in a merger (the
"Merger") of which the Acquired Company will be the surviving corporation and as
a result of which the Acquired Company will become a wholly owned subsidiary of
the Company;
WHEREAS, the Executive is a stockholder and/or serves as a director,
officer and/or employee of the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as a full-time management employee of the Company in a position of
sales and/or operational management responsibility and authority, for the
duration of the Employment Term (as hereinafter defined in Section 2 below), to
render such services and to perform such duties as are customarily attendant to
the position of management responsibility to which the Executive is assigned, as
well as such other duties, which are not inconsistent with the Executive's
status as a management employee of the Company, as shall from time to time
reasonably be requested by the Board of Directors of the Company (the "Board of
Directors") or the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Greater Baltimore Metropolitan Area, and nothing in this Agreement shall require
the Executive to relocate his base of employment or principal place of residence
from the Greater Baltimore Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Acquired Company, or any of its subsidiaries
and affiliates, shall be terminated effective as of the commencement of the
Employment Term. However, nothing in this Section 1.4 shall (i) affect accrued
vacation, holiday or sick pay accruals (but only to the extent such accruals
were reflected in the Acquired Company's financial statements), or (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Acquired Company for
its employees generally, in each case until replacement coverage is provided by
the Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third party claims or
proceedings that relate to actions taken by Executive as an officer or director
of the Acquired Company prior to the date hereof and are disclosed in the
Disclosure Statement to the Acquisition Agreement or, if asserted or brought for
the
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first time after the date hereof, would not constitute a breach of the
representations or warranties of the Acquired Company or its Stockholders under
the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $85,000 per annum. The Executive shall also be
eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date,
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place and nature of the expense, (C) the business reason for the expense and (D)
the names, occupations and other data concerning individuals entertained
sufficient to establish their business relationship to the Company. The Company
shall have no obligation to reimburse the Executive for expenses that are not
incurred and substantiated as required by this Section 3.4.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own five percent or more of
any class of securities of such entity. As used in this Section 4, the
term "Territory" shall mean a radius of 100 miles around the principal
office at which the Executive is employed on the Commencement Date. As
used in this Section 4, the term "Restricted Period" means the period
beginning on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
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(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the
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Executive shall not call on any Acquisition Candidate (as defined below
in this Section 4.1.6), with the knowledge of such Acquisition
Candidate's status as such, for the purpose of acquiring, or arranging
the acquisition of, that Acquisition Candidate by any person or entity
other than the Company. In this Section 4.1.6 "Acquisition Candidate"
means any person or entity engaged in any of the businesses of
distributing medical or healthcare products to hospitals, clinics,
physicians, laboratories, pharmacies, alternate care sites or other
medical or healthcare facilities or conceiving, designing, developing or
testing technologically advanced medical or healthcare products, and (i)
which was called on by the Company, in connection with the possible
acquisition by the Company of that person or entity, or (ii) with
respect to which the Company has made an acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other
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jurisdiction within the geographical scope of the Restrictive Covenants, as to
breaches of such covenants in such other respective jurisdictions, such
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after notice thereof, and which shall include, without limitation,
the willful and continued failure or refusal by Executive to perform the
material duties for which he is employed or which are assigned to him hereunder
or chronic absenteeism; (ii) the Executive has knowingly, willfully and
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendere" to any felony or other serious crime, or
has been convicted or has pleaded "nolo contendere" to a crime involving, or the
Company, or any subsidiary or affiliate thereof is held liable for monetary
damages by a court of competent jurisdiction as a result of the commission by
Executive of, an act of moral turpitude; or (v) the Executive's alcoholism or
drug addiction, unless Executive agrees to seek treatment from a treatment
program approved by the Company and promptly commences and completes the
program. The determination on behalf of the Company as to whether "cause" exists
shall be made by a majority vote of the Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports,
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PROVIDED THAT if such officer is not R. Tucker Coop, in his capacity as
President of the Company, then such termination shall require the concurrence of
either: (a) R. Tucker Coop, as president of the Company, or, (b) if R. Tucker
Coop is no longer the President of the Company, the Board of Directors, shall
have the right, exercisable by serving notice effective in accordance with its
terms, to terminate the Executive's employment under this Agreement and
discharge the Executive without Cause. If such right is exercised, the Company's
sole obligation to the Executive, subject to applicable nonwaivable law, shall
be as set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable efforts to make available, or
to cause to be made available, to the Executive's dependents, at their expense,
health,
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medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
(ii) if to the Executive, to:
Marvin L. Marks
1720 Belmont Ave.
Baltimore, MD 21244-2554
Telecopy No.: (410)281-2595
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Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Maryland, without reference to principles governing choice
or conflicts of law.
8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ MARVIN L. MARKS
Marvin L. Marks
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Kent Wilken, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, Kentec Acquisition,
Inc., a wholly owned subsidiary of the Company (the "Merger Subsidiary"), Kentec
Medical, Inc., a California corporation (the "Acquired Company"), and the
stockholders of the Acquired Company, are entering into an Agreement and Plan of
Reorganization (the "Acquisition Agreement"), under which the Acquired Company
will merge with the Merger Subsidiary in a merger (the "Merger") of which the
Acquired Company will be the surviving corporation and as a result of which the
Acquired Company will become a wholly owned subsidiary of the Company;
WHEREAS, the Executive serves as President and a Director of the
Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable
<PAGE>
consideration, the receipt, adequacy and legal sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as manager of the Kentec Products dealer program of the Company, on a
less than full time basis, for the duration of the Employment Term (as
hereinafter defined in Section 2 below), to render such services and to perform
such duties as are customarily attendant to such position or management
responsibility to which the Executive is assigned, as well as such other duties,
which are not inconsistent with such position or management responsibility, as
shall from time to time reasonably be requested by the Board of Directors of the
Company (the "Board of Directors") or the officers of the Company senior to the
Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote the following percentages of his business time, attention
and energy to the business of the Company and the performance of his duties
under this Agreement:
Year 1 75%
Year 2 50%
Year 3 25%
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in Orange
County, California, and nothing in this Agreement shall require the Executive to
relocate his base of employment or principal place of residence from Orange
County, California.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Acquired Company, or any of its subsidiaries
and affiliates, shall be terminated effective as of the commencement of the
Employment Term. However, nothing in this Section 1.4 shall (i) affect accrued
vacation, holiday or sick pay accruals (but only to the extent such accruals
were reflected in the Acquired Company's financial statements), or (ii) require
the Acquired Company to cease to
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<PAGE>
make available to the Executive, and, subject to his meeting all applicable
eligibility requirements, the Executive shall be entitled to continue to be
covered under, all group health, medical and dental insurance policies, plans
and programs maintained by the Acquired Company for its Executives generally, in
each case until replacement coverage is provided by the Company, or (iii) impair
or adversely affect any indemnification rights that Executive may have under
statutes empowering corporations in the Acquired Company's state of
incorporation to indemnify their officers and directors, or under the Acquired
Company's bylaws or any written indemnification agreement between the Executive
and the Acquired Company implementing such statutory indemnification rights, but
only with respect to third party claims or proceedings that relate to actions
taken by Executive as an officer or director of the Acquired Company prior to
the date hereof and are disclosed in the Disclosure Statement to the Acquisition
Agreement or, if asserted or brought for the first time after the date hereof,
would not constitute a breach of the representations or warranties of the
Acquired Company or its Stockholders under the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at the per annum rates set forth below:
Year 1 $75,000.00
Year 2 $50,000.00
Year 3 $25,000.00
The Executive shall also be eligible, during the Employment Term, to receive
such other compensation, whether in the form of cash bonuses, incentive
compensation, stock options, stock appreciation rights, restricted stock awards
or otherwise (collectively, the "Additional Compensation"), as the Board of
Directors (or any committee of the Board) may, in its discretion, approve and as
are generally made available to other members of the Company's Management
holding comparable positions with the Company. The Annual Salary and the
Additional Compensation shall be payable in accordance with the applicable
payroll and/or other compensation policies and plans of the Company as in effect
from time to time, less such deductions as shall be required to be withheld by
applicable law and regulations.
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<PAGE>
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term to participate in any group life,
hospitalization or disability insurance plan, health program, pension plan,
vacation programs, similar benefit plan or other "fringe benefits" of the
Company, which may be available to all other members of the Company's management
on generally the same terms.
3.3 EXECUTIVE SUPPORT. During the Employment Term, the Company
shall provide to the Executive the existing office facilities, furniture,
fixtures and equipment used by Executive, and shall provide secretarial and
support personnel and other management level support services as the Executive
shall reasonably request in connection with his performance of his obligations
under this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. Executive shall retain the use of his current
Company-owned or leased automobile for use by the Executive in connection with
the performance of his duties under this Agreement, and Company shall pay the
reasonable costs of insuring, operating and maintaining the automobile, or, in
lieu thereof the Company at is option may pay to the Executive an automobile
allowance to help defray the Executive's cost of owning, insuring and operating
a personal automobile for such purpose. Such allowance shall be comparable to
the automobile or allowance that was taken into account in determining the
Merger Consideration that is to be paid by the Company to the Acquired Company's
stockholders pursuant to the Acquisition Agreement.
3.6 GOLF CLUB MEMBERSHIP. The Company owns a golf club membership
("Golf Club Membership") purchased for the use and benefit of Executive in
performing duties on behalf of the Company. The Golf Club Membership shall be
transferred by the Company to Executive on the Commencement Date. Following the
transfer, any dues owed on account of the Golf Club Membership shall be paid by
Executive.
3.7 SPLIT LIFE DOLLAR INSURANCE POLICY. The Company owns a split
dollar life insurance policy covering Executive. The Company will transfer all
rights under that policy to Executive on the Commencement Date. The Company
shall waive and/or assign to Executive all rights it has to receive a refund of,
or reimbursement for, premiums previously paid with respect to the policy.
Page 4 of 12
<PAGE>
3.8 POST-EMPLOYMENT TERM HEALTH INSURANCE. Following the
conclusion of the Employment Term, the Company, at its option, will either: (i)
enter into a seven-year consultancy contract with Executive whereby Executive
will remain eligible for health insurance coverage and if so requested by the
Company, Executive will provide consulting services to the Company, provided
that such services shall not exceed in value the Company's cost of providing the
insurance coverage or (ii) for a period of seven years, provide, at Company
expense, coverage for Executive under a health insurance policy with coverage
comparable to the coverage enjoyed by Executive under the Company's policy on
the Expiration Date.
3.9 LEASE BY THE COMPANY OF OFFICE/WAREHOUSE SPACE OWNED BY
EXECUTIVE. Executive and the Company will enter into five-year leases of certain
office/warehouse properties owned by Executive and used by the Company in the
operation of its business. The leases shall be in the form attached as Ex. "A"
to this Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical, Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a
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<PAGE>
group which controls, such entity and does not, directly or indirectly,
own five percent or more of any class of securities of such entity. As
used in this Section 4, the term "Territory" shall mean a radius of 100
miles around the principal office at which the Executive is employed on
the Commencement Date. As used in this Section 4, the term "Restricted
Period" means the period beginning on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company. Provided however, that Executive is the owner of certain
poster art depicting automobiles which is currently on display at the
Company's premises. Such poster art shall be and remain the property of
Executive.
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<PAGE>
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other
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<PAGE>
respects. If any court determines that any of the Restrictive Covenants, or any
part thereof, is invalid or unenforceable, the remainder of the Restrictive
Covenants shall not thereby be affected and shall be given full effect, without
regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after written notice thereof, and which shall include, without
limitation, the willful and continued failure or refusal by Executive to perform
the material duties for which he is employed or which are assigned to him
hereunder or chronic absenteeism; (ii) the Executive has knowingly, willfully
and
Page 8 of 12
<PAGE>
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendre" to any felony or other serious crime, or
has been convicted or has pleaded "nolo contendre" to a crime involving the
Company, or any subsidiary or affiliate thereof, or is held liable for monetary
damages by a court of competent jurisdiction as a result of the commission by
Executive of an act of moral turpitude; or (v) the Executive's alcoholism or
drug addiction, unless Executive agrees to seek treatment from a treatment
program approved by the Company and promptly commences and completes the
program. The determination on behalf of the Company as to whether "cause" exists
shall be made by a majority vote of the Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports, PROVIDED
THAT if such officer is not R. Tucker Coop, in his capacity as President of the
Company, then such termination shall require the concurrence of either: (a) R.
Tucker Coop, as president of the Company, or, (b) if R. Tucker Coop is no longer
the President of the Company, the Board of Directors, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the
Page 9 of 12
<PAGE>
coverage of all group health, medical and dental insurance policies, plans and
programs maintained by the Company during Severance Benefit Period for the
Company's employees, or management employees, generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable best efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable best efforts to make available,
or to cause to be made available, to the Executive's dependents, at their
expense, health, medical and dental insurance coverage comparable to the
coverage that is generally available to management personnel from the Company.
5.6.1 Notwithstanding any other provisions herein, including, but
not limited to, Section 5.5, for 10 years from the Commencement Date,
the Company shall provide Executive Company-paid health insurance
comparable to the health insurance offered by the Company to its other
Executives.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
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<PAGE>
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical, Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
(ii) if to the Executive, to:
Kent Wilken
6 Beacon Bay
Newport Beach, California
Telecopy No.: (714) 723-0736
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of California, without reference to principles governing
choice or conflicts of law.
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8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ KENT WILKEN
Kent Wilken
Page 12 of 12
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND GREGORY H. SELLARDS
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Gregory H. Sellards, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, Sun Acquisition,
Inc., a wholly owned subsidiary of the Company (the "Merger Subsidiary"), Sun
Medical, Inc., a Texas corporation (the "Acquired Company"), and the
stockholders of the Acquired Company, are entering into an Agreement and Plan of
Reorganization (the "Acquisition Agreement"), under which the Acquired Company
will merge with the Merger Subsidiary in a merger (the "Merger") of which the
Acquired Company will be the surviving corporation and as a result of which the
Acquired Company will become a wholly owned subsidiary of the Company;
WHEREAS, the Executive serves as a director, officer and/or employee of
the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as a full-time management employee of the Company in a position of
sales and/or operational management responsibility and authority, for the
duration of the Employment Term (as hereinafter defined in Section 2 below), to
render such services and to perform such duties as are customarily attendant to
the position of management responsibility to which the Executive is assigned, as
well as such other duties, which are not inconsistent with the Executive's
status as a management employee of the Company, as shall from time to time
reasonably be requested by the Board of Directors of the Company (the "Board of
Directors") or the officers of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Greater Arlington Metropolitan Area, and nothing in this Agreement shall require
the Executive to relocate his base of employment or principal place of residence
from the Greater Arlington Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Acquired Company, or any of its subsidiaries
and affiliates, shall be terminated effective as of the commencement of the
Employment Term. However, nothing in this Section 1.4 shall (i) affect accrued
vacation, holiday or sick pay accruals (but only to the extent such accruals
were reflected in the Acquired Company's financial statements), or (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Acquired Company for
its employees generally, in each case until replacement coverage is provided by
the Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third party claims or
proceedings that relate to actions taken by Executive as an officer or director
of the Acquired Company prior to the date hereof and are disclosed in the
Disclosure Statement to the Acquisition Agreement or, if asserted or brought for
the
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<PAGE>
first time after the date hereof, would not constitute a breach of the
representations or warranties of the Acquired Company or its Stockholders under
the Acquisition Agreement.
2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $150,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date,
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place and nature of the expense, (C) the business reason for the expense and (D)
the names, occupations and other data concerning individuals entertained
sufficient to establish their business relationship to the Company. The Company
shall have no obligation to reimburse the Executive for expenses that are not
incurred and substantiated as required by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at is option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose. Such Company furnished automobile or
such allowance shall be comparable to the automobile or allowance that was taken
into account in determining the Merger Consideration that is to be paid by the
Company to the Acquired Company's stockholders pursuant to the Acquisition
Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a
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<PAGE>
group which controls, such entity and does not, directly or indirectly,
own five percent or more of any class of securities of such entity. As
used in this Section 4, the term "Territory" shall mean a radius of 100
miles around the principal office at which the Executive is employed on
the Commencement Date. As used in this Section 4, the term "Restricted
Period" means the period beginning on the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or
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<PAGE>
independent sales agent of the Company away from the Company or
encourage any such employee or agent to leave such employment.
4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
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<PAGE>
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after notice thereof, and which shall include, without limitation,
the willful and continued failure or refusal by Executive to perform the
material duties for which he is employed or which are assigned to him hereunder
or chronic absenteeism; (ii) the Executive has knowingly, willfully and
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendere" to any felony or other serious crime, or
has been convicted or has pleaded
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"nolo contendere" to a crime involving, or the Company, or any subsidiary or
affiliate thereof is held liable for monetary damages by a court of competent
jurisdiction as a result of the commission by Executive of, an act of moral
turpitude; or (v) the Executive's alcoholism or drug addiction, unless Executive
agrees to seek treatment from a treatment program approved by the Company and
promptly commences and completes the program. The determination on behalf of the
Company as to whether "cause" exists shall be made by a majority vote of the
Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports, PROVIDED
THAT if such officer is not R. Tucker Coop, in his capacity as President of the
Company, then such termination shall require the concurrence of either: (a) R.
Tucker Coop, as president of the Company, or, (b) if R. Tucker Coop is no longer
the President of the Company, the Board of Directors, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other
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than (i) a termination for Cause under Section 5.2, or (ii) his death, then for
the period beginning on the date of expiration of the Severance Benefit Period
and continuing until the earlier to occur of (a) the Executive's obtaining other
employment through which health, medical and dental insurance coverage are
available to him and (b) the Executive reaching age 65, the Company will use all
commercially reasonable efforts to make available, or to cause to be made
available, to the Executive and/or his dependents, at his expense, health,
medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company. If at any time
during or after the Employment Term, the Executive's employment by the Company
is terminated by the Executive's death, the Company will use all commercially
reasonable efforts to make available, or to cause to be made available, to the
Executive's dependents, at their expense, health, medical and dental insurance
coverage comparable to the coverage that is generally available to management
personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
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(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
(ii) if to the Executive, to:
TRIAD Medical Inc.
1179 Corporate Drive West, Suite 100
Arlington, TX 76006
Telecopy No.: (817) 640-1840
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Texas,
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without reference to principles governing choice or conflicts of law.
8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ GREGORY H. SELLARDS
Gregory H. Sellards
11
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
BY AND BETWEEN
TRIAD MEDICAL INC.
AND MICHAEL W. THOMAS
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into on
September 9, 1997, between TRIAD Medical Inc., a Delaware corporation (the
"Company"), and Michael W. Thomas, an individual (the "Executive").
RECITALS
WHEREAS, the Company has been formed to engage, and to acquire
businesses that are engaged, in the business of selling and distributing
specialty medical products and equipment to hospitals and alternative site
healthcare service companies and providers, such as but not limited to,
sub-acute care facilities, nursing facilities, home healthcare providers and
physician groups (the "Business");
WHEREAS, on the date of this Agreement, the Company, Custom Acquisition,
Inc., a wholly owned subsidiary of the Company (the "Merger Subsidiary"), Custom
Medical Specialities, Inc., a Indiana corporation (the "Acquired Company"), and
the stockholders of the Acquired Company, are entering into an Agreement and
Plan of Reorganization (the "Acquisition Agreement"), under which the Acquired
Company will merge with the Merger Subsidiary in a merger (the "Merger") of
which the Acquired Company will be the surviving corporation and as a result of
which the Acquired Company will become a wholly owned subsidiary of the Company;
WHEREAS, the Executive is a stockholder and/or serves as a director,
officer and/or employee of the Acquired Company;
WHEREAS, the Company wishes to employ the Executive effective upon
consummation of the Merger, and the Executive is willing to accept such
employment, on the terms and conditions of this Agreement; and
WHEREAS, the respective agreements of the Company and the Executive set
forth herein are ancillary to the Company's acquisition of the Acquired Company,
and the Company, as a condition to its entering into the Acquisition Agreement
and consummating the Merger, is requiring that the Executive agree to the
provisions of this Agreement which restrict the Executive from competing with
the Company;
AGREEMENT
NOW, THEREFORE, in consideration of the Company agreeing to employ the
Executive and the mutual promises and covenants set forth herein, to induce the
Company to enter into the Acquisition Agreement and to consummate the Merger,
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
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1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
1.1 EMPLOYMENT BY THE COMPANY. The Company agrees to employ the
Executive as Regional President, Midwest Region of the Company for the duration
of the Employment Term (as hereinafter defined in Section 2 below), to render
such services and to perform such duties as are customarily attendant to such
position, as well as such other duties commensurate with his position as Reginal
President, Midwest Region, as shall from time to time reasonably be requested by
the Board of Directors of the Company (the "Board of Directors") or the officers
of the Company senior to the Executive.
1.2 ACCEPTANCE OF EMPLOYMENT BY THE EXECUTIVE. The Executive
hereby accepts such employment for the Employment Term and agrees to render the
services required of him under Section 1.1. During the Employment Term, the
Executive shall devote his full business time, attention and energy to the
business of the Company and the performance of his duties under this Agreement.
The foregoing shall not, however, prohibit the Executive from making and
managing personal investments, or from engaging in civic or charitable
activities, that do not materially impair the performance of his duties under
this Agreement. If appointed or elected, as applicable, the Executive also shall
serve during all or any part of the Employment Term as any other officer and/or
as a director of the Company or any of its subsidiaries or affiliates, without
any additional compensation other than that specified in this Agreement.
1.3 PLACE OF PERFORMANCE. The Executive shall be based in the
Greater Indianapolis Metropolitan Area, and nothing in this Agreement shall
require the Executive to relocate his base of employment or principal place of
residence from the Greater Indianapolis Metropolitan Area.
1.4 TERMINATION OF EXISTING CONTRACTS. The Executive agrees that
all agreements and contracts, whether written or oral, relating to the
employment of the Executive by the Acquired Company, or any of its subsidiaries
and affiliates, shall be terminated effective as of the commencement of the
Employment Term. However, nothing in this Section 1.4 shall (i) affect accrued
vacation, holiday or sick pay accruals (but only to the extent such accruals
were reflected in the Acquired Company's financial statements), or (ii) require
the Acquired Company to cease to make available to the Executive, and, subject
to his meeting all applicable eligibility requirements, the Executive shall be
entitled to continue to be covered under, all group health, medical and dental
insurance policies, plans and programs maintained by the Acquired Company for
its employees generally, in each case until replacement coverage is provided by
the Company, or (iii) impair or adversely affect any indemnification rights that
Executive may have under statutes empowering corporations in the Acquired
Company's state of incorporation to indemnify their officers and directors, or
under the Acquired Company's bylaws or any written indemnification agreement
between the Executive and the Acquired Company implementing such statutory
indemnification rights, but only with respect to third party claims or
proceedings that relate to actions taken by Executive as an officer or director
of the Acquired Company prior to the date hereof and are disclosed in the
Disclosure Statement to the Acquisition Agreement or, if asserted or brought for
the first time after the date hereof, would not constitute a breach of the
representations or warranties of the Acquired Company or its Stockholders under
the Acquisition Agreement.
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2. EMPLOYMENT TERM. The term of the Executive's employment under this
Agreement (the "Employment Term") shall commence on the date of consummation of
the Merger pursuant to the Acquisition Agreement (the "Commencement Date"), at
the Effective Time (as that term is defined in the Acquisition Agreement), and
shall continue through and expire on the third anniversary of the Commencement
Date (the "Expiration Date"), unless earlier terminated as herein provided.
However, if the Acquisition Agreement is terminated under the terms of its
Article XII, then this Agreement shall also terminate, automatically and without
the requirement of any action on the part of either of its parties.
3. COMPENSATION AND OTHER BENEFITS.
3.1 ANNUAL SALARY. As compensation for services to be rendered
under this Agreement, the Company shall pay the Executive a salary (the "Annual
Salary"), subject to such increases as the Board of Directors may, in its
discretion, approve, at a rate of $150,000 per annum. The Executive shall also
be eligible, during the Employment Term, to receive such other compensation,
whether in the form of cash bonuses, incentive compensation, stock options,
stock appreciation rights, restricted stock awards or otherwise (collectively,
the "Additional Compensation"), as the Board of Directors (or any committee of
the Board) may, in its discretion, approve and as are generally made available
to other members of the Company's Management holding comparable positions with
the Company. The Annual Salary and the Additional Compensation shall be payable
in accordance with the applicable payroll and/or other compensation policies and
plans of the Company as in effect from time to time, less such deductions as
shall be required to be withheld by applicable law and regulations.
3.2 PARTICIPATION IN EMPLOYEE BENEFIT PLANS. The Executive shall
be permitted, during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension plan, vacation programs, similar benefit plan or other
"fringe benefits" of the Company, which may be available to all other members of
the Company's management on generally the same terms.
3.3 EXECUTIVE SUPPORT. The Company shall provide to the Executive
office facilities, furniture, fixtures and equipment, secretarial and support
personnel and other management level support services as the Executive shall
reasonably request in connection with his performance of his obligations under
this Agreement.
3.4 REIMBURSEMENT OF BUSINESS EXPENSES. The Executive may incur
reasonable, ordinary and necessary business expenses in the course of his
performance of his obligations under this Agreement, including expenses for
travel, food and entertainment. The Company shall reimburse the Executive for
all such business expenses if (i) such expenses are incurred by the Executive in
accordance with the Company's business expense reimbursement policy, if any, as
may be established and modified by the Company from time to time, and (ii) the
Executive provides to the Company a record of and appropriate receipts for (A)
the amount of the expense, (B) the date, place and nature of the expense, (C)
the business reason for the expense and (D) the names, occupations and other
data concerning individuals entertained sufficient to establish their business
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relationship to the Company. The Company shall have no obligation to reimburse
the Executive for expenses that are not incurred and substantiated as required
by this Section 3.4.
3.5 AUTOMOBILE. The Company shall provide the Executive with the
use of a Company-owned or leased automobile for use by the Executive in
connection with the performance of his duties under this Agreement, and shall
pay the reasonable costs of insuring, operating and maintaining the automobile,
or, in lieu thereof the Company at its option may pay to the Executive an
automobile allowance to help defray the Executive's cost of owning and operating
a personal automobile for such purpose. Such Company furnished automobile or
such allowance shall be comparable to the automobile or allowance that was taken
into account in determining the Merger Consideration that is to be paid by the
Company to the Acquired Company's stockholders pursuant to the Acquisition
Agreement.
4. NON-COMPETITION.
4.1 COVENANTS AGAINST COMPETITION. The Executive acknowledges
that (i) the Company, which for purposes of this Section 4 includes TRIAD
Medical Inc. and all of its present and future subsidiaries and affiliates,
including such subsidiaries and affiliates as may be formed or incorporated
during the Restricted Period (as defined in Section 4.1.1), is engaged in the
business described in the Recitals set forth on the first page of this Agreement
(the "Business"); (ii) the Executive is one of a limited number of persons who
has performed a significant role in developing the Business; (iii) the Business
is conducted throughout the United States; (iv) his work for the Acquired
Company has given him, and his work for the Company will continue to give him,
trade secrets of, and confidential information concerning, the Company; (v) the
agreements and covenants contained in this Section 4 (collectively, the
"Restrictive Covenants") are essential to protect the Business and the goodwill
of the Company; (vi) he has means to support himself and his dependents other
than by engaging in the Business in violation of the Restrictive Covenants and
(vii) the Restrictive Covenants will not impair such ability. Accordingly, the
Executive agrees as follows:
4.1.1 NON-COMPETE. During the Restricted Period, the
Executive shall not (A) engage, anywhere within the Territory (as
hereinafter defined), as an officer, director or in any other managerial
capacity or as an owner, co-owner or other investor or creditor in or
of, or as an employee, independent contractor, consultant or advisor, or
as a sales or manufacturer's representative or distributor of any kind,
in any business selling any products or providing any services which are
sold or offered by the Company, or have previously been sold or offered
by the Company, or any of its then current or prior vendors or
suppliers, on the date the Executive's employment is terminated, or (B)
call on any person or entity, whose offices are located within the
Territory, that at the time is, or at any time within one year prior to
the date of termination of the Executive's employment was, a customer of
the Company, if the Executive has knowledge of that customer
relationship, PROVIDED, HOWEVER, that nothing in this Section 4.1.1
shall prohibit the Executive from owning, directly or indirectly, solely
as an investment, securities of any entity traded on any national
securities exchange or over-the-counter market if the Executive is not a
controlling person of, or a member of a group which controls, such
entity and does not, directly or indirectly, own five percent or more of
any class of securities of such entity. As used in this Section 4, the
term "Territory"
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shall mean a radius of 100 miles around the principal office at which
the Executive is employed on the Commencement Date. As used in this
Section 4, the term "Restricted Period" means the period beginning on
the Commencement Date and ending:
(i) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination for Cause
under Section 5.2 or (b) the Executive's voluntary resignation,
the fourth anniversary of the Commencement Date;
(ii) if during the Employment Term the Executive's
employment terminates as a result of (a) a termination without
Cause under Section 5.3 or (b) a termination for disability under
Section 5.4, the latest to occur of (a) expiration of the
Severance Benefit Period (as defined in Section 5.5) or (b) the
third (3rd) anniversary of the Commencement Date; or
(iii) if after the Employment Term the Executive's
employment terminates for any reason, the latest to occur of (a)
the fourth (4th) anniversary of the Commencement Date if he is
not eligible for severance benefits under Section 5.5 or (b) the
expiration of the Severance Benefit Period if the Executive is
eligible for severance benefits under Section 5.5.
4.1.2 CONFIDENTIAL INFORMATION; PERSONAL RELATIONSHIPS.
During the Restricted Period and thereafter, the Executive shall keep
secret and retain in strict confidence, and shall not use for the
benefit of himself or others, all confidential matters of the Company,
including, without limitation, "know-how," trade secrets, customer
lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical
processes, designs and design projects, inventions and research projects
of the Company learned by the Executive heretofore or during the
Restricted Period.
4.1.3 PROPERTY OF THE COMPANY. All memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by
any other means, made or compiled by or on behalf of the Executive, or
made available to the Executive relating to the Company, other than
purely personal matters, are and shall be the Company's property and
shall be delivered to the Company promptly upon the termination of the
Executive's employment (whether such termination is for Cause, as
hereinafter defined, or otherwise) or at any other time on request of
the Company.
4.1.4 EMPLOYEES OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any employee or independent
sales agent of the Company away from the Company or encourage any such
employee or agent to leave such employment.
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4.1.5 CONSULTANTS OF THE COMPANY. During the Restricted
Period and thereafter for as long as the Executive shall remain an
employee of or consultant to the Company, the Executive shall not,
directly or indirectly, hire or solicit any consultant then under
contract with the Company or encourage such consultant to terminate such
relationship.
4.1.6 ACQUISITION CANDIDATES. During the Restricted Period
and thereafter for as long as the Executive shall remain an employee of
or consultant to the Company, the Executive shall not call on any
Acquisition Candidate (as defined below in this Section 4.1.6), with the
knowledge of such Acquisition Candidate's status as such, for the
purpose of acquiring, or arranging the acquisition of, that Acquisition
Candidate by any person or entity other than the Company. In this
Section 4.1.6 "Acquisition Candidate" means any person or entity engaged
in any of the businesses of distributing medical or healthcare products
to hospitals, clinics, physicians, laboratories, pharmacies, alternate
care sites or other medical or healthcare facilities or conceiving,
designing, developing or testing technologically advanced medical or
healthcare products, and (i) which was called on by the Company, in
connection with the possible acquisition by the Company of that person
or entity, or (ii) with respect to which the Company has made an
acquisition analysis.
4.2 RIGHTS AND REMEDIES UPON BREACH. If the Executive breaches or
threatens to commit a breach of the Restrictive Covenants, the Company shall
have the following rights and remedies, each of which shall be independent of
the others and severally enforceable, and each of which is in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity:
4.2.1 SPECIFIC PERFORMANCE. The right and remedy to have
the Restrictive Covenants specifically enforced by any court of
competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy
to the Company.
4.2.2 ACCOUNTING. The right and remedy to require the
Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or
received by the Executive as the result of any transaction constituting
a breach of the Restrictive Covenants.
4.3 SEVERABILITY OF COVENANTS. The Executive acknowledges and
agrees that the Restrictive Covenants are reasonable and valid in geographical
and temporal scope and in all other respects. If any court determines that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions.
4.4 REFORMATION. If any court determines that any Restrictive
Covenant, or any part thereof, is unenforceable because of the duration or
geographic scope of such provision, such
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court shall have the power to reduce the duration or scope of such provision, as
the case may be, and, in its reduced form, such provision shall then be
enforceable.
4.5 ENFORCEABILITY IN JURISDICTIONS. The Company and the
Executive intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
the Restrictive Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable by reason of the
breadth of such scope or otherwise, it is the intention of the Company and the
Executive that such determination not bar or in any way affect the Company's
right to the relief provided above in the courts of any other jurisdiction
within the geographical scope of the Restrictive Covenants, as to breaches of
such covenants in such other respective jurisdictions, such covenants as they
relate to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5. TERMINATION.
5.1 TERMINATION UPON DEATH. If the Executive dies during the
Employment Term, this Agreement shall terminate, except that the Executive's
legal representatives, successors, heirs or assigns shall be entitled to receive
the Annual Salary, the Additional Compensation and other accrued benefits, if
any, earned up to the date of the Executive's death; PROVIDED, HOWEVER, if any
Additional Compensation or other benefits are governed by the provisions of any
written employee benefit plan or policy of the Company, any written agreement
contemplated thereunder or any other separate written agreement entered into
between the Executive and the Company, the terms and conditions of such plan,
policy or agreement shall control in the event of any discrepancy or conflict
with the provisions of this Agreement regarding such Additional Compensation or
other benefit upon the death, termination or disability of the Executive.
5.2 TERMINATION FOR CAUSE. At any time during the Employment
Term, the Company shall have the right, exercisable by serving notice effective
in accordance with its terms, to terminate the Executive's employment under this
Agreement and discharge the Executive for Cause. If such right is exercised, the
Company's obligation to the Executive shall be limited to the payment of any
unpaid Annual Salary, Additional Compensation and other benefits, if any,
accrued up to the effective date specified in the Company's notice of
termination (which date shall not be retroactive). As used in this Section 5.2
and elsewhere in this Agreement, the term "Cause" shall mean that (i) there
shall have been a material breach by Executive of the terms of this Agreement
which either is not susceptible of cure or which is not cured within a period of
ten (10) days after notice thereof, and which shall include, without limitation,
the willful and continued failure or refusal by Executive to perform the
material duties for which he is employed or which are assigned to him hereunder
or chronic absenteeism; (ii) the Executive has knowingly, willfully and
persistently failed or refused to follow the reasonable policies and directives
established by the Board of Directors or executive officers of the Company
senior to the Executive; (iii) the Executive has wrongfully misappropriated
money or other assets or properties of the Company or any subsidiary or
affiliate of the Company, or has committed fraud; (iv) the Executive has been
convicted of or plead "nolo contendere" to any felony or other serious crime, or
has been convicted or has pleaded "nolo contendere" to a crime involving, or the
Company, or any subsidiary or affiliate thereof is held liable for monetary
damages by a court of competent jurisdiction as a result of the commission by
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Executive of, an act of moral turpitude; or (v) the Executive's alcoholism or
drug addiction, unless Executive agrees to seek treatment from a treatment
program approved by the Company and promptly commences and completes the
program. The determination on behalf of the Company as to whether "cause" exists
shall be made by a majority vote of the Company's Board of Directors.
5.3 TERMINATION WITHOUT CAUSE. At any time during the period
beginning on the first anniversary of the Commencement Date and continuing
through the end of the Employment Term, the Company, upon a determination that
is made by: (i) R. Tucker Coop, in his capacity as president of the Company, or
(ii) the officer of the Company to whom the Executive directly reports, PROVIDED
THAT if such officer is not R. Tucker Coop, in his capacity as President of the
Company, then such termination shall require the concurrence of either: (a) R.
Tucker Coop, as president of the Company, or, (b) if R. Tucker Coop is no longer
the President of the Company, the Board of Directors, shall have the right,
exercisable by serving notice effective in accordance with its terms, to
terminate the Executive's employment under this Agreement and discharge the
Executive without Cause. If such right is exercised, the Company's sole
obligation to the Executive, subject to applicable nonwaivable law, shall be as
set forth in Section 5.5 below.
5.4 TERMINATION UPON DISABILITY. If during the Employment Term
the Executive becomes physically or mentally disabled, whether totally or
partially, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, so that the Executive is
unable to substantially perform his services hereunder for (i) a period of six
consecutive months, or (ii) for shorter periods aggregating six months during
any period of twelve consecutive months, subject to applicable law, the Company
may at any time after the last day of the six consecutive months of disability
or the day on which the shorter periods of disability equal an aggregate of six
months with a period of twelve consecutive months, by written notice to the
Executive, terminate the Executive's employment hereunder. If such right is
exercised, the Company's obligation to the Executive shall be as set forth in
Section 5.5 below.
5.5 SEVERANCE BENEFIT. If at any time during or after the
Employment Term, the Executive's employment by the Company is terminated for any
reason other than (i) a termination for Cause under Section 5.2, (ii) his
voluntary resignation, or (iii) his death, then for a period of one year
following the date of termination of the Executive's employment (the "Severance
Benefit Period"), the Company's sole obligation to Executive shall be to
continue to (a) pay to the Executive the amount of Annual Salary in effect at
the date of termination of his employment in installments, in accordance with
the Company's customary payroll and tax withholding policies and procedures,
over the twelve months immediately following such termination of employment, and
(ii) at the Company's expense, continue to include the Executive and his
eligible dependents under the coverage of all group health, medical and dental
insurance policies, plans and programs maintained by the Company during
Severance Benefit Period for the Company's employees, or management employees,
generally.
5.6 CONTINUATION OF HEALTH COVERAGE. If at any time during or
after the Employment Term, the Executive's employment by the Company is
terminated for any reason other than (i) a termination for Cause under Section
5.2, or (ii) his death, then for the period beginning on the date of expiration
of the Severance Benefit Period and continuing until the earlier to occur of (a)
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the Executive's obtaining other employment through which health, medical and
dental insurance coverage are available to him and (b) the Executive reaching
age 65, the Company will use all commercially reasonable efforts to make
available, or to cause to be made available, to the Executive and/or his
dependents, at his expense, health, medical and dental insurance coverage
comparable to the coverage that is generally available to management personnel
from the Company. If at any time during or after the Employment Term, the
Executive's employment by the Company is terminated by the Executive's death,
the Company will use all commercially reasonable efforts to make available, or
to cause to be made available, to the Executive's dependents, at their expense,
health, medical and dental insurance coverage comparable to the coverage that is
generally available to management personnel from the Company.
6. INSURANCE. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
health, accident, disability or other insurance upon the Executive or his life,
in any amount or amounts that it may deem necessary or appropriate to protect
its interest. The Executive agrees to aid the Company in procuring such
insurance by submitting to reasonable medical examinations and by filling out,
executing and delivering such applications and other instruments in writing as
may reasonably be required by an insurance company or companies to which any
application or applications for insurance may be made by or for the Company.
7. INDEMNIFICATION. The Executive shall be entitled to the benefit of
the indemnification obligations of the Company set forth in Article X of the
Company's Certificate of Incorporation, as amended through the date of this
Agreement and Section 8 of Article X of the Company's bylaws as in effect at the
date of this Agreement. The Company shall not cause or permit any rescission of,
or amendment to or modification of, Article X of its Certificate of
Incorporation or Section 8 of Article X of its bylaws after the date hereof to
materially reduce, limit or restrict the indemnification rights of the Executive
thereunder, except to the extent otherwise required by law.
8. OTHER PROVISIONS.
8.1 NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
TRIAD Medical Inc.
23161 Mill Creek Drive
Suite 300
Laguna Hills, CA 92653
Telecopy No.: (714) 770-0727
Attn.: R. Tucker Coop, President
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(ii) if to the Executive, to:
Michael W. Thomas
8020 Sargent Ridge
Indianapolis, IN 46256
Telecopy No.: (317) 841-9398/(317) 352-9285
Either party may change its address for notice hereunder by notice to
the other party.
8.2 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding between the parties with respect to its subject
matter and supersedes all prior agreements, written or oral, with respect
thereto; PROVIDED, HOWEVER, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 WAIVERS AND AMENDMENTS. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 GOVERNING LAW; VENUE. This Agreement, except as set forth in
Section 4.5 hereof, shall be governed by, and construed in accordance with, the
laws of the State of Indiana, without reference to principles governing choice
or conflicts of law.
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8.5 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without the Executive's consent provided
such assignment does not diminish any of the Executive's benefits, rights or
obligations hereunder.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.7 HEADINGS. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
Chief Executive Officer
EXECUTIVE:
/s/ MICHAEL W. THOMAS
Michael W. Thomas
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EXHIBIT 10.12
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, STATE
SECURITIES STATUTES AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
RESTRICTIONS HEREIN SET FORTH.
========================
Warrant No. 1
WARRANT
TO
PURCHASE 100,000 SHARES COMMON STOCK
OF
HEALTHTECH DELIVERY, INC.
========================
This Warrant dated as of April 18, 1997 ("Warrant") certifies that, for
good and valuable consideration, HEALTHTECH DELIVERY, INC., a Delaware
corporation (the "Company"), grants to EQUUS II INCORPORATED, a Delaware
corporation ("Equus"), or permitted registered assigns (the "Warrantholder" or
"Warrantholders"), subject to the terms and conditions set forth herein, the
right to subscribe for and purchase from the Company: One Hundred Thousand
(100,000) shares (the "Warrant Shares") of the Company's common stock, par value
$.001 per share ("Common Stock"), at the initial per share public offering price
(the "Exercise Price") of Common Stock offered to the public in the Company's
initial public offering ("IPO"), during the period from and after 9:00 a.m.
Houston, Texas time on the date of the closing of the IPO (the "Initial Exercise
Date") and to and including 5:00 p.m. Houston, Texas time on the fifth
anniversary of the Initial Exercise Date (the "Expiration Date"). The Exercise
Price and the number of Warrant Shares are subject to adjustment from time to
time as provided in Section 5.
<PAGE>
1. DURATION AND EXERCISE OF WARRANT; LIMITATION EXERCISE PAYMENT OF
TAXES.
1.1 DURATION AND EXERCISE OF WARRANT. The rights represented by
this Warrant may be exercised by the Warrantholder of record, in whole, or from
time to time in part (but covering at least the lesser of 1,000 shares or the
remaining unexercised portion of this Warrant), by surrender of this Warrant,
accompanied by the Exercise Form annexed hereto (the "Exercise Form") duly
executed by the Warrantholder of record and specifying the number of Warrant
Shares to be purchased, to the Company at the office of the Company located at
2078 Prospector Avenue Park City, Utah 84060 (or such other office or agency of
the Company as it may designate by notice to the Warrantholder at the address of
such Warrantholder appearing on the books of the Company) during normal business
hours on any day (a "Business Day") other than a Saturday, Sunday or a day on
which the Company is otherwise closed for business (a "Nonbusiness Day") on or
after 9:00 a.m. Houston, Texas time on the Initial Exercise Date but not later
than 5:00 p.m. on the Expiration Date (or 5:00 p.m. on the next succeeding
Business Day, if the Expiration Date is a Nonbusiness Day), delivery of payment
to the Company in cash or by certified bank check of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form and such documentation
as to the identity and authority of the Warrantholder as the Company may
reasonably request. Such Warrant Shares shall be deemed by the Company to be
issued to the Warrantholder which is the record holder of such Warrant Shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for the Warrant Shares as aforesaid. Certificates
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder as promptly as practicable, and in any event within 10 business
days, thereafter. The stock certificates so delivered shall be in denominations
of at least 1,000 shares each or such other denomination as may be specified by
the Warrantholder and agreed upon by the Company, and shall be issued in the
name of the Warrantholder or, if permitted by subsection 1.5 and in accordance
with the provisions thereof, such other name as shall be designated in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the certificates for the Warrant
Shares, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. No adjustments or payments shall be
made on or in respect of Warrant Shares issuable on the exercise of this Warrant
for any cash dividends paid or payable to holders of record of Common Stock
prior to the date as of which the Warrantholder shall be deemed to be the record
holder of such Warrant Shares.
1.2 LIMITATION ON EXERCISE. If this Warrant is not exercised
prior to 5:00 p.m. on the Expiration Date (or the next succeeding Business Day,
if the Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant
issued pursuant to Section 1.1, shall cease to be exercisable and shall become
void and all rights of the Warrantholder hereunder shall cease. This Warrant
shall not be exercisable and no Warrant Shares shall be issued hereunder, prior
to 9:00 a.m. Houston, Texas time on the Initial Exercise Date.
1.3 CASHLESS EXERCISE. Notwithstanding Section 1.1 above, the
Warrantholder, in lieu of the payment of cash or certified bank check for the
aggregate Exercise Price for shares of Common Stock as to which this Warrant is
being exercised, may elect by written notice delivered
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to the Company at the time the Exercise Form is delivered to the Company
pursuant to Section 1.1 above, to effect a "cashless exercise," in which case
(i) the Warrantholder need not pay the aggregate Exercise Price to the Company
in cash or by certified bank check, and (ii) the number of shares of Common
Stock issuable upon such exercise shall be reduced by a number of shares of
Common Stock determined by dividing (x) the aggregate Exercise Price for all
shares of Common Stock as to which this Warrant is then being exercised by (y)
the Current Market Price (as such term is hereinafter defined) per share of
Common Stock at the date of such exercise, and by then rounding downward to the
nearest whole share of Common Stock.
1.4 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereto; PROVIDED, HOWEVER, that the
Warrantholder shall be required to pay any and all taxes which may be payable in
respect to any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
1.5 TRANSFER; RESTRICTION ON TRANSFER AND LEGEND.
(a) Subject to the provisions of Section 1.5(b) below, this
Warrant may be transferred, in whole or in part, at any time, without
the consent of the Company, by notice from Warrantholder. The Company
shall keep at its principal office a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide
for the registration, transfer and exchange of this Warrant. The Company
will not at any time, except upon the dissolution, liquidation or
winding up of the Company, close such register so as to prevent or delay
the exercise or transfer of this Warrant.
(b) Neither this Warrant nor any of the Warrant Shares, nor any
interest or participation in either, may be in any manner transferred or
disposed of, in whole or in part, except in compliance with applicable
United States federal and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any
time in exchange or substitution for any Warrant bearing such a legend
shall bear a legend similar in effect to the foregoing paragraph 1.5(b)
unless, in the opinion of counsel for the Company, the Warrant need no
longer be subject to the restriction contained herein. The provisions of
this subsection 1.5 shall be binding upon all subsequent holders of this
Warrant, if any. Warrant Shares transferred to the public as expressly
permitted by, and in accordance with, the provisions of this Warrant
shall thereafter cease to be deemed to be "Warrant Shares" for purposes
hereof.
1.6 DIVISIBILITY OF WARRANT. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon surrender at
the principal office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. The Warrantholder will be charged for
reasonable out-of-pocket costs incurred by the Company in connection with the
division of this Warrant into Warrants representing fewer than one thousand
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(1,000) Warrant Shares. Upon any such division, and, if permitted by subsection
1.5 and in accordance with the provisions thereof, the Warrants may be
transferred of record to a name other than that of the Warrantholder of record;
PROVIDED, HOWEVER, that the Warrantholder shall be required to pay any and all
transfer taxes with respect thereto.
2. RESERVATION AND LISTING OF SHARES. All Warrant Shares which are
issued upon the exercise of the rights represented by this Warrant shall, upon
issuance and payment of the Exercise Price, be validly issued, fully paid and
nonassessable and free from all taxes, liens, security interests, charges and
other encumbrances with respect to the issue thereof other than taxes in respect
of any transfer occurring contemporaneously with such issue. During the period
within which this Warrant may be exercised, the Company shall at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of this
Warrant, and shall at its expense use all commercially reasonable efforts to
procure such listing thereof (subject to official notice of issuance) as then
may be required on all stock exchanges on which the Common Stock is then listed.
The Company shall, from time to time, take all such action as may be required to
assure that the par value per share of the Warrant Shares is at all times equal
to or less than the then effective Exercise Price.
3. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT. If permitted by subsection
1.5 or 1.6 and in accordance with the provisions thereof, upon surrender of this
Warrant to the Company with a duly executed instrument of assignment and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be cancelled. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
The term "Warrant" as used herein includes any Warrants issued in substitution
or exchange of this Warrant.
4. OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in subsections 1.1, 1.5 and 1.6 or in Section 3.
5. CERTAIN ADJUSTMENTS. The Exercise Price at which Warrant Shares may
be purchased hereunder, and the number of Warrant Shares to be purchased upon
exercise hereof, are subject to change or adjustment as follows:
5.1 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If the Company
issues or sells any shares of Common Stock (other than up to 100,000 shares of
Common Stock to be issued by the Company in a private placement at $5 per share
within 60 days after the date hereof) for a consideration per share less than
(x) the Exercise Price or (y) the then Current Market Price (as
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hereinafter defined) per share of Common Stock in effect immediately prior to
the time of such issue or sale, the Exercise Price shall be reduced to the lower
of the prices calculated by:
(1) dividing (A) an amount equal to the sum of (x) the number
of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the then existing
Exercise Price plus (y) the aggregate consideration, if
any, received by the Company upon such issue or sale, by
(B) the total number of shares of Common Stock outstanding
immediately after such issue or sale; and
(2) multiplying the then existing Exercise Price by a fraction
the numerator of which is (A) the sum of (x) the number of
shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the Current Market Price
per share of Common Stock immediately prior to such issue
or sale plus (y) the consideration received by the Company
upon such issue or sale divided by (B) the total number of
shares of Common Stock outstanding immediately after such
issue or sale, and the denominator of which shall be the
Current Market Price per share of Common Stock immediately
prior to such issue or sale.
For purposes of this Section 5.1, the date as of which the
Current Market Price per share of Common Stock shall be computed shall be the
earlier of the date upon which the Company shall (i) enter into a firm contract
for the issuance of such shares or (ii) issue such shares.
5.2 PROVISIONS APPLICABLE TO SECTION 5.1. For purposes of Section
5.1, the following subsections (a) through (l), inclusive, shall be applicable:
(a) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon any
adjustment of the Exercise Price as provided in Section 5.1 or in this
Section 5.2, the Warrantholder shall thereafter be entitled to purchase,
at the Exercise Price resulting from the adjustment, the number of
shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Exercise Price in effect immediately before
the adjustment by the number of shares of Common Stock purchasable
hereunder immediately before the adjustment and dividing the product
thereof by the Exercise Price resulting from the adjustment.
(b) ISSUANCE OF WARRANTS OR OTHER RIGHTS. If the Company in any
manner grants (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or Convertible Securities (as
hereinafter defined), whether or not such rights or options or the right
to convert or exchange any such Convertible Securities are immediately
exercisable, and if the price per share for which shares of Common Stock
are issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities is less than (i)
the Exercise Price in effect immediately before the granting of such
rights or options or (ii) the Current Market Price per share of Common
Stock existing immediately before the granting of such rights or
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options, then the maximum number of shares of Common Stock issuable upon
the exercise of such rights or options or upon conversion or exchange of
the maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date for the
determination of the Current Market Price per share of Common Stock as
hereinafter provided) be deemed to be outstanding and to have been
issued for such price per share. The price per share for which shares of
Common Stock are issuable upon the exercise of such right or options or
upon conversion or exchange of such Convertible Securities shall be
determined by dividing (1) the total amount, if any, received or
receivable by the Company as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights or
options, plus, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof, by (2) the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options. No
further adjustments of the Exercise Price shall be made upon the actual
issue of such Common Stock or of such rights or options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities except as otherwise provided in subsection (d)
below. For purposes of this subsection (b), the date as of which the
Current Market Price per share of Common Stock shall be computed shalt
be the earlier of the date upon which the Company shall (i) enter into a
firm contract for the issuance of such rights or other options or (ii)
issue such rights or other options.
(c) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
manner issues or sells (whether directly or by assumption in a merger or
otherwise) any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
price per share for which shares of Common Stock are issuable upon such
conversion or exchange shall be less than (i) the Exercise Price in
effect immediately prior to the time of such issue or sale or (ii) the
Current Market Price per share of Common Stock existing immediately
prior to the time of such issue or sale, then the maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date for the determination of
the Current Market Price per share of Common Stock as hereinafter
provided) be deemed to be outstanding and to have been issued for such
price per share; provided however, except as otherwise specified in
subsection (c) below, (1) no further adjustments of the Exercise Price
shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities and (2) if any such issue or
sale of such Convertible Securities is made upon exercise of any rights
to subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Exercise Price have
been or are to be made under other provisions of Sections 5.1 and 5.2,
no further adjustment of the Exercise Price shall be made by reason of
such issue or sale. The price per share for which shares of Common Stock
are issuable upon such conversion or exchange shall be determined by
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if
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any, payable to the Company upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities. For purposes
of this subsection (c), the date as of which the Current Market Price
per share of Common Stock shall be computed shall be the earlier of the
date upon which (i) the Company shall enter into a firm contract for the
issuance of such Convertible Securities or (ii) such Convertible
Securities are actually issued.
(d) READJUSTMENT OF EXERCISE PRICE. If (i) the purchase price
provided for in any rights or options referred to in subsection (b)
above, or (ii) the additional consideration, if any, payable upon the
conversion or exchange of Convertible Securities referred to in
paragraph (b) or (c) above, or (iii) the rate at which any Convertible
Securities referred to in subsection (b) or (c) above are convertible
into or exchangeable for Common Stock shall change (other than under or
by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such event shall forthwith be
readjusted to the Exercise Price which would have been in effect at such
time had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any such option
or right or the termination of any such right to convert or exchange
such Convertible Securities, the Exercise Price then in effect shall be
increased to the Exercise Price which would have been in effect at the
time of such expiration or termination had such right, option or
Convertible Security never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase
price provided for in any such rights or options referred to in
paragraph (b) above or the rate at which any Convertible Securities
referred to in paragraph (b) or (c) are convertible into or exchangeable
for Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise in any
such rights or options or upon conversion or exchange of any such
Convertible Securities, the Exercise Price then in effect hereunder
shall forthwith be adjusted to such amount as would have obtained had
such right, option or Convertible Securities never been issued as to
such Common Stock and had adjustments never been made upon the issuance
of the shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Exercise Price then in effect hereunder is
thereby reduced.
(e) MINIMUM ADJUSTMENT. If any adjustment of the Exercise Price
pursuant to Section 5.1 results in an adjustment of less than $.001 per
share of Common Stock, no such adjustment shall be made, but any such
lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with
any adjustments so carried forward, shall amount to $.001 or more per
share of Common Stock; provided, however, upon any adjustment of the
Exercise Price resulting from (i) the declaration of a dividend upon, or
the mailing of any distribution in respect of, any stock of the Company
payable in Common Stock or Convertible Securities or (ii) the
reclassification, by subdivision, combination or otherwise, of the
Common Stock into a greater or smaller number of shares, the foregoing
figure of $.001 per share (or such figure as last adjusted)
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shall be proportionately adjusted; provided, further, upon the exercise
of this Warrant, the Company shall make all necessary adjustments not
theretofore made to the Exercise Price up to and including the date upon
which this Warrant is exercised.
(f) CONSIDERATION FOR DIVIDENDS IN SECURITIES. If the Company
declares a dividend or makes any other distribution upon any stock of
the Company payable in either case in Common Stock or Convertible
Securities, such Common Stock or Convertible Securities, as the case may
be, issuable in payment of such dividend or distribution shall be deemed
to have been issued or sold without consideration.
(g) CONSIDERATION FOR RIGHTS OR OPTIONS. If any rights or options
to purchase any shares of Common Stock or Convertible Securities are
issued in connection with the issue or sale of other securities of the
Company, together comprising one integral transaction in which no
specific consideration is allocated to the rights or options, the rights
or options shall be deemed to have been issued without consideration.
(h) DETERMINATION OF CONSIDERATION UPON PAYMENT OF CASH, PROPERTY
OR MERGER. If any shares of Common Stock or Convertible Securities or
any rights or options to purchase any such Common Stock or Convertible
Securities are issued or sold for cash, the consideration received
therefor shall be deemed to be the net amount received by the Company
therefor, after deduction of any accrued interest, dividends or any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. If any shares of Common
Stock or Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities are issued for a
consideration other than cash, the amount of the consideration other
than cash received by the Company shall be deemed to be the fair market
value on the date of issue of the securities so issued by the Company,
as determined in good faith by the Board of Directors of the Company,
less any expenses incurred by the Company in connection therewith. If
any shares of Common Stock or Convertible Securities or any rights or
options to purchase such Common Stock or Convertible Securities are
issued in connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair market value thereof on the date
of issue, as determined in good faith by the Board of Directors of the
Company, for such portion of the assets and business of the
non-surviving corporation as the Board of Directors shall attribute to
such Common Stock, Convertible Securities, rights or options, as the
case may be. In the event of any consolidation or merger of the Company
in which the Company is not the surviving corporation or in the event of
any sale of all or substantially all of the assets of the Company for
stock or other securities of any corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock for stock
or securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if
any such calculation results in adjustment of the Exercise Price, the
determination of the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such merger,
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consolidation or sale, for the purposes of subsection (n) below, shall
be made after giving effect to such adjustment of the Exercise Price.
(i) RECORD DATE. If the Company takes a record of the holders of
the Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities or (ii) to subscribe for or purchase Common Stock or
Convertible Securities, then the record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of the dividend or the making
of such other distribution or the date of the granting of the right of
subscription or purchase, as the case may be.
(j) SHARES OUTSTANDING. The number of shares of Common Stock
deemed to be outstanding at any given time shall (i) include shares of
Common Stock issuable in respect of scrip certificates which have been
issued in lieu of fractional shares of Common Stock, but (ii) exclude
(1) shares of Common Stock in the treasury of the Company or any
Subsidiary, (2) shares of Common Stock previously issued upon the
exercise of the Warrants and (3) shares of Common Stock issuable upon
the exercise of the Warrants.
(k) SPLITS AND COMBINATIONS. If the Company at any time
subdivides its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately before the
subdivision shall be proportionately reduced, and, conversely, if the
outstanding shares of Common Stock of the Company are combined into a
smaller number of shares, the Exercise Price in effect immediately
before the combination shall be proportionately increased.
(l) REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF
COMPANY. In case of any capital reorganization or reclassification or
recapitalization of the capital stock of the Company (other than (i) in
the cases referred to in subsection (k) of this Section 5.2 and (ii) a
change in par value, or from par value to no par value or from no par
value to par value) or in case of the consolidation or merger of the
Company with or into another corporation or in case of the sale or
transfer of the property of the Company as an entirety or substantially
as an entirety, there shall thereafter be deliverable upon the exercise
of this Warrant or any portion thereof (in lieu of or in addition to the
number of shares of Common Stock theretofore deliverable) the number of
shares of stock or other securities or property to which the holder of
the number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at
the time would have been entitled upon such capital reorganization or
reclassification of capital stock, consolidation, merger or sale, and at
the same aggregate Exercise Price. Prior to and as a condition of the
consummation of any transaction described in the preceding sentence, the
Company shall make appropriate, written adjustments in the application
of the provisions herein set forth satisfactory to the holders of
Warrants entitled to purchase not less than a majority of the shares of
Common Stock issuable upon the exercise thereof with respect to the
rights and interests of the holders of Warrants so that the provisions
set forth herein shall thereafter be applicable, as nearly as possible,
in relation to any shares of stock or other
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securities or other property thereafter deliverable upon exercise of
this Warrant. Any such adjustment shall be made by and set forth in a
supplemental agreement between the Company and the successor entity and
be approved by the holders of Warrants entitled to purchase not less
than a majority of the shares of Common Stock issuable upon the exercise
thereof.
(m) NO ADJUSTMENT FOR A CERTAIN SPLIT OF COMMON STOCK. No
adjustment shall be made pursuant to this Section 5.2 as a result of a
subdivision of each share of Common Stock outstanding on September 5,
1997 into 1.3379145 shares of Common Stock.
5.3 RIGHTS OFFERING. If the Company effects an offering of Common
Stock pro rata among its stockholders, the Warrantholder shall be entitled, at
its option, to elect to participate in each and every such offering as though
this Warrant had been exercised and the Warrantholder were, at the time of any
such rights offering, then a holder of that number of shares of Common Stock to
which the Warrantholder is then entitled on the exercise hereof.
5.4 CERTIFICATES.
(a) Upon any adjustment of the Exercise Price pursuant to Section
5.1 or Section 5.2 above, a certificate signed (i) by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company or (ii) by any
independent firm of certified public accountants of recognized national
standing selected by, and at the expense of, the Company setting forth
in reasonable detail the events requiring the adjustment and the method
by which such adjustment was calculated, shall be mailed (by first class
mail, postage prepaid) to the Warrantholder specifying the adjusted
Exercise Price and the number of shares of Common Stock purchasable upon
exercise of this Warrant after giving effect to the adjustment of such
number pursuant to Section 5.1 or Section 5.2. The certificate of any
independent firm of certified public accountants of recognized national
standing selected by the Board of Directors of the Company shall be
conclusive evidence of the correctness of any computation made under
Section 5.1 or Section 5.2.
(b) In case the Company proposes to (i) pay any dividend payable
in stock to the holders of shares of Common Stock or to make any other
distribution to the holders of shares of Common Stock, (ii) offer to the
holders of shares of Common Stock rights to subscribe for or purchase
any additional shares of any class of stock or any other rights or
options or (iii) effect any reclassification of the Common Stock (other
than a reclassification involving merely the subdivision or combination
of outstanding shares of Common Stock), or any capital reorganization or
any consolidation or merger (other than a merger in which no
distribution of securities or other property is to be made to holders of
shares of Common Stock), or any sale, transfer or other disposition of
its property, assets and business as an entirety or substantially as an
entirety, or the liquidation, dissolution or winding up of the Company,
then, in each such case, the Company shall mail (by first class mail,
postage prepaid) to the Warrantholder notice of such proposed action,
which shall specify the date
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on which the books of the Company shall close, or a record to be taken,
for determining holders of Common Stock entitled to receive such stock
dividends or other distribution of such rights or options, or the date
on which such reclassification, reorganization, consolidation, merger,
sale, transfer, other disposition, liquidation, dissolution or winding
up shall take place or commence, as the case may be, and the date as of
which it is expected that holders of Common Stock of record shall be
entitled to receive securities or other property deliverable upon such
action, if any such date is to be fixed. Such notice shall be mailed in
the case of any action covered by clause (i) or (ii) above at least 10
days prior to the record date for determining holders of Common Stock
for purposes of receiving such payment or offer, and in the case of any
action covered by clause (iii) above at least 10 days prior to the date
upon which such action takes place and 10 days prior to any record date
to determine holders of Common Stock entitled to receive such securities
or other property.
(c) Failure to file any certificate or notice or to mail any
notice, or any defect in any certificate or notice, pursuant to this
Section 5.4, shall not affect the legality or validity of the adjustment
of the Exercise Price, the number of shares purchasable upon exercise of
this Warrant, or any transaction giving rise thereto.
5.5 CERTAIN DEFINITIONS. The following terms shall have the
meanings indicated below:
(a) "Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for, with or without payment of additional consideration in
cash or property, additional shares of Common Stock, either immediately
or upon a specified date or the happening of a specified event.
(b) "Current Market Price" per share of Common Stock on any
specified date means the highest of (a) the book value thereof as
determined in accordance with generally accepted accounting principles
but without any adjustment or reduction for the amount, if any, that
may, under modification to generally accepted accounting principles
after the date hereof, be required to be listed as an offset to or
reserve against earnings or retained earnings by any firm of independent
public accountants of recognized national standing selected by the
Company, as at the last day of any month ending within 60 days
immediately preceding such date or (b) the fair market value thereof as
determined in good faith by the Board of Directors of the Company as of
a date which is within 15 days of such date or (c) the average of the
daily market prices (determined as set forth in the next sentence), if
any, for 30 consecutive business days commencing 45 business days before
such date, except that for the purposes of Section 5.1(a) hereof the
"Current Market Price" per share of Common Stock, shall mean the market
price on the business day therein specified or (d) in the event that the
Holder shall at its option request an appraisal, the appraised value
thereof as determined by a national investment banking firm selected by
the Holder and acceptable to the Company (the cost of such appraisal to
be borne by the Company) determined without regard to the illiquidity of
the investment represented by the Common Stock and without discount by
reason of ownership of a minority interest. The
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market price for each such business day shall be the average of the last
sale prices on such day on all domestic stock exchanges on which the
Common Stock may then be listed, or, if no sale takes place on such day
on any such exchange, the average of the closing bid and asked prices on
such day as officially quoted on such exchanges, or, if Common Stock is
not then listed or admitted to trading on any domestic stock exchange,
the market price for each business day shall be the average of the
reported bid and asked prices on such day in the over-the-counter
market, as furnished by the National Quotation Bureau, Inc., or, if such
firm at the time is not engaged in the business of reporting such
prices, as furnished by any similar firm then engaged in such business
and selected by the Company or, if there is no such firm, as furnished
by any member of the National Association of Securities Dealers, Inc.,
selected by the Company.
5.6 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrant, reduce the then current
Exercise Price to any amount, consistent with applicable law, deemed appropriate
by the Board of Directors of the Company.
5.7 NO ADJUSTMENT FOR CASH DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.
6. REGISTRATION RIGHTS. The Company shall not enter into any agreement
obligating the Company to cause securities of the Company owned by any person or
entity to be registered under the Securities Act or the securities law of any
state unless the Company simultaneously grants rights to Equus and the
Contributing Shareholders (as that term is defined in the Funding and Stock
Purchase Agreement dated April 18, 1997, between the Company and Equus) which
are equal to the rights granted to such other person or entity.
7. NO IMPAIRMENT. The Company shall not by any action, including,
without limitation, amending its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate to protect the
rights of the Warrantholder against impairment. Without limiting the generality
of the foregoing, the Company will (a) not change the par value of any shares of
Common Stock receivable upon the exercise of this Warrant to an amount greater
than the amount payable therefor upon such exercise, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, (c) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant,
and (d) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock.
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Upon the request of the Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to the Holder, the continued validity of this Warrant and the
Company's obligations under it.
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Warrant constitutes the entire
agreement between the Company and the Warrantholders with respect to this
Warrant and Warrant Shares.
8.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholders and holders
of Warrant Shares and their respective heirs, legal representatives, successors
and assigns. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company, the Warrantholders and
holders of Warrant Shares, or their respective heirs, legal representatives,
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant or the Warrant Shares.
8.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and the
Warrantholder. The Company, any Warrantholder or holders of Warrant Shares may,
by an instrument in writing, waive compliance by the other party with any term
or provision of this Warrant on the part of such other party hereto to be
performed or complied with. The waiver by any such party of a breach of any term
or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
8.4 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
8.5 FURTHER ASSURANCES. Each of the Company, the Warrantholders
and holders of Warrant Shares shall do and perform all such further acts and
things and execute and deliver all such other certificates, instruments and/or
powers of attorney as may be necessary or appropriate) as any party hereto may,
at any time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Warrant.
8.6 NOTICES. All demands, requests, notices and other
communications required or permitted to be given under this Warrant shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by United States certified or registered first class mail, postage prepaid,
to the parties hereto at the following addresses or at such other address as any
party hereto shall hereafter specify by notice to the other party hereto:
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(a) if to the Company, addressed to:
Healthtech Delivery, Inc.
2078 Prospector Avenue
Park City, Utah 84060
Attention: William C. Klintworth, Jr.
President and Chief Executive Officer
(b) if to any Warrantholder or holder of Warrant Shares,
addressed to the address of such person appearing on the books of the
Company.
Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received on the
date of personal delivery thereof or on the third Business Day after the mailing
thereof.
8.7 SEPARABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any other term or provision of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
8.8 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Price.
8.9 RIGHTS OF THE HOLDER. The Warrantholder shall not, solely by
virtue of this Warrant, be entitled to any rights of a stockholder of the
Company, either at law or in equity.
8.10 GOVERNING LAW. This Warrant shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and performed in Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first written above.
HEALTHTECH DELIVERY, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.
President and Chief Executive Officer
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EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase _________
of the Warrant Shares and herewith tenders payment for such Warrant Shares to
the order of HEALTHTECH DELIVERY, INC., in the amount of $ _____________ in
accordance with the terms of this Warrant. The undersigned requests that a
certificate for such Warrant Shares be registered in the name of
_________________ and that such certificate be delivered to _________________
whose address is _________________.
Date_______________ Signature:_______________________________
15
EXHIBIT 10.13
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, STATE
SECURITIES STATUTES AND THE TERMS AND CONDITIONS HEREOF. THE HOLDER OF THIS
WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE
RESTRICTIONS HEREIN SET FORTH.
=============================
Warrant No. 2
WARRANT
TO
PURCHASE 25,000 SHARES COMMON STOCK
OF
TRIAD MEDICAL INC.
=============================
This Warrant dated as of September 8, 1997 ("Warrant") certifies that, for
good and valuable consideration, TRIAD MEDICAL INC., a Delaware corporation (the
"Company"), grants to PENMAN PRIVATE EQUITY AND MEZZANINE FUND, L.P., a Delaware
limited partnership ("PENMAN"), or permitted registered assigns (the
"Warrantholder" or "Warrantholders"), subject to the terms and conditions set
forth herein, the right to subscribe for and purchase from the Company:
Twenty-Five Thousand (25,000) shares (the "Warrant Shares") of the Company's
common stock, par value $.001 per share ("Common Stock"), at the initial per
share public offering price (the "Exercise Price") of Common Stock offered to
the public in the Company's initial public offering ("IPO"), during the period
from and after 9:00 a.m. Houston, Texas time on the date of the closing of the
IPO (the "Initial Exercise Date") and to and including 5:00 p.m. Houston, Texas
time on the fifth anniversary of the Initial Exercise Date (the "Expiration
Date"). The Exercise Price and the number of Warrant Shares are subject to
adjustment from time to time as provided in Section 5. The right of PENMAN or
Warrantholder to exercise this Warrant is subject to the condition precedent
that Triad Holdings, Inc. is one of the founding companies acquired by the
Company contemporaneously with the consummation of the IPO. In the event the IPO
is consummated and the shares of Triad Holdings, Inc. are not acquired by the
Company contemporaneously therewith, this Warrant shall be null and void and of
no further force and effect.
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1. DURATION AND EXERCISE OF WARRANT; LIMITATION EXERCISE PAYMENT OF TAXES.
1.1 DURATION AND EXERCISE OF WARRANT. The rights represented by this
Warrant may be exercised by the Warrantholder of record, in whole, or from time
to time in part (but covering at least the lesser of 1,000 shares or the
remaining unexercised portion of this Warrant), by surrender of this Warrant,
accompanied by the Exercise Form annexed hereto (the "Exercise Form") duly
executed by the Warrantholder of record and specifying the number of Warrant
Shares to be purchased, to the Company at the office of the Company located at
2078 Prospector Avenue Park City, Utah 84060 (or such other office or agency of
the Company as it may designate by notice to the Warrantholder at the address of
such Warrantholder appearing on the books of the Company) during normal business
hours on any day (a "Business Day") other than a Saturday, Sunday or a day on
which the Company is otherwise closed for business (a "Nonbusiness Day") on or
after 9:00 a.m. Houston, Texas time on the Initial Exercise Date but not later
than 5:00 p.m. on the Expiration Date (or 5:00 p.m. on the next succeeding
Business Day, if the Expiration Date is a Nonbusiness Day), delivery of payment
to the Company in cash or by certified bank check of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form and such documentation
as to the identity and authority of the Warrantholder as the Company may
reasonably request. Such Warrant Shares shall be deemed by the Company to be
issued to the Warrantholder which is the record holder of such Warrant Shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for the Warrant Shares as aforesaid. Certificates
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder as promptly as practicable, and in any event within 10 business
days, thereafter. The stock certificates so delivered shall be in denominations
of at least 1,000 shares each or such other denomination as may be specified by
the Warrantholder and agreed upon by the Company, and shall be issued in the
name of the Warrantholder or, if permitted by subsection 1.5 and in accordance
with the provisions thereof, such other name as shall be designated in the
Exercise Form. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of the certificates for the Warrant
Shares, deliver to the Warrantholder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant. No adjustments or payments shall be
made on or in respect of Warrant Shares issuable on the exercise of this Warrant
for any cash dividends paid or payable to holders of record of Common Stock
prior to the date as of which the Warrantholder shall be deemed to be the record
holder of such Warrant Shares.
1.2 LIMITATION ON EXERCISE. If this Warrant is not exercised prior
to 5:00 p.m. on the Expiration Date (or the next succeeding Business Day, if the
Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant issued
pursuant to Section 1.1, shall cease to be exercisable and shall become void and
all rights of the Warrantholder hereunder shall cease. This Warrant shall not be
exercisable and no Warrant Shares shall be issued hereunder, prior to 9:00 a.m.
Houston, Texas time on the Initial Exercise Date.
1.3 CASHLESS EXERCISE. Notwithstanding Section 1.1 above, the
Warrantholder, in lieu of the payment of cash or certified bank check for the
aggregate Exercise Price for shares of Common Stock as to which this Warrant is
being exercised, may elect by written notice delivered
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to the Company at the time the Exercise Form is delivered to the Company
pursuant to Section 1.1 above, to effect a "cashless exercise," in which case
(i) the Warrantholder need not pay the aggregate Exercise Price to the Company
in cash or by certified bank check, and (ii) the number of shares of Common
Stock issuable upon such exercise shall be reduced by a number of shares of
Common Stock determined by dividing (x) the aggregate Exercise Price for all
shares of Common Stock as to which this Warrant is then being exercised by (y)
the Current Market Price (as such term is hereinafter defined) per share of
Common Stock at the date of such exercise, and by then rounding downward to the
nearest whole share of Common Stock.
1.4 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereto; PROVIDED, HOWEVER, that the
Warrantholder shall be required to pay any and all taxes which may be payable in
respect to any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
1.5 TRANSFER; RESTRICTION ON TRANSFER AND LEGEND.
(a) Subject to the provisions of Section 1.5(b) below, this Warrant
may be transferred, in whole or in part, at any time, without the consent
of the Company, by notice from Warrantholder. The Company shall keep at
its principal office a register in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration, transfer and exchange of this Warrant. The Company will not
at any time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to prevent or delay the exercise or
transfer of this Warrant.
(b) Neither this Warrant nor any of the Warrant Shares, nor any
interest or participation in either, may be in any manner transferred or
disposed of, in whole or in part, except in compliance with applicable
United States federal and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any
time in exchange or substitution for any Warrant bearing such a legend
shall bear a legend similar in effect to the foregoing paragraph 1.5(b)
unless, in the opinion of counsel for the Company, the Warrant need no
longer be subject to the restriction contained herein. The provisions of
this subsection 1.5 shall be binding upon all subsequent holders of this
Warrant, if any. Warrant Shares transferred to the public as expressly
permitted by, and in accordance with, the provisions of this Warrant shall
thereafter cease to be deemed to be "Warrant Shares" for purposes hereof.
1.6 DIVISIBILITY OF WARRANT. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon surrender at
the principal office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. The Warrantholder will be charged for
reasonable out-of-pocket costs incurred by the Company in connection with the
division of this Warrant into Warrants representing fewer than one thousand
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<PAGE>
(1,000) Warrant Shares. Upon any such division, and, if permitted by subsection
1.5 and in accordance with the provisions thereof, the Warrants may be
transferred of record to a name other than that of the Warrantholder of record;
PROVIDED, HOWEVER, that the Warrantholder shall be required to pay any and all
transfer taxes with respect thereto.
2. RESERVATION AND LISTING OF SHARES. All Warrant Shares which are issued
upon the exercise of the rights represented by this Warrant shall, upon issuance
and payment of the Exercise Price, be validly issued, fully paid and
nonassessable and free from all taxes, liens, security interests, charges and
other encumbrances with respect to the issue thereof other than taxes in respect
of any transfer occurring contemporaneously with such issue. During the period
within which this Warrant may be exercised, the Company shall at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of this
Warrant, and shall at its expense use all commercially reasonable efforts to
procure such listing thereof (subject to official notice of issuance) as then
may be required on all stock exchanges on which the Common Stock is then listed.
The Company shall, from time to time, take all such action as may be required to
assure that the par value per share of the Warrant Shares is at all times equal
to or less than the then effective Exercise Price.
3. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT. If permitted by subsection
1.5 or 1.6 and in accordance with the provisions thereof, upon surrender of this
Warrant to the Company with a duly executed instrument of assignment and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be cancelled. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
The term "Warrant" as used herein includes any Warrants issued in substitution
or exchange of this Warrant.
4. OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in subsections 1.1, 1.5 and 1.6 or in Section 3.
5. CERTAIN ADJUSTMENTS. The Exercise Price at which Warrant Shares may be
purchased hereunder, and the number of Warrant Shares to be purchased upon
exercise hereof, are subject to change or adjustment as follows:
5.1 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. If the Company
issues or sells any shares of Common Stock (other than up to 100,000 shares of
Common Stock to be issued by the Company in a private placement at $5 per share
on or before September 30, 1997, and shares issued in connection with the
1.3379145 for 1 stock split contemplated by the Certificate of
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<PAGE>
Amendment to the Certificate of Incorporation of the Company dated as of
September 5, 1997) for a consideration per share less than (x) the Exercise
Price or (y) the then Current Market Price (as hereinafter defined) per share of
Common Stock in effect immediately prior to the time of such issue or sale, the
Exercise Price shall be reduced to the lower of the prices calculated by:
(1) dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing Exercise Price
plus (y) the aggregate consideration, if any, received by the
Company upon such issue or sale, by (B) the total number of
shares of Common Stock outstanding immediately after such
issue or sale; and
(2) multiplying the then existing Exercise Price by a fraction the
numerator of which is (A) the sum of (x) the number of shares
of Common Stock outstanding immediately prior to such issue or
sale multiplied by the Current Market Price per share of
Common Stock immediately prior to such issue or sale plus (y)
the consideration received by the Company upon such issue or
sale divided by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale, and the
denominator of which shall be the Current Market Price per
share of Common Stock immediately prior to such issue or sale.
For purposes of this Section 5.1, the date as of which the Current
Market Price per share of Common Stock shall be computed shall be the earlier of
the date upon which the Company shall (i) enter into a firm contract for the
issuance of such shares or (ii) issue such shares.
5.2 PROVISIONS APPLICABLE TO SECTION 5.1. For purposes of Section
5.1, the following subsections (a) through (l), inclusive, shall be applicable:
(a) ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon any adjustment
of the Exercise Price as provided in Section 5.1 or in this Section 5.2,
the Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from the adjustment, the number of shares of
Common Stock (calculated to the nearest 1/100th of a share) obtained by
multiplying the Exercise Price in effect immediately before the adjustment
by the number of shares of Common Stock purchasable hereunder immediately
before the adjustment and dividing the product thereof by the Exercise
Price resulting from the adjustment.
(b) ISSUANCE OF WARRANTS OR OTHER RIGHTS. If the Company in any
manner grants (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or Convertible Securities (as hereinafter
defined), whether or not such rights or options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and
if the price per share for which shares of Common Stock are issuable upon
the exercise of such rights or options or upon conversion or exchange of
such Convertible Securities is less than (i) the Exercise Price
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<PAGE>
in effect immediately before the granting of such rights or options or
(ii) the Current Market Price per share of Common Stock existing
immediately before the granting of such rights or options, then the
maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon conversion or exchange of the maximum
amount of such Convertible Securities issuable upon the exercise of such
rights or options shall (as of the date for the determination of the
Current Market Price per share of Common Stock as hereinafter provided) be
deemed to be outstanding and to have been issued for such price per share.
The price per share for which shares of Common Stock are issuable upon the
exercise of such right or options or upon conversion or exchange of such
Convertible Securities shall be determined by dividing (1) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such rights or options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the exercise of
such rights or options, plus, in the case of such Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the conversion or exchange thereof, by (2) the total maximum number
of shares of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options. No
further adjustments of the Exercise Price shall be made upon the actual
issue of such Common Stock or of such rights or options or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities except as otherwise provided in subsection (d) below. For
purposes of this subsection (b), the date as of which the Current Market
Price per share of Common Stock shall be computed shalt be the earlier of
the date upon which the Company shall (i) enter into a firm contract for
the issuance of such rights or other options or (ii) issue such rights or
other options.
(c) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
issues or sells (whether directly or by assumption in a merger or
otherwise) any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price
per share for which shares of Common Stock are issuable upon such
conversion or exchange shall be less than (i) the Exercise Price in effect
immediately prior to the time of such issue or sale or (ii) the Current
Market Price per share of Common Stock existing immediately prior to the
time of such issue or sale, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date for the determination of the Current
Market Price per share of Common Stock as hereinafter provided) be deemed
to be outstanding and to have been issued for such price per share;
provided however, except as otherwise specified in subsection (c) below,
(1) no further adjustments of the Exercise Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and (2) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to subscribe
for or to purchase or any option to purchase any such Convertible
Securities for which adjustments of the Exercise Price have been or are to
be made under other provisions of Sections 5.1 and 5.2, no further
adjustment of the Exercise Price shall be made by reason of such issue or
sale. The price per share for which shares of Common Stock are issuable
upon such conversion or exchange shall be determined by dividing (x) the
total amount
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received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. For purposes of this subsection (c), the date as
of which the Current Market Price per share of Common Stock shall be
computed shall be the earlier of the date upon which (i) the Company shall
enter into a firm contract for the issuance of such Convertible Securities
or (ii) such Convertible Securities are actually issued.
(d) READJUSTMENT OF EXERCISE PRICE. If (i) the purchase price
provided for in any rights or options referred to in subsection (b) above,
or (ii) the additional consideration, if any, payable upon the conversion
or exchange of Convertible Securities referred to in paragraph (b) or (c)
above, or (iii) the rate at which any Convertible Securities referred to
in subsection (b) or (c) above are convertible into or exchangeable for
Common Stock shall change (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the
time of such event shall forthwith be readjusted to the Exercise Price
which would have been in effect at such time had such rights, options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. On the expiration
of any such option or right or the termination of any such right to
convert or exchange such Convertible Securities, the Exercise Price then
in effect shall be increased to the Exercise Price which would have been
in effect at the time of such expiration or termination had such right,
option or Convertible Security never been issued, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such rights or options referred to in
paragraph (b) above or the rate at which any Convertible Securities
referred to in paragraph (b) or (c) are convertible into or exchangeable
for Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution, then
in case of the delivery of Common Stock upon the exercise in any such
rights or options or upon conversion or exchange of any such Convertible
Securities, the Exercise Price then in effect hereunder shall forthwith be
adjusted to such amount as would have obtained had such right, option or
Convertible Securities never been issued as to such Common Stock and had
adjustments never been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment
the Exercise Price then in effect hereunder is thereby reduced.
(e) MINIMUM ADJUSTMENT. If any adjustment of the Exercise Price
pursuant to Section 5.1 results in an adjustment of less than $.001 per
share of Common Stock, no such adjustment shall be made, but any such
lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to $.001 or more per share of
Common Stock; provided, however, upon any adjustment of the Exercise Price
resulting from (i) the declaration of a dividend upon, or the mailing of
any distribution in respect of, any stock of the Company payable in Common
Stock or Convertible Securities or (ii) the reclassification,
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<PAGE>
by subdivision, combination or otherwise, of the Common Stock into a
greater or smaller number of shares, the foregoing figure of $.001 per
share (or such figure as last adjusted) shall be proportionately adjusted;
provided, further, upon the exercise of this Warrant, the Company shall
make all necessary adjustments not theretofore made to the Exercise Price
up to and including the date upon which this Warrant is exercised.
(f) CONSIDERATION FOR DIVIDENDS IN SECURITIES. If the Company
declares a dividend or makes any other distribution upon any stock of the
Company payable in either case in Common Stock or Convertible Securities,
such Common Stock or Convertible Securities, as the case may be, issuable
in payment of such dividend or distribution shall be deemed to have been
issued or sold without consideration.
(g) CONSIDERATION FOR RIGHTS OR OPTIONS. If any rights or options to
purchase any shares of Common Stock or Convertible Securities are issued
in connection with the issue or sale of other securities of the Company,
together comprising one integral transaction in which no specific
consideration is allocated to the rights or options, the rights or options
shall be deemed to have been issued without consideration.
(h) DETERMINATION OF CONSIDERATION UPON PAYMENT OF CASH, PROPERTY OR
MERGER. If any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or Convertible
Securities are issued or sold for cash, the consideration received
therefor shall be deemed to be the net amount received by the Company
therefor, after deduction of any accrued interest, dividends or any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. If any shares of Common
Stock or Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities are issued for a consideration
other than cash, the amount of the consideration other than cash received
by the Company shall be deemed to be the fair market value on the date of
issue of the securities so issued by the Company, as determined in good
faith by the Board of Directors of the Company, less any expenses incurred
by the Company in connection therewith. If any shares of Common Stock or
Convertible Securities or any rights or options to purchase such Common
Stock or Convertible Securities are issued in connection with any merger
or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair market
value thereof on the date of issue, as determined in good faith by the
Board of Directors of the Company, for such portion of the assets and
business of the non-surviving corporation as the Board of Directors shall
attribute to such Common Stock, Convertible Securities, rights or options,
as the case may be. In the event of any consolidation or merger of the
Company in which the Company is not the surviving corporation or in the
event of any sale of all or substantially all of the assets of the Company
for stock or other securities of any corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if
any such calculation
8
<PAGE>
results in adjustment of the Exercise Price, the determination of the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such merger, consolidation or sale, for the purposes
of subsection (n) below, shall be made after giving effect to such
adjustment of the Exercise Price.
(i) RECORD DATE. If the Company takes a record of the holders of the
Common Stock for the purpose of entitling them (i) to receive a dividend
or other distribution payable in Common Stock or in Convertible Securities
or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then the record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of the dividend or the making of such other
distribution or the date of the granting of the right of subscription or
purchase, as the case may be.
(j) SHARES OUTSTANDING. The number of shares of Common Stock deemed
to be outstanding at any given time shall (i) include shares of Common
Stock issuable in respect of scrip certificates which have been issued in
lieu of fractional shares of Common Stock, but (ii) exclude (1) shares of
Common Stock in the treasury of the Company or any Subsidiary, (2) shares
of Common Stock previously issued upon the exercise of the Warrants and
(3) shares of Common Stock issuable upon the exercise of the Warrants.
(k) SPLITS AND COMBINATIONS. If the Company at any time subdivides
its outstanding shares of Common Stock into a greater number of shares,
the Exercise Price in effect immediately before the subdivision shall be
proportionately reduced, and, conversely, if the outstanding shares of
Common Stock of the Company are combined into a smaller number of shares,
the Exercise Price in effect immediately before the combination shall be
proportionately increased.
(l) REORGANIZATION, RECLASSIFICATION OR RECAPITALIZATION OF COMPANY.
In case of any capital reorganization or reclassification or
recapitalization of the capital stock of the Company (other than (i) in
the cases referred to in subsection (k) of this Section 5.2 and (ii) a
change in par value, or from par value to no par value or from no par
value to par value) or in case of the consolidation or merger of the
Company with or into another corporation or in case of the sale or
transfer of the property of the Company as an entirety or substantially as
an entirety, there shall thereafter be deliverable upon the exercise of
this Warrant or any portion thereof (in lieu of or in addition to the
number of shares of Common Stock theretofore deliverable) the number of
shares of stock or other securities or property to which the holder of the
number of shares of Common Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at
the time would have been entitled upon such capital reorganization or
reclassification of capital stock, consolidation, merger or sale, and at
the same aggregate Exercise Price. Prior to and as a condition of the
consummation of any transaction described in the preceding sentence, the
Company shall make appropriate, written adjustments in the application of
the provisions herein set forth satisfactory to the holders of Warrants
entitled to purchase not less than a majority of the shares of Common
Stock issuable upon the exercise thereof with respect to
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<PAGE>
the rights and interests of the holders of Warrants so that the provisions
set forth herein shall thereafter be applicable, as nearly as possible, in
relation to any shares of stock or other securities or other property
thereafter deliverable upon exercise of this Warrant. Any such adjustment
shall be made by and set forth in a supplemental agreement between the
Company and the successor entity and be approved by the holders of
Warrants entitled to purchase not less than a majority of the shares of
Common Stock issuable upon the exercise thereof.
5.3 RIGHTS OFFERING. If the Company effects an offering of Common
Stock pro rata among its stockholders, the Warrantholder shall be entitled, at
its option, to elect to participate in each and every such offering as though
this Warrant had been exercised and the Warrantholder were, at the time of any
such rights offering, then a holder of that number of shares of Common Stock to
which the Warrantholder is then entitled on the exercise hereof.
5.4 CERTIFICATES.
(a) Upon any adjustment of the Exercise Price pursuant to Section
5.1 or Section 5.2 above, a certificate signed (i) by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company or (ii) by any
independent firm of certified public accountants of recognized national
standing selected by, and at the expense of, the Company setting forth in
reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated, shall be mailed (by first class
mail, postage prepaid) to the Warrantholder specifying the adjusted
Exercise Price and the number of shares of Common Stock purchasable upon
exercise of this Warrant after giving effect to the adjustment of such
number pursuant to Section 5.1 or Section 5.2. The certificate of any
independent firm of certified public accountants of recognized national
standing selected by the Board of Directors of the Company shall be
conclusive evidence of the correctness of any computation made under
Section 5.1 or Section 5.2.
(b) In case the Company proposes to (i) pay any dividend payable in
stock to the holders of shares of Common Stock or to make any other
distribution to the holders of shares of Common Stock, (ii) offer to the
holders of shares of Common Stock rights to subscribe for or purchase any
additional shares of any class of stock or any other rights or options or
(iii) effect any reclassification of the Common Stock (other than a
reclassification involving merely the subdivision or combination of
outstanding shares of Common Stock), or any capital reorganization or any
consolidation or merger (other than a merger in which no distribution of
securities or other property is to be made to holders of shares of Common
Stock), or any sale, transfer or other disposition of its property, assets
and business as an entirety or substantially as an entirety, or the
liquidation, dissolution or winding up of the Company, then, in each such
case, the Company shall mail (by first class mail, postage prepaid) to the
Warrantholder notice of such proposed action, which shall specify the date
on which the books of the Company shall close, or a record to be taken,
for determining holders of Common Stock entitled to receive such stock
dividends or other distribution of
10
<PAGE>
such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution or winding up shall take place or commence, as
the case may be, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to receive securities or other
property deliverable upon such action, if any such date is to be fixed.
Such notice shall be mailed in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for
determining holders of Common Stock for purposes of receiving such payment
or offer, and in the case of any action covered by clause (iii) above at
least 10 days prior to the date upon which such action takes place and 10
days prior to any record date to determine holders of Common Stock
entitled to receive such securities or other property.
(c) Failure to file any certificate or notice or to mail any notice,
or any defect in any certificate or notice, pursuant to this Section 5.4,
shall not affect the legality or validity of the adjustment of the
Exercise Price, the number of shares purchasable upon exercise of this
Warrant, or any transaction giving rise thereto.
5.5 CERTAIN DEFINITIONS. The following terms shall have the meanings
indicated below:
(a) "Convertible Securities" means evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable
for, with or without payment of additional consideration in cash or
property, additional shares of Common Stock, either immediately or upon a
specified date or the happening of a specified event.
(b) "Current Market Price" per share of Common Stock on any
specified date means the highest of (a) the book value thereof as
determined in accordance with generally accepted accounting principles but
without any adjustment or reduction for the amount, if any, that may,
under modification to generally accepted accounting principles after the
date hereof, be required to be listed as an offset to or reserve against
earnings or retained earnings by any firm of independent public
accountants of recognized national standing selected by the Company, as at
the last day of any month ending within 60 days immediately preceding such
date or (b) the fair market value thereof as determined in good faith by
the Board of Directors of the Company as of a date which is within 15 days
of such date or (c) the average of the daily market prices (determined as
set forth in the next sentence), if any, for 30 consecutive business days
commencing 45 business days before such date, except that for the purposes
of Section 5.1(a) hereof the "Current Market Price" per share of Common
Stock, shall mean the market price on the business day therein specified
or (d) in the event that the Holder shall at its option request an
appraisal, the appraised value thereof as determined by a national
investment banking firm selected by the Holder and acceptable to the
Company (the cost of such appraisal to be borne by the Company) determined
without regard to the illiquidity of the investment represented by the
Common Stock and without discount by reason of ownership of a minority
interest. The market price for each such business day shall be the average
of the last sale prices on such day on all domestic stock exchanges on
which the Common Stock may then be listed, or,
11
<PAGE>
if no sale takes place on such day on any such exchange, the average of
the closing bid and asked prices on such day as officially quoted on such
exchanges, or, if Common Stock is not then listed or admitted to trading
on any domestic stock exchange, the market price for each business day
shall be the average of the reported bid and asked prices on such day in
the over-the-counter market, as furnished by the National Quotation
Bureau, Inc., or, if such firm at the time is not engaged in the business
of reporting such prices, as furnished by any similar firm then engaged in
such business and selected by the Company or, if there is no such firm, as
furnished by any member of the National Association of Securities Dealers,
Inc., selected by the Company.
5.6 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrant, reduce the then current
Exercise Price to any amount, consistent with applicable law, deemed appropriate
by the Board of Directors of the Company.
5.7 NO ADJUSTMENT FOR CASH DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.
6. REGISTRATION RIGHTS. The Company shall not enter into any agreement
obligating the Company to cause securities of the Company owned by any person or
entity to be registered under the Securities Act or the securities law of any
state unless the Company simultaneously grants rights to PENMAN which are equal
to the rights granted to such other person or entity.
7. NO IMPAIRMENT. The Company shall not by any action, including, without
limitation, amending its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate to protect the
rights of the Warrantholder against impairment. Without limiting the generality
of the foregoing, the Company will (a) not change the par value of any shares of
Common Stock receivable upon the exercise of this Warrant to an amount greater
than the amount payable therefor upon such exercise, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, (c) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant,
and (d) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock.
Upon the request of the Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to the Holder, the continued validity of this Warrant and the
Company's obligations under it.
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<PAGE>
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
between the Company and the Warrantholders with respect to this Warrant and
Warrant Shares.
8.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholders and holders
of Warrant Shares and their respective heirs, legal representatives, successors
and assigns. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company, the Warrantholders and
holders of Warrant Shares, or their respective heirs, legal representatives,
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant or the Warrant Shares.
8.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and the
Warrantholder. The Company, any Warrantholder or holders of Warrant Shares may,
by an instrument in writing, waive compliance by the other party with any term
or provision of this Warrant on the part of such other party hereto to be
performed or complied with. The waiver by any such party of a breach of any term
or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
8.4 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
8.5 FURTHER ASSURANCES. Each of the Company, the Warrantholders and
holders of Warrant Shares shall do and perform all such further acts and things
and execute and deliver all such other certificates, instruments and/or powers
of attorney as may be necessary or appropriate) as any party hereto may, at any
time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Warrant.
8.6 NOTICES. All demands, requests, notices and other communications
required or permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
United States certified or registered first class mail, postage prepaid, to the
parties hereto at the following addresses or at such other address as any party
hereto shall hereafter specify by notice to the other party hereto:
(a) if to the Company, addressed to:
Triad Medical Inc.
2078 Prospector Avenue
Park City, Utah 84060
Attention: William C. Klintworth, Jr.
President and Chief Executive Officer
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<PAGE>
(b) if to any Warrantholder or holder of Warrant Shares, addressed
to the address of such person appearing on the books of the Company.
Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received on the
date of personal delivery thereof or on the third Business Day after the mailing
thereof.
8.7 SEPARABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any other term or provision of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
8.8 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Price.
8.9 RIGHTS OF THE HOLDER. The Warrantholder shall not, solely by
virtue of this Warrant, be entitled to any rights of a stockholder of the
Company, either at law or in equity.
8.10 GOVERNING LAW. This Warrant shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and performed in Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first written above.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.
President and Chief Executive Officer
14
<PAGE>
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase of the
Warrant Shares and herewith tenders payment for such Warrant Shares to the order
of TRIAD MEDICAL INC. the amount of $ ____________ in accordance with the terms
of this Warrant. The undersigned requests that a certificate for such Warrant
Shares be registered in the name of _________________ and that such certificate
be delivered to _________________ whose address is _________________.
Date_____________________ Signature:__________________________
15
EXHIBIT 10.14
FUNDING AND STOCK PURCHASE AGREEMENT
BETWEEN
HEALTHTECH DELIVERY, INC.
A DELAWARE CORPORATION
AND
EQUUS II INCORPORATED,
A DELAWARE CORPORATION
APRIL 18, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
1. SALE OF SHARES; FUNDING COMMITMENT.....................................1
1.1 SALE AND PURCHASE OF PREFERRED SHARES............................1
1.2 ADVANCES.........................................................2
1.3 PROMISSORY NOTE..................................................2
1.4 THE BUDGET.......................................................2
1.5 PROCEDURE FOR ADVANCES...........................................2
1.6 REPAYMENT........................................................3
1.7 INTEREST RATE....................................................3
1.8 WARRANT..........................................................3
1.9 BOARD REPRESENTATION.............................................3
2. REPRESENTATIONS OF THE COMPANY.........................................3
2.1 ORGANIZATION.....................................................3
2.2 CAPITALIZATION...................................................3
2.3 NO SUBSIDIARIES..................................................4
2.4 NO OPERATIONS OR LIABILITIES.....................................4
2.5 THE BUDGET.......................................................5
2.6 PROPOSED ACQUISITIONS............................................5
2.7 NO LITIGATION....................................................5
2.8 NO REGISTRATION RIGHTS...........................................5
2.9 TRANSACTIONS WITH AFFILIATES.....................................5
2.10 NO GOVERNMENTAL APPROVALS........................................5
2.11 NO BROKERS.......................................................6
2.12 AUTHORITY OF THE COMPANY.........................................6
3. REPRESENTATIONS OF EQUUS...............................................6
3.1 AUTHORITY OF EQUUS...............................................6
3.2 MEANS OF SOLICITATION............................................6
3.3 NO GOVERNMENTAL APPROVALS........................................7
3.5 ACCREDITED INVESTOR..............................................7
3.6 NO PUBLIC MARKET.................................................7
3.7 ACCESS TO DATA...................................................7
3.8 DILIGENCE MATERIALS..............................................7
4. RESTRICTIVE LEGEND.....................................................8
4.1 LEGEND...........................................................8
4.2 REMOVAL OF LEGENDS...............................................8
5. COVENANTS OF THE COMPANY...............................................8
5.1 EQUUS REPRESENTATION ON COMPANY BOARD............................8
5.2 CERTAIN ACTIONS PROHIBITED.......................................9
5.3 ACQUISITIONS.....................................................9
5.4 IPO..............................................................9
(i)
<PAGE>
5.5 ACCESS..........................................................10
6. CONDITIONS TO OBLIGATION OF EQUUS.....................................10
7. EVENTS OF DEFAULT.....................................................10
7.1 PAYMENT OF OBLIGATION...........................................10
7.2 NEGATIVE COVENANT...............................................10
7.3 Other Covenants.................................................10
7.4 DEBTOR RELIEF...................................................11
7.5 MISREPRESENTATION...............................................11
8. MISCELLANEOUS.........................................................11
8.1 REMEDIES NOT EXCLUSIVE..........................................11
8.2 PARTIES BOUND...................................................11
8.3 NOTICES.........................................................11
8.4 CHOICE OF LAW.........................................................12
8.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS; ASSIGNMENT..................12
8.6 FURTHER ASSURANCES....................................................12
8.7 EXPENSES..............................................................13
8.8 MAXIMUM RATE..........................................................13
8.9 NO THIRD PARTY BENEFICIARIES..........................................13
8.10 NO PARTNERSHIP........................................................13
8.11 MULTIPLE COUNTERPARTS.................................................13
8.12 HEADINGS..............................................................13
8.13 TERMINATION...........................................................14
EXHIBITS:
Exhibit A - Certificate of Designation, Preferences, Rights and Limitations
Exhibit B - Promissory Note
Exhibit C - Budget
Exhibit D - Request for Advance
Exhibit E - Warrant
(ii)
<PAGE>
FUNDING AND STOCK PURCHASE AGREEMENT
FUNDING AND STOCK PURCHASE AGREEMENT dated as of April 18, 1997, between
HEALTHTECH DELIVERY, INC., a Delaware corporation (the "Company"), and EQUUS II
INCORPORATED, a Delaware corporation ("Equus").
W I T N E S S E T H:
WHEREAS, the Company proposes to acquire a number of companies which are
distributors of medical products to the anesthesiology, cardiac and critical
care supplies market (the "Business") for various combinations of cash and
common stock of the Company (the "Proposed Acquisitions") simultaneously with,
and conditioned upon, the successful completion of an initial underwritten
public offering of the Company's common stock (the "IPO"); and
WHEREAS, the Company desires to obtain a commitment from Equus for up to
$2,500,000 of equity and debt financing to pay salaries and various startup,
office, travel, consulting, legal, accounting and other expenses which the
Company expects to incur up to the time of the closing of the IPO (collectively,
"Pre-IPO Expenses");
WHEREAS, on or before the date hereof, the Board of Directors of the
Company (the "Board") has adopted, pursuant to authority conferred upon the
Board by the Company's Certificate of Incorporation, and the Company has filed,
the Certificate of Designation, Preferences, Rights and Limitations of Series A
Preferred Stock in the form of EXHIBIT A attached hereto providing for the
issuance of Series A Preferred Stock, $.001 par value per share (the "Series A
Preferred Stock"), and fixing the voting powers, preferences, rights and
restrictions thereof;
NOW, THEREFORE, in consideration of the agreements and undertakings of the
parties hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. SALE OF SHARES; FUNDING COMMITMENT.
1.1 SALE AND PURCHASE OF PREFERRED SHARES. Simultaneously with the
execution and delivery of this Agreement, on the terms and subject to the
conditions of this Agreement, the Company agrees to issue and sell to
Equus, and Equus agrees to purchase, 300,000 shares (the "Preferred
Shares") of the Series A Preferred Stock, for an aggregate purchase price
of $300,000. The sale and purchase of the Preferred Shares shall take
place at the offices of Porter & Hedges, L.L.P. in Houston, Texas. In
connection with the sale and purchase of the Preferred Shares, the Company
shall deliver to Equus a certificate or certificates evidencing the
Preferred Shares, registered in Equus' name, against payment for the
Preferred Shares. Payment for the Preferred Shares shall be made in cash
by wire transfer to an account designated by the Company of funds
immediately available in Park City, Utah.
1.2 ADVANCES. Subject to the terms and conditions of this Agreement,
Equus agrees to make advances (the "Advances") to the Company from time to
time between the
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date hereof and the Termination Date (as hereinafter defined) in an
aggregate principal amount of not to exceed $2,200,000. The term
"Termination Date" means the earliest to occur of (i) September 30, 1997,
(ii) the date the Company closes the IPO or (iii) the date Equus's
commitment hereunder is terminated pursuant to Section 7 hereof; provided,
however, that if Equus reasonably determines in good faith that it is
highly unlikely that the IPO will be accomplished by September 30, 1997,
or that it is highly unlikely that the commitment herein contained will be
sufficient to fund the Pre-IPO Expenses through the date the IPO will
close, then the date upon which Equus gives the Company written notice of
such determination shall be the Termination Date. Notwithstanding any
other provision of this Agreement or the Note (as defined in Section 1.3
below), if Equus elects under the proviso of the immediately preceding
sentence to terminate its commitment before September 30, 1997, then until
the earliest to occur of (i) 60 days from the date of Equus' notice of
such termination or (ii) September 30, 1997, (x) Equus will not declare
any amounts of principal of or interest on the Note to be due or take any
other action to accelerate the maturity of the Note and (y) the Company
shall have the right to repay, in accordance with the Note, in cash, all
Advances made through the date of termination.
1.3 PROMISSORY NOTE. Simultaneously with the execution and delivery
of this Agreement, the Company will execute and deliver to Equus a
Promissory Note in the form attached hereto as EXHIBIT B (the "Note"). The
Note is an obligation of the Company, in its corporate capacity, no
officer, director or shareholder of the Company will have any liability
for payment of all or any portion of the indebtedness evidenced by the
Note, and Equus for itself and its successors and assigns, waives any and
all claims against such officers, directors and shareholders for payment
or performance of the Note. Equus hereby agrees that Equus will not,
either alone or acting with other creditors of the Company, file a
petition seeking relief against the Company pursuant to the United States
Bankruptcy Code (Title 11 of the United States Code) as a result of the
Company's failure to pay the Note.
1.4 THE BUDGET. The Advances shall be made from time to time
hereafter to pay Pre-IPO Expenses incurred or to be incurred by the
Company in accordance with the budget of expenditures attached hereto as
EXHIBIT C (the "Initial Budget"). Equus shall have no obligation to make
any Advances except to pay Pre-IPO Expenses incurred in accordance with
the Budget. If necessary or appropriate, the Company shall from time to
time submit to Equus one or more supplemental budgets reflecting revised
estimates of Pre-IPO Expenses resulting from a change of circumstances
(such as, for example, an increase in the size or number of Proposed
Acquisitions). However, no such supplemental or revised budget shall
obligate Equus to make Advances exceeding its $2,200,000 commitment,
though it may do so if the Company and Equus mutually agree upon the
amount and terms of additional funding by Equus of Pre-IPO Expenses.
1.5 PROCEDURE FOR ADVANCES. Monthly hereafter between the date
hereof and the Termination Date, the Company may request an Advance
hereunder by submitting a Request for Advance in substantially the form of
EXHIBIT D hereto. Within five days after receipt of each Request for
Advance, Equus will advance the funds requested to the Company.
2
<PAGE>
1.6 REPAYMENT. The Note will be subject to repayment as therein
provided.
1.7 INTEREST RATE. The Advances shall bear interest at an annual
rate equal to the lesser of (i) the Base Rate plus 1/2% or (ii) the
Maximum Rate; provided, however, that upon the occurrence and during the
continuance of an Event of Default (as hereinafter defined), the Advances
shall bear interest at 18% per annum. The term "Base Rate" means the
annual interest rate most recently announced by NationsBank of Texas, N.A.
as its prime rate in effect at its principal office, automatically
fluctuating upward and downward with and as specified in each announcement
without special notice to the Company or any other person (which prime
rate may not necessarily represent the lowest or best rate actually
charged to a customer). The term "Maximum Rate" means the maximum
non-usurious rate of interest that, under applicable law, Equus is
permitted to contract for, charge, take, reserve or receive on the
Advances. Each change in the Base Rate or the Maximum Rate shall be
effective as of the effective date of such change without notice to the
Company or any other person.
1.8 WARRANT. Simultaneously with the execution and delivery of this
Agreement, the Company will execute and deliver to Equus a Warrant in the
form attached hereto as EXHIBIT E (the "Warrant").
1.9 BOARD REPRESENTATION. The Company shall cause to be held a
meeting of its Board at which the number of Company directors shall be
established at five, and one person designated by Equus shall be elected
to the Board to fill the resulting vacancy.
2. REPRESENTATIONS OF THE COMPANY. The Company represents and warrants to
Equus as follows:
2.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Delaware. The Company has the corporate power to (i) conduct its business
as now conducted and as proposed to be conducted, (ii) enter into and
perform its obligations under this Agreement, (iii) issue the Preferred
Shares and (iv) issue and perform its obligations under the Note and the
Warrant. The Company has delivered to Equus copies of the Company's
Certificate of Incorporation and bylaws, each as in effect as of the date
of this Agreement, and each of which has been certified by the Company's
secretary.
2.2 CAPITALIZATION. At the date of this Agreement, prior to the
issuance of the Preferred Shares to Equus, the authorized capital stock of
the Company consists of (i) the Common Stock, of which 20 million shares
are authorized and 380,000 shares are issued and outstanding and owned of
record and beneficially by the persons named below in the following
amounts:
No. of Outstanding
Shareholder Shares Owned
----------- ------------
William C. Klintworth, Jr. 195,000
Clyde A. Blankenship, Jr. 85,000
Michael K. Campbell 75,000
Lance C. Ruud 25,000
and (ii) preferred stock, $.001 par value per share, of which 1,000,000
shares are authorized, none of which are issued or outstanding and 300,000
of which are designated as the Series A Preferred Stock.
The shares of Common Stock previously issued and outstanding are
duly authorized, validly issued, fully paid, and nonassessable, and all
the Preferred Shares, upon issuance as contemplated hereby, will be duly
authorized, validly issued, fully paid, and nonassessable. At the date of
this Agreement, except for (i) the Warrant, (ii) options for the purchase
of up to 12 1/2% of the shares of Common Stock outstanding from time to
time to be issued under the Company's 1997 Incentive Plan (the "Stock
Option Plan"), and (iii) letters of intent, copies of which have been
provided to Equus, with potential sellers in the Proposed Acquisitions,
there are no convertible securities, options, warrants, subscriptions, or
other agreements or binding commitments relating to the acquisition from
the Company of shares of its capital stock.
2.3 NO SUBSIDIARIES. The Company has no investments in any
corporation, partnership, or other business entity.
2.4 NO OPERATIONS OR LIABILITIES. The Company has been organized
specifically to pursue the consolidation of companies in the Business and
the IPO. At the date of this Agreement, the Company has conducted only
limited operations and has no obligations or liabilities other than
obligations for its organizational and other expenses included in the
Budget, and obligations under (i) the Note, (ii) confidentiality
agreements and letters of intent executed with potential sellers in
Proposed Acquisitions, (iii) employment agreements with officers of the
Company, (iv) indemnity agreements with officers and directors of the
Company, (v) options outstanding under the Stock Option Plan, (vi) a
verbal agreement to lease the Company's office facilities located in Park
City, Utah, from P.O.P. Associates, L.C., (vii) obligations to pay
professional fees and other expenses in connection with the IPO, (viii)
agreements with officers of the Company relating to the purchases of
shares of the Common Stock referred to in Section 2.2 above, and (ix)
agreements with officers and promoters of the Company relating to the
reimbursement of ordinary and necessary business expenses. True and
correct copies of all of such written agreements have been delivered to
Equus. At the date of this Agreement, except for this Agreement and the
other agreements referred to in this Section 2.4, the Company is not a
party to or bound by any contract, agreement or other commitment of any
type other than commitments entered into in the ordinary course of
business which are reflected in the Budget. The Company has delivered to
Equus true and correct copies of all resolutions adopted by its directors
or shareholders as of the date of this Agreement. At the date of this
Agreement, except as set forth in such resolutions, no corporate action on
the part of the Company has been taken by its Board of Directors or its
shareholders.
2.5 THE BUDGET. At the date of this Agreement, the Initial Budget
represents the best current estimate of the Company with respect to all
categories of Pre-IPO Expenses of the Company in pursuing its
consolidation strategy up to the time the IPO becomes effective. At the
date of this Agreement, there are no material liabilities which are now
anticipated to be incurred or accrued but not paid up to the time the IPO
becomes effective which are not
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reflected in the Initial Budget (other than the additional legal fees and
accounting fees referred to in the Initial Budget which are not payable in
the event the IPO does not occur).
2.6 PROPOSED ACQUISITIONS. The Company has provided to Equus a copy
of each letter of intent entered into as of the date of this Agreement
with respect to each Proposed Acquisition. At the date of this Agreement,
no definitive agreement has been entered into by the Company with any
proposed seller in connection with any Proposed Acquisition.
2.7 NO LITIGATION. Except for (i) claims alleged by Medical
Endoscopy Services, Inc. against Medical Companies Alliances, Inc., a
subsidiary of Healthcare Technology Delivery, Inc. ("HTD"), and (ii)
allegations against FutureTech, Inc., a subsidiary of HTD, the details of
all such claims and allegations having been provided to Equus, there are
no claims, actions, suits, proceedings or investigations pending, or to
the knowledge of the Company, threatened against or affecting the Company.
The Company is not subject to any continuing court or administrative
order, writ, injunction or decree applicable to it or its assets or
operations. There are no outstanding judgments against the Company.
2.8 NO REGISTRATION RIGHTS. The Company has no commitment to any
person to cause securities of the Company to be registered under the
Securities Act (as defined in Section 3.2 below) or the securities laws of
any state except for commitments to register securities issued pursuant to
the Stock Option Plan on Form S-8 following the IPO.
2.9 TRANSACTIONS WITH AFFILIATES. Except under the agreements and
obligations disclosed in Section 2.4 above, no Affiliate of the Company
(i) is a party to or has any interest in any contract or agreement with
the Company, (ii) has any outstanding loan to or receivable from the
Company, (iii) has any ownership interest (other than a stock ownership
interest representing less than 1% of the outstanding stock of any
corporation which is publicly traded), directly, indirectly, or
beneficially, in any supplier to the Company or (iv) is entitled to any
payment from the Company (except salary accrued to date and reimbursable
expenses incurred on behalf of the Company and, in each case, included in
the Budget). The term "Affiliate" means, as to any party, any person or
entity which controls or is controlled by or under common control with
that party; however, each shareholder of the Company, and each entity
directly or indirectly controlled by one or more such shareholders, shall
be deemed an "Affiliate" of the Company and each subsidiary of the
Company, whether or not they would otherwise meet the foregoing criteria
for affiliation.
2.10 NO GOVERNMENTAL APPROVALS. No authorization, approval, consent,
or order of, or registration, declaration or filing with, any court or
governmental body is required by or on behalf of the Company in connection
with the Company's execution or performance of this Agreement, the Note or
the Warrant.
2.11 NO BROKERS. The Company is not liable for any investment
banking fee, finder's fee, brokerage payment, or other like payment in
connection with the origin, negotiation or consummation of the
transactions contemplated by this Agreement. Neither the Company nor any
shareholder of the Company is a party to any agreement, understanding, or
arrangement, or has committed any act which might give rise to any valid
claim against the Company or Equus for any such fee, commission, or other
payment.
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2.12 AUTHORITY OF THE COMPANY. The execution, delivery and
performance by the Company of this Agreement, the Note and the Warrant and
the issuance of the Preferred Shares, have been duly authorized and
approved by the Board of Directors of the Company. No further action
remains to be taken in order to have completed all action required by law
and the Company's Certificate of Incorporation and bylaws to authorize the
execution, delivery and performance by the Company of this Agreement, the
Note and the Warrant and the issuance of the Preferred Shares. This
Agreement, the Note and the Warrant are valid and binding obligations of
the Company enforceable against it in accordance with their terms, except
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights, and equitable remedies. The Company's
execution and delivery of this Agreement, the Note and the Warrant, and
the issuance of the Preferred Shares, do not, and the Company's
performance of this Agreement, the Note and the Warrant will not, violate,
conflict with, or constitute a breach of or default under the Certificate
of Incorporation or bylaws of the Company or any loan or credit agreement,
indenture, mortgage, deed of trust, contract, lease, license or other
contract or agreement to which the Company is a party or by which it is
bound, or violate any order, writ, injunction, or decree of any court,
administrative agency or governmental body.
3. REPRESENTATIONS OF EQUUS. Equus represents and warrants to the Company
as follows:
3.1 AUTHORITY OF EQUUS. Equus has all requisite authority to enter
into this Agreement and to perform all the obligations required to be
performed by Equus under this Agreement. This Agreement has been duly
executed and delivered by Equus, and, upon execution and delivery by the
Company, this Agreement will be the valid and legally binding obligation
of Equus, enforceable as to Equus in accordance with its terms except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement
of creditors' rights and equitable remedies.
3.2 MEANS OF SOLICITATION. Neither the Company nor any person acting
or purporting to act on behalf of the Company has offered or sold to Equus
any of the Preferred Shares, the Note, the Warrant or the underlying
Common Stock by means of any form of general solicitation or general
advertising. Equus is acquiring solely for its own beneficial account, for
investment purposes, and not with any view to, or for resale in connection
with, any distribution of the Preferred Shares, the Note, the Warrant or
the Common Stock issuable pursuant to the Warrant. Equus understands that
the Preferred Shares, the Note, the Warrant and the Common Stock have not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws, by reason of specific
exemptions under the provisions thereof which depend in part upon the
investment intent of Equus and upon the accuracy of the other
representations made by Equus in this Agreement. Equus understands that
the Company is relying upon the representations and agreements contained
in this Agreement for the purpose of determining that the transactions
contemplated by this Agreement meet the requirements for such exemptions.
3.3 NO GOVERNMENTAL APPROVALS. No authorization, approval, consent,
or order of, or registration, declaration or filing with, any court or
governmental body is required by
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or on behalf of Equus in connection with Equus' execution or performance
of this Agreement.
3.4 NO BROKERS. Equus is not a party to any agreement, understanding
or arrangement, and has not committed any act, which might give rise to
any valid claim against the Company for any finder's fee, brokerage
payment, or other like payment in connection with the origin, negotiation
or consummation of the transactions contemplated by this Agreement.
3.5 ACCREDITED INVESTOR. Equus is an "accredited investor" within
the meaning of Regulation D under the Securities Act.
3.6 NO PUBLIC MARKET. Equus understands that no public market now
exists for any of the securities issued, or to be issued, by the Company,
and that it is possible that a public market will never exist for such
securities.
3.7 ACCESS TO DATA. Equus has received and reviewed information
about the Company and has had a full and fair opportunity to discuss the
Company's business, operations, management and financial affairs with the
Company's management. Equus has been provided full opportunity to ask
questions regarding the Company's business, operations, management and
financial affairs and all such questions have been answered to Equus' full
satisfaction.
3.8 DILIGENCE MATERIALS.
(a) Equus understands that the Company has recently been formed, has
limited financial and operating history, and may incur significant losses
in the future. Equus understands that its investment involves substantial
risks, including, without limitation, the complete loss thereof. Equus
represents that it and, if it so requested, its attorney and/or accountant
have received and examined the Company's Certificate of Incorporation and
Bylaws, (collectively, the "DILIGENCE MATERIALS") which it and, if
appropriate, such attorney and/or accountant, consider necessary to making
an informed decision regarding its investment. In addition, it and, if it
so requested, its attorney and/or accountant has had the opportunity to
ask questions of, and receive answers from, the officers and agents of the
Company concerning the terms and conditions of its investment and to
obtain such information, to the extent such persons possessed the same or
could acquire it without unreasonable effort or expense, as it deemed
necessary to verify the accuracy of the Diligence Materials.
(b) Equus understands that (i) any financial statements included in
the Diligence Materials or otherwise provided to it in connection with its
investment have been included for information purposes only, and (ii) no
assurance is given that future results will correspond with the results
set forth therein.
(c) Equus understands that in making its investment decision, it
must rely on its own examination of the Company and the terms of its
investment, including the merits and risks involved. The investment has
not been reviewed or otherwise scrutinized, or approved
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or disapproved by the SEC or any state securities commission or any other
regulatory authority, and the foregoing regulatory authorities have not
passed upon or endorsed the merits of the investment or the accuracy of
adequacy of the Diligence Materials. Any representation made by any person
to the contrary is unlawful.
4. RESTRICTIVE LEGEND.
4.1 LEGEND. Each certificate or other document representing the
Preferred Shares, the Note, the Warrant, and the Common Stock issuable
pursuant to the Warrant (collectively the "Securities" and individually a
"Security") issued pursuant to this Agreement shall be stamped or
otherwise imprinted with a restrictive legend in the form set forth on the
form of such Security as attached hereto as an exhibit. In the event of
any transfer or reissuance of any such Security, the certificates or other
instruments representing such Securities shall continue to bear such
legend.
4.2 REMOVAL OF LEGENDS. The Company hereby agrees that it will
promptly deliver or cause to be delivered a new certificate or
certificates or instrument or instruments for any Securities, which
certificate or certificates or instrument or instruments will not bear the
legends referred to above, upon determination by the Company (based on
such documentation as the Company reasonably requires, including an
opinion of counsel, if deemed appropriate by the Company) that such
Securities have been held beneficially by the holder for at least the
period specified in Rule 144(k) adopted under the Act and that such holder
is not and has not been within the preceding three months an affiliate of
the Company. All determinations pursuant to the preceding sentence shall
be made in accordance with Rule 144(k) under the Act or any applicable
successor rule. In the event that a period shorter than specified above is
permitted by reason of the amendment or replacement of such Rule 144(k),
then the Company shall impose no greater restriction than that restriction
imposed as the result of such amendment or replacement.
5. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees as
follows:
5.1 EQUUS REPRESENTATION ON COMPANY BOARD. Simultaneously with the
execution and delivery of this Agreement, Equus will designate and the
Company will cause one representative of Equus to be elected to serve as a
director of the Company for a three-year term.
5.2 CERTAIN ACTIONS PROHIBITED. Until the IPO has been consummated
and the Note has been paid in full, except as specifically contemplated by
this Agreement, the Company will not (without the prior written approval
of Equus):
(i) issue any additional shares of its capital stock other
than up to 100,000 shares of the Common Stock to be issued in a
private placement at a price of $5 per share;
(ii) pay or declare any dividends or other distributions on,
or purchase or redeem, any outstanding shares of its Common Stock;
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(iii) dispose of any material amount of the assets of the
Company;
(iv) adopt any new employee benefit plan or stock option plan
other than the Stock Option Plan;
(v) commit to any person to cause securities of the Company to
be registered under the Securities Act or the securities laws of any
state except for commitments to register securities issued pursuant
to the Stock Option Plan on Form S-8;
(vi) guarantee the obligations or indebtedness of any other
person;
(vii) amend the Company's Certificate of Incorporation or
bylaws;
(viii) issue any securities convertible into, exchangeable
for, or evidencing any right to purchase or receive shares of the
Company's capital stock;
(ix) borrow money except under this Agreement; or
(x) except with respect to agreements of the type described in
clauses (ii) - (v), (vii) and (ix) of Section 2.4 of this Agreement,
enter into any material contract or agreement other than contracts
to be entered into pursuant to Section 5.3 below.
5.3 ACQUISITIONS. The Company will use its reasonable business
efforts to enter into letters of intent and definitive agreements with
leading companies in the Business and will keep Equus advised of the
progress of its negotiations with the sellers of those companies. The
Company will not enter into any such definitive agreement unless it is in
material accordance with the valuation methodology previously discussed
between the Company and Equus or unless it is otherwise approved by Equus.
The Company will use its reasonable business efforts to close the
acquisition of each such company simultaneously with the closing of the
IPO.
5.4 IPO. The Company shall use its reasonable business efforts to
consummate the IPO simultaneously with the acquisition of the companies
referred to in Section 5.3 above and as promptly as possible and in any
event by September 30, 1997.
5.5 ACCESS. The Company will give to Equus and its counsel,
accountants, and other representatives, access, at reasonable times during
normal business hours, to all of the properties, books and records,
contracts and agreements, and employees of the Company, so that Equus may
have full opportunity to make such investigation as it wants to make of
the business and assets of the Company and the companies to be acquired by
the Company.
6. CONDITIONS TO OBLIGATION OF EQUUS. Equus will not be obligated to make
any Advance unless it has received (i) the Note and the Warrant, duly executed
and delivered by the Company, (ii) resolutions of the Board of Directors of the
Company, duly certified by the secretary of the Company, authorizing the
execution, delivery and performance by the Company of this
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Agreement, the Note and the Warrant and the issuance of the Preferred Shares,
and (iii) the Certificate of Incorporation and bylaws, as amended to date, of
the Company, duly certified by the secretary of the Company. In addition, Equus
will not be obligated to make any Advance unless on the applicable date such
Advance is to be made (and after giving effect to the requested Advance): (a)
Equus has timely received a Request for Advance; (b) all of the representations
and warranties of the Company set forth in Section 2 of this Agreement (other
than the representations and warranties contained in Sections 2.2, 2.4, 2.5 and
2.6 to the extent those representations and warranties are made as of a specific
date) are true and correct in all material respects; (c) no material adverse
change with respect to the business, operations, prospects or properties of the
Company has occurred and is continuing; and (d) no Default or Event of Default
exists. Each Request for Advance delivered to Equus constitutes the
representation and warranty by the Company to Equus that the statements in
clauses (b), (c) and (d) above are true and correct in all respects. Each
condition precedent in this Agreement is material to the transactions
contemplated by this Agreement, and time is of the essence with respect to each
condition precedent. Equus may make any Advance without all conditions being
satisfied, but that funding shall not be deemed a waiver of the requirement that
each condition precedent be satisfied as a prerequisite for any subsequent
funding unless Equus specifically waives each item in writing.
7. EVENTS OF DEFAULT. The term "Event of Default" means the occurrence of
any one or more of the events specified in Sections 7.1 through and including
7.5 below, and the term "Default" means the occurrence of an event which, but
for the passage of time or the giving of notice or both, would constitute an
"Event of Default."
7.1 PAYMENT OF OBLIGATION. The failure of the Company to pay any
amount due hereunder or under the Note when it becomes due and payable and
such failure shall have continued for five days after written notice of
nonpayment has been given to the Company by Equus.
7.2 NEGATIVE COVENANT. The failure of the Company to punctually and
properly perform, observe and comply with any covenant contained in
Section 5.2 of this Agreement.
7.3 OTHER COVENANTS. The failure or refusal of the Company to
punctually and properly perform, observe and comply with any covenant,
agreement or condition contained in this Agreement, the Note or the
Warrant (other than covenants referred to in Sections 7.1 and 7.2 above)
and such failure or refusal continues for 15 days after written notice of
such failure or refusal has been given to the Company by Equus.
7.4 DEBTOR RELIEF. The Company (a) makes an assignment for the
benefit of creditors, admits in writing its inability to pay debts as they
mature, applies to any tribunal for the appointment of a trustee or
receiver of any substantial part of its assets, or commences any
proceedings under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or other liquidation law of any
jurisdiction, or (b) any such application is filed, or any such
proceedings are commenced against the Company and the Company indicates
its approval, consent or acquiescence, or any order is entered appointing
such trustee or receiver, or adjudicating the Company bankrupt or
insolvent, or approving the petition in any such proceedings, and such
order remains in effect for sixty days.
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7.5 MISREPRESENTATION. Any material representation or warranty made
by Borrower herein at any time proves to have been materially incorrect
when made.
If an Event of Default exists under Section 7.4, the commitment to make
Advances automatically terminates and the entire unpaid balance of the Advances
automatically becomes due and payable without any action of any kind by Equus.
If any other Event of Default exists, Equus may do any one or more of the
following: (i) declare the entire unpaid balance of all or any part of the
Advances immediately due and payable; (ii) terminate the commitments to make
Advances under this Agreement; (iii) reduce any claim to judgment; and (iv)
exercise any and all other legal or equitable rights afforded by this Agreement
or the Note or the laws of the State of Texas or any other applicable
jurisdiction. All of Equus's rights hereunder are cumulative of and in addition
to all other rights granted to Equus at law or in equity. The Company waives
presentment and demand for payment, protest, notice of intention to accelerate,
notice of acceleration, and notice of protest and nonpayment. No waiver of a
Default or an Event of Default by Equus shall be deemed a waiver of any other
then-existing or subsequent Default or Event of Default. No delay or omission by
Equus in exercising any right under this Agreement or the Note shall impair that
right or be construed as a waiver of that right, nor may any single partial
exercise of any right preclude other or further exercise of that or any other
right.
8. MISCELLANEOUS.
8.1 REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of any
other remedy, and each and every remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise. The election of
any one or more remedies by any party hereto shall not constitute a waiver
of the right to pursue other available remedies.
8.2 PARTIES BOUND. Except to the extent otherwise expressly provided
herein, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person
shall have any right, benefit or obligation hereunder.
8.3 NOTICES. All notices, reports, records or other communications
that are required or permitted to be given to the parties under this
Agreement shall be sufficient in all respects if given in writing and
delivered in person, by telecopy, by overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, to the
receiving party at the following address:
If to Equus: Equus II Incorporated
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
Attention: Nolan Lehmann
President
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If to the Company: Healthtech Delivery, Inc.
2078 Prospector Avenue
Park City, Utah 84060
Attention: William C. Klintworth, Jr.
President and Chief Executive Officer
or to such other address as such party may have given to the other parties
by notice pursuant to this Section 8.3. Notice shall be deemed given on
the date of delivery, in the case of personal delivery or telecopy, or on
the delivery or refusal date, as specified on the return receipt, in the
case of overnight courier or registered or certified mail.
8.4 CHOICE OF LAW. This Agreement shall be construed, interpreted,
and the rights of the parties determined in accordance with, the laws of
the State of Texas, without giving effect to any conflicts of laws
principles.
8.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS; ASSIGNMENT. This
Agreement, together with all exhibits and schedules hereto, constitutes
the entire agreement between the parties pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of
the parties. Except as set forth herein, there are no warranties,
representations or other agreements between the parties in connection with
the subject matter hereof. No supplement, modification or waiver of this
Agreement shall be binding unless it shall be specifically designated to
be a supplement, modification or waiver of this Agreement and shall be
executed in writing by each party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
8.6 FURTHER ASSURANCES. From time to time hereafter and without
further consideration, each of the parties hereto shall execute and
delivery such additional or further instruments of conveyance, assignment
and transfer and take such actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the
transactions contemplated by this Agreement or as shall be reasonably
necessary or appropriate in connection with the carrying out of the
parties' respective obligations hereunder or the purposes of this
Agreement.
8.7 EXPENSES. The Company hereby agrees to pay all out-of-pocket
expenses incurred by Equus in connection with the negotiation,
preparation, and consummation of this Agreement and its Exhibits, or in
connection with Equus's "due diligence" review of the Company or the
companies to be acquired by the Company, or in connection with the IPO,
including travel expenses of Equus representatives related to any of the
foregoing, and including the reasonable attorneys' fees of Equus's counsel
related to this Agreement or the transactions it contemplates (including
the acquisitions contemplated hereby and the IPO). All reasonable
attorneys' fees incurred by Equus or on its behalf in connection with any
amendment to, waiver or consent under, or enforcement of this Agreement or
any of its Exhibits shall also be paid by the Company. The Company also
agrees to pay the reasonable
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fees of Gorham & Waldrep, P.A. and Kimball, Parr, Waddoups, Brown & Gee,
counsel to certain of the Company's shareholders, related to the
negotiation, execution and delivery of this Agreement.
8.8 MAXIMUM RATE. Regardless of any provision contained in this
Agreement, the Note or any other document or agreement, it is the
intention of the Company and Equus that Equus may not contract for,
charge, take, reserve, receive, or apply, as interest on all or any part
of the Advances any amount in excess of the Maximum Rate or receive any
unearned interest, in violation of any applicable law and if Equus does
so, any excess will be deemed to be and treated as a partial prepayment or
repayment of principal and any remaining excess will be refunded to the
Company. In determining whether interest paid or payable exceeds the
Maximum Rate, the Company and Equus shall, to the maximum extent permitted
under applicable law, (a) exclude voluntary prepayments or repayments and
their effects, and (b) amortize, prorate, allocate and spread the total
amount of interest throughout the entire contemplated term of the
Advances. However, if the Advances are paid in full before the end of
their contemplated term, and if the interest received for its actual
period of existence exceeds the Maximum Rate, Equus shall refund any
excess (and Equus may not, to the extent permitted by law, be subject to
any penalties provided by any laws for contracting for, charging, taking,
reserving or receiving interest in excess of the Maximum Rate). The term
"Maximum Rate" means the "indicated rate ceiling" from time to time in
effect under Article 1.04, Title 79, Revised Civil Statutes of Texas, as
amended. The Company agrees that Chapter 15, Subtitle 79, Revised Civil
Statutes of Texas, 1925, as amended (which regulates certain revolving
credit loan accounts and revolving tri-party accounts), does not govern or
apply to the Advances other than Article 15.10(b).
8.9 NO THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries of this Agreement.
8.10 NO PARTNERSHIP. Nothing in this Agreement creates or is
intended to create any partnership or joint venture between Equus and the
Company.
8.11 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.12 HEADINGS. The headings of the several Sections herein are
inserted for convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
8.13 TERMINATION. This Agreement shall terminate on the date of, and
contemporaneously with the closing of, the IPO.
12
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
HEALTHTECH DELIVERY, INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr., President
EQUUS II INCORPORATED
By: /s/ NOLAN LEHMANN
Nolan Lehmann, President
13
<PAGE>
CONFORMED COPY
FIRST AMENDMENT
TO
FUNDING AND STOCK PURCHASE AGREEMENT
This FIRST AMENDMENT dated September 5, 1997 to the FUNDING AND STOCK
PURCHASE AGREEMENT dated as of April 18, 1997 (the "Agreement"), between TRIAD
MEDICAL INC., a Delaware corporation formerly named HEALTHTECH DELIVERY, INC.,
(the "Company"), and EQUUS II INCORPORATED, a Delaware corporation ("Equus").
W I T N E S S E T H:
WHEREAS, the Company and Equus desire to amend certain provisions of the
Agreement.
NOW, THEREFORE, the parties hereto hereby agree to amend the Agreement
as follows:
1. Section 1.2 of the Agreement is hereby amended to read as follows in
its entirety:
"1.2 ADVANCES. Subject to the terms and conditions of this
Agreement, Equus agrees to make advances (the "Advances") to the Company
from time to time between the date hereof and the Termination Date (as
hereinafter defined) in an aggregate principal amount of not to exceed
$2,200,000. The term "Termination Date" means the earliest to occur of
(i) January 31, 1998, (ii) the date the Company closes the IPO or (iii)
the date Equus's commitment hereunder is terminated pursuant to Section
7 hereof; provided, however, that if Equus reasonably determines in good
faith that it is highly unlikely that the IPO will be accomplished by
January 31, 1998, or that it is highly unlikely that the commitment
herein contained will be sufficient to fund the Pre-IPO Expenses through
the date the IPO will close, then the date upon which Equus gives the
Company written notice of such determination shall be the Termination
Date. Notwithstanding any other provision of this Agreement or the Note
(as defined in Section 1.3 below), if Equus elects under the proviso of
the immediately preceding sentence to terminate its commitment before
January 31, 1998, then until the earliest to occur of (i) 60 days from
the date of Equus' notice of such termination or (ii) January 31, 1998,
(x) Equus will not declare any amounts of principal of or interest on
the Note to be due or take any other action to accelerate the maturity
of the Note and (y) the Company shall have the right to repay, in
accordance with the Note, in cash, all Advances made through the date of
termination.
2. Section 5.4 of the Agreement is hereby amended to read as follows in
its entirety:
5.4 IPO. The Company shall use its reasonable business efforts to
consummate the IPO simultaneously with the acquisition of the companies
referred to in Section 5.3 above and as promptly as possible and in any
event by January 31, 1998.
2A. Section 1.9 of the Agreement is hereby deleted in its entirety.
1
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3. Other than as set forth herein, the terms and provisions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment
on September 5, 1997.
TRIAD MEDICAL INC.
By: /s/ WILLIAM C. KLINTWORTH, JR.
William C. Klintworth, Jr.,
President
EQUUS II INCORPORATED
By: /s/ NOLAN LEHMANN
Nolan Lehmann, President
2
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our nine
reports and all references to our Firm included in this registration statement
on Form S-1 filed by TRIAD Medical Inc.
Arthur Andersen LLP
Houston, Texas
September 10, 1997
