<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998.
REGISTRATION NO. 333-46349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
HORIZON MEDICAL PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
GEORGIA 5047 58-1882343
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ONE HORIZON WAY
P.O. DRAWER 627
MANCHESTER, GEORGIA 31816
(706) 846-3126
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MARSHALL B. HUNT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ONE HORIZON WAY
P.O. DRAWER 627
MANCHESTER, GEORGIA 31816
(706) 846-3126
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY M. STEIN LEONARD A. SILVERSTEIN
KING & SPALDING LONG ALDRIDGE & NORMAN LLP
191 PEACHTREE STREET 303 PEACHTREE STREET, SUITE 5300
ATLANTA, GEORGIA 30303-1763 ATLANTA, GEORGIA 30308
PHONE: (404) 572-4600 PHONE: (404)527-4000
FASCIMILE: (404) 572-5100 FACSIMILE: (404) 527-4198
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly 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, 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER SHARE(1) PRICE(1)(2) REGISTRATION FEE(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share............................... 3,993,950 $15.00 $59,909,250 $17,700
==============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(2) Includes 520,950 shares of Common Stock which the Underwriters have the
option to purchase solely to cover over-allotments, if any.
(3) Of such amount, $16,225 has previously been paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(C) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(C), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 23, 1998
3,473,000 Shares
(HMP Logo)
HORIZON MEDICAL PRODUCTS, INC.
Common Stock
($.001 par value)
---------------------
Of the shares of Common Stock ("Common Stock") offered hereby (the "Offering"),
2,600,000 shares are being sold by Horizon Medical Products, Inc. ("HMP") and
873,000 shares are being sold by the Selling Shareholders named herein under
"Principal and Selling Shareholders" (the "Selling Shareholders"). The Company
will not receive any of the proceeds of shares sold by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $13.00 and
$15.00 per share. For information relating to the factors to be considered in
determining the initial offering price to the public, see "Underwriting."
Application has been made to list the Common Stock on The Nasdaq Stock Market's
National Market under the symbol "HMPS."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" ON PAGE 7 HEREIN.
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>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total(2)............................. $ $ $ $
</TABLE>
(1) Before deduction of expenses payable by the Company, estimated at
$1,250,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 520,950
additional shares of Common Stock to cover over-allotments of shares. If the
option is exercised in full, the total Price to Public will be $ ,
Underwriting Discounts and Commissions will be $ , and Proceeds to
Company will be $ .
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by the Underwriters and subject to their right
to reject orders in whole or in part. It is expected that the shares of Common
Stock will be ready for delivery on or about , 1998, against
payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES LLC
Prospectus dated , 1998.
<PAGE> 3
[PHOTOGRAPHS OF PRODUCTS INDICATING BENEFITS AND USES]
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
------------------
CIRCLE C(R), HMP (AND DESIGN), INFUSE-A-PORT(R), LIFEPORT (STYLIZED),
NEOSTAR MEDICAL(R) AND TRIUMPH-1(R) ARE REGISTERED TRADEMARKS OF THE COMPANY.
BAYONET(TM), HMP(TM), HORIZON(TM), HORIZON MEDICAL PRODUCTS(TM),
INFUSE-A-CATH(TM), LIFEPORT(TM) AND PHERES-FLOW(TM) ARE TRADEMARKS OF THE
COMPANY. ALL OTHER TRADE NAMES, TRADEMARKS AND SERVICE MARKS REFERRED TO IN THIS
PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following information is qualified in its entirety by, and should be
read in conjunction with, the more detailed information, including "Risk
Factors" and the Consolidated Financial Statements and Notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option and (ii) reflects the conversion of all shares of the Company's Class B
Common Stock, $.001 par value per share, and Class A Common Stock, $.001 par
value per share, into shares of Common Stock, $.001 par value per share,
concurrently with a stock split of approximately 92.42-for-one immediately prior
to consummation of the Offering. See "Underwriting" and "Description of Capital
Stock."
THE COMPANY
HMP(TM) is a rapidly growing specialty medical device company focused on
manufacturing and marketing vascular access products. Vascular access products
comprised an estimated $1.3 billion market in the United States and Europe in
1997. The Company's vascular access product lines include implantable ports,
which are used primarily in cancer treatment protocols, and specialty catheters,
which are used in hemodialysis and stem cell apheresis procedures. The Company
believes it offers the broadest available product lines in each of these product
categories and that it has the largest direct sales force focused exclusively on
vascular access products.
The Company's vascular access ports are used primarily in systemic or
regional short- and long-term cancer treatment protocols that require frequent
infusions of highly concentrated or toxic medications (such as chemotherapy
agents, antibiotics or analgesics) and frequent blood samplings. The Company
believes that the worldwide market for vascular access ports will continue to
grow primarily due to the increased utilization of chemotherapy protocols,
driven by (i) aging population demographics and the higher incidence of cancer
among persons 60 years of age and older relative to other age groups and (ii)
the increasing patient population for whom chemotherapy has become an
appropriate treatment protocol due to earlier detection and intervention and the
increased efficacy of chemotherapy treatments.
The Company expects that its specialty hemodialysis and apheresis families
of catheters will continue to benefit from the unique Circle C(R) and
Pheres-Flow(TM)designs and the growth of underlying markets. Growth in the
number of hemodialysis patients is expected to result primarily from (i) the
aging of the general population, (ii) the increased effectiveness of treatments
for and higher survival rates of patients suffering from hypertension, diabetes
and other illnesses which lead to renal failure and (iii) increasingly efficient
hemodialysis procedures which have enabled older patients and others that
previously could not tolerate hemodialysis to benefit from this treatment. The
Company believes that stem cell apheresis procedures will continue to experience
significant growth primarily from increasing awareness and acceptance of
apheresis as part of the treatment protocol for various cancers and improvements
in apheresis procedures.
The Company believes that the strength of its marketing, manufacturing, and
management infrastructure, together with the experience of its management team
in developing strategic partnerships and acquiring and integrating product
lines, positions it to become a leading supplier in the vascular access product
market. The Company will seek to achieve this objective and capitalize on
favorable industry dynamics by pursuing the following strategies.
- Focus on the Vascular Access Market. The Company has developed a
highly-specialized sales force that focuses exclusively on vascular access
products and believes it offers its customers the broadest available lines
in each of the Company's three major categories of products. By offering
broad product lines, including proprietary products, the Company is able
to take advantage of cross-selling opportunities within its targeted
customer base. The Company believes that its customers benefit from its
broad knowledge of vascular access products and procedures, comprehensive
customer support and responsiveness to their changing needs.
3
<PAGE> 5
- Exploit Unique Products. The Company manufactures and markets certain
lines of products that utilize unique technologies which offer superior
performance compared with competing products. Such products include the
Circle C(R) dual lumen hemodialysis catheters and the Pheres-Flow(TM)stem
cell apheresis catheter. The Company will seek to increase its sales of
these unique products and utilize cross-selling to increase sales of its
other product lines.
- Pursue Strategic Acquisitions/Partnerships. The Company has enhanced its
product lines through completion of the acquisition of NeoStar Medical(R)
Technologies, Inc. ("NeoStar Medical(R)") in October 1995 (the "NeoStar
Medical(R) Acquisition"), which gave the Company its first line of
catheters, and the acquisition of Strato(R)/Infusaid(TM) Inc.
("Strato(R)/Infusaid(TM)") in July 1997 (the "Strato(R)/Infusaid(TM)
Acquisition"), which significantly expanded the Company's line of vascular
access ports. The Company believes that the vascular access products
industry remains highly fragmented, and that there will continue to be
attractive strategic partnering and acquisition opportunities in the
industry. The Company will seek to acquire products that: (i) will broaden
its lines of vascular access products or increase its penetration of
existing markets; (ii) can be effectively marketed by its sales
organization; and (iii) can be manufactured at the Company's recently
expanded manufacturing facility.
- Increase Efficiency of Manufacturing Operations. The Company believes
that it can achieve significant cost efficiencies through transitioning
the manufacturing of all its product lines to its recently expanded
manufacturing facility. The Company will also seek to leverage its
manufacturing infrastructure by adding newly acquired or developed
vascular access products to its product lines.
- Develop and Expand Distribution Capabilities. The Company plans to
continue to build upon the success of its sales organization by expanding
its marketing efforts internationally, by entering into group purchasing
contracts and by enhancing its direct sales force. In 1997, approximately
17% of the Company's revenues were generated from sales to end-users
outside the United States, and management believes there are significant
opportunities to increase its export sales. The Company will also seek to
enter into additional group purchasing contracts with national purchasing
groups, which are playing an increasingly significant role in the
decisions of hospitals and other health care organizations to purchase
certain medical devices. In connection with such efforts, the Company has
recently entered into group purchasing agreements with Premier Purchasing
Partners, L.P. ("Premier"), a purchasing group that includes over 1,700
owned, leased, managed and affiliated hospitals, pursuant to which the
Company will be an approved vendor for such hospitals (the "Premier
Purchasing Agreement") and AmeriNet, Inc. ("AmeriNet"), one of the
nation's largest group purchasing organizations. In addition, the Company
has commenced an arrangement with Allegiance Healthcare Corporation
("Allegiance") pursuant to which the Company's products will be included
in the Allegiance purchasing agreement with University HealthSystem
Consortium ("UHC"), a group of the nation's largest academic medical
centers.
------------------
HMP(TM) was incorporated in Georgia in 1990. The Company's principal
executive offices are located at One Horizon Way, P.O. Drawer 627, Manchester,
Georgia 31816. The Company's telephone and facsimile numbers are (706) 846-3126
and (706) 846-3146, respectively.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock offered by:
The Company.......................... 2,600,000 shares
The Selling Shareholders............. 873,000 shares
----------
Total...................... 3,473,000 shares
==========
Common Stock to be outstanding after
the Offering(1).................... 12,800,000 shares
Use of Proceeds...................... Repayment of outstanding indebtedness and for working capital
and general corporate purposes, including the acquisition of
complementary businesses, products or technologies and certain
additional office space. The Company will not receive any
proceeds from the sale of Common Stock by the Selling
Shareholders. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol............................. HMPS
</TABLE>
- ---------------
(1) Does not include (i) 40,000 shares of Common Stock issuable upon the
exercise of stock options granted to non-employee directors ("Outside
Directors") of the Company (the "Outside Directors' Options") under the
Company's 1998 Stock Incentive Plan (the "Stock Incentive Plan"), (ii)
99,600 shares of Common Stock issuable upon the exercise of stock options
granted upon conversion of stock appreciation rights ("SARs") to holders of
SARs who are employed by the Company upon consummation of the Offering (the
"SAR Conversion Options"), (iii) 10,000 shares of Common Stock issuable upon
the exercise of stock options granted to an executive officer of the Company
(the "Executive's Options"), (iv) 350,400 shares of Common Stock reserved
for issuance under the Stock Incentive Plan, (v) 500,000 shares of Common
Stock reserved for issuance upon the exercise of a warrant to purchase
Common Stock granted by the Company to Premier in connection with the
Premier Purchasing Agreement (the "Premier Warrant") and (vi) 45,328 shares
of Common Stock issuable to an affiliate of the Company after the Offering
and certain additional shares of Common Stock which may become issuable to
such affiliate and another affiliate of the Company as consulting fees. See
"Management -- Stock Incentive Plan" and "-- 1995 Stock Appreciation Rights
Plan," "Description of Capital Stock -- Premier Warrant," "Certain
Transactions -- Consulting Agreements with Directors" and "-- Consulting
Agreement with Healthcare Alliance."
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1995 1996 1997
--------- --------- -----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)(2)
--------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $ 5,003 $ 7,052 $ 15,798 $ 22,818
Cost of goods sold.............................. 2,227 2,997 6,273 8,660
--------- --------- --------- ----------
Gross profit.................................... 2,776 4,055 9,525 14,158
Selling, general and administrative
expenses(3)................................... 2,706 4,240 6,111 8,111
--------- --------- --------- ----------
Operating income (loss)......................... 70 (185) 3,414 6,047
Interest (expense) income....................... (242) (733) (3,971) 55
Accretion of value of put warrant repurchase
obligation(4)................................. -- -- (8,000) --
Other income.................................... -- 54 70 70
--------- --------- --------- ----------
Income (loss) before income taxes and
extraordinary item............................ (172) (864) (8,487) 6,172
Income tax benefit (expense).................... 7 -- (320) (2,379)
Effect of conversion to C Corporation status.... (7) -- -- --
Extraordinary loss on early extinguishment of
debt.......................................... (70) -- -- --
--------- --------- --------- ----------
Net income (loss)............................... $ (242) $ (864) $ (8,807) $ 3,793
========= ========= ========= ==========
Loss per share before extraordinary item --basic
and diluted................................... $ (0.02) $ -- $ -- $ --
Net income (loss) per share -- basic and
diluted....................................... $ (0.03) $ (0.09) $ (0.93) $ 0.30
Weighted average common shares outstanding...... 9,144 9,419 9,419 12,800
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,894 $ 6,841
Working capital............................................. 6,842 12,886
Total assets................................................ 31,577 35,262
Long-term debt, net of current maturities................... 23,972 43
Total shareholders' equity (deficit)........................ (11,150) 31,023
</TABLE>
- ---------------
The unaudited pro forma as adjusted consolidated financial information presented
does not purport to represent what the consolidated results of operations or
financial condition of the Company would have been if the transactions reflected
therein had occurred on the assumed dates or to project the future consolidated
results of operations or financial condition of the Company. See the Unaudited
Pro Forma Condensed Consolidated Financial Statements included elsewhere in this
Prospectus.
(1) Gives effect to the Strato(R)/Infusaid(TM) Acquisition as if it had been
completed on January 1, 1997. The pro forma adjustments include (i) a
reduction of cost of goods sold for eliminated overhead allocation, (ii)
adjustment of selling, general and administrative expenses to increase for
amortization of intangible assets and to decrease for elimination of
salaries, (iii) an increase in interest expense due to financial costs of
the acquisition, (iv) removal of accretion of value of the put warrant
repurchase obligation and (v) related tax effects.
(2) Adjusted to reflect net proceeds of $32,600 from the sale of 2,600 shares of
Common Stock offered by the Company hereby (after deducting underwriting
discounts and commissions and estimated Offering expenses payable by the
Company) and the application of the net proceeds to the Company from the
Offering as set forth herein. See "Use of Proceeds." The adjustments include
a reduction of interest expense, an increase in compensation costs following
the Offering and related tax effects.
(3) The Company has not paid salaries to its Chief Executive Officer ("CEO") and
President in any year presented. The 1997 Pro Forma As Adjusted column
includes $455 estimated compensation expense. Estimated fair values of
compensation not included in years 1995, 1996 and 1997 actual results are
$215, $320 and $365, respectively.
(4) See Notes 6 and 8 of the Consolidated Financial Statements of the Company
for a discussion of this non-recurring item.
6
<PAGE> 8
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. In
addition to the other information in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business before
purchasing shares of the Common Stock offered hereby.
HISTORY OF LOSSES
Since its inception in 1990, the Company has incurred substantial costs to
develop, acquire and enhance its product lines, establish marketing and
distribution relationships, recruit and train its sales force, establish its
manufacturing capabilities and build a management infrastructure. As a result,
from its inception through December 31, 1997, the Company sustained cumulative
net losses of $10.8 million, which includes $9.8 million in interest expense and
related charges incurred in 1997 in connection with the warrant issued to
NationsCredit Commercial Corporation ("NationsCredit") in July 1997 (the
"NationsCredit Warrant"). The Company incurred net losses of $242,113, $864,211
and $8.8 million during fiscal 1995, 1996 and 1997, respectively ($3.8 million
income on a pro forma as adjusted basis giving effect to the
Strato(R)/Infusaid(TM)Acquisition as if it had been completed in January 1, 1997
and as adjusted to reflect the sale of 2,600,000 shares of Common Stock offered
by the Company hereby and the application of the net proceeds therefrom as set
forth herein). No assurance can be given that the Company will not continue to
incur losses in future periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
LIMITED MANUFACTURING EXPERIENCE
The Company's success will depend in part on its ability to manufacture its
products in compliance with international and domestic standards such as ISO
9001, the United States Food and Drug Administration's (the "FDA") Good
Manufacturing Practices ("GMP") regulations and other applicable licensing and
regulatory requirements in sufficient quantities and on a timely basis, while
maintaining product quality and acceptable manufacturing costs. The Company has
historically outsourced the manufacturing of most of its product lines to third
parties while remaining responsible for that work. In the fourth quarter of
1996, the Company transitioned the manufacturing of its Circle C(R) and
Pheres-Flow(TM) specialty catheter product lines into its manufacturing facility
in Manchester, Georgia. The Company is currently transitioning the manufacturing
of its LifePort(TM), Infuse-a-Port(R) and Infuse-a-Cath(TM) product lines to the
Manchester facility from a facility in Norwood, Massachusetts. The Company has
the right to use the Norwood facility until April 1998, and there is currently
no assurance that the Company will be able to continue using this facility after
April 1998, even if the Company has not completed its transition to the
Manchester facility. If such an event were to occur, the Company could be unable
to meet its customers' product needs, resulting in lost business. Before the
Company's right to use the Norwood facility expires, the Company expects to move
its inventory and remaining manufacturing equipment to the Manchester facility.
The Company is currently building inventory in anticipation of this transition,
however, there can be no assurance that the inventory level built up by the
Company will be sufficient to meet customer demands during this period. The
Norwood facility is certified under ISO 9001 and has received the Community
European Mark (the "CE Mark"), thus allowing the products produced at this
facility to be sold in the European Community. The Company is seeking
certification as an ISO 9001 medical device manufacturing facility for the
Manchester facility and a CE Mark for the products currently manufactured at the
Manchester facility and the products in the LifePort(TM), Infuse-a-Port(R) and
Infuse-a-Cath(TM) product lines. Although the Company expects to receive ISO
9001 certification and the CE Mark by June 1998, there can be no assurance that
such certification and the CE Mark will be received by such time, if at all. If
the Company does not receive these certifications for its Manchester facility,
it will ultimately be unable to sell its products in Europe. See
"Business -- Backlog." The Company has undergone and expects to continue to
undergo regular GMP inspections in connection with the manufacture of its
products at the Company's facilities. The Company's success will depend, among
other things, on its ability to efficiently manufacture different products and
to integrate newly acquired products with existing products. There can be no
assurance that the Company will not encounter difficulties in transitioning the
manufacturing of the LifePort(TM), Infuse-a-Port(R) and Infuse-a-Cath(TM)
product lines to the Manchester facility and in
7
<PAGE> 9
increasing production of new products, including problems involving production
yields, quality control and assurance and component supply. The Company's
failure to successfully commence the manufacturing of new products, to maintain
or increase production volumes of new or existing products in a timely or
cost-effective manner or to achieve or maintain compliance with ISO 9001, the CE
Mark, GMP regulations or other applicable licensing or regulatory requirements
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Manufacturing."
MANAGEMENT OF GROWTH; RISKS ASSOCIATED WITH ACQUISITIONS
The rapid growth experienced by the Company to date has placed, and could
continue to place, significant demands on the Company's management, operational
and financial resources. In October 1995 and July 1997, respectively, the
Company completed the NeoStar Medical(R) and Strato(R)/Infusaid(TM)
Acquisitions. Although the Company has no present commitments or agreements with
respect to any additional material acquisitions, the Company expects to pursue
additional strategic acquisitions of complementary businesses, products or
technologies as a means of expanding its existing product lines and distribution
channels. As the medical devices industry continues to consolidate, the Company
expects to face increasing competition from other companies for available
acquisition opportunities. There can be no assurance that suitable acquisition
candidates will be available, that financing for such acquisitions will be
obtainable on terms acceptable to the Company or that such acquisitions will be
successfully completed. Acquisitions entail numerous risks, including (i) the
potential inability to successfully integrate acquired operations and products
or to realize anticipated synergies, economies of scale or other value, (ii)
diversion of management's attention, (iii) responsibility for undiscovered or
contingent liabilities and (iv) loss of key employees of acquired operations.
The relocation of manufacturing operations for acquired product lines to the
Company's manufacturing facility in Manchester, Georgia may also result in
interruptions in production and back orders. See "Business -- Backlog." No
assurance can be given that the Company will not incur problems in integrating
any future acquisition and there can be no assurance that the
Strato(R)/Infusaid(TM) Acquisition or any future acquisition will increase the
Company's profitability. Further, the Company's results of operations in fiscal
quarters immediately following a material acquisition may be materially
adversely affected while the Company integrates the acquired business into its
existing operations. Any such problems could have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, future acquisitions by the Company may result in dilutive issuances of
equity securities, the incurrence of additional debt, large one-time charges and
the creation of goodwill or other intangible assets that could result in
significant amortization expense.
DEPENDENCE ON PATENTS, TRADEMARKS, LICENSES AND PROPRIETARY RIGHTS
The Company believes that its competitive position and success has
depended, in part, on and will continue to depend on the ability of the Company
and its licensors to obtain patent protection for its products, to defend
patents once obtained, to preserve its trade secrets and to operate without
infringing upon patents and proprietary rights held by third parties, both in
the United States and in foreign countries. The Company's policy is to protect
its proprietary position by, among other methods, filing United States and
foreign patent applications relating to technology, inventions and improvements
that are important to the development of its business. The Company owns numerous
United States and foreign patents and United States and foreign patent
applications. The Company also is a party to several license agreements with
third parties pursuant to which it has obtained, for varying terms, the right to
make, use and/or sell products that are covered under such license agreement in
consideration for royalty payments. Many of the Company's major products,
including its Circle C(R) acute and chronic catheters and its Infuse-a-Cath(TM)
catheters are subject to such license agreements. There can be no assurance that
the Company or its licensors have or will develop or obtain additional rights to
products or processes that are patentable, that patents will issue from any of
the pending patent applications filed by the Company or that claims allowed will
be sufficient to protect any technology that is licensed to the Company. In
addition, no assurances can be given that any patents issued or licensed to the
Company or other licensing arrangements will not be challenged, invalidated,
infringed or circumvented or that the rights granted thereunder will provide
competitive advantages for the Company's business or
8
<PAGE> 10
products. In such event the business, results of operations and financial
condition of the Company could be materially adversely affected.
A number of medical devices companies, physicians and others have filed
patent applications or received patents to technologies that are similar to
technologies owned or licensed by the Company. There can be no assurance that
the Company is aware of all patents or patent applications that may materially
affect the Company's ability to make, use or sell its products. United States
patent applications are confidential while pending in the United States Patent
and Trademark Office ("PTO"), and patent applications filed in foreign countries
are often first published six or more months after filing. Any conflicts
resulting from third-party patent applications and patents could significantly
reduce the coverage of the patents owned or licensed by the Company and limit
the ability of the Company or its licensors to obtain meaningful patent
protection. If patents are issued to other companies that contain competitive or
conflicting claims, the Company may be required to obtain licenses to those
patents or to develop or obtain alternative technology. There can be no
assurance that the Company would not be delayed or prevented from pursuing the
development or commercialization of its products, which could have a material
adverse effect on the Company.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. Although the
Company has not been a party to any material litigation to enforce any
intellectual property rights held by the Company, or a party to any material
litigation seeking to enforce any rights alleged to be held by others, future
litigation may be necessary to protect patents, trade secrets, copyrights or
"know-how" owned by the Company or to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of the Company and others. The validity and breadth of
claims covered in medical technology patents involve complex legal and factual
questions for which important legal principles are unresolved. Any such
litigation could result in substantial cost to and diversion of effort by the
Company. Adverse determinations in any such litigation could subject the Company
to significant liabilities to third parties, could require the Company to seek
licenses from third parties and could prevent the Company from manufacturing,
selling or using certain of its products, any of which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company also relies on trade secrets and proprietary technology that it
seeks to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, that others will not independently develop substantially equivalent
proprietary information or that third parties will not otherwise gain access to
the Company's trade secrets.
The Company also relies upon trademarks and trade names for the development
and protection of brand loyalty and associated goodwill in connection with its
products. The Company's policy is to protect its trademarks, trade names and
associated goodwill by, among other methods, filing United States and foreign
trademark applications relating to its products and business. The Company owns
numerous United States and foreign trademark registrations and applications. The
Company also relies upon trademarks and trade names for which it does not have
pending trademark applications or existing registrations, but in which the
Company has substantial trademark rights. The Company's registered and
unregistered trademark rights relate to the majority of the Company's products,
including products comprising the Circle C(R), Infuse-a-Port(R), Triumph-1(R),
Infuse-a-Cath(TM), LifePort(TM) and Pheres-Flow(TM) product lines. There can be
no assurance that any registered or unregistered trademarks or trade names of
the Company will not be challenged, canceled, infringed, circumvented, or be
declared generic or infringing of other third-party marks or provide any
competitive advantage to the Company. See "Business -- Patents, Trademarks,
Licenses and Proprietary Rights."
POTENTIAL PRODUCT LIABILITY
Because its products are intended to be used in healthcare settings on
patients who are physiologically unstable and may be seriously or critically
ill, the Company's business exposes it to potential product liability risks
which are inherent in the medical devices industry. In addition, many of the
medical devices
9
<PAGE> 11
manufactured and sold by the Company are designed to be implanted in the human
body for extended periods of time. Component failures, manufacturing flaws,
design defects or inadequate disclosure of product-related risks with respect to
these or other products manufactured or sold by the Company could result in
injury to, or death of, a patient. The occurrence of such a problem could result
in product liability claims and/or a recall of, safety alert relating to, or
other FDA or private civil action affecting one or more of the Company's
products or responsible officials. The Company maintains product liability
coverage in amounts that it deems sufficient for its business. There can be no
assurance, however, that such coverage will be available with respect to or
sufficient to satisfy all claims made against the Company or that the Company
will be able to obtain insurance in the future at satisfactory rates or in
adequate amounts. Product liability claims or product recalls in the future,
regardless of their ultimate outcome, could result in costly litigation and
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Product Liability Claims
and Insurance."
FUTURE CAPITAL REQUIREMENTS
Prior to 1996, the Company's cash flow from operations was insufficient to
cover its operating expenses, and the Company relied on external financing to
meet its operating cash flow needs. The Company expects that its current cash
and cash equivalents, together with additional cash from operations and the
proceeds of the Offering, will be sufficient to meet its current operating cash
requirements at least through December 31, 1998. However, depending upon the
Company's acquisition activity and results of operations, there can be no
assurance that such resources will be sufficient, in which case the Company
would need to obtain additional financing. Such additional financing could
involve issuances of debt or issuances of equity securities which would be
dilutive to purchasers of the Common Stock offered hereby. Adequate additional
funds, whether from the financial markets or from other sources, may not be
available on a timely basis, on terms acceptable to the Company or at all.
Insufficient funds may cause the Company to delay or abandon some or all of its
product acquisition, licensing, marketing or research and development programs
or opportunities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
NEW PRODUCT INTRODUCTIONS
Although the vascular access product industry has not experienced rapid
technological change historically, as the Company's existing products become
more mature, the importance of developing or acquiring, manufacturing and
introducing new products that address the needs of its customers will increase.
The development or acquisition of any such products will entail considerable
time and expense, including acquisition costs, research and development costs,
and the time and expense required to obtain necessary regulatory approvals,
which approvals are not assured, and any of which could adversely affect the
business, results of operations or financial condition of the Company. There can
be no assurance that such development activities will yield products that can be
commercialized profitably or that any product acquisition can be consummated on
commercially reasonable terms or at all. To date, substantially all of the
Company's products have been developed in conjunction with third parties or
acquired as a result of acquisitions consummated by the Company. The inability
of the Company to develop or acquire new products to supplement the Company's
existing product lines could have an adverse impact on the Company's ability to
fully implement its business strategy and further develop its operation.
CUSTOMER CONCENTRATION
The Company's net sales to its five largest customers accounted for 9.3%,
10.7% and 18.1% of net sales during 1995, 1996 and 1997, respectively. The loss
of, or significant curtailments of purchases by, any of the Company's
significant customers could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE ON KEY SUPPLIERS
The Company purchases raw materials and components for use in manufacturing
its products from approximately 80 suppliers. In fiscal 1997, products purchased
from its three largest suppliers accounted for 39%, 14% and 7%, respectively, of
the Company's total raw material and component purchases. There can be no
assurance that the Company will be able to maintain its existing supplier
relationships or secure additional
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<PAGE> 12
suppliers as needed. The loss of a major supplier, the deterioration of the
Company's relationship with a major supplier, changes by a major supplier in the
specifications of the components used in the Company's products, or the failure
of the Company to establish good relationships with major new suppliers could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business -- Manufacturing."
DEPENDENCE ON KEY PERSONNEL
The Company's success is substantially dependent on the performance,
contributions and expertise of its executive officers and key employees. The
Company's success to date has been significantly dependent on the contributions
of Marshall B. Hunt, its Chairman and Chief Executive Officer, and William E.
Peterson, Jr., its President, each of whom will enter into an employment
agreement with the Company at the time of the Offering and on each of whom the
Company maintains key man life insurance in the amount of $1.0 million. The
Company is also dependent on its ability to attract, retain and motivate
additional personnel. The loss of the services of any of its executive officers
or other key employees or the Company's inability to attract, retain or motivate
the necessary personnel could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management."
CONTROL BY CERTAIN SHAREHOLDERS
After the Offering, Marshall B. Hunt, William E. Peterson, Jr., and Roy C.
Mallady, Jr. will own approximately 28.4%, 23.5% and 15.9% of the outstanding
Common Stock, respectively (approximately 27.3%, 22.6% and 15.3%, respectively,
if the Underwriters' over-allotment option is exercised in full). These
shareholders, if they were to act together, would have the power to elect all of
the members of the Company's Board of Directors, amend the Amended and Restated
Articles of Incorporation of the Company (the "Articles") and the Amended and
Restated Bylaws of the Company (the "Bylaws") and effect or preclude fundamental
corporate transactions involving the Company, including the acceptance or
rejection of proposals relating to a merger of the Company or the acquisition of
the Company by another entity. Accordingly, these shareholders are able to exert
significant influence over the Company, including the ability to control
decisions on matters on which shareholders are entitled to vote. See "Certain
Transactions," "Principal and Selling Shareholders" and "Description of Capital
Stock."
YEAR 2000 ISSUES
The approaching year 2000 could result in challenges related to the
Company's computer software, accounting records and relationships with suppliers
and customers. Management of the Company is studying year 2000 issues and is
seeking to avoid such problems. Based on the Company's review of its business
and operating systems, the Company does not expect to incur material costs with
respect to assessing and remediating year 2000 problems; however, there can be
no assurance that such problems will not be encountered or that the costs
incurred to resolve such problems will not be material.
HEALTHCARE REFORM/PRICING PRESSURE
The healthcare industry in the United States continues to experience
change. In recent years, several healthcare reform proposals have been
formulated by members of Congress. In addition, state legislatures periodically
consider healthcare reform proposals. Federal, state and local government
representatives will, in all likelihood, continue to review and assess
alternative healthcare delivery systems and payment methodologies, and ongoing
public debate of these issues can be expected. Cost containment initiatives,
market pressures and proposed changes in applicable laws and regulations may
have a dramatic effect on pricing or potential demand for medical devices, the
relative costs associated with doing business and the amount of reimbursement by
both government and third-party payors to persons providing medical services. In
particular, the healthcare industry is experiencing market-driven reforms from
forces within the industry that are exerting pressure on healthcare companies to
reduce healthcare costs. Managed care and other healthcare provider
organizations have grown substantially in terms of the percentage of the
population in the United States that receives medical benefits through such
organizations and in terms of the influence and control that they are able to
exert over an increasingly large portion of the healthcare industry. Managed
care organizations are continuing to consolidate and grow, increasing the
ability of these organizations to influence the practices and pricing involved
in the purchase of medical devices, including certain of the products sold by
the Company,
11
<PAGE> 13
which is expected to exert downward pressure on product margins. Both short- and
long-term cost containment pressures, as well as the possibility of continued
regulatory reform, may have an adverse impact on the Company's business, results
of operations and financial condition. See "Business -- Healthcare Reform;
Third-Party Reimbursement."
GOVERNMENT REGULATION
The Company's products and operations are subject to extensive regulation
by numerous governmental authorities, including, but not limited to, the FDA and
state and foreign governmental authorities. In particular, the Company must
obtain specific clearance or approval from the FDA before it can market new
products or certain modified products in the United States. The FDA administers
the Federal Food, Drug and Cosmetics Act (the "FDC Act"). Under the FDC Act,
medical devices must receive FDA clearance through the Section 510(k)
notification process ("510(k)") or the more lengthy premarket approval ("PMA")
process before they can be sold in the United States. To obtain 510(k) marketing
clearance, a company must show that a new product is "substantially equivalent"
to a product already legally marketed and which does not require PMA approval.
Therefore, it is not always necessary to prove the safety and effectiveness of
the new product in order to obtain 510(k) clearance for such product. To obtain
PMA approval, a company must submit extensive data, including clinical trial
data, to prove the safety, effectiveness and clinical utility of its products.
FDA regulations also require companies to adhere to certain GMP's, which include
testing, quality control, storage, and documentation procedures. Compliance with
applicable regulatory requirements is monitored through periodic site
inspections by the FDA. The process of obtaining such clearances or approvals
can be time-consuming and expensive, and there can be no assurance that all
clearances or approvals sought by the Company will be granted or that FDA review
will not involve delays adversely affecting the marketing and sale of the
Company's products. In addition, the Company is required to comply with FDA
requirements for labeling and promotion of its products. The Federal Trade
Commission also regulates most device advertising.
In addition, international regulatory bodies often establish varying
regulations governing product testing and licensing standards, manufacturing
compliance (e.g., compliance with ISO 9001 standards), packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements and pricing and reimbursement levels. The inability or failure of
the Company to comply with the varying regulations or the imposition of new
regulations could restrict the Company's ability to sell its products
internationally and thereby adversely affect the Company's business, results of
operations and financial condition.
Subsequent to an FDA inspection in 1996, the Company received a warning
letter from the FDA Atlanta District Office alleging, among other things, its
failure to report to the FDA certain malfunctions and adverse events that may be
associated with its devices as required by the agency's medical device report
(MDR) regulations. In response to this warning letter, the Company revised its
MDR procedure and submitted it with other corrective actions for review by the
FDA. The FDA responded that the corrective actions described by the Company
appeared to adequately address the agency's concerns. At the conclusion of a
follow-up inspection in 1997, the Company was advised of various inspectional
observations including its alleged failure to submit MDRs on 19 reportable
events. The Company responded to the inspectional observations in writing and at
a meeting with the FDA at the Atlanta District Office at which the
interpretation of the MDR regulations was discussed. The District submitted the
question of the interpretation of the regulations to the FDA headquarters in
Washington, D.C. On March 10, 1998, the Company received a warning letter from
the Atlanta District Office reasserting its interpretation of the MDR
regulations and alleging the Company's failure to report 15 reportable events
and violation of two current GMP requirements. The Company has responded to the
warning letter pledging to submit all substantive reports until it secures
exemptions from the agency on the submission of certain classes of reports and
describing corrective action taken on the alleged current GMP violations. The
Company believes that it has implemented corrective actions that achieve
substantial compliance with the FDA requirements, but there can be no assurance
that an FDA enforcement action will not ensue at a future time or will not
materially adversely affect the Company's business, results of operations and
financial condition.
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<PAGE> 14
Failure to comply with applicable federal, state or foreign laws or
regulations could subject the Company to enforcement actions, including, but not
limited to, product seizures, recalls, withdrawal of clearances or approvals and
civil and criminal penalties against the Company or its responsible officials,
any one or more of which could have a material adverse effect on the Company's
business, results of operations and financial condition. Federal, state and
foreign laws and regulations regarding the manufacture and sale of medical
devices are subject to future changes, as are administrative interpretations of
regulatory agencies. No assurance can be given that such changes will not have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Government Regulation."
LIMITATIONS ON THIRD-PARTY REIMBURSEMENT
In the United States, the Company's products are purchased primarily by
hospitals and medical clinics, which then bill various third-party payors, such
as Medicare, Medicaid and other government programs and private insurance plans,
for the healthcare services provided to patients. Government agencies, private
insurers and other payors determine whether to provide coverage for a particular
procedure and reimburse hospitals for medical treatment at a fixed rate based on
the diagnosis-related group ("DRG") established by the United States Health Care
Financing Administration ("HCFA"). The fixed rate of reimbursement is based on
the procedure performed and is unrelated to the specific devices used in that
procedure. If a procedure is not covered by a DRG, payors may deny
reimbursement. In addition, third-party payors may deny reimbursement if they
determine that the device used in a treatment was unnecessary, inappropriate or
not cost-effective, experimental or used for a non-approved indication.
Reimbursement of procedures implanting the Company's vascular access ports and
catheter products is currently covered under a DRG. There can be no assurance
that reimbursement for such implantation will continue to be available, or that
future reimbursement policies of third-party payors will not adversely affect
the Company's ability to sell its products on a profitable basis. Failure by
hospitals and other users of the Company's products to obtain reimbursement from
third-party payors, or changes in government and private third-party payors'
policies toward reimbursement for procedures employing the Company's products,
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Healthcare Reform;
Third-Party Reimbursement."
COMPETITION
The medical devices industry is highly competitive and fragmented. The
Company currently competes with many companies in the development, manufacturing
and marketing of vascular access ports, dialysis and apheresis catheters and
related ancillary products. Some of these competitors have substantially greater
capital resources, management resources, research and development staffs, sales
and marketing organizations and experience in the medical devices industry than
the Company. These competitors may succeed in marketing their products more
effectively, pricing their products more competitively, or developing
technologies and products that are more effective than those sold or produced by
the Company or that would render some products offered by the Company
noncompetitive. See "Business -- Competition."
NO PRIOR PUBLIC MARKET; DETERMINATION OF INITIAL PUBLIC OFFERING PRICE;
VOLATILITY OF COMMON STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained. The initial public offering price will be determined by
negotiations between the Company and Credit Suisse First Boston Corporation
("CSFBC"), BancAmerica Robertson Stephens and NationsBanc Montgomery Securities
LLC based on several factors and may not be indicative of the market price of
the Common Stock after the Offering. The market price of the Common Stock is
likely to be highly volatile and may be significantly affected by factors such
as actual or anticipated fluctuations in the Company's results of operations and
other factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations which could affect the market price of
the Common Stock offered hereby. These broad market fluctuations may adversely
affect the market price of the Common Stock. The market prices of the common
stock of many publicly-held medical devices companies have in the past been, and
are expected to continue to be, volatile. Announcements of technological or
medical innovations or new commercial products by the Company or its
competitors, developments or disputes concerning patents or proprietary rights,
changes in regulatory or medical reimbursement policies,
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<PAGE> 15
and economic and other external factors may have a significant impact on the
market price and marketability of the Common Stock. See "Underwriting."
FACTORS INHIBITING TAKEOVER
Certain provisions of the Articles and Bylaws may delay or prevent a
takeover attempt that a shareholder might consider in its best interest. Among
other things, these provisions establish certain advance notice procedures for
shareholder proposals to be considered at shareholders' meetings, provide for
the classification of the Board of Directors, provide that only the Board of
Directors or shareholders owning 75% or more of the outstanding Common Stock may
call special meetings of the shareholders and establish supermajority voting
requirements with respect to the amendment of certain provisions of the Articles
and Bylaws. In addition, the Board of Directors can authorize and issue shares
of Preferred Stock, no par value (the "Preferred Stock"), issuable in one or
more series, with voting or conversion rights that could adversely affect the
voting or other rights of holders of the Common Stock. The terms of the
Preferred Stock that might be issued could potentially prohibit the Company's
consummation of any merger, reorganization, sale of all or substantially all of
its assets, liquidation or other extraordinary corporate transaction without the
approval of the holders of the outstanding shares of such stock. Furthermore,
certain provisions of the Georgia Business Corporation Code (the "Georgia Code")
may have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock."
DILUTION
The initial public offering price of the Common Stock offered hereby is
substantially higher than the net tangible book value per share of the Common
Stock. Therefore, purchasers of Common Stock offered hereby will incur immediate
and substantial dilution, and may incur additional dilution upon the future
exercise of stock options. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Common Stock. The Company and certain of its directors, officers and
shareholders have agreed with the Underwriters not to sell or otherwise dispose
of any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of CSFBC (the "Lock-Up"), except
issuances by the Company to optionees pursuant to the exercise of stock options
granted under the Stock Incentive Plan. Notwithstanding the foregoing, persons
who are bound by a Lock-Up will be permitted to transfer shares of Common Stock
or other securities convertible into or exchangeable or exercisable for any
shares of Common Stock of which such persons are the beneficial owner to (i) the
Company, (ii) shareholders of the Company who are bound by the terms of a
similar Lock-Up and (iii) any donees of such persons who receive such securities
of the Company as a bona fide gift or any affiliate of such persons provided
that such donees or affiliates agree in writing to be bound by the terms of a
similar Lock-Up (each a "Permitted Transfer"). Beginning 90 days after the date
of this Prospectus, all 2,047,242 shares of Common Stock owned by Mr. Mallady
will be eligible for sale in the public market, subject to compliance with the
provisions of Rule 144 ("Rule 144") under the Securities Act of 1933 (the
"Securities Act"). Beginning 180 days after the date of this Prospectus,
assuming that CSFBC does not consent to any sales prior to such time or a
Permitted Transfer does not occur, an additional 7,279,758 shares of Common
Stock outstanding on the date of this Prospectus and not otherwise offered and
sold in this Offering will become eligible for sale in the public market,
subject to compliance with the provisions of Rule 144. Of such aggregate
9,327,000 shares, 3,645,729 shares are held by Mr. Hunt, the Chairman of the
Board and Chief Executive Officer of the Company, 2,047,242 shares are held by
Mr. Mallady, the Vice Chairman of the Board, and 3,021,887 shares are held by
Mr. Peterson, the President and a director of the Company, each of whom is an
affiliate of the Company within the meaning of Rule 144, and may, therefore,
only be sold in the public market in compliance with the volume limitations and
other requirements of Rule 144. See "Shares Eligible for Future Sale,"
"Underwriting" and "Principal and Selling Shareholders."
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $32.6 million (approximately $39.4 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the net
proceeds of the Offering as follows: (i) an aggregate of $25.0 million to repay
indebtedness consisting of $23.5 million principal amount outstanding under a
$26.5 million credit facility with NationsCredit (the "Credit Facility") and
$1.5 million principal amount outstanding under a note originally issued to
Sirrom Capital Corporation ("Sirrom") in connection with the NeoStar
Medical(R)Acquisition (the "Sirrom Note") and presently owned by NationsCredit;
(ii) an aggregate of $3.3 million to repay obligations relating to the NeoStar
Medical(R) Acquisition consisting of $1.8 million payable in respect of
non-compete agreements entered into with certain shareholders of NeoStar
Medical(R) and $1.5 million principal outstanding under a promissory note issued
to NeoStar Holding, Inc. (the "Acquisition Note"); and (iii) the balance of
approximately $4.3 million for working capital and general corporate purposes
including, among other things, the funding of acquisitions of complementary
businesses, products or technologies, although the Company has no present
commitments or agreements with respect to any additional material acquisitions,
as well as the acquisition of certain additional office space in Atlanta,
Georgia from an affiliated party. See "Certain Transactions" and Notes 6 and 11
of the Consolidated Financial Statements of the Company.
Borrowings under the Credit Facility were used to finance the
Strato(R)/Infusaid(TM) Acquisition and to redeem warrants to purchase Common
Stock issued to a former lender. Outstanding indebtedness under the Credit
Facility bears interest at floating rates based on NationsCredit's Commercial
Paper Rate plus 4.25% to 5.25% (9.84% to 10.84% at December 31, 1997) and
matures upon the earlier of the receipt by the Company of the proceeds from the
Offering or July 1, 2004. The Sirrom Note bears interest at a rate of 13.75% per
annum and matures September 25, 2000. The Acquisition Note is a non-interest
bearing note (other than a $37,235 portion thereof which bears interest at the
prime rate plus 1%) with principal payments due monthly through June 30, 2000,
and five payments due on various dates through October 31, 2003, all of which
payments are due upon completion of the Offering. Pending use of the net
proceeds as described above, the Company will invest the net proceeds in
investment grade, interest-bearing securities. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Shareholders. As a result
of the repayment of amounts outstanding under the Credit Facility, pledges of
shares of Common Stock by Messrs. Hunt, Peterson and Mallady will be terminated.
DIVIDEND POLICY
The Company anticipates that following the completion of the Offering
earnings will be retained for use in developing and growing its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements, restrictions in
financing arrangements and such other factors as the Board of Directors deems
relevant.
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<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis and (ii) as adjusted to give effect to
the sale of 2,600,000 shares of Common Stock offered by the Company hereby
(after deducting underwriting discounts and commissions and estimated Offering
expenses payable by the Company), the application of the net proceeds to the
Company from the Offering as set forth herein and the exercise of the
NationsCredit Warrant. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------------------
PUT WARRANT AS
ACTUAL RESCISSION(2) ADJUSTED(3)
-------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 1,959 $ -- $ 199
======== ======== ========
Long-term debt.............................................. $ 23,971 $ -- $ 43
Put warrant repurchase obligation........................... 11,000 (11,000) --
Shareholders' equity(1):
Preferred Stock, par value $.001 per share; 5,000,000
shares authorized; no shares issued and outstanding
(actual); and no shares issued and outstanding (as
adjusted).............................................. -- -- --
Common Stock, par value $.001 per share; 50,000,000 shares
authorized; 9,419,450 shares outstanding (actual); and
12,800,000 shares outstanding (as adjusted)............ 9 -- 13
Additional paid-in capital................................ -- 9,900 42,497
Shareholders' notes receivable............................ (398) -- (398)
Accumulated deficit....................................... (10,761) 1,100 (11,089)
-------- -------- --------
Total shareholders' equity (deficit).............. (11,150) -- 31,023
-------- -------- --------
Total capitalization.............................. $ 23,821 $ -- $ 31,066
======== ======== ========
</TABLE>
- ---------------
(1) Does not include (i) 40,000 shares of Common Stock issuable upon the
exercise of the Outside Directors' Options (ii) 99,600 shares of Common
Stock issuable upon the exercise of the SAR Conversion Options, (iii) 10,000
shares of Common Stock issuable upon the exercise of the Executive's
Options, (iv) 350,400 shares of Common Stock reserved for issuance under the
Stock Incentive Plan, (v) 500,000 shares of Common Stock reserved for
issuance upon the exercise of the Premier Warrant and (vi) 45,328 shares of
Common Stock issuable to an affiliate of the Company after the Offering and
certain additional shares of Common Stock which may become issuable to such
affiliate and another affiliate of the Company as consulting fees. See
"Management -- Stock Incentive Plan" and "-- 1995 Stock Appreciation Rights
Plan," "Description of Capital Stock -- Premier Warrant," "Certain
Transactions -- Consulting Agreements with Directors" and "-- Consulting
Agreement with Healthcare Alliance."
(2) Gives effect to the January 29, 1998 agreement with NationsCredit which
rescinded the put rights associated with the NationsCredit Warrant.
(3) Gives effect to the sale of 2,600,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $14.00 per
share and the application of the net proceeds to the Company from the
Offering as set forth herein, including an increase to accumulated deficit
due to an immediate write-off of debt issue costs and debt discounts
totaling $1,428,000. See "Use of Proceeds."
16
<PAGE> 18
DILUTION
Net tangible book value per share is equal to the Company's tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding. The deficit in net tangible book value of the Company as of
December 31, 1997 was approximately $(26.9) million, or $(2.63) per share. After
giving effect to the sale of 2,600,000 shares of Common Stock offered by the
Company hereby at an assumed Offering price of $14.00 per share (after deducting
underwriting discounts and commissions and estimated Offering expenses payable
by the Company resulting in estimated net proceeds of $32.6 million) including
anticipated warrant conversions immediately prior to consummation of the
Offering and application of certain anti-dilution rights, the net tangible book
value of the Company as of December 31, 1997 would have been approximately $5.7
million, or $0.45 per share. This represents an immediate increase of $3.08 per
share to existing shareholders and warrant holders and an immediate dilution of
$13.55 per share to purchasers of shares of Common Stock in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share at December 31, 1997.... $(2.63)
Increase attributable to the Offering..................... 3.08
------
Net tangible book value per share after the Offering........ 0.45
Dilution per share to purchasers in the Offering (1)........ $13.55
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock acquired from the Company, the
aggregate cash consideration paid and the average price per share paid by the
existing shareholders and to be paid by investors purchasing shares of Common
Stock from the Company in the Offering at an assumed Offering price of $14.00
per share (before deducting underwriting discounts and commissions and estimated
Offering expenses):
<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
-------------------- --------------------- ---------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1)(2)....... 10,200,000 79.7% $ 955 --% $ --
New Investors(2).................. 2,600,000 20.3 36,400,000 100 14.00
---------- ---- ----------- ---
Total................... 12,800,000 100% $36,400,955 100%
========== ==== =========== ===
</TABLE>
- ---------------
(1) Includes 765,000 shares of Common Stock issuable upon the exercise of the
NationsCredit Warrant and 15,550 shares of Common Stock issuable under
certain anti-dilution provisions. Does not include (i) 40,000 shares of
Common Stock issuable upon the exercise of the Outside Directors' Options
(ii) 99,600 shares of Common Stock issuable upon the exercise of the SAR
Conversion Options, (iii) 10,000 shares of Common Stock issuable upon the
exercise of the Executive's Options, (iv) 350,400 shares of Common Stock
reserved for issuance under the Stock Incentive Plan, (v) 500,000 shares of
Common Stock reserved for issuance upon the exercise of the Premier Warrant
and (vi) 45,328 shares of Common Stock issuable to an affiliate of the
Company after the Offering and certain additional shares of Common Stock
which may become issuable to such affiliate and another affiliate of the
Company as consulting fees. See "Management -- Stock Incentive Plan" and
"-- 1995 Stock Appreciation Rights Plan," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of Capital Stock -- Premier Warrant,"
"Certain Transactions -- Consulting Agreements with Directors" and
"-- Consulting Agreement with Healthcare Alliance."
(2) Sales by the Selling Shareholders in the Offering will reduce the number of
shares held by existing shareholders to 9,327,000 shares, or approximately
72.9% of the total shares of Common Stock outstanding, and will increase the
number of shares held by new investors to 3,473,000 shares, or approximately
27.1% of the total shares of Common Stock outstanding after the Offering.
See "Principal and Selling Shareholders."
17
<PAGE> 19
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the years ended December 31,
1993, 1994, 1995, 1996 and 1997 and as of December 31, 1993, 1994, 1995, 1996
and 1997 are derived from, and are qualified by reference to, the Consolidated
Financial Statements of the Company, which have been audited by Coopers &
Lybrand L.L.P., independent certified public accountants, and which are included
elsewhere in this Prospectus. The unaudited pro forma as adjusted information
presented below has been prepared based upon the audited financial statements of
the Company and unaudited financial data for Strato(R)/Infusaid(TM) for the
period ended July 15, 1997. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and Notes thereto included in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------- ----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)(2)
-------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $3,629 $4,147 $5,003 $ 7,052 $ 15,798 $ 22,818
Cost of goods sold........................ 1,786 1,997 2,227 2,997 6,273 8,660
------ ------ ------ ------- -------- --------
Gross profit.............................. 1,843 2,150 2,776 4,055 9,525 14,158
Selling, general and administrative
expenses(3)............................. 2,176 2,226 2,706 4,240 6,111 8,111
------ ------ ------ ------- -------- --------
Operating income (loss)................... (333) (76) 70 (185) 3,414 6,047
Interest (expense) income................. (55) (160) (242) (733) (3,971) 55
Accretion of value of put warrant
repurchase obligation(4)................ -- -- -- -- (8,000) --
Other income.............................. 5 101 -- 54 70 70
------ ------ ------ ------- -------- --------
Income (loss) before income taxes and
extraordinary item...................... (383) (135) (172) (864) (8,487) 6,172
Income tax benefit (expense)(5)........... -- -- 7 -- (320) (2,379)
Effect of conversion to C Corporation
status.................................. -- -- (7) -- -- --
Extraordinary loss on early extinguishment
of debt................................. -- -- (70) -- -- --
------ ------ ------ ------- -------- --------
Net income (loss)(5)...................... $ (383) $ (135) $ (242) $ (864) $ (8,807) $ 3,793
====== ====== ====== ======= ======== ========
Loss per share before extraordinary
item -- basic and diluted............... $ -- $ -- $(0.02) $ -- $ -- $ --
Net income (loss) per share -- basic and
diluted................................. $(0.05) $(0.02) $(0.03) $ (0.09) $ (0.93) $ 0.30
Weighted average common shares
outstanding............................. 8,318 8,333 9,144 9,419 9,419 12,800
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------- ----------------------------
ACTUAL AS ADJUSTED(2)
-------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 62 $ 600 $ 394 $ 218 $ 2,894 $ 6,841
Working capital........................... (415) 238 1,500 1,018 6,842 12,886
Total assets.............................. 1,449 2,222 6,894 6,176 31,577 35,262
Long-term debt, net of current
maturities.............................. 379 1,227 4,907 5,053 23,972 43
Total shareholders' equity (deficit)...... (303) (438) (680) (1,916) (11,150) 31,023
</TABLE>
- ---------------
The unaudited pro forma as adjusted consolidated financial information presented
does not purport to represent what the consolidated results of operations or
financial condition of the Company would have been if the transactions reflected
therein had occurred on the assumed dates or to project the future consolidated
results of operations or financial condition of the Company. See the Unaudited
Pro Forma Condensed Consolidated Financial Statements included elsewhere in this
Prospectus.
(1) Gives effect to the Strato(R)/Infusaid(TM) Acquisition as if it had been
completed on January 1, 1997. The pro forma adjustments include (i) a
reduction of cost of goods sold for eliminated overhead allocation, (ii)
adjustment of selling, general and administrative expenses to increase for
amortization of intangible assets and to decrease for elimination of
salaries, (iii) an increase in interest expense due to financial
18
<PAGE> 20
costs of the acquisition, (iv) removal of accretion value of the put warrant
repurchase obligation, and (v) related tax effects.
(2) Adjusted to reflect net proceeds of $32,600 from the sale of 2,600 shares of
Common Stock offered by the Company hereby (after deducting underwriting
discounts and commissions and estimated Offering expenses payable by the
Company) and the application thereof as set forth herein. See "Use of
Proceeds." The adjustments include a reduction of interest expense, an
increase in compensation costs following the Offering and related tax
effects.
(3) The Company has not paid salaries to its CEO and President in any year
presented. The 1997 Pro Forma As Adjusted column includes $455 estimated
compensation expense. Estimated fair values of compensation not included in
years 1993, 1994, 1995, 1996 and 1997 actual results are $185, $195, $215,
$320 and $365, respectively.
(4) See Notes 6 and 8 of the Consolidated Financial Statements of the Company
for a discussion of this non-recurring item.
(5) Pro forma for 1993 and 1994 due to the Company's status as an S Corporation
for tax purposes. Tax attributes of the Company were passed through to the
Company owners.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto, and other financial information
included elsewhere in this Prospectus.
BACKGROUND
The Company began its operations in February 1990 as a distributor of
medical devices and began to distribute vascular access devices in the first
quarter 1990. In November 1992, the Company entered into a collaborative effort
with a leading heart valve manufacturer to design and develop a new line of
vascular access ports. This new line of ports, the Triumph-1(R) line, was
introduced in September 1994. The Company continues to market the Triumph-1(R)
line of vascular access ports, with this product line having cumulative sales of
over 30,000 units to date. In May 1995, the Company began to distribute the
NeoStar Medical(R) line of hemodialysis catheters, and in October 1995 the
Company exercised its option to acquire NeoStar Medical(R) for an aggregate
purchase price of $4.0 million payable in a combination of cash and promissory
notes. In March 1996, the Company began the construction of a 20,000 square foot
manufacturing, distribution and administrative facility in Manchester, Georgia.
The Company began manufacturing the NeoStar Medical(R) product line at this
facility in October 1996 and recently expanded this facility to 45,000 square
feet. In July 1997, the Company acquired the port business of
Strato(R)/Infusaid(TM) for $19.5 million in cash. The primary product lines
obtained in the Strato(R)/Infusaid(TM) Acquisition included the LifePort(TM) and
Infuse-a-Port(R) vascular access ports, and the Infuse-a-Cath(TM) line of
catheters. The Company had revenues of $7.1 million from these products from the
date of acquisition through December 31, 1997.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items
contained in the Company's statements of operations expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 44.5 42.5 39.7
----- ----- -----
Gross profit................................................ 55.5 57.5 60.3
Selling, general and administrative expenses................ 54.1 60.1 38.7
----- ----- -----
Operating income (loss)................................... 1.4 (2.6) 21.6
----- ----- -----
Other income (expense):
Interest expense.......................................... (4.8) (10.4) (25.1)
Accretion of value of put warrant repurchase obligation... -- -- (50.6)
Other income.............................................. -- 0.7 0.4
----- ----- -----
Loss before income taxes and extraordinary item............. (3.4) (12.3) (53.7)
Income tax benefit (expense)................................ 0.1 -- (2.0)
Effect of conversion to C Corporation status................ (0.1) -- --
Extraordinary loss on early extinguishment of debt.......... (1.4) -- --
----- ----- -----
Net loss.................................................... (4.8)% (12.3)% (55.7)%
===== ===== =====
</TABLE>
Year Ended December 31, 1997 compared to Year Ended December 31, 1996
Net Sales. Net sales increased 124.0% to $15.8 million in 1997, from $7.1
million in 1996. This increase is primarily attributable to (i) an overall
increase in sales of ports of $7.3 million, with $7.0 million of this increase
from sales of the port product lines acquired in the Strato(R)/Infusaid(TM)
Acquisition, and (ii) an overall increase in sales of catheters of $1.3 million,
with triple lumen catheter sales increasing $900,000, primarily
20
<PAGE> 22
due to the expansion of this product to the Company's full sales force in 1996.
The overall increase in sales of catheters is primarily the result of a sales
volume increase and to a lesser extent a slight price increase.
Gross Profit. Gross profit increased 134.9% to $9.5 million in 1997, from
$4.1 million in 1996. Gross margin increased to 60.3% in 1997, from 57.5% in
1996. The margin increase is attributable to the port product line acquired in
the Strato(R)/Infusaid(TM) Acquisition having a higher margin than the Company's
existing port product line and an increase in sales of triple lumen catheters
which have a higher margin than the Company's other catheters. This margin
increase was offset somewhat by increased overall international sales, which
generally have lower profit margins than domestic sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 44.1% to $6.1 million in 1997, from $4.2
million in 1996. This increase is primarily attributable to increased
compensation expenses associated with the development of the Company's sales
force. Selling, general and administrative expenses declined as a percentage of
net sales to 38.7% in 1997 from 60.1% in 1996 due to substantial revenue growth
in 1997.
Interest Expense. Net interest expense increased to $4.0 million in 1997
from $700,000 in 1996. Such expense increased as a percentage of net sales to
25.1% in 1997 from 10.4% in 1996. The increase is primarily a result of the
amortization of deferred loan costs and interest expense in connection with the
Credit Facility, including $1.8 million of amortization related to the debt
discount associated with the NationsCredit Warrant.
Accretion of Value of Put Warrant Repurchase Obligation. In connection
with the Credit Facility, the Company issued the NationsCredit Warrant which
contains a put feature. The Company recorded a charge of $8.0 million equalling
the estimated increase in the value of the NationsCredit Warrant from its
original estimated value of $3,000,000. On January 29, 1998 the Company entered
into an agreement with NationsCredit which rescinded the put feature of the
NationsCredit Warrant. This will result in a $1.1 million decrease in the
liability to be reflected as an increase to income. The remaining $9.9 million
will be reclassified from the liability to additional paid in capital. Such
adjustments will be reflected in the Company's first quarter results. See Notes
6 and 8 of the Notes to the Consolidated Financial Statements of the Company.
Taxes. Income taxes increased to $300,000 in 1997 from $0 in 1996. Prior
to 1997, the Company recorded a full valuation allowance against its net
deferred tax assets which were primarily attributable to its net operating loss
carryforwards. During 1997, the Company generated taxable income sufficient to
fully utilize the net operating loss carryforwards. The provision for income
taxes in 1997 differs from the amount which would have been calculated by
applying the federal statutory rate of 34% due primarily to non-deductible
interest and accretion of the put warrant repurchase obligation of approximately
$9.8 million.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Net Sales. Net sales increased 40.9% to $7.1 million in 1996, from $5.0
million in 1995. This increase was primarily attributable to a $2.3 million
increase in catheter sales resulting from sales of proprietary products acquired
in the NeoStar Medical(R) Acquisition and includes $300,000 in sales resulting
from the introduction of triple lumen catheters. The increase in catheter sales
was partially offset by a $400,000 decline in port sales which resulted
primarily from the Company's reallocation of resources to establish the catheter
line of business and commence manufacturing this product line at its newly
opened facility in Manchester, Georgia and a decline in sales to a significant
customer.
Gross Profit. Gross profit increased 46.1% to $4.1 million in 1996, from
$2.8 million in 1995. Gross margin increased to 57.5% in 1996, from 55.5% in
1995, primarily as a result of (i) a shift in the focus of the Company's
operations from distribution to manufacturing achieved through consummation of
the NeoStar Medical(R) Acquisition, (ii) increased sales of higher margin
catheter products as part of the overall mix of sales and (iii) increased sales
of higher margin port products resulting in improved margins in the port product
line.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 56.7% to $4.2 million in 1996, from $2.7
million in 1995, and such expenses increased as a percentage of net sales to
60.1% in 1996 from 54.1% in 1995. These increases resulted primarily from the
full year effect during
21
<PAGE> 23
1996 of the NeoStar Medical(R) Acquisition, including the cost of moving the
NeoStar Medical(R) business to Manchester, Georgia and the amortization of the
goodwill arising from this transaction.
Interest Expense. Net interest expense was $700,000 in 1996 compared to
$200,000 in 1995, due to borrowings under the Sirrom Note and promissory notes
issued to Columbus Bank and Trust Company ("CB&T") and the former shareholders
of NeoStar Medical(R).
Taxes. Effective January 1, 1995, the shareholders of the Company elected
to be taxed as a C Corporation and, accordingly, revoked its S Corporation
status. As a result, the Company recorded a deferred tax liability and
recognized income tax expense at the effective date of the change.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity have been from
financing activities. Net cash provided by (used in) financing activities,
derived primarily from bank lines of credit was $1.8 million, $(200,000) and
$20.4 million during 1995, 1996 and 1997, respectively. The primary use of cash
provided by operations is an increase in accounts receivable and prepaid
expenses and other assets. The Company believes these accounts will continue to
increase during 1998. The Company used $20.4 million in investing activities,
$19.5 million of which was used in the Strato(R)/Infusaid(TM) Acquisition.
On July 15, 1997, the Company entered into a $26.5 million Credit Facility
with NationsCredit. The Credit Facility provides the Company with a term loan in
the amount of $21.5 million repayable in 24 quarterly installments ranging from
$537,500 to $1.075 million (the "Tranche A Loan"), a term loan in the amount of
$2.0 million repayable in four quarterly installments of $500,000 each (the
"Tranche B Loan") and a revolving line of credit (the "Working Capital Line") of
up to $3.0 million repayable on the earlier of July 1, 2004 or the date on which
all amounts outstanding under the Tranche A Loan and the Tranche B Loan have
been repaid. Additionally, NationsCredit effectively purchased the Sirrom Note.
Borrowings under the Working Capital Line and Tranche A Loan bear interest at
NationsCredit's Commercial Paper Rate plus 4.25% (9.84% at December 31, 1997).
Borrowings under the Tranche B Loan bear interest at NationsCredit's Commercial
Paper Rate plus 5.25% (10.84% at December 31, 1997). Subject to certain
limitations, amounts outstanding under each of the Tranche A Loan, the Tranche B
Loan and the Working Capital Line may be prepaid at the Company's option
subject, in certain cases, to the payment of a prepayment premium of 3.00%.
Amounts outstanding under the Tranche A Loan and the Tranche B Loan are
mandatorily prepayable, without penalty, in increments upon the occurrence of
certain events, including, without limitation, issuances by the Company of
Common Stock and other equity securities the proceeds of which exceed $250,000
and consummation by the Company of certain asset sales. The Credit Facility
prohibits or restricts the Company from many actions, including paying dividends
and incurring or assuming other indebtedness or liens.
The Company's obligations under the Credit Facility are secured by liens on
substantially all of the Company's assets, including inventory, accounts
receivable and general intangibles and a pledge of the stock of the Company's
subsidiaries. The Company's obligations under the Credit Facility are also
guaranteed by each of the Company's subsidiaries (the "Guarantees"). The
obligations of such subsidiaries under the Guarantees are secured by liens on
substantially all of their respective assets, including inventory, accounts
receivable and general intangibles. As additional security, each of Marshall B.
Hunt, William E. Peterson, Jr. and Roy C. Mallady, Jr. has pledged all shares of
Common Stock of the Company owned by him.
As of January 31, 1998, there was a $21.5 million outstanding principal
balance under the Tranche A Loan, a $2.0 million outstanding principal balance
under the Tranche B Loan and a zero outstanding principal balance under the
Working Capital Line.
As additional consideration for the Credit Facility, the Company granted to
NationsCredit the NationsCredit Warrant, expiring in 2007, to purchase up to,
assuming the consummation by the Company of the Offering, 765,000 shares of
Common Stock at an exercise price of $.001 per share, which represents
approximately 7.5% of the outstanding Common Stock on a fully-diluted basis.
NationsCredit has indicated to the Company that it intends to exercise the
NationsCredit Warrant and sell a portion of the shares of Common Stock issuable
thereunder to a third party and the balance of such shares in the Offering.
22
<PAGE> 24
All amounts outstanding under the Credit Facility will become immediately
due and payable upon consummation of the Offering and the Credit Facility will
terminate. The Company intends to enter into the New Credit Facility (as
hereinafter defined) after the Offering.
In connection with the closing of the Credit Facility, on July 15, 1997
NationsCredit purchased the $1.5 million Sirrom Note from Sirrom. The Sirrom
Note bears interest at the rate of 13.75% per annum, matures September 25, 2000
and repayment thereof is guaranteed by Horizon Acquisition Corp, one of the
Company's wholly-owned subsidiaries. As additional security, Horizon Acquisition
Corp. originally granted to Sirrom a security interest, which was transferred to
NationsCredit, in its accounts receivable and inventory. At January 31, 1998,
there was a $1.5 million outstanding principal balance under the Sirrom Note.
All amounts outstanding under the Sirrom Note will be repaid upon consummation
of the Offering and the Sirrom Note will be extinguished.
Upon the consummation of the Offering and repayment of all amounts
outstanding under the Credit Facility, NationsCredit has committed to extend to
the Company a six-year, $50.0 million revolving credit facility collateralized
by a first lien on all of the Company's assets and guaranteed by the Company's
subsidiaries (the "New Credit Facility"). The New Credit Facility has a $10.0
million sublimit for working capital purposes, $3.0 million of which may be
applied to letters of credit issued for the Company with respect to
acquisitions. The remaining $40.0 million will be available to the Company to
finance acquisitions as approved by NationsCredit and certain other lenders. The
interest rate under the New Credit Facility is, at the Company's option, (i) the
30-day commercial paper rate plus 325 basis points, (ii) the 30-day LIBOR rate
plus 325 basis points or (iii) the floating prime rate plus 50 basis points.
The Company has established a capital expenditure budget of approximately
$1.0 million for 1998, including approximately $100,000 for computer hardware
and software, approximately $50,000 for warehouse improvements, approximately
$50,000 for additional leasehold improvements related to planned increases in
personnel, approximately $300,000 for additional equipment, approximately
$25,000 for additional office furniture and equipment and approximately $475,000
for additional office space to be purchased from CMI. See "Certain
Transactions -- Agreements with CMI."
The Company previously has not paid salaries to its CEO and President.
Salaries will be paid upon completion of the Offering in accordance with the
Employment Agreements (as hereinafter defined). Estimated fair value
compensation for 1995, 1996 and 1997 was $215,000, $320,000 and $365,000,
respectively.
The Company's principal working capital requirements relate to the
acquisition of inventory and carrying of receivables. The Company believes that
the current level of working capital and the proceeds to the Company of the
Offering will enable it to meet its liquidity requirements through December 31,
1998.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, which requires the reporting and display of comprehensive
income and its components in an entity's financial statements, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which
specifies revised guidelines for determining an entity's operating segments and
the type and level of financial information to be required. The Company is
required to adopt these standards in 1998. The Company does not expect the
impact of these pronouncements to be material.
23
<PAGE> 25
QUARTERLY RESULTS
The following table sets forth quarterly statement of operations data for
1996 and 1997. This quarterly information is unaudited but has been prepared on
a basis consistent with the Company's audited financial statements presented
elsewhere herein and, in the Company's opinion, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................... $1,696 $1,765 $ 1,848 $ 1,743
Cost of goods sold.................................. 722 736 791 748
------ ------ ------- -------
Gross profit........................................ 974 1,029 1,057 995
Selling, general and administrative expenses........ 1,005 1,071 1,043 1,121
------ ------ ------- -------
Operating income (loss)............................. (31) (42) 14 (126)
Interest expense.................................... (166) (169) (195) (204)
Other income (expense).............................. 13 56 -- (14)
------ ------ ------- -------
Loss before income taxes............................ (184) (155) (181) (344)
Income tax benefit (expense)........................ -- -- -- --
------ ------ ------- -------
Net loss............................................ $ (184) $ (155) $ (181) $ (344)
====== ====== ======= =======
Net loss per share -- basic and diluted............. $(0.02) $(0.02) $ (0.02) $ (0.04)
====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
--------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................... $1,941 $2,216 $ 5,161 $ 6,480
Cost of goods sold.................................. 814 990 2,005 2,465
------ ------ ------- -------
Gross profit........................................ 1,127 1,226 3,156 4,015
Selling, general and administrative expenses........ 1,025 1,103 1,867 2,115
------ ------ ------- -------
Operating income (loss)............................. 102 123 1,289 1,900
Interest expense.................................... (175) (172) (1,668) (1,955)
Accretion of value of put warrant repurchase
obligation........................................ -- -- (3,636) (4,364)
Other income (expense).............................. 11 11 36 11
------ ------ ------- -------
Loss before income taxes............................ (62) (38) (3,979) (4,408)
Income tax benefit (expense)........................ -- -- -- (320)
------ ------ ------- -------
Net loss............................................ $ (62) $ (38) $(3,979) $(4,728)
====== ====== ======= =======
Net loss per share -- basic and diluted............. $(0.01) $(0.00) $ (0.42) $ (0.50)
====== ====== ======= =======
</TABLE>
24
<PAGE> 26
BUSINESS
GENERAL
HMP(TM) is a rapidly growing specialty medical device company focused on
manufacturing and marketing vascular access products. Vascular access products
comprised an estimated $1.3 billion market in the United States and Europe in
1997. The Company's vascular access product lines include implantable ports,
which are used primarily in cancer treatment protocols, and specialty catheters,
which are used in hemodialysis and stem cell apheresis procedures. The Company
believes it offers the broadest available product lines in each of these product
categories and that it has the largest direct sales force focused exclusively on
vascular access products.
The Company believes that it derives significant competitive advantage from
its sales and marketing organization of over 50 full-time sales representatives
and six distributors employing approximately 70 sales representatives and that
this organization will enable the Company to effectively market a broader line
of vascular access products and achieve greater penetration in its existing
product markets. The Company's direct sales force focuses primarily on vascular
surgeons who implant vascular access devices and other physicians and clinicians
who utilize vascular access devices in the delivery of treatments. The Company's
marketing strategy emphasizes the importance of building relationships with
these medical professionals in order to provide such professionals with the
benefits of the Company's broad knowledge of vascular access products and
procedures and focused clinical support. These relationships also facilitate the
Company's ability to modify its product lines in response to new clinical
protocols and to meet its customers' changing needs. The Company also has a
network of distributors which enhances its domestic marketing efforts and
markets the Company's products in 53 countries outside the United States.
The vascular access product industry is highly fragmented and is comprised
of several larger medical supply companies with diversified product lines and a
number of smaller niche manufacturers with limited vascular access product
lines. The Company believes there will be significant acquisition opportunities
in the vascular access product industry in the future as larger companies seek
to divest non-core business segments and certain smaller niche manufacturers
seek to combine with larger vascular access product companies. The Company has
grown significantly through the completion of two strategic acquisitions and
intends to continue to pursue strategic opportunities to acquire new and
complementary products and technologies. In October 1995, the Company entered
the market for hemodialysis catheters by acquiring NeoStar Medical(R), the maker
of the Circle C(R) line of catheters, and in July 1997 the Company significantly
expanded its line of vascular access ports by acquiring Strato(R)/Infusaid(TM),
a subsidiary of Pfizer, Inc., the maker of the LifePort(TM), Infuse-a-Port(R)
and Infuse-a-Cath(TM) lines of vascular access products. As a result of the
successful integration of the acquired product lines from these acquisitions and
the growth of its own product lines, the Company's net sales have increased from
$3.6 million in 1993 to $15.8 million in 1997 ($22.8 million in 1997 on a pro
forma basis).
The Company's vascular access ports are used primarily in systemic or
regional short- and long-term cancer treatment protocols that require frequent
infusions of highly concentrated or toxic medications (such as chemotherapy
agents, antibiotics or analgesics) and frequent blood samplings. The Company's
lines of vascular access ports, which it believes are the most comprehensive in
the industry, consist of the following families of products: (i) Triumph-1(R),
which the Company believes contains one of the highest strength silicone
catheter systems available in the market; (ii) LifePort(TM), certain models of
which include the patented Bayonet(TM) locking system to ensure the integrity of
the port/catheter connection; and (iii) Infuse-a-Port(R), which was one of the
first implantable ports introduced to the market and continues to enjoy
significant brand loyalty among physicians.
The Company's catheters are used primarily in hemodialysis and apheresis
procedures and include the following families of products: (i) dual lumen
hemodialysis catheters, which utilize the Company's unique Circle C(R)
technology to obtain the highest flow rates of comparably sized catheters; (ii)
Pheres-Flow(TM) triple lumen catheters, which are the only triple lumen
catheters designed exclusively for the stem cell apheresis
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protocol and have streamlined the surgical procedures required to complete such
protocols; and (iii) Infuse-a-Cath(TM) catheters, which include the Company's
patented Bayonet(TM) locking system on certain models.
BACKGROUND
The vascular access product market is comprised of six major categories of
vascular access products: vascular access ports, dialysis catheters, central
venous catheters, critical care catheters, intravenous grafts and peripheral and
mid-line inserted catheters. The Company believes that there is presently no
medical supply company offering vascular access products from each of these six
product categories. The vascular access product industry is highly fragmented
and is comprised of several larger medical supply companies with diversified
product lines which include certain vascular access products and a number of
smaller niche manufacturers offering a single or limited number of vascular
access products. In recent years, as medical supply companies have continued to
evaluate their ability to operate their vascular access product divisions
efficiently and focus on their core businesses, there have been divestitures by
such companies of their vascular access product divisions. In addition, certain
small manufacturers of specialty medical devices have encountered difficulty in
developing sufficient distribution or marketing channels for their products
because of their size and limited product line and have sought to combine with
larger vascular access product companies.
The Company currently manufactures and markets products in three vascular
access product categories: vascular access ports, dialysis catheters and central
venous catheters.
THE MARKET FOR VASCULAR ACCESS PORTS. Vascular access ports are
implantable devices utilized for the central venous administration of a variety
of medical therapies, including chemotherapy, infusion of fluids and nutrients
and administration of drugs and blood products. Vascular access ports are also
used for blood sampling for diagnostic purposes. Access to the central vascular
system has become an essential element in the treatment of many critically ill
patients, particularly those with various forms of cancer. Central venous access
facilitates a more systemic delivery of treatment agents, while mitigating
certain of the harsh side effects of chemotherapy protocols and eliminating the
need for repeated access to peripheral veins. A central venous catheter can be
accessed either through a port that is implanted in a patient's subcutaneous
tissue beneath the clavicle, or through an external catheter which extends
several inches outside the patient's body. Once implanted in a patient's body, a
port can be utilized for up to approximately 2,000 accesses. Ports have become
the preferred method of central vascular access for both physicians and patients
because the use of ports generally results in (i) lower infection rates, (ii)
less interference with patients' day-to-day activities, since ports do not
extend outside the body, are visually undetectable, can remain in place for
extended periods and do not require the frequent extension line flushing and
dressing changes required for external catheters and (iii) lower overall cost.
For these reasons, domestic sales of vascular access ports have increased
significantly in recent years, from approximately $52.0 million in 1991 to an
estimated $92.0 million in 1997.
The Company believes that the worldwide market for vascular access ports
will continue to grow significantly primarily due to the increased utilization
of chemotherapy protocols. The utilization of these protocols is being driven
primarily by (i) aging population demographics and the higher incidence of
cancer among persons 60 years of age and older relative to other age groups and
(ii) the increasing patient population for whom chemotherapy has become an
appropriate treatment protocol due to earlier detection and intervention and the
increased efficacy of chemotherapy treatments.
THE MARKET FOR HEMODIALYSIS CATHETERS. Hemodialysis catheters are used in
the treatment of patients suffering from renal failure who are required to
undergo short-term (acute) or long-term (chronic) hemodialysis, a process
involving the removal of waste products from the blood by passing a patient's
blood through a dialysis machine. Both short-term and long-term hemodialysis
treatments require vascular access. Patients requiring short-term hemodialysis
may receive an acute catheter placed in a central vein. When hemodialysis
procedures are required on a long-term basis, synthetic grafts are often
surgically implanted into the patient's arm to provide a more permanent access
point. Such graft procedures generally require four to ten weeks to heal, during
which time the hemodialysis patient continues to require the use of a catheter
for treatment. In addition, certain patients are unable to tolerate the surgery
required to implant the graft or have
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had repeated graft procedures and no longer are suitable graft candidates and,
therefore, must utilize hemodialysis catheters for their treatment.
A typical hemodialysis treatment lasts three to four hours and is
administered three times per week. The efficiency of a dialysis procedure is
measured by the amount of urea which is removed from the patient's blood stream
during the treatment. Because hemodialysis treatment is burdensome to the
patient and often covered by third-party payors on a fixed-fee basis, the
ability to complete a hemodialysis procedure quickly and efficiently is
important to both patients and clinicians. The time required to complete a
treatment and the efficiency of such treatment is affected by the rate at which
blood may be continuously withdrawn from the patient, circulated through a
hemodialysis filter and reintroduced into the patient, with these processes
affected by the flow rate of the patient's catheter.
According to United States government sources, the number of patients
requiring chronic hemodialysis services in the United States increased from
171,000 patients in 1993 to over 200,000 patients in 1995. Industry sources
project that the worldwide market for hemodialysis catheters will grow at an
annual rate of approximately 8.5% to over $135 million in sales in 2000. Growth
in the number of hemodialysis patients is expected to result primarily from (i)
the aging of the general population, (ii) the increased effectiveness of
treatments for and higher survival rates of patients suffering from
hypertension, diabetes and other illnesses which lead to renal failure and (iii)
increasingly efficient hemodialysis procedures which have enabled older patients
and others that previously could not tolerate hemodialysis to benefit from this
treatment.
THE MARKET FOR APHERESIS CATHETERS. Stem cell apheresis is a
newly-developed protocol for treating certain forms of mid- and late-stage
cancers, particularly breast cancer. The typical apheresis procedure involves
the insertion of multiple catheters into the patient through which (i) blood is
withdrawn from the patient, cycled through an apheresis machine in which stem
cells (cells which perform a key role in the body's immune system) are removed
from the blood and the blood is then reinfused into the patient, (ii)
chemotherapy agents, as well as antibiotics and blood products, are administered
to the patient over extended periods of time and (iii) the previously removed
stem cells are subsequently reintroduced into the patient. Such procedures
historically have required the use of multiple catheters, multiple surgical
procedures and extensive treatment duration.
In 1990, approximately 6,000 stem cell apheresis procedures were performed
worldwide, with this protocol generally being considered an experimental
procedure (and therefore not covered by most health insurers). Management
estimates that by 1995 stem cell apheresis grew to approximately 18,000
procedures. The Company believes that such procedures will continue to
experience significant growth primarily from increasing awareness and acceptance
of apheresis as part of the treatment protocol for various cancers and
improvements in apheresis procedures and as apheresis procedures increasingly
become reimbursable by third-party payors as a treatment for many cancers.
BUSINESS STRATEGY
The Company believes that the strength of its marketing, manufacturing, and
management infrastructure, together with the experience of its management team
in developing strategic partnerships and acquiring and integrating product
lines, positions it to become a leading supplier in the vascular access product
market. The Company will seek to achieve this objective and capitalize on
favorable industry dynamics by pursuing the following strategies.
- Focus on the Vascular Access Market. The Company has developed a
highly-specialized sales force that focuses on addressing the needs of
vascular surgeons and other physicians and clinicians who utilize vascular
access products in providing medical treatments. Management believes its
sales force is the largest direct sales force focused exclusively on
vascular access products and that it offers the Company's customers the
broadest available lines in each of the Company's three major categories
of products -- vascular access ports, hemodialysis catheters and stem cell
apheresis catheters. By offering broad product lines, including
proprietary products, the Company is able to take advantage of cross-
selling opportunities. The Company believes that its customers benefit
from its broad knowledge of
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vascular access products and procedures, comprehensive customer support
and responsiveness to their changing needs.
- Exploit Unique Products. The Company manufactures and markets certain
lines of products that utilize unique technologies which offer superior
performance compared with competing products. With a unique Circle C(R)
design, the Company's dual lumen hemodialysis catheters provide the
highest flow rates available in the market for comparably sized catheters,
yielding significant benefits for patients and practitioners. In addition,
the Company believes its proprietary Pheres-Flow(TM) catheter is the only
triple lumen catheter designed solely for the purpose of stem cell
apheresis procedures and has significantly improved this newly-emerging
protocol. The Company will seek to increase its sales of these unique
products and utilize cross-selling to increase sales of its other product
lines.
- Pursue Strategic Acquisitions/Partnerships. The Company has enhanced its
product lines through completion of the NeoStar Medical(R) Acquisition, in
October 1995, which gave the Company its first line of catheters, and the
Strato(R)/Infusaid(TM) Acquisition, in July 1997, which significantly
expanded the Company's line of vascular access ports. The Company believes
that the vascular access products industry remains highly fragmented.
Accordingly, the Company believes that there will be attractive strategic
partnering and acquisition opportunities. The Company will seek to acquire
products that: (i) will broaden its lines of vascular access products or
increase its penetration of existing markets; (ii) can be effectively
marketed by its sales organization; and (iii) can be manufactured at the
Company's recently expanded manufacturing facility.
- Increase Efficiency of Manufacturing Operations. In 1996, the Company
opened a 20,000 square foot manufacturing facility in Manchester, Georgia.
The Company recently increased the size of the facility to 45,000 square
feet, and is currently manufacturing its Circle C(R) and Pheres-Flow(TM)
lines of catheters at this facility. In early 1998, the Company began
transitioning the manufacturing of all of its LifePort()(TM),
Infuse-a-Port(R) and Infuse-a-Cath(TM) product lines to this facility and
expects to complete this transition during the second quarter of 1998. The
Company expects to be able to manufacture all of its product lines at the
Manchester facility without incurring significant future personnel or
capital expenditures and believes that its manufacturing capacity and
space will be able to support substantial future growth. The Company
believes that it can achieve significant cost efficiencies through
transitioning the manufacturing of all its product lines to this facility
and that it will be able to leverage its manufacturing infrastructure by
adding newly acquired or developed vascular access products to its product
lines.
- Develop and Expand Distribution Capabilities. The Company plans to
continue to build upon the success of its sales organization by expanding
its marketing efforts internationally, by entering into group purchasing
contracts and by enhancing its direct sales force. In particular, the
Company plans to expand its relationships with international distributors,
a process which will be coordinated by the Company's newly hired director
of international sales. In 1997, approximately 17% of the Company's
revenues were generated from sales to end-users outside the United States,
and management believes there are significant opportunities to increase
its export sales. The Company will also seek to enter into additional
group purchasing contracts with national purchasing groups, which are
playing an increasingly significant role in the decisions of hospitals and
other health care organizations to purchase certain medical devices. In
connection with such efforts, the Company recently (i) entered into the
Premier Purchasing Agreement and a purchasing agreement with Amerinet, and
(ii) commenced an arrangement with Allegiance to include the Company's
products in the Allegiance purchasing agreement with UHC.
PRODUCTS
VASCULAR ACCESS PORTS
The Company manufactures and markets high quality, technologically
advanced, implantable vascular access ports and attached or attachable catheter
products intended to afford safe and simple vascular access and catheter
placement and greater patient convenience. The Company seeks to introduce new
products and
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to extend the applications of its existing products through innovations in
safety, effectiveness, ease of use and reliability in response to the specific,
unmet needs of vascular surgeons and other physicians and clinicians.
The Company's lines of vascular access ports, which it believes are the
most comprehensive in the industry, consist of three distinct families: (i)
Triumph-1(R); (ii) LifePort(TM); and (iii) Infuse-a-Port(R). Through the sale
and distribution of these three product lines, the Company has become one of the
largest suppliers of vascular access ports in the United States, having an
estimated 20% of the domestic market for such products by the end of 1997.
TRIUMPH-1(R). The Triumph-1(R) family of vascular access ports was
developed and engineered by the Company in collaboration with CarboMedics, Inc.
and first marketed by the Company in September 1994. All Triumph-1(R) ports are
constructed from titanium or polysulfone with a factory-attached or attachable
silicone catheter system designed to ensure a safe transition into the vascular
system, while lowering the risk of a ruptured catheter. The Company tests each
Triumph-1(R) port and catheter system in its product line to a rigorous 100 psi
standard and the Company believes that Triumph-1(R) provides the highest
strength silicone catheter system in the market.
LIFEPORT(TM). LifePort(TM), is a family of titanium and plastic ports
acquired by the Company in the Strato(R)/ Infusaid(TM) Acquisition. The product
line is marketed with either a factory-attached or attachable catheter system,
with certain models utilizing the Company's patented Bayonet(TM) locking system.
The catheter of certain LifePort(TM) products is secured to the port upon
insertion into the patient by twisting the locking system into place and the
locking mechanism and port are then sutured into place. This Bayonet(TM) locking
system enhances the integrity of the port/catheter connection, substantially
eliminating the medical risks of possible disconnection.
INFUSE-A-PORT(R). The Infuse-a-Port(R) line is a family of ports
constructed with a polysulfone port body for durability and a self-sealing
silicone septum. Introduced into the market in the early 1980s, Infuse-a-Port(R)
products were the first implantable ports to enter the vascular access device
market and, due to their proven reliability, continue to enjoy significant
physician loyalty.
Each of the Triumph-1(R), LifePort(TM) and Infuse-a-Port(R) families of
vascular access ports is marketed with a diverse array of product selections to
accommodate the requirements and preferences of the surgeon inserting the port,
the physician treating the patient and the clinicians administering drugs and
monitoring the patient's condition, and to suit the patient's specific anatomy.
Dual port systems have two separate reservoirs connected to a dual lumen
catheter which allow the clinician to deliver non-compatible drugs
simultaneously or, in chemotherapy treatments, allow the clinician to deliver
two complementary drugs that cannot be mixed in an oxygenated environment. A
single chamber port accommodates patients without these specific needs. Petite
ports are designed to provide full-size performance in a small port for
pediatric or petite patients with very little subcutaneous tissue. The choice of
port materials can be dependent on the needs or anatomy of the patient or the
preference of the physician. Because of its diversity and durability, the
titanium port is currently the most commonly used of all ports available on the
market. However, ports made of polysulfone plastic have been experiencing
increased acceptance as a result of their lower per unit pricing.
SPECIALTY CATHETER PRODUCTS
CIRCLE C(R) HEMODIALYSIS CATHETERS. The Company's hemodialysis catheter
product lines consist of Circle C(R) acute and chronic catheters. The Company's
Circle C(R) design utilizes differentiated lumen sizes and a unique dividing
wall to support the catheter's chambers, which improves the resistance of the
catheter's chambers to negative pressure and collapse. Because of their Circle
C(R) design, these catheters provide the highest flow rates of comparably sized
catheters, thus providing patients the most thorough filtration treatment
obtainable and clinicians administering dialysis treatments increased
productivity. The Company's Circle C(R) catheters are used for both acute and
chronic hemodialysis. The Company's Circle C(R) acute catheters are made of
polyurethane (a rigid material which is temperature sensitive and softens once
inserted in the patient's body) and can remain implanted in a patient for up to
21 days. The Company's Circle C(R) chronic catheters are made of silicone and
can remain in a patient's body for as long as 18 months. The Company
manufactures its Circle C(R) acute and chronic catheters using an injection
molding process which provides a
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continuous, one-piece design that helps to eliminate turbulence in blood flow,
thereby providing additional gains in flow rates.
PHERES-FLOW(TM) APHERESIS CATHETERS. The Company's proprietary
Pheres-Flow(TM) catheter is a central venous triple lumen silicone catheter that
was designed and developed by NeoStar Medical(R) and introduced by the Company
in 1996. The Pheres-Flow(TM) catheter is the only triple lumen catheter designed
exclusively for the purpose of apheresis/bone marrow transplant procedures. The
Pheres-Flow(TM) catheter has significantly improved the process utilized by
clinicians in performing stem cell apheresis procedures and has streamlined the
surgical procedure required to complete such protocols. The Pheres-Flow(TM)
catheter can be inserted in the apheresis/stem cell transplant patient and
utilized for the entire duration of the apheresis/stem cell protocol, including
blood removal/reinfusion, chemotherapy, nutritional therapy, antibiotics,
medications, and cell re-implantation. As a result, no further surgical
procedures are required after the initial placement of the catheter. This
reduction in the required surgical procedures greatly reduces the risk of
infection for the apheresis patient, which is crucial since the patient's
ability to fight infection is reduced through the removal of stem cells in the
blood stream. The triple lumen design also allows for multi-line simultaneous
administration of medications and the flexibility to use a single catheter,
rather than multiple catheters, thus, also providing less chance of infection
during critical patient treatment time. These factors also reduce the total
costs of an apheresis procedure.
INFUSE-A-CATH(TM) CATHETERS. Infuse-a-Cath(TM) catheters are a family of
external central venous catheters that are differentiated by their use of the
Bayonet(TM) locking system patented by the Company. The Bayonet(TM) locking
system is secured by a simple twist of the lock once the catheter is placed onto
its connection plug. The Bayonet(TM) locking system ensures the integrity of the
extension legs on the catheter and allows glue free repair, an easier repair
method than those applicable to competing products. These products are also
differentiated by being available in either silicone, which is widely used, or
polyurethane, which the Company believes is preferred by many physicians because
of its ease of insertion and durability.
OTHER CATHETERS. In addition, the Company markets and sells peritoneal,
continuous arterial venous hemophiltration, shunts and single lumen catheters,
all of which are used in connection with alternative methods in treating renal
failure patients.
SALES AND MARKETING
The Company utilizes a highly-specialized direct sales force which focuses
exclusively on vascular surgeons and other physicians and clinicians. This
direct sales force has been developed by the Company since its formation in
1990, is trained extensively regarding vascular access products and the
procedures and treatments in which they are utilized, and emphasizes a
"relationship first" approach in the marketing of the Company's products. The
Company markets and sells its product lines domestically through approximately
50 full-time direct sales and marketing employees and six distributors employing
approximately 70 sales representatives. The Company distributes its products
internationally exclusively through independent distributors, whose distribution
efforts will be coordinated and overseen, commencing April 1, 1998, by the
Company's recently-hired international sales manager based in Brussels, Belgium.
In 1997, the Company marketed and sold its product lines in 53 countries outside
the United States through approximately 50 distributors. The Company believes
that it derives significant competitive advantages from its sales and marketing
organization and that this organization will allow the Company to effectively
market a broader line of vascular access products and achieve greater
penetration in its existing product markets.
Within each hospital or other healthcare organization, the Company's
marketing efforts are directed to those physicians responsible for implanting
and utilizing ports and catheters, particularly vascular surgeons, general
surgeons, oncologists, nephrologists, interventional radiologists, nurses,
clinicians and other healthcare professionals. The Company believes that the
input of all of these healthcare professionals is critical to the decision of a
hospital or a healthcare organization to purchase a particular brand of vascular
access product. The Company's sales personnel develop ongoing relationships by
communicating regularly with vascular surgeons, and other physicians and
clinicians in the hospitals where the Company's products are sold, devoting
approximately 40% to 50% of their sales time to visiting hospital operating
rooms and dialysis wards. The Company also participates in trade shows,
advertises in trade journals, funds clinical studies of vascular access
products, administers continuing education programs and consults with clinical
advisory committees of
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physicians and nurses. The Company believes that its "relationship first"
approach provides significant benefits to its customers and promotes customer
loyalty.
Hospital chains and large buying groups have played, and are expected to
continue to play, an increasingly significant role in the purchase of medical
devices. In recent years, these groups have sought to narrow their list of
suppliers. As a result, the Company has increased its focus on marketing its
products to these buying groups, while the Company's direct sales force
continues to call on physicians associated with these buying groups in order to
improve compliance with these group purchasing agreements and improve market
share, generally.
As a result of such efforts, in March 1998 the Company entered into the
Premier Purchasing Agreement with Premier, a national purchasing group that
includes over 1,700 owned, leased, managed and affiliated hospitals. Pursuant to
the Premier Purchasing Agreement, the Company will be an approved vendor for the
hospitals participating in Premier's purchasing program and will pay to Premier
an administrative fee equal to a specified percentage of the aggregate amount of
sales of the Company's products to such hospitals. The Company expects that
various categories of its products will become subject to the Premier Purchasing
Agreement over the next several months. In connection with the Premier
Purchasing Agreement, the Company and Premier also entered into a Warrant
Agreement pursuant to which the Company granted to Premier a warrant to acquire,
subject to certain conditions, up to 500,000 shares of Common Stock. See
"Description of Capital Stock -- Premier Warrant" and Note 16 of the
Consolidated Financial Statements of the Company.
In addition, the Company has commenced an arrangement with Allegiance
pursuant to which the Company's products will be included in the Allegiance
purchasing agreement with UHC, a group of the nation's largest academic medical
centers. The Company will pay to UHC an administrative fee equal to a specified
percentage of the gross sales of the Company's products to UHC in connection
with this arrangement. UHC and VHA Inc. recently joined their supply chain
management operations into a new company -- Novation, LLC, one of the nation's
largest supply chain management organizations.
The Company has also recently entered into a three-year purchasing
agreement with AmeriNet, one of the nation's largest group purchasing
organizations, pursuant to which the Company is required to pay AmeriNet a
specified percentage of all gross sales realized under the agreement.
In 1997, 83.0% of the Company's net sales were derived from sales in the
United States. In the international market, sales have increased from $200,000,
or 4.2% of net sales, in 1995, to $2.7 million, or 17.0% of net sales, in 1997.
A significant portion of the Company's 1997 international sales were derived
from sales of the products acquired in the Strato(R)/Infusaid(TM) Acquisition,
and this acquisition significantly increased the size of the Company's network
of international distributors.
RESEARCH AND PRODUCT DEVELOPMENT
The Company is engaged in limited ongoing research and development
activities. The principal focus of the Company's research and development effort
is to identify and analyze the needs of vascular surgeons, physicians and
clinicians, and to develop products that address these needs. The Company views
proposals from physicians and other healthcare professionals as an important
source of potential research and development projects. The Company believes that
those end-users are often in the best position to conceive of new products and
to recommend ways to improve the performance of existing products. Many of the
Company's product improvements have resulted from collaborative efforts with
physicians and other healthcare professionals or other medical device
manufacturers.
In 1995, 1996 and 1997, research and development expenses accounted for
$65,800 (1.3% of net sales), $58,700 (0.8% of net sales), and $7,000 (0.04% of
net sales), respectively. Such amounts were used primarily to improve existing
products and implement new technology to produce these products.
MANUFACTURING
The Company manufactures and packages substantially all of its specialty
catheter products at its 45,000 square foot manufacturing facility in
Manchester, Georgia, which it opened in August 1996. The Company currently
manufactures its LifePort(TM) and Infuse-a-Port(R) vascular access port product
lines and its Infuse-a-Cath(TM) specialty catheter product line in 20,000 square
feet of manufacturing space at a 55,000 square foot
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ISO 9001 production facility located in Norwood, Massachusetts. The Company has
the right to use the Norwood space until April 15, 1998. The Company is
presently transitioning its Norwood operations to the Manchester facility and
expects to complete this transition during the second quarter of 1998. The
Company is currently building inventory in anticipation of this transition. In
addition, the Company contracts with a third party for the manufacture of
certain portions of its Triumph-1(R) vascular access port product line and plans
to continue to do so for the foreseeable future.
The Company believes that its manufacturing capacity at the Manchester
facility will be sufficient to support significant future production and growth.
The Company has applied for certification as an ISO 9001 medical device
manufacturer for the Manchester, Georgia facility and a CE Mark for its product
lines and expects to receive such certification and CE Mark by June 1998. See
"Business -- Government Regulation."
The Company's manufacturing processes consist primarily of the assembly of
standard and custom component parts, the injection molding of polyurethane or
silicone used in its Circle C(R) and Pheres-Flow(TM) lines of catheters and the
testing of completed products. The Company has arrangements with various
suppliers to provide it with the quantity of component parts necessary to
assemble its products. Almost all of the components and materials used in its
injection molding process are available from a number of different suppliers,
although certain components are purchased from a limited number of sources. The
Company believes that there are alternative and satisfactory sources for
limited-sourced components, although a sudden disruption in supply from one of
these suppliers could adversely affect the Company's ability to deliver its
product in a timely manner.
The Company devotes significant attention to quality control. Its quality
control measures begin at the manufacturing level where components are molded
and assembled in an "environmentally controlled area" designed and maintained to
reduce product exposure to particulate matter. Products are tested throughout
the manufacturing process for adherence to specifications.
Skills of assembly workers required for the manufacture of medical products
are similar to those required in typical assembly operations. The Company
believes that workers with these skills are readily available in the Manchester
and Norwood areas. See "Risk Factors -- Limited Manufacturing Experience."
PATENTS, TRADEMARKS, LICENSES AND PROPRIETARY RIGHTS
The Company believes that patents and other proprietary rights are
important to its business. The Company also relies upon trade secrets,
"know-how," continuing technological innovations and licensing opportunities to
develop and maintain its competitive position.
The Company currently owns numerous United States patents and patent
applications, as well as numerous foreign patents and patent applications, which
relate to aspects of the technology used in certain of the Company's products,
including the LifePort(TM) family of vascular access ports, the
Infuse-a-Cath(TM) family of hemodialysis catheters and the Bayonet(TM) locking
system used in the LifePort(TM) family of products and in the Infuse-a-Cath(TM)
family of products. The Company also is a party to several license agreements
with third parties pursuant to which it has obtained, for varying terms, the
right to make, use and/or sell products that are covered under such license
agreements in consideration for royalty payments. Many of the Company's major
products, including its Circle C(R) acute and chronic catheters and its
Infuse-a-Cath(TM) catheters are subject to such license agreements. There can be
no assurance that the Company or its licensors have or will develop or obtain
additional rights to products or processes that are patentable, that patents
will issue from any of the pending patent applications filed by the Company or
that claims allowed will be sufficient to protect any technology that is
licensed to the Company. In addition, no assurances can be given that any
patents issued or licensed to the Company or other licensing arrangements will
not be challenged, invalidated, infringed or circumvented or that the rights
granted thereunder will provide competitive advantages for the Company's
business or products. In such event the business, results of operations and
financial condition of the Company could be materially adversely effected.
There has been substantial litigation regarding patent and other
intellectual property rights in the medical devices industry. Although the
Company has not been a party to any material litigation to enforce intellectual
property rights held by the Company, or a party to any material litigation
seeking to enforce rights alleged to be held by others, future litigation may be
necessary to protect patents, trade secrets or "know-how" owned by
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the Company or to defend the Company against claimed infringement of the rights
of others and to determine the scope and validity of the proprietary rights of
the Company and others. The validity and breadth of claims covered in medical
technology patents involve complex legal and factual questions. Any such
litigation could result in substantial cost to and diversion of effort by the
Company. Adverse determinations in any such litigation could subject the Company
to significant liabilities to third parties, could require the Company to seek
licenses from third parties and could prevent the Company from manufacturing,
selling or using certain of its products, any of which could have a material
adverse effect on the business, results of operation and financial condition of
the Company. Accordingly, the Company may, in the future, be subject to legal
actions involving patent and other intellectual property claims.
The Company also relies upon trade secrets and proprietary technology for
protection of its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information or techniques or that third parties will not otherwise
gain access to the Company's trade secrets or disclose such technology.
The Company also relies upon trademarks and trade names for the development
and protection of brand loyalty and associated goodwill in connection with its
products. The Company's policy is to protect its trademarks, trade names and
associated goodwill by, among other methods, filing United States and foreign
trademark applications relating to its products and business. The Company owns
numerous United States and foreign trademark registrations and applications. The
Company also relies upon trademarks and trade names for which it does not have
pending trademark applications or existing registrations, but in which the
Company has substantial trademark rights. The Company's registered and
unregistered trademark rights relate to the majority of the Company's products,
including the Circle C(R), Infuse-a-Port(R), Triumph-1(R), Infuse-a-Cath(TM),
LifePort(TM) and Pheres-Flow(TM)product lines. There can be no assurance that
any registered or unregistered trademarks or trade names of the Company will not
be challenged, canceled, infringed or circumvented, or be declared generic, or
be declared infringing on other third-party marks, or provide any competitive
advantage of the Company.
GOVERNMENT REGULATION
As a manufacturer of medical devices, the Company is subject to regulation
by, among other governmental entities, the FDA and the corresponding agencies of
the states and foreign countries in which the Company sells its products. These
regulations govern the introduction of new medical devices, the observance of
certain standards with respect to the manufacture, testing and labeling of such
devices, the maintenance of certain records, the tracking of devices, and other
matters. These regulations may have a material impact on the Company. Recently,
the FDA has pursued a more rigorous enforcement program to ensure that regulated
businesses, like the Company's, comply with applicable laws and regulations. The
Company believes that it is in substantial compliance with such governmental
regulations.
All medical devices introduced to the United States market since 1976,
which includes all of the Company's products, are required to be covered by a
premarket notification clearance pursuant to Section 510(k) of the FDC Act or an
approved PMA. Obtaining approval of a PMA can take up to several years or more
and involve preclinical studies and clinical testing. In contrast, the process
of obtaining a 510(k) clearance typically requires the submission of
substantially less data and generally involves a shorter review period, although
obtaining a 510(k) clearance may involve the submission of a substantial volume
of data, including clinical data, and may require a substantial review period. A
510(k) premarket notification clearance indicates that the FDA agrees with an
applicant's determination that the product for which clearance has been sought
is substantially equivalent to another medical device that has been previously
marketed but does not indicate that the product is safe and effective and does
not require a PMA. An approved PMA indicates that the FDA has approved as safe
and effective a product to be marketed for the uses described in the approved
labeling.
In addition to requiring clearance or approval for new products, the FDA
may require clearance or approval prior to marketing products that are
modifications of existing products. The FDC Act provides that new 510(k)
clearances are required when, among other things, there is a major change or
modification in the intended use of the device or a change or modification to a
legally marketed device that could significantly affect its safety or
effectiveness. A manufacturer is expected to make the initial determination as
to whether a
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proposed change to a cleared device or to its intended use is of a kind that
would necessitate the filing of a new 510(k) notification. The Company has made
certain modifications to its cleared devices for which it has determined that
new 510(k) clearances are not required. There can be no assurance, however, that
the FDA would concur with the Company's conclusion that a particular change does
not necessitate a new 510(k) application. If the FDA were to investigate and
disagree with the Company's determinations and conclude that one or more
implemented changes requires a new 510(k), the FDA could take regulatory actions
such as issuance of a warning letter or requiring that the Company cease
marketing affected devices until new 510(k) notifications are cleared.
In order to conduct clinical trials of an uncleared or unapproved device,
companies generally are required to comply with Investigational Device
Exemptions regulations ("IDE regulations"). The IDE regulations generally
require FDA approval before clinical study may begin. Devices subject to the IDE
regulations are subject to various restrictions imposed by the FDA. The number
of patients that may be treated with the device is limited, as is the number of
institutions at which the device may be used. Patients must give informed
consent to be treated with an investigational device. The institutional review
board of each institution where a study is being conducted must also approve the
clinical study. The device may not be advertised or otherwise promoted.
Unexpected adverse experiences must be reported to the FDA. The company
sponsoring the investigation must ensure that the investigation is being
conducted in accordance with the IDE regulations.
To date, the Company's products have received FDA marketing clearances only
through the 510(k) process. Certain future product applications, however, could
require approval through the PMA process. In addition, future products may
require approval of an IDE. There can be no assurance that all necessary 510(k)
clearances or PMA or IDE approvals will be granted on a timely basis or at all.
The FDA review process may delay the Company's product introductions in the
future. It is possible that delays in receipt of or failure to receive any
necessary clearance or approval could have a material adverse effect on the
Company.
The Company is also required to register with the FDA as a device
manufacturer and to comply with the FDA's GMP regulations. These regulations
require that the Company manufacture its products and maintain its records in a
prescribed manner with respect to manufacturing, testing and control activities.
Further, the Company is required to comply with FDA requirements for labeling
and promotion of its products. For example, the FDA prohibits cleared or
approved devices from being marketed for uncleared or unapproved uses. The
medical device reporting regulation requires that the Company provide
information to the FDA whenever there is evidence to reasonably suggest that one
of its devices may have caused or contributed to a death or serious injury, or
that there has occurred a malfunction that would be likely to cause or
contribute to a death or serious injury if the malfunction were to recur. The
Company intends to transfer completely its manufacturing from Norwood,
Massachusetts to Manchester, Georgia in the second quarter of 1998. As a result
of this transfer, the Manchester facility will be subject to a GMP inspection by
the FDA. The Company cannot predict at this time what impact, if any, this
inspection will have on its business.
Medical device manufacturers are generally subject to periodic inspections
by the FDA. If the FDA believes that a company is not in compliance with
applicable laws and regulations, it can, among other things, institute
proceedings to issue a warning letter apprising of violative conduct, detain or
seize products, issue a recall, enjoin future violations and assess civil and
criminal penalties against the company, its officers or its employees. In
addition, clearances or approvals could be withdrawn in appropriate
circumstances. Failure to comply with regulatory requirements or any adverse
regulatory action could have a material adverse effect on the Company.
Subsequent to an FDA inspection in 1996, the Company received a warning
letter from the FDA Atlanta District Office alleging, among other things, its
failure to report to the FDA certain malfunctions and adverse events that may be
associated with its devices as required by the agency's MDR regulations. In
response to this warning letter, the Company revised its MDR procedure and
submitted it with other corrective actions for review by the FDA. The FDA
responded that the corrective actions described by the Company appeared to
adequately address the agency's concerns. At the conclusion of a follow-up
inspection in 1997, the Company was advised of various inspectional observations
including its alleged failure to submit MDRs on 19 reportable events. The
Company responded to the inspectional observations in writing and at a meeting
with the FDA at
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the Atlanta District Office at which the interpretation of the MDR regulations
was discussed. The District submitted the question of the interpretation of the
regulations to FDA headquarters in Washington, D.C. On March 10, 1998, the
Company received a warning letter from the Atlanta District Office reasserting
its interpretation of the MDR regulations and alleging the Company's failure to
report 15 reportable events and violation of two current GMP requirements. The
Company has responded to the warning letter pledging to submit all substantive
reports until it secures exemptions from the agency on the submission of certain
classes of reports and describing corrective action taken on the alleged current
GMP violations. The Company believes that it has implemented corrective actions
that achieve substantial compliance with FDA requirements, but there can be no
assurance that an FDA enforcement action will not ensue at a future time or will
not materially adversely affect the Company's business, results of operations
and financial condition.
Pursuant to 42 U.S.C. Section 1320a-76(b) (the "Anti-Kickback Statute"),
the knowing and willful offer or receipt of any remuneration, directly or
indirectly, in cash or in kind, in exchange for or which is intended to induce
the purchase, lease or order of any good, facility, item or service for which
payment may be made in whole or in part under a federal healthcare program,
including Medicare and Medicaid, is prohibited. A violation of the Anti-Kickback
Statute is a felony, punishable by fine, imprisonment or exclusion from the
Medicare and Medicaid programs. Certain regulations promulgated under the
Anti-Kickback Statute (i.e., 42 C.F.R. Section 1001.952(j)) provide that
prohibited remuneration under the Anti-Kickback Statute does not include any
payment by a vendor of goods to a group purchasing organization if certain
standards are met. The Company believes that the group purchasing organizations
with which it has purchasing agreements comply in all material respects with
such standards. See "-- Sales and Marketing."
Medical device laws and regulations are also in effect in many of the
countries in which the Company does business outside the United States. These
range from comprehensive device approval requirements for some or all of the
Company's medical device products to simple requests for product data or
certifications. The number and scope of these requirements are increasing.
Medical device laws and regulations are also in effect in many of the states in
which the Company does business. State and foreign medical device laws and
regulations may have a material impact on the Company. In addition,
international sales of certain medical devices manufactured in the United States
but not approved by the FDA for distribution in the United States are subject to
FDA export requirements, which require the Company to obtain documentation from
the medical device regulatory authority of such country stating that the sale of
the device is not in violation of that country's medical device laws. This
documentation is then submitted to the FDA with a request for a permit for
export to that country.
Federal, state and foreign laws and regulations regarding the manufacture
and sale of medical devices are subject to future changes. For example, Congress
recently enacted the Food and Drug Administration Modernization Act of 1997,
which included several significant amendments to the prior law governing medical
devices. Additionally, the FDA has recently made significant changes to its GMP
regulations and may make changes to other regulations as well. The Company
cannot predict what impact, if any, such changes might have on its business;
however, such changes could have a material impact on the Company. See "Risk
Factors -- Government Regulation."
HEALTHCARE REFORM; THIRD-PARTY REIMBURSEMENT
In recent years, several comprehensive healthcare reform proposals were
introduced in the United States Congress. The intent of the proposals was,
generally, to expand healthcare coverage for the uninsured and reduce the growth
of total healthcare expenditures. While none of the proposals were adopted,
healthcare reform may again be addressed by the current United States Congress.
Certain states have made significant changes to their Medicaid programs and have
adopted various measures to expand coverage and limit costs. Implementation of
government healthcare reform and other efforts to control costs may limit the
price of, or the level at which reimbursement is provided for, the Company's
products. In addition, healthcare reform may accelerate the growing trend toward
involvement by hospital administrators, purchasing managers and buying groups in
purchasing decisions. This trend would likely include increased emphasis on the
cost-effectiveness of any treatment regimen. These changes may also cause the
marketplace in general to place increased emphasis on the utilization of
minimally invasive surgical procedures and the delivery of more cost-effective
medical therapies. Regardless of which additional reform proposals, if any, are
ultimately adopted, the trend toward
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cost controls and the requirements of more efficient utilization of medical
therapies and procedures will continue and accelerate. The Company is unable at
this time to predict whether any such additional healthcare initiatives will be
enacted, the final form such reforms will take or when such reforms would be
implemented. See "Risk Factors -- Healthcare Reform/Pricing Pressure."
The Company's products are purchased principally by hospitals, hospital
networks and hospital buying groups. During the past several years, the major
third-party payors of hospital services (Medicare, Medicaid, private healthcare
indemnity insurance and managed care plans) have substantially revised their
payment methodologies to contain healthcare costs. These cost pressures are
leading to increased emphasis on the price and cost-effectiveness of any
treatment regimen and medical device. In addition, third-party payors, such as
governmental programs, private indemnity insurance and managed care plans which
are billed by hospitals for such healthcare services, are increasingly
negotiating the prices charged for medical products and services and may deny
reimbursement if they determine that a device was not used in accordance with
cost-effective treatment methods as determined by the payor, was experimental or
was used for an unapproved indication. There can be no assurance that in the
future, hospital purchasing decisions or third party reimbursement levels will
not adversely affect the profitability of the Company's products.
COMPETITION
The markets for the Company's product lines are highly competitive. The
Company faces substantial competition from a number of other manufacturers and
suppliers of vascular access ports, dialysis and apheresis catheters and related
ancillary products, including companies with more extensive research and
manufacturing capabilities and greater technical, financial and other resources.
In response to increased concerns about the rising costs of healthcare, United
States hospitals and physicians are placing increasing emphasis on
cost-effectiveness in the selection of products to perform medical procedures.
The Company believes that its products compete primarily on the basis of: (i)
product design, development and improvement; (ii) customer support; (iii) brand
loyalty; and (iv) price. The Company believes that Bard Access Systems, a
division of C.R. Bard, Inc., is the only company which competes with the Company
in each of the Company's product categories. See "Risk Factors -- Competition."
PRODUCT LIABILITY CLAIMS AND INSURANCE
The design, manufacture and marketing of medical devices of the types
produced by the Company entail an inherent risk of product liability. The
Company's products are often used in intensive care settings with seriously ill
patients. While the Company believes that it maintains an adequate amount of
product liability insurance, there can be no assurance that the amount of such
insurance will be sufficient to satisfy claims made against the Company in the
future or that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts. Product liability claims or product
recalls could result in costly litigation and could have a material adverse
effect on the business, results of operation and financial condition of the
Company. In addition, the Company is required under certain of its licensing
agreements to indemnify its licensors against certain product liability claims
by third parties. See "Risk Factors -- Potential Product Liability."
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. In the course of its
business, the Company is involved in the handling, storage and disposal of
materials which are classified as hazardous. The Company believes that its
operations comply in all material respects with applicable environmental laws
and regulations. While the Company continues to make capital and operational
expenditures for protection of the environment, it does not anticipate that
those expenditures will have a material adverse effect on its business,
financial condition and results of operations.
BACKLOG
Delivery lead times for the Company's products are very short at times and,
consequently, the Company routinely maintains an immaterial amount of order
backlog which is generally filled within 60 days of the order date. Management
currently believes that its backlog is not a reliable indicator of future
financial or operating performance. If, however, the Company does not receive
ISO 9001 certification and a CE Mark for products
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manufactured at the Manchester facility by June 1998, then the Company may not
be able to fill European orders and could experience substantial backlog, which
could have a material adverse effect on the Company.
PROPERTIES
The Company's principal executive and administrative offices and research
and manufacturing center is located in Manchester, Georgia in a 45,000 square
foot facility. The Company leases the Manchester facility and the 10.5 acre lot
on which it is located from The Development Authority of the City of Manchester
(the "Manchester Development Authority") pursuant to operating leases which
expire in 2009 and 2010 (collectively, the "Manchester Leases") and under which
the Company pays monthly lease payments of approximately $9,500 in the
aggregate. The Company has an option to extend each of the Manchester Leases for
an additional five-year term and to purchase the facility and/or the adjacent
lot containing approximately nine acres. The Company considers the Manchester
facility to be in good condition and adequate to meet the present and reasonably
foreseeable needs of the Company.
The Company manufactures a portion of the acquired Strato(R)/Infusaid(TM)
product line (LifePort(TM), Infuse-a-Port(R) and Infuse-a-Cath(TM)) in
approximately 20,000 square feet of space at a 55,000 square foot production
facility in Norwood, Massachusetts. The Company currently occupies the Norwood
facility under an agreement which gives the Company the right to use such space
until April 15, 1998. Management plans to transition all of the manufacturing of
the acquired Strato(R)/Infusaid(TM) product line to the Manchester, Georgia
facility in the second quarter of 1998.
The Company also maintains certain administrative offices in a 3,300 square
foot floor of an office condominium located in Atlanta, Georgia (the "Atlanta
Office"). See "Certain Transactions -- Agreements with CMI."
EMPLOYEES
At January 31, 1998, the Company had approximately 100 full-time employees,
none of which are represented by a union. The Company maintains compensation,
benefit, equity participation and work environment policies intended to assist
in attracting and retaining qualified personnel. The Company believes that the
success of its business will depend, in significant part, on its ability to
attract and retain such personnel. The Company has never experienced an
organized work stoppage or strike and considers its relations with its employees
to be good.
LEGAL PROCEEDINGS AND INSURANCE
The Company is from time to time a party to litigation arising in the
ordinary course of its business. The Company believes that it is not currently
involved in any litigation that will have a material adverse effect on its
financial condition or results of operation.
The Company maintains insurance in such amounts and against such risks as
it deems prudent, although no assurance can be given that 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 business, financial
condition and results of operations. Moreover, no assurance can be given that
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
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of the
executive officers, directors and key employees of the Company as of March 23,
1998.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS: AGE POSITION
- --------------------------------- --- --------
<S> <C> <C>
Marshall B. Hunt.......................... 42 Director, Chairman of the Board and Chief
Executive Officer
Roy C. Mallady, Jr........................ 53 Director and Vice Chairman of the Board*
William E. Peterson, Jr................... 42 Director and President
J. Ronald Hager........................... 54 Vice President of Operations
Mark A. Jewett............................ 32 Vice President of Finance
L. Bruce Maloy............................ 34 Vice President of Administration
Charles E. Adair.......................... 50 Director
Robert Cohen.............................. 40 Director
Robert J. Simmons......................... 55 Director
Gordon Tunstall........................... 54 Director
KEY EMPLOYEES:
Michael A. Crouch......................... 35 National Accounts Manager
Frank D. DeBartola........................ 34 Director of Marketing
Robert R. Singer.......................... 32 National Sales Manager
</TABLE>
- ---------------
* Mr. Mallady will resign from the Board of Directors and as Vice Chairman of
the Board of the Company effective upon consummation of the Offering.
Marshall B. Hunt is a co-founder of the Company and has served as a
director and Chief Executive Officer of the Company since its inception in 1990.
Mr. Hunt has served as the Chairman of the Board of the Company since 1997.
Prior to co-founding the Company, Mr. Hunt co-founded Cardiac Medical, Inc.
("CMI"), a distributor of cardiac pacemakers, in 1987, and served as its Chief
Executive Officer until October 1997. Mr. Hunt currently serves as Secretary of
CMI. In 1981, Mr. Hunt founded Hunt Medical Systems, Inc., a distributor of
pacemaker products, and served as its President from 1981 to 1987. From 1979
through 1981, Mr. Hunt held various sales and management positions with American
Hospital Supply Corporation.
Roy C. Mallady, Jr. is a co-founder of the Company and has served as a
director and Vice Chairman of the Board since 1997. Mr. Mallady served as
Chairman of the Board of the Company and a director of the Company from its
inception to 1997. Prior to co-founding the Company, Mr. Mallady co-founded CMI
in 1987 and served as its President until October 1997. He currently serves as
CMI's President and Chief Executive Officer. Mr. Mallady has served as a
consultant to Sulzer Intermedics, a medical technology company, since October
1997.
William E. Peterson, Jr. is a co-founder of the Company and has served as
President of the Company since its inception in 1990. Mr. Peterson joined the
Company's Board of Directors in January 1998. Mr. Peterson served as Vice
President of Finance of CMI from 1987 to 1997. From 1981 through 1987, he served
as a financial officer of Copolymer Rubber & Chemical Corporation, a
manufacturer of synthetic rubber. From 1978 to 1981, Mr. Peterson held various
positions with the public accounting firm of Coopers & Lybrand L.L.P., rising to
the position of Audit Senior. Mr. Peterson is a Certified Public Accountant.
J. Ronald Hager joined the Company as Vice President of Operations in July
1997 in connection with the Strato(R)/Infusaid(TM) Acquisition. From 1992 to
1997, Mr. Hager held various management positions with
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Strato(R)/Infusaid(TM), including Vice President of Quality and Regulatory
Affairs in 1992, Executive Vice President -- Operations in 1993 and General
Manager from 1993 to 1997. Prior to joining Strato(R)/Infusaid(TM), Mr. Hager
was employed for 17 years with Abbott Laboratories in various management
positions, including Group V.P., Group Director and Regulatory Director.
Mark A. Jewett joined the Company as Vice President of Finance in December
1997. Prior to joining the Company, Mr. Jewett served as Director of Finance for
ProMedCo Management Company, a physician management company, from 1996 to 1997.
From 1995 to 1996, he served as the Controller for Alliance Medical Practices, a
physician management company. From 1992 to 1995, Mr. Jewett held various
accounting management positions with HealthInfusion, Inc., an alternate site
healthcare company, and Coram Healthcare, Inc., an alternate site healthcare
company that was formed by the merger of HealthInfusion and three other
publicly-owned companies. From 1989 to 1992, he held various positions, most
recently as a senior accountant, for the public accounting firm of Arthur
Andersen L.L.P. Mr. Jewett is a Certified Public Accountant and a Certified
Internal Auditor.
L. Bruce Maloy joined the Company in 1990 in its sales and marketing
department and has served as the Vice President of Administration of the Company
since 1996. Prior to joining the Company, Mr. Maloy served as a Sales Manager of
Ryder, Inc., a transportation company, from 1989 to 1990 and a Key Account
Manager of Noxell Corporation, a subsidiary of The Proctor & Gamble Company,
from 1987 to 1989.
Charles E. Adair joined the Company's Board of Directors in January 1998.
From 1993 until present, Mr. Adair has been a principal of Cordova Capital
("Cordova"), a venture capital and fund management company, where he serves as
manager of venture capital funds. Mr. Adair was associated with Durr-Fillauer
Medical, Inc., a pharmaceutical and medical products distribution company, where
he served in various capacities, including President and Chief Operating Officer
from 1981 to 1992. Mr. Adair currently serves on the Board of Directors of
Performance Food Group Company, a food distributor, and Tech Data Corporation, a
personal computer products distributor. Mr. Adair also serves on the Boards of
Directors of numerous privately-held companies associated with Cordova's venture
capital fund investments. Mr. Adair is a Certified Public Accountant.
Robert Cohen joined the Company's Board of Directors in January 1998. Since
1992, Mr. Cohen has served as Group Vice President of Sulzer Medica Ltd., a
medical technology company serving the orthopedic and cardiovascular markets.
Mr. Cohen is engaged in the areas of mergers and acquisitions, corporate
accounts, business development, corporate marketing and strategic planning.
Prior to joining Sulzer Medica, Mr. Cohen served as President and Chief
Executive Officer of GCI Medical, a medical device venture capital and
management organization during 1992, and held a variety of positions at Pfizer
Inc. and the Pfizer Hospital Products Group from 1981 to 1991.
Robert J. Simmons joined the Company's Board of Directors in January 1998.
Since 1995, Mr. Simmons has served as a director and Chairman and Chief
Executive Officer of Healthcare Alliance, Inc. ("Healthcare Alliance"), a
consortium of healthcare manufacturers, and since 1990 he has been a director
and President of RJS Healthcare, Inc., a healthcare consulting company. Mr.
Simmons is also a director and Chairman of Healthcare Logistics, a company
focused on supply chain initiatives, founded in 1996. From 1985 to 1990, Mr.
Simmons served as a director and Executive Vice President of Baxter
International, Inc. Before joining Baxter International, Mr. Simmons held
various positions at American Hospital Supply Corporation. Mr. Simmons presently
serves as a director of American Health Products and serves on Lake Forest
Hospital's Board of Directors. Mr. Simmons has served on the hospital Boards of
Directors of Ancilla Systems, Inc., the Evanston Hospital Corporation and
Wheaton Franciscan Services, Inc. See "Certain Transactions -- Consulting
Agreement with Healthcare Alliance."
Gordon Tunstall joined the Company's Board of Directors in January 1998.
Mr. Tunstall is the founder of and has served, since 1970, as President of
Tunstall Consulting, Inc., a provider of strategic consulting and financial
planning services. Mr. Tunstall is also currently a director of Romac
International, Inc., a professional and technical placement firm, Orthodontic
Centers of America, Inc., a manager of orthodontic practices, Discount Auto
Parts, Inc., a retail chain of automotive aftermarket parts stores, and Advanced
Lighting Technologies, Inc., a specialty lighting manufacturer.
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<PAGE> 41
Michael A. Crouch joined the Company in 1992 as a sales representative in
Dallas, Texas. Mr. Crouch has served as National Accounts Manager of the Company
since 1997. From 1995 to 1996, Mr. Crouch served as a sales representative for
renal dialysis equipment and supplies for Cobe Renal Care, a renal device
company.
Frank D. DeBartola has served as Director of Marketing of the Company since
1996. Mr. DeBartola joined the Company in 1991 as a sales representative and
thereafter held various management positions with the Company, including Sales
Manager and Product Manager for the Circle C(R) and Pheres-Flow(TM) lines of
catheters.
Robert R. Singer joined the Company in 1990. Prior to assuming his current
position as National Sales Manager in 1996, Mr. Singer served in the Company's
sales and marketing department as a sales representative from 1990 to 1993 and
Regional Sales Manager from 1993 to 1996.
Pursuant to the Company's Articles and Bylaws, the Board of Directors of
the Company is divided into three classes, with each director serving a
three-year term (after the initial term). The directors of Class I, Messrs.
Mallady and Adair, hold office until the first scheduled annual meeting of
shareholders following the Offering, the directors of Class II, Messrs. Simmons
and Cohen, hold office until the second scheduled annual meeting of shareholders
following the Offering and the directors of Class III, Messrs. Hunt, Peterson
and Tunstall, hold office until the third scheduled annual meeting of
shareholders following the Offering. Shareholders will elect the directors of
each class for three-year terms at the appropriate succeeding annual meetings of
shareholders. Executive officers are elected by and serve at the discretion of
the Board of Directors. Mr. Mallady will resign from the Board of Directors upon
consummation of the Offering. The vacancy in Class I of the Board of Directors
will be filled by the remaining members of the Board in accordance with the
provisions of the Bylaws relating thereto.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Executive Committee,
Audit Committee and Compensation Committee. The Executive Committee is
authorized to exercise the power and authority of the Board of Directors in the
management of the business and affairs of the Company subject to certain
limitations, including statutory restraints under Georgia law, as well as the
lack of Board authority to approve (i) acquisitions or other business
combinations, (ii) material changes in the strategic plan of the Company and
(iii) Company borrowings in excess of $7.0 million. The members of the Executive
Committee are Messrs. Hunt, Peterson, Tunstall and Adair. The Audit Committee is
responsible for nominating the Company's independent auditors for approval by
the Board of Directors, reviewing the scope, results and costs of the audit with
the Company's independent auditors, and reviewing the financial statements and
accounting practices of the Company. The members of the Audit Committee are
Messrs. Adair and Simmons. The Compensation Committee is responsible for
reviewing and approving the compensation arrangements for the Company's
executive officers and for administering the Stock Incentive Plan. The members
of the Compensation Committee are Messrs. Tunstall and Cohen.
COMPENSATION OF DIRECTORS
Outside Directors of the Company receive a fee of $1,000 for each meeting
of the Board of Directors attended and each meeting of a committee of the Board
of Directors attended (except for committee meetings held on the same days as
Board meetings). Directors are reimbursed for travel and other expenses incurred
in connection with attendance at meetings of the Board of Directors or
committees thereof. Each Outside Director will automatically be granted, under
the Stock Incentive Plan, options to acquire, subject to certain vesting
requirements, up to 10,000 shares of Common Stock at the initial public offering
price concurrently with the consummation of the Offering. See "Stock Incentive
Plan."
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<PAGE> 42
EXECUTIVE COMPENSATION
No executive officer of the Company earned in excess of $100,000 for
services rendered to the Company during 1997. After consummation of the Offering
Messrs. Hunt and Peterson will be compensated in accordance with the terms of
their Employment Agreements. See "-- Employment Agreements."
EMPLOYMENT AGREEMENTS
The Company intends to enter into employment agreements with each of
Marshall B. Hunt and William E. Peterson, Jr. (collectively, the "Employment
Agreements") in connection with the Offering, which will provide for Mr. Hunt's
employment as Chairman of the Board and Chief Executive Officer and Mr.
Peterson's employment as President. The Employment Agreements each will have a
five-year term (subject to the right of either the Company or Messrs. Hunt and
Peterson to terminate the Employment Agreement upon 90 days notice) and provide
for initial annual base salaries for Messrs. Hunt and Peterson of $220,000 and
$190,000, respectively, with the opportunity to earn an annual bonus of 100% of
base salary if the annual increase in the Company's earnings per share is 35% or
more and 50% of base salary if the annual increase in earnings per share is at
least 25% but less than 35%. The Employment Agreements will provide that Messrs.
Hunt and Peterson are entitled to participate in all compensation, benefit and
insurance programs maintained by the Company in which executive officers are
eligible to participate and for certain other benefits, including reimbursement
for family medical and dental expenses which are not covered by insurance,
automobile leases and certain reimbursements for country club dues. In the event
the employment of either Mr. Hunt or Mr. Peterson is terminated without cause
(as defined), he would be entitled to receive his base salary and benefits for
the remaining term of the Employment Agreement, but in any event for no less
than three years following the date of termination, as well as bonus
compensation payable with respect to the calender year in which he is terminated
on a prorated basis. In the event of a change in control (as defined) of the
Company, Messrs. Hunt and Peterson would be entitled to receive, in lieu of
salary and benefits, a lump-sum payment equal to the base salary for the
remaining term of employment under the Employment Agreements, but in no event
for a period less than three years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, the Company did not have a Compensation Committee of the Board
of Directors. In January 1998, the Company designated a Compensation Committee
whose function is to recommend to the Board of Directors compensation decisions
for the Company's executive officers and to administer the Company's Stock
Incentive Plan. In 1997, executive officer compensation decisions were made by
Messrs. Hunt and Peterson. See " -- Committees of the Board of Directors."
STOCK INCENTIVE PLAN
The Company has adopted the Stock Incentive Plan and has reserved 500,000
shares of Common Stock for issuance thereunder to key employees and Outside
Directors. The Stock Incentive Plan aims to (i) attract and retain the services
of key employees and Outside Directors, (ii) provide an additional incentive to
each key employee or Outside Director to work to increase the value of the
Company's Common Stock and (iii) provide each key employee or Outside Director
with a stake in the future of the Company which corresponds to the stake of each
of the Company's shareholders.
The Stock Incentive Plan is administered by the Compensation Committee of
the Board of Directors. Under the Stock Incentive Plan, either incentive stock
options ("ISOs"), which are intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-incentive stock
options ("Non-ISOs") may be granted to key employees. Only Non-ISOs may be
granted to Outside Directors under the Stock Incentive Plan, and each person who
is an Outside Director upon consummation of this Offering will automatically be
granted a Non-ISO to purchase 10,000 shares of Common Stock at an option price
equal to the initial public offering price per share (i.e., the Outside
Directors' Options). In addition, upon consummation of the Offering, an
executive officer will automatically be granted an ISO to purchase 10,000 shares
of Common Stock at an option price equal to the initial public offering price
per share (i.e., the Executive's Options).
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<PAGE> 43
Each option granted under the Stock Incentive Plan is exercisable in whole
or in part from time to time as set forth in the related option certificate, but
no option may be exercised: (i) before the end of the six-month period which
starts on the date such option is granted or (ii) on or after the earliest of
(A) the date which is the fifth anniversary of the date the option is granted,
if the option is an ISO and the key employee is a ten-percent shareholder of the
Company on the date the option is granted or (B) the date which is the tenth
anniversary of the date the option is granted, if such option is granted to a
key employee who is not a ten-percent shareholder of the Company on the date the
option is granted or if the option is a Non-ISO.
The Compensation Committee may grant SARs to key employees (but not Outside
Directors) in tandem with an option or as an independent grant. The Compensation
Committee may also grant restricted stock to key employees. No option, SAR or
restricted stock granted under the Stock Incentive Plan is transferable by a key
employee or Outside Director other than by will or by the laws of descent and
distribution, and any option or SAR is only exercisable during a key employee's
or Outside Director's lifetime only by the key employee or Outside Director.
The Stock Incentive Plan provides for adjustment of the number of shares of
Common Stock available for the grant of options or SARs, the option price of
such options and the SAR value of such SARs and the number, kind or class of
shares of restricted stock granted by the Compensation Committee in an equitable
manner to reflect any change in the capitalization of the Company.
If the Compensation Committee determines that there has been a "Change of
Control" of the Company (as defined) or a bona fide tender or exchange offer for
shares of Common Stock (other than a tender offer by the Company or an employee
benefit plan established and maintained by the Company), the Compensation
Committee has the right to take such action, if any, with respect to any or all
then outstanding options, SARs and restricted stock grants under the Stock
Incentive Plan as it deems appropriate under the circumstances to protect the
interests of the Company in maintaining the integrity of such grants under the
Stock Incentive Plan.
1995 STOCK APPRECIATION RIGHTS PLAN
Pursuant to the Company's 1995 Stock Appreciation Rights Plan (the "SAR
Plan"), from June 1995 to date, the Company has granted an aggregate 124,000
SARs to eligible employees and eligible sales representatives based on their
achievement of certain performance targets. At March 23, 1998, 99,600 SARs were
outstanding. Upon consummation of the Offering, (i) all outstanding SARs will be
cancelled, (ii) the SAR Conversion Options will be granted to holders of SARs
who are then employed by the Company and (iii) cash compensation equal to one
dollar will be paid for each SAR held by persons who are not employed by the
Company upon consummation of the Offering. The SAR Conversion Options will be
exercisable, in increments of 25% per year over four years, commencing on the
first anniversary of the option grant date, at an exercise price per share equal
to the initial public offering price.
CERTAIN TRANSACTIONS
LOANS TO FOUNDERS
In connection with the purchase by Messrs. Hunt, Mallady and Peterson, the
Chairman of the Board and Chief Executive Officer, Vice Chairman of the Board
and President of the Company, respectively, of an aggregate of 747,778 shares of
Common Stock from Cordova, a former lender to the Company, on September 28,
1995, the Company loaned each of Messrs. Hunt, Mallady and Peterson $77,612 (the
"September Loans"). The September Loans to Messrs. Hunt, Mallady and Peterson
mature on September 20, 2000 and bear interest at a rate of 8% per annum,
payable annually. In addition, on October 12, 1995, the Company loaned $35,000
to each of Messrs. Hunt, Mallady and Peterson (the "October Loans"). The October
Loans to Messrs. Hunt, Mallady and Peterson mature on October 12, 2000 and bear
interest at a rate of 8% per annum, payable annually. The October Loans were
extended to Messrs. Hunt, Mallady and Peterson for payment of certain taxes
payable by Messrs. Hunt, Mallady and Peterson. The original principal amounts of
the September Loans and the October Loans remain outstanding.
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<PAGE> 44
GUARANTEE OF OBLIGATIONS UNDER LOAN AGREEMENTS BY FOUNDERS
Pursuant to Guaranty Agreements dated April 26, 1994 in favor of Cordova,
each of Messrs. Hunt, Mallady and Peterson guaranteed all amounts payable by the
Company to Cordova under the terms of a Loan Agreement dated April 26, 1994
between Cordova and the Company (the "Cordova Loan"). The Cordova Loan was in
the aggregate principal amount of $1.0 million and bore interest at 10% per
annum. The Cordova Loan was repaid in full by the Company in September 1995 and
the guarantees of Messrs. Hunt, Mallady and Peterson with respect thereto were
terminated.
Pursuant to Guaranty Agreements dated October 24, 1995 in favor of CB&T,
each of Messrs. Hunt, Mallady and Peterson guaranteed all amounts payable by the
Company to CB&T under a $1.7 million promissory note bearing interest at CB&T's
prime rate of interest plus 1% per annum issued by the Company to CB&T (the
"CB&T Note") in connection with the NeoStar Medical(R) Acquisition. The CB&T
Note was repaid in full by the Company in July 1997 and the guarantees of
Messrs. Hunt, Mallady and Peterson with respect thereto were terminated.
GUARANTEE OF OBLIGATIONS UNDER LOAN AGREEMENTS BY CMI
Pursuant to a Guaranty Agreement dated September 25, 1995 in favor of
Sirrom, CMI guaranteed all amounts payable by the Company to Sirrom under the
Sirrom Note. On July 15, 1997, NationsCredit purchased the Sirrom Note in
connection with the Credit Facility and CMI's guarantee with respect thereto was
terminated.
In connection with the NeoStar Medical(R) Acquisition, pursuant to a
Guaranty Agreement dated October 24, 1995 in favor of CB&T, CMI guaranteed all
amounts payable by the Company to CB&T under the CB&T Note. The CB&T Note was
repaid in full in July 1997 and CMI's guarantee with respect thereto was
terminated.
CMI is a corporation co-founded by Messrs. Hunt and Mallady. Messrs. Hunt
and Mallady are the principal executive officers and shareholders of CMI and Mr.
Peterson is a ten-percent shareholder of CMI.
GUARANTEE OF REPAYMENT OF REVENUE BOND FINANCING BY CMI AND FOUNDERS
The development of the Company's Manchester, Georgia facility was financed
with approximately $705,000 in proceeds of an industrial development revenue
bond issuance in July 1996 by the Manchester Development Authority for the
benefit of the Company. In connection with and as a condition to such bond
financing, the Company entered into a lease with the Manchester Development
Authority. All payments due on the bonds have been guaranteed, jointly and
severally, by CMI and Messrs. Hunt, Peterson and Mallady.
PLEDGE OF COMMON STOCK BY FOUNDERS
Pursuant to Pledge Agreements dated July 15, 1997, each of Messrs. Hunt,
Mallady and Peterson have pledged all shares of capital stock of the Company
currently owned, or acquired by them in the future, to secure the obligations of
the Company under the Credit Facility. These pledges will be terminated upon
consummation of the Offering and the application of a portion of the net
proceeds thereof to terminate the Credit Facility. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CONSULTING AGREEMENT WITH HEALTHCARE ALLIANCE
On February 1, 1996, the Company entered into a Consulting and Services
Agreement with Healthcare Alliance, an affiliate of Robert J. Simmons, a
director of the Company. Until February 1, 2002, Healthcare Alliance will assist
the Company in marketing its products through the negotiation of purchasing
agreements with hospital purchasing groups, physicians' organizations and other
medical service and healthcare providers. The agreement provides for (i) the
payment to Healthcare Alliance of an annual consulting fee of $36,000, (ii) the
payment to Healthcare Alliance of an annual performance incentive fee equal to
5% of any annual sales increase achieved by the Company that results from
Healthcare Alliance's efforts and (iii) the right of Healthcare Alliance to
receive from the Company up to the number of shares equal to 1.5% of the
outstanding shares of Common Stock owned by Messrs. Hunt, Mallady and Peterson
at the time such payment becomes
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<PAGE> 45
due, subject to the execution and delivery of certain targeted group purchasing
agreements, including the Premier Agreement.
CONSULTING AGREEMENTS WITH DIRECTORS
On May 8, 1997, the Company entered into a letter agreement with Robert
Cohen, a director of the Company, pursuant to which Mr. Cohen has agreed to
provide acquisition consulting and related services to the Company. In the event
such services result in an acquisition or merger of the Company and a third
party, Mr. Cohen will be entitled to receive a fee (a "General Consulting Fee")
equal to 2.5% of the acquisition purchase price (x) payable by the Company with
respect to a company acquired by the Company or (y) payable to the Company or
its shareholders in the event the Company or any of the Company's assets are
acquired. The payment of such General Consulting Fee is conditioned upon the
completion of an initial public offering of the Company's capital stock or the
acquisition of substantially all of the Company's business or outstanding shares
of capital stock. Such General Consulting Fee is payable, at Mr. Cohen's option,
(i) in shares of Common Stock, (ii) by the Company's issuance to Mr. Cohen of
warrants or options to purchase, at a nominal exercise price, that number of
shares of Common Stock (valued at the initial public offering price) which
equals the General Consulting Fee, (iii) in shares of the company which acquires
the Company, in the event the Company is acquired or (iv) in cash. The letter
agreement also provides for payments to Mr. Cohen for his consulting services in
connection with the Strato(R)/Infusaid(TM) Acquisition and a second strategic
venture of $375,000 and $250,000, respectively (the "Specific Consulting Fees").
The Specific Consulting Fee relating to the Strato(R)/Infusaid(TM) Acquisition
is payable upon consummation of the Offering in shares of the Common Stock or
warrants or options to purchase, at a nominal exercise price, that number of
shares of the Common Stock (valued at the initial public offering price) which
equals $375,000, at Mr. Cohen's option. Mr. Cohen has advised the Company that
he has elected to receive the Specific Consulting Fee relating to the
Strato(R)/Infusaid(TM)Acquisition in cash. The Specific Consulting Fee for the
second strategic venture is payable only if such venture is completed and is
payable in warrants or options to purchase, at a nominal exercise price, that
number of shares of Common Stock (valued at the initial public offering price)
which equals $250,000. Such Specific Consulting Fees are to be paid in lieu of
and not in addition to the General Consulting Fees described above with respect
to the strategic ventures.
During 1997, Tunstall Consulting, Inc., an affiliate of Gordon Tunstall, a
director of the Company, provided consulting services to the Company with
respect to the Offering and certain related matters. In consideration for such
services, the Company paid to Tunstall Consulting a fee of $235,699.
AGREEMENTS WITH CMI
The Company and CMI jointly own and occupy office space in the Company's
Atlanta Office and also have shared certain administrative employees. Pursuant
to an agreement between CMI and the Company dated January 1, 1995, CMI agreed to
provide, until December 31, 1997, certain management, administrative and
secretarial services to the Company from time to time when requested by the
Company. In January 1995, the Company paid CMI $150,000 for all services to be
rendered by CMI to the Company during the term of the agreement.
The Company has agreed to purchase from CMI for $472,000 the 3,300 square
foot portion of the Atlanta Office currently owned by CMI as well as certain
furnishings and equipment used at the Atlanta Office. See "Use of Proceeds."
------------------
Following consummation of the Offering, the Company does not intend to
enter into any material transactions with officers or directors, their family
members or affiliates of such officers or directors without the approval of a
majority of the directors who do not have an interest in any such transactions.
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<PAGE> 46
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Company's capital stock prior to the Offering, and
as adjusted to give effect to the sale of shares of Common Stock in the
Offering, by (i) each person known by the Company to own beneficially more than
5% of the outstanding shares of Common Stock, (ii) the sole Named Executive
Officer of the Company (as defined under the Securities Act), (iii) each
director of the Company, (iv) all executive officers and directors of the
Company as a group and (v) each Selling Shareholder. Unless otherwise specified,
the named beneficial owner claims sole investment and voting power as to the
shares indicated. The table assumes (i) the persons it lists will not acquire
shares directly from the Underwriters in connection with the Offering, and (ii)
no other person will acquire beneficial ownership of more than 5% of the
outstanding Common Stock as a result of the Offering. See "Description of
Capital Stock."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------------------------------------------------
NUMBER OF % OF CLASS NUMBER OF NUMBER OF % OF CLASS
SHARES PRIOR TO PRIOR TO SHARES OFFERED SHARES AFTER AFTER
OFFERING OFFERING HEREBY OFFERING OFFERING
--------------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS(2)
- ------------------------------------
Marshall B. Hunt(3)................. 3,021,888 29.5% -- 3,645,729(4) 28.4%
Roy C. Mallady, Jr.(5).............. 3,021,887 29.5% -- 2,047,242(6) 15.9%
William E. Peterson, Jr............. 3,021,887 29.5% -- 3,021,887 23.5%
Charles E. Adair.................... --(7) -- -- -- --
Robert Cohen........................ -- -- -- -- --
Robert J. Simmons(8)................ 45,328 * -- 45,328 *
Gordon Tunstall..................... -- -- -- -- --
All executive officers and directors
as a group (13 persons)(7)(8)(9).. 9,075,662 88.5% -- 8,724,858 67.9%
SELLING SHAREHOLDERS
- ----------------------
NationsCredit Commercial
Corporation(10)................... 765,000 7.5% 561,000 -- --
201 Broad Street
One Canterbury Green
Stanford, Connecticut 06901
Cordova Capital Partners, L.P. --
Enhanced Appreciation............. 202,980 2.0% 156,000 46,980 0.4%
c/o 3350 Cumberland Circle, Suite
970
Atlanta, Georgia 30339
Roddy J. H. Clark................... 166,358 1.6% 156,000 10,358 0.1%
230 Dapple Gate Way
Alpharetta, Georgia 30202
</TABLE>
- ---------------
* Less than one percent.
(1) Includes shares of Common Stock that may be acquired upon the exercise of
stock options or warrants exercisable within 60 days.
(2) Except as otherwise indicated, the address of each of the executive
officers and directors is the address of the Company, which is One Horizon
Way, P.O. Drawer 627, Manchester, Georgia 31816.
(3) Includes 924,209 shares of Common Stock owned by Hunt Family Investments,
L.L.L.P., a Georgia limited liability limited partnership of which Mr. Hunt
is the managing general partner. Mr. Hunt disclaims beneficial ownership of
such shares.
(4) Includes 831,788 shares of Common Stock which Mr. Hunt has agreed to
acquire from Mr. Mallady concurrently with the consummation of the
Offering, 207,947 of which Mr. Hunt has agreed to sell to Tapir Investments
(Bahamas) Ltd., an affiliate of Caledonia Investments, PLC, a diversified
trading
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<PAGE> 47
and investment company publicly held in England ("Caledonia"), concurrently
with the consummation of the Offering.
(5) Includes 513,491 shares of Common Stock held by (i) trusts for the benefit
of various family members of Mr. Mallady with respect to which Mr. Mallady
is neither a trustee nor a beneficiary and (ii) certain family members of
Mr. Mallady. Mr. Mallady disclaims beneficial ownership of such shares.
(6) Gives effect to 831,788 shares of Common Stock which Mr. Mallady has agreed
to sell to Mr. Hunt concurrently with the consummation of the Offering. In
addition to such sale, Mr. Mallady has agreed to sell to Caledonia that
number of shares of Common Stock, valued at the initial public offering
price per share, equal to an amount between $1.0 million and $3.0 million
to be determined based on the valuation of the Company immediately
following the consummation of the Offering as derived from the amount of
the initial public offering price per share. Unless otherwise indicated,
all information in this Prospectus relating to Mr. Mallady's ownership of
Common Stock assumes an initial public offering price of $14.00 per share
(the mid-point of the range) and the sale by Mr. Mallady to Caledonia of
142,857 shares of Common Stock.
(7) Does not include 202,980 shares of Common Stock owned of record by Cordova
Capital Partners, L.P. -- Enhanced Appreciation. Cordova Capital Partners,
L.P. -- Enhanced Appreciation is an affiliate of Cordova, of which Mr.
Adair is a principal. Mr. Adair therefore may be deemed to beneficially own
such shares.
(8) Healthcare Alliance has the right to receive the indicated shares in
connection with the Premier Purchasing Agreement. Mr. Simmons is a director
and the Chairman and Chief Executive Officer of Healthcare Alliance and, as
such, may be deemed to beneficially own the indicated shares.
(9) Includes 10,000 shares of Common Stock subject to the Executive's Options.
(10) NationsCredit is an indirect subsidiary of NationsBank Corporation.
NationsBank Corporation is the parent corporation of NationsBanc Montgomery
Securities LLC. Includes 204,000 shares of Common Stock which NationsCredit
has agreed to sell to Caledonia concurrently with the Offering.
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<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 55,000,000 shares of capital stock, comprised of (i)
5,000,000 shares of Preferred Stock, no par value, issuable in one or more
series, and (ii) 50,000,000 shares of Common Stock, $.001 par value, of which
12,800,000 shares of Common Stock will be issued and outstanding and no shares
of Preferred Stock will be issued and outstanding. As of the date of the
Offering, an aggregate of 10,200,000 shares of Common Stock were issued and
outstanding and no shares of Preferred Stock were issued and outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock contained in the Articles and Bylaws is qualified in its
entirety by reference to the Articles and Bylaws which are exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The Common Stock has no preemptive rights and no redemption, sinking fund
or conversion provisions. All shares of Common Stock have one vote on any matter
submitted to the vote of shareholders. The Common Stock does not have cumulative
voting rights. Upon any liquidation of the Company, the holders of Common Stock
are entitled to receive, share for share on a pro rata basis, all assets then
legally available for distribution after payment of debts and liabilities and
preferences on Preferred Stock, if any. Holders of Common Stock are entitled to
receive dividends share for share on a pro rata basis when, as and if declared
by the Board of Directors out of funds legally available therefor (subject to
the prior rights of Preferred Stock, if any).
PREFERRED STOCK
Upon consummation of the Offering the Board of Directors will have the
authority to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the number of shares constituting any such series, the voting
powers, designation, preferences and relative participation, optional or other
special rights and qualifications, limitations or restrictions thereof,
including the dividend rights and dividend rate, terms of redemption (including
sinking fund provisions), redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any series, without any
further vote or action by the shareholders. The issuance of Preferred Stock by
the Board of Directors could affect the rights of the holders of Common Stock.
For example, such issuance could result in a class of securities outstanding
that would have preferences with respect to voting rights and dividends, and in
liquidation, over the Common Stock, and could (upon conversion or otherwise)
enjoy all of the rights appurtenant to Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through a merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue the Preferred Stock with voting and conversion rights that could
adversely affect the voting power of the holders of Common Stock. There are no
agreements or understandings for the issuance of Preferred Stock and the Board
of Directors has no present intention to issue Preferred Stock.
PREMIER WARRANT
In connection with the Premier Purchasing Agreement, the Company entered
into a Warrant Agreement with Premier pursuant to which the Company has granted
Premier a warrant to acquire up to 500,000 shares of Common Stock at the initial
public offering price (i.e., the Premier Warrant). Shares of Common Stock
issuable under such warrant will vest annually in increments of 100,000 based
upon the achievement of certain specified minimum annual sales (the "Minimum
Annual Sales Targets") and/or minimum cumulative sales (the "Cumulative Sales
Targets") of the Company's products to participating Premier hospitals. The
vesting of the warrant will automatically accelerate in any given year in the
event that both the Minimum Annual Sales Targets and Cumulative Sales Targets
with respect to such year are achieved. Shares vesting at the end of the first
year of the Warrant Agreement (June 30, 1999) will become exercisable on the
third anniversary of such date. Shares vesting in subsequent years will become
exercisable one year after their respective vesting dates. All unexercised
warrant exercise rights will expire on the fifth anniversary of their respective
vesting dates. The Warrant Agreement provides for certain piggy-back
registration rights for the shares issuable to Premier thereunder.
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<PAGE> 49
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF GEORGIA LAW
The Georgia Code restricts certain business combinations with "interested
shareholders" (as defined below) (the "Business Combination Statute") and
contains fair price requirements applicable to certain mergers with certain
interested shareholders (the "Fair Price Statute"). In accordance with the
provisions of these statutes, the Company must elect in its Articles or Bylaws
to be covered by the restrictions imposed by these statutes. The Company has
elected to be covered by such restrictions.
The Business Combination Statute regulates business combinations such as
mergers, consolidations, share exchanges and asset purchases where the acquired
business has at least 100 shareholders residing in Georgia and has its principal
office in Georgia, as the Company does, and where the acquiror became an
interested shareholder of the corporation, unless either (i) the transaction
resulting in such acquiror becoming an interested shareholder or the business
combination received the approval of the corporation's board of directors prior
to the date on which the acquiror became an interested shareholder, or (ii) the
acquiror became the owner of at least 90% of the outstanding voting shares of
the corporation (excluding shares held by directors, officers and affiliates of
the corporation and shares held by certain other persons) in the same
transaction in which the acquiror became an interested shareholder. For purposes
of the Business Combination Statute and the Fair Price Statute, an "interested
shareholder" generally is any person who directly or indirectly, alone or in
concert with others, beneficially owns or controls 10% or more of the voting
power of the outstanding voting shares of the corporation. The Business
Combination Statute prohibits business combinations with an unapproved
interested shareholder for a period of five years after the date on which such
person became an interested shareholder. The Business Combination Statute is
broad in its scope and is designed to inhibit unfriendly acquisitions.
The Fair Price Statute prohibits certain business combinations between a
Georgia business corporation and an interested shareholder. The Fair Price
Statute would permit the business combination to be effected if (i) certain
"fair price" criteria are satisfied, (ii) the business combination is
unanimously approved by the continuing directors, (iii) the business combination
is recommended by at least two-thirds of the continuing directors and approved
by a majority of the votes entitled to be cast by holders of voting shares,
other than voting shares beneficially owned by the interested shareholder or
(iv) the interested shareholder has been such for at least three years and has
not increased his ownership position in such three-year period by more than 1%
in any 12-month period. The Fair Price Statute is designed to inhibit unfriendly
acquisitions that do not satisfy the specified "fair price" requirements.
CERTAIN NOTICE AND VOTING PROVISIONS CONTAINED IN THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS
Certain provisions of the Articles and Bylaws summarized in the following
paragraphs may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a shareholder might consider in
its best interest, including those attempts that might result in a premium over
the market price for the shares held by shareholders.
Special Meeting of Shareholders. The Articles provide that special
meetings of shareholders of the Company may be called only by the Board of
Directors or upon the written demand of the holders of not less than 75% of all
votes entitled to be cast on any issue proposed to be considered at a special
meeting. This provision will make it more difficult for shareholders to take
actions opposed by the Board of Directors and can only be amended with the
approval of 75% of the outstanding shares entitled to be cast on the issue.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide timely notice
thereof in writing. To be timely, a shareholder's notice must be delivered to or
mailed and received at the executive offices of the Company not less than 120
days nor more than 180 days prior to the first anniversary of the date of the
Company's notice of annual meeting provided with respect to the prior year's
annual meeting. The Bylaws also specify certain requirements for a shareholder's
notice to be in proper written form. These provisions may preclude some
shareholders from bringing matters before the shareholders at an annual meeting
or from making nominations for directors at an annual meeting.
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<PAGE> 50
Staggered Board. The Company's Articles and Bylaws provide for an eight
member Board of Directors to be elected, initially, to staggered one-, two- and
three-year terms and, thereafter for successive three-year terms. In addition,
directors may only be removed from office for cause upon a vote of 70% of the
Common Stock outstanding.
Amendments of Articles and Bylaws. The Company's Articles and Bylaws
provide that they may not be amended in certain respects except pursuant to the
vote of 70% of the Common Stock represented at a shareholders' meeting. These
provisions of the Articles and Bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is SunTrust Bank,
Atlanta.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for securities
of the Company. No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market could adversely affect the prevailing
market price.
Upon completion of the Offering, the Company will have outstanding
12,800,000 shares of Common Stock. All 2,600,000 shares of Common Stock
(3,993,950 shares if the Underwriters' over-allotment option is exercised in
full) sold by the Company in the Offering will be freely tradable without
restriction or further registration under the Securities Act, except that shares
owned by affiliates may generally only be sold by the Company in compliance with
applicable provisions of Rule 144. The remaining 10,200,000 shares of Common
Stock (the "Restricted Shares") held by existing shareholders upon completion of
the Offering will be "restricted" securities within the meaning of Rule 144 and
may not be sold except in compliance with the registration requirements of the
Securities Act or an applicable exemption under the Securities Act, including
sales pursuant to Rule 144.
The Company and certain of its directors, officers and shareholders have
agreed with the Underwriters not to sell or otherwise dispose of any shares of
Common Stock during the Lock-Up, except for Permitted Transfers, issuances by
the Company pursuant to the exercise of stock options granted under the Stock
Incentive Plan and issuances in connection with acquisitions where the person
receiving the Common Stock agrees not to sell or otherwise dispose of such
shares until 180 days after the date of this Prospectus. See "Underwriting."
Beginning 90 days after the date of this Prospectus, all 2,047,242 shares of
Common Stock owned by Mr. Mallady will be eligible for sale in the public market
subject to compliance with the provisions of Rule 144. Beginning 180 days after
the date of this Prospectus, assuming that CSFBC does not consent to any sales
prior to such time or a Permitted Transfer does not occur, an additional
7,279,758 shares will become eligible for sale in the public market, subject to
compliance with the provisions of Rule 144. Of such aggregate 9,327,000 shares,
3,645,729 shares are held by Mr. Hunt, the Chairman of the Board and Chief
Executive Officer of the Company and 3,021,887 shares are held by Mr. Peterson,
the President and a director of the Company, each of whom are "affiliates" of
the Company within the meaning of Rule 144, and may, therefore, only be sold in
the public market in compliance with the volume limitations and other
requirements of Rule 144. CSFBC may, in its sole discretion and at any time
without notice, waive the provisions of the lock-up agreements.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned Restricted
Shares for at least one year (including the holding period of certain prior
owners), will be entitled to sell in "restricted brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the
Company becomes subject to the reporting requirements of Section 13 of the
Exchange Act, a number of Restricted Shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock (approximately 128,000
shares immediately after the Offering) or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks immediately preceding such
sale, subject, generally, to the filing of a Form 144 with respect to such sales
and certain other limitations and restrictions. In addition, a person (or
persons whose shares are aggregated), who is not deemed to have been an
affiliate at any time during the 90 days immediately preceding the sale and who
has beneficially owned the Restricted Shares proposed to be sold for at least
two years, is entitled to sell such shares under Rule 144(k) without regard to
the limitations described above.
The Company has granted under the Stock Incentive Plan, subject to the
consummation of the Offering, the Outside Directors' Options, the SAR Conversion
Options and the Executive's Options. Giving effect to the foregoing option
grants, options to purchase an additional 350,400 shares of Common Stock would
remain available for issuance pursuant to the Stock Incentive Plan. See
"Management -- Stock Incentive Plan." In addition, the Company has granted to
Premier the Premier Warrant. Further, 45,328 shares of Common Stock are issuable
to an affiliate of the Company after the Offering and certain additional shares
of Common Stock may become issuable to such affiliate and another affiliate of
the Company as consulting fees. Sales of shares of Common Stock issuable upon
exercise of stock options under the Stock Incentive Plan and outside the Stock
Incentive Plan and upon exercise of the Premier Warrant generally are subject to
the limitations and restrictions under Rule 144. The Company intends to file one
or more registration statements on Form S-8 under the Securities Act to register
all shares of Common Stock subject to outstanding options and future grants
under the Stock Incentive Plan.
50
<PAGE> 52
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement") among
the Company, the Selling Shareholders and the underwriters named below (the
"Underwriters"), for whom CSFBC, BancAmerica Robertson Stephens and NationsBanc
Montgomery Securities LLC are acting as the representatives (the
"Representatives"), the Underwriters have severally but not jointly agreed to
purchase from the Company and the Selling Shareholders the following respective
numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- -----------
<S> <C>
Credit Suisse First Boston Corporation......................
BancAmerica Robertson Stephens..............................
NationsBanc Montgomery Securities LLC.......................
-----------
Total.....................................................
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Common Stock
(other than those shares covered by the over-allotment option described below)
if any are purchased. The Underwriting Agreement provides that, in the event of
a default by an Underwriter, in certain circumstances the purchase commitments
of non-defaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has granted to the Underwriters an option exercisable by CSFBC,
expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 520,950 additional shares of Common Stock at the
initial public offering price less underwriting discounts and commissions, all
as set forth on the cover page of this Prospectus. Such option may be exercised
only to cover over-allotments, if any, in the sale of the shares of Common
Stock. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as it was obligated to
purchase pursuant to the Underwriting Agreement.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public initially at the public offering price set forth on the
cover page of this Prospectus and, through the Underwriters, to certain dealers
at such price less a concession of $ per share, and the Underwriters
and such dealers may allow a discount of $ per share on sales to
certain other dealers. After the Offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Representatives have informed the Company and the Selling Shareholders
that they do not expect discretionary sales by the Underwriters to exceed 5% of
the shares being offered hereby.
The Company and certain of its officers, directors and shareholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly, or,
in the case of the Company, file with the Securities and Exchange Commission
(the "Commission") a registration statement under the Securities Act relating to
any additional shares of the Common Stock or securities convertible into or
exchangeable or exercisable for any shares of the Common Stock, without the
prior written consent of CSFBC during the Lock-Up, except for a Permitted
Transfer, issuances by the Company pursuant to the exercise of stock options
granted under the Stock Incentive Plan and issuances in connection with
acquisitions where the person receiving the Common Stock agrees not to sell or
otherwise dispose of such shares until 180 days after the date of this
Prospectus.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
51
<PAGE> 53
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the shares of Common Stock will be
negotiated between the Company and the Representatives. Among the factors to be
considered in determining the initial public offering price of the Common Stock
will be the Company's historic performance, estimates of the business potential
and earnings prospects of the Company and its industry in general, an assessment
of the Company's management, the market valuation of companies in related
businesses, the general condition of the equity securities market and other
relevant factors. There can be no assurance that the initial public offering
price of the Common Stock will correspond to the price at which the Common Stock
will trade in the public market subsequent to the Offering or that an active
public market for the Common Stock will develop and continue after the Offering.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase in the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
shares of Common Stock originally sold by such syndicate member are purchased in
a syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Common Stock to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
NationsCredit, the beneficial owner of approximately 7.5% of the
outstanding Common Stock of the Company on a fully-diluted basis, is an indirect
subsidiary of NationsBank Corporation. NationsBank Corporation is the parent
corporation of NationsBanc Montgomery Securities LLC. See "Principal and Selling
Shareholders."
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to a beneficial owner thereof that is a "Non-U.S. Holder." A
"Non-U.S. Holder" is a person or entity other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in or
under the laws of the United States or of any state, (iii) an estate the income
of which is subject to U.S. federal income tax, regardless of its source or (iv)
a trust if (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more United
States persons have the authority to control all substantial decisions of the
trust.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the United States at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period that includes the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to U.S. federal tax as if they were U.S. citizens and, thus, are not
Non-U.S. Holders for purposes of this discussion.
This discussion is based on the Code existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof
as of the date hereof, all of which are subject to change, including changes
with retroactive effect. This discussion does not address all aspects of U.S.
federal income and estate taxation that may be important to Non-U.S. Holders in
light of their particular circumstances (including tax consequences applicable
to Non-U.S. Holders that are, or hold interests in Common Stock through,
partnerships or other fiscally transparent entities) and does not address United
States state and local or non-United States tax consequences. Prospective
Non-U.S. Holders should consult their own tax advisors
52
<PAGE> 54
with respect to the particular U.S. federal income and estate tax consequences
to them of owning and disposing of Common Stock, as well as the tax consequences
arising under the laws of any other taxing jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to United States withholding
tax at a rate of 30% of the gross amount of the dividend or such lower rate as
may be specified by an applicable income tax treaty. Non-U.S. Holders (and in
the case of Non-U.S. Holders that are treated as partnerships or other fiscally
transparent entities, partners, shareholders or other beneficiaries of such
Non-U.S. Holders) may be required to satisfy certain certification requirements
and provide certain information in order to claim treaty benefits. Special rules
regarding the availability of treaty benefits apply with respect to entities
that are treated as partnerships or other fiscally transparent entities for U.S.
federal income tax purposes but treated as corporations for purposes of the tax
laws of an applicable treaty country (or, conversely, treated as corporations
for U.S. federal income tax purposes but treated as partnerships or other
fiscally transparent entities for purposes of the tax laws of an applicable
treaty country). Any such entities that hold Common Stock, and partners,
beneficiaries and shareholders of such entities, should consult their tax
advisors as to the applicability of such rules to their particular
circumstances.
Dividends paid to a Non-U.S. Holder that are either (i) effectively
connected with the Non-U.S. Holder's conduct of a trade or business within the
United States or (ii) if a tax treaty applies, attributable to a permanent
establishment maintained by the Non-U.S. Holder, will not be subject to the
withholding tax (provided in either case the Non-U.S. Holder files the
appropriate documentation with the Company or its Paying Agent), but, instead,
will be subject to regular U.S. federal income tax at the graduated rates in the
same manner as if the Non-U.S. Holder were a U.S. resident. In addition to such
graduated tax in the case of a Non-U.S. Holder that is a corporation,
effectively connected dividends or, if a tax treaty applies, dividends
attributable to a U.S. permanent establishment of the corporate Non-U.S. Holder,
may be subject to a "branch profits tax" which is imposed, under certain
circumstances, at a rate of 30% (or such lower rate as may be specified by an
applicable tax treaty) of the non-U.S. corporation's effectively connected
earnings and profits, subject to certain adjustments.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is effectively
connected with a trade or business of such Non-U.S. Holder in the United States
or, if a tax treaty applies, attributable to a United States permanent
establishment of the Non-U.S. Holder, (ii) in the case of certain Non-U.S.
Holders who are nonresident alien individuals and hold the Common Stock as a
capital asset, such individuals are present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of the Code regarding the taxation of U.S. expatriates, or (iv) the
Company is or has been a "U.S. real property holding corporation" within the
meaning of the Code and the Non-U.S. Holder owned directly or pursuant to
certain attribution rules more than 5% of the Company's Common Stock (assuming
the Common Stock is regularly traded on an established securities market within
the meaning of the Code) at any time within the shorter of the five-year period
preceding such disposition or such Non-U.S. Holder's holding period. The Company
is not, and does not anticipate becoming, a U.S. real property holding
corporation.
If a Non-U.S. Holder who is an individual falls under clause (i) of the
preceding paragraph, he or she will, unless an applicable treaty provides
otherwise, be taxed on the net gain derived from the sale at regular graduated
U.S. federal income tax rates. If an individual Non-U.S. Holder falls under
clause (ii) of the preceding paragraph, he or she will be subject to a flat 30%
tax on the gain derived from the sale, which may be offset by certain United
States-source capital losses. If a Non-U.S. Holder that is a corporation falls
under clause (i) in the preceding paragraph, it will be taxed on the net gain
from the sale at regular graduated U.S. federal income tax rates and may be
subject to an additional branch profits tax at a rate of 30% (or such lower
53
<PAGE> 55
rate as may be specified by an applicable tax treaty) on the non-U.S.
corporation's effectively connected earnings and profits, subject to certain
adjustments.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
Generally, the Company must report annually to the Internal Revenue Service
the amount of dividends paid to a Non-U.S. Holder and the amount, if any, of tax
withheld with respect to, such Non-U.S. Holder. A similar report is sent to the
Non-U.S. Holder. Pursuant to tax treaties or certain other agreements, the
Internal Revenue Service may make its reports available to tax authorities in
the recipient's country of residence.
Currently, United States backup withholding tax (which generally is a
withholding tax imposed at a rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) will generally not apply to dividends paid on Common
Stock to a Non-U.S. Holder at an address outside the United States, unless the
payor has actual knowledge that the payee is a U.S. Holder. Backup withholding
tax generally will apply to dividends paid on Common Stock at addresses inside
the United States to Non-U.S. Holders who fail to provide certain identifying
information in the manner required.
In addition, information reporting and backup withholding imposed at a rate
of 31% will apply to the proceeds of a disposition of Common Stock paid to or
through a U.S. office of a broker unless the disposing holder, under penalties
of perjury, certifies as to its non-U.S. status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds if the payment is made outside the
United States through a non-U.S. office of a non-U.S. broker. However, U.S.
information reporting requirements (but not backup withholding) will apply to a
payment of disposition proceeds outside the United States if the payment is made
through an office outside the United States of a broker that is (i) a U.S.
person, (ii) a foreign person which derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States or
(iii) a "controlled foreign corporation" for U.S. federal income tax purposes,
unless the broker maintains documentary evidence that the holder is a Non-U.S.
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.
Recently adopted United States Treasury regulations, which generally are
effective for payments made after December 31, 1998, subject to certain
transition rules, alter the foregoing rules in certain respects. Among other
things, such regulations provide certain presumptions under which a Non-U.S.
Holder is subject to backup withholding at the rate of 31% and information
reporting unless the Company receives certification from the holder of non-U.S.
status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity, by
the partners, shareholders or other beneficiaries of such entity, or (iii) by
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
FEDERAL ESTATE TAX
An individual holder who is not a citizen or resident (as defined for U.S.
federal estate tax purposes) of the United States and at the time of death is
treated as the owner of, or has made certain lifetime transfers of, an interest
in the Common Stock will be required to include the value thereof in his gross
estate for U.S. federal estate tax purposes, and may be subject to U.S. federal
estate tax unless an applicable estate tax treaty provides otherwise.
54
<PAGE> 56
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and the
Selling Shareholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of the Common Stock are
effected. Accordingly, any resale of the Common Stock in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Shareholders and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities laws
to purchase such Common Stock without the benefit of a prospectus qualified
under such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "-- Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the Selling Shareholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against the issuer or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
legislation.
55
<PAGE> 57
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Long
Aldridge & Norman LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company at December 31, 1996 and 1997, and for each of the three years in
the period ended December 31, 1997, and the financial statements of
Strato(R)/Infusaid(TM) at December 31, 1995 and 1996, and for each of the two
years in the period ended December 31, 1996 and the six months ended June 30,
1997, appearing in this Prospectus and Registration Statement, have been audited
by Coopers & Lybrand L.L.P., independent certified public accountants, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement of which this Prospectus forms a part, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
56
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HORIZON MEDICAL PRODUCTS, INC.
Report of Independent Accountants for the Years Ended
December 31, 1996 and 1997............................. F-2
Consolidated Balance Sheets at December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 31, 1997...... F-4
Consolidated Statements of Shareholders' Deficit for the
Years Ended December 31, 1995, 1996 and 1997........... F-5
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 31, 1997...... F-6
Notes to Consolidated Financial Statements................ F-7
STRATO/INFUSAID INC.
Report of Independent Accountants for the Years Ended
December 31, 1995 and 1996 and the six months ended
June 30, 1997.......................................... F-21
Balance Sheets as of December 31, 1995 and 1996 and June
30, 1997............................................... F-22
Statements of Operations for the Years Ended December 31,
1995 and 1996 and the six months ended June 30, 1996
(unaudited) and 1997................................... F-23
Statements of Shareholder's Equity for the Years Ended
December 31, 1995 and 1996 and the six months ended
June 30, 1997.......................................... F-24
Statements of Cash Flows for the Years Ended December 31,
1995 and 1996 and the six months ended June 30, 1996
(unaudited) and 1997................................... F-25
Notes to Financial Statements............................. F-26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-31
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1997........ F-32
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as Adjusted at December 31, 1997....................... F-33
Notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-34
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Horizon Medical Products, Inc.
We have audited the accompanying consolidated balance sheets of Horizon
Medical Products, Inc. (the "Company") as of December 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for each of the three years in the period ended December 31, 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 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 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
Horizon Medical Products, Inc. as of December 31, 1996 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
January 29, 1998, except as to
Note 16, as to which the date
is March 22, 1998
F-2
<PAGE> 60
HORIZON MEDICAL PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 217,753 $ 2,893,924
Accounts receivable -- trade (net of allowance for
doubtful accounts of $6,997 and $308,239 in 1996 and
1997, respectively).................................... 959,093 3,720,031
Inventories............................................... 1,155,214 5,405,861
Prepaid expenses and other current assets................. 167,648 366,942
Deferred taxes............................................ 569,393
----------- ------------
Total current assets.............................. 2,499,708 12,956,151
Property and equipment, net................................. 769,938 2,341,508
Intangible assets, net...................................... 2,877,803 15,726,406
Deferred taxes.............................................. 254,988
Other assets................................................ 28,068 297,852
----------- ------------
Total assets...................................... $ 6,175,517 $ 31,576,905
=========== ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft............................................ $ 31,637 $ --
Accounts payable -- trade................................. 680,604 1,722,183
Accounts payable -- affiliate............................. 5,191 4,212
Accrued salaries and commissions.......................... 140,758 240,682
Accrued royalties......................................... 59,622 109,304
Accrued interest.......................................... 80,812 218,525
Accrued acquisition liabilities........................... -- 762,859
Other accrued expenses.................................... 23,023 350,344
Income taxes payable...................................... -- 409,726
Current portion of long-term debt......................... 219,413 1,959,482
Current portion of payable under non-compete and
consulting agreements.................................. 240,839 336,268
----------- ------------
Total current liabilities......................... 1,481,899 6,113,585
Long-term debt, net of current portion...................... 5,052,822 23,970,805
Payable under non-compete and consulting agreements, net of
current portion........................................... 1,366,815 1,463,319
Put warrant repurchase obligation (Note 8).................. -- 11,000,000
Other liabilities........................................... 189,748 178,951
----------- ------------
Total liabilities................................. 8,091,284 42,726,660
----------- ------------
Commitments and contingent liabilities (Notes 8, 10 and 11)
SHAREHOLDERS' DEFICIT:
Preferred stock, $.001 par value per share; 5,000,000
shares authorized, none issued and outstanding (Note
8)..................................................... -- --
Common stock:
Class A, $.001 par value per share; 50,000,000 authorized,
9,419,450 shares issued and outstanding in 1996 and
1997 (Note 8).......................................... 9,419 9,419
Class B, $.001 par value per share; 500,000 authorized,
none issued and outstanding (Note 8)................... -- --
Additional paid-in capital................................ -- --
Shareholders' notes receivable............................ (371,497) (398,525)
Accumulated deficit....................................... (1,553,689) (10,760,649)
----------- ------------
Total shareholders' deficit....................... (1,915,767) (11,149,755)
----------- ------------
Total liabilities and shareholders' deficit....... $ 6,175,517 $ 31,576,905
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 61
HORIZON MEDICAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ------------
<S> <C> <C> <C>
Net sales................................................ $5,003,633 $7,051,858 $ 15,798,123
Cost of goods sold....................................... 2,227,165 2,996,741 6,273,418
---------- ---------- ------------
Gross profit............................................. 2,776,468 4,055,117 9,524,705
Selling, general and administrative expenses............. 2,706,383 4,239,700 6,110,827
---------- ---------- ------------
Operating income (loss)................................ 70,085 (184,583) 3,413,878
---------- ---------- ------------
Other income (expense):
Interest expense (Notes 6 and 8)....................... (242,153) (733,961) (3,970,734)
Accretion of value of put warrant repurchase obligation
(Note 8)............................................ -- -- (8,000,000)
Other income........................................... -- 54,333 69,727
---------- ---------- ------------
(242,153) (679,628) (11,901,007)
---------- ---------- ------------
Loss before income taxes and extraordinary item........ (172,068) (864,211) (8,487,129)
Income tax benefit (expense)............................. 7,305 -- (319,831)
Effect of conversion to C Corporation status............. (7,305) -- --
---------- ---------- ------------
Loss before extraordinary item........................... (172,068) (864,211) (8,806,960)
Extraordinary loss on early extinguishment of debt, net
of income tax effect of $0............................. (70,045) -- --
---------- ---------- ------------
Net loss............................................... $ (242,113) $ (864,211) $ (8,806,960)
========== ========== ============
Loss per share before extraordinary item -- basic and
diluted................................................ $ (0.02) $ -- $ --
========== ========== ============
Net loss per share -- basic and diluted.................. $ (0.03) $ (0.09) $ (0.93)
========== ========== ============
Weighted average common shares outstanding............... 9,143,758 9,419,080 9,419,450
========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 62
HORIZON MEDICAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK
------------------ ADDITIONAL SHAREHOLDERS'
NUMBER OF PAR PAID-IN NOTES ACCUMULATED
SHARES VALUE CAPITAL RECEIVABLE DEFICIT TOTAL
--------- ------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994..................... 90,900 $ 91 $ 74 $ -- $ (438,136) $ (437,971)
Issuance of common stock... 11,000 11 14 -- -- 25
Issuance of shareholders'
notes receivable......... -- -- -- (337,837) -- (337,837)
Net increase in
shareholders' notes
receivable............... -- -- -- (6,559) -- (6,559)
Net loss................... -- -- -- -- (242,113) (242,113)
--------- ------ ---- --------- ------------ ------------
Balance, December 31,
1995..................... 101,900 102 88 (344,396) (680,249) (1,024,455)
Issuance of common stock... 19 -- -- -- -- --
Net increase in
shareholders' notes
receivable............... -- -- -- (27,101) -- (27,101)
Net loss................... -- -- -- -- (864,211) (864,211)
--------- ------ ---- --------- ------------ ------------
Balance, December 31,
1996..................... 101,919 102 88 (371,497) (1,544,460) (1,915,767)
Net increase in
shareholders' notes
receivable............... -- -- -- (27,028) -- (27,028)
Repurchase of stock
warrants (Note 6)........ -- -- -- -- (400,000) (400,000)
Net loss................... -- -- -- -- (8,806,960) (8,806,960)
Issuance of shares to
effect a stock split
(Note 16)................ 9,317,531 9,317 (88) -- (9,229) --
--------- ------ ---- --------- ------------ ------------
Balance, December 31,
1997..................... 9,419,450 $9,419 $ -- $(398,525) $(10,760,649) $(11,149,755)
========= ====== ==== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 63
HORIZON MEDICAL PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- --------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (242,113) $(864,211) $ (8,806,960)
----------- --------- ------------
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Extraordinary loss on early extinguishment of debt.... 70,045 -- --
Depreciation.......................................... 38,295 128,500 199,450
Amortization.......................................... 71,335 337,136 1,009,180
Amortization of discount.............................. 46,758 254,490 2,160,153
Accretion of value of put warrant repurchase
obligation......................................... -- -- 8,000,000
Gain on sale of property and equipment................ -- (5,829) --
Deferred income taxes, net change..................... -- -- (90,299)
(Increase) decrease in operating assets:
Accounts receivable................................ 45,667 (186,593) (947,075)
Inventories........................................ (52,446) 85,668 183,557
Prepaid expenses and other assets.................. (23,929) 173,574 (205,585)
Increase (decrease) in operating liabilities:
Accounts payable -- trade.......................... (371,039) (197,745) 859,713
Accounts payable -- affiliate...................... 21,159 1,417 (979)
Income taxes payable............................... -- -- 409,726
Accrued expenses and other liabilities............. (66,966) 385,050 (49,569)
----------- --------- ------------
Total adjustments................................ (221,121) 975,668 11,528,272
----------- --------- ------------
Net cash provided by (used in) operating
activities.................................... (463,234) 111,457 2,721,312
----------- --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (20,062) (91,846) (899,563)
Proceeds from sale of property and equipment............ -- 7,800 --
Payment for acquisition, net of cash acquired........... (1,531,987) -- (19,500,000)
----------- --------- ------------
Net cash used in investing activities.............. (1,552,049) (84,046) (20,399,563)
----------- --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes receivable -- shareholders........................ (344,396) (27,101) (27,028)
Cash overdraft.......................................... 76,148 (44,511) (31,637)
Proceeds from issuance of long-term debt................ 3,209,186 -- 23,500,000
Principal payments on long-term debt.................... (1,071,552) (132,282) (2,012,163)
Debt issue costs........................................ (59,944) -- (674,750)
Proceeds from issuance of common stock.................. 25 -- --
Payment for warrants.................................... -- -- (400,000)
----------- --------- ------------
Net cash provided by (used in) financing
activities....................................... 1,809,467 (203,894) 20,354,422
----------- --------- ------------
Net increase (decrease) in cash and cash
equivalents...................................... (205,816) (176,483) 2,676,171
Cash and cash equivalents, beginning of year............ 600,052 394,236 217,753
----------- --------- ------------
Cash and cash equivalents, end of year.................. $ 394,236 $ 217,753 $ 2,893,924
=========== ========= ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............. $ 219,514 $ 423,766 $ 1,173,992
=========== ========= ============
</TABLE>
See Notes 12 and 13 for additional supplemental disclosures of cash flow
information.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 64
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Horizon Medical Products, Inc. (the "Company") is a specialty medical
device company focused on manufacturing and marketing vascular access products.
The Company manufactures and markets products in three vascular access product
categories: (i) implantable vascular access ports, which are used primarily in
cancer treatment protocols for the infusion of highly concentrated toxic
medications (such as chemotherapy agents, antibiotics or analgesics) and blood
samplings; (ii) hemodialysis catheters, which are used primarily in treatments
of patients suffering from renal failure who require short-term or long-term
hemodialysis treatments; and (iii) central venous catheters, which are used
primarily in stem cell apheresis procedures for treating certain forms of mid-
and late-stage cancers. The Company was incorporated in Georgia in 1990.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of accounting policies utilized in the
consolidated financial statements which were prepared in accordance with
generally accepted accounting principles.
Principles of Consolidation -- The consolidated financial statements and
notes to consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Revenue Recognition -- The Company records sales upon shipment of the
related product, net of any discounts.
Export Sales -- The Company's export sales, which are denominated in U.S.
currency, totaled approximately $200,000, $1,200,000, and $2,700,000 in 1995,
1996 and 1997, respectively.
Cash and Cash Equivalents -- The Company considers all highly liquid
investments with an original maturity of three months or less at the time of
purchase to be cash equivalents.
Inventories -- Purchased finished goods inventory is valued at the lower of
cost or market using the specific identification method for determining cost.
Raw materials, work in process, and manufactured ports and catheters are valued
at the lower of average cost or market.
Property and Equipment -- Property and equipment are carried at cost, less
accumulated depreciation. Expenditures for repairs and maintenance are charged
to expense as incurred; betterments that materially prolong the lives of the
assets are capitalized. The costs of assets retired or otherwise disposed of and
the related accumulated depreciation are removed from the accounts, and the
related gain or loss on such dispositions is included in other income.
Depreciation is calculated using the straight-line method or double declining
balance method over the estimated useful lives of the property and equipment.
The lives of the assets range from five to seven years for equipment to
approximately 31.5 years for buildings.
Property and equipment acquired under capital lease agreements are carried
at cost less accumulated depreciation. These assets are depreciated in a manner
consistent with the Company's depreciation policy for purchased assets.
Intangible Assets -- Goodwill, the excess of purchase price over the fair
value of net assets acquired in purchase transactions, is being amortized on a
straight-line basis over periods ranging from 15 to 30 years. The Company
assesses the recoverability and the amortization period of the goodwill by
determining whether the amount can be recovered through undiscounted cash flows
of the businesses acquired over the remaining amortization period. Additionally,
goodwill is evaluated for recoverability utilizing a fair value approach.
Amounts paid or accrued for non-compete and consulting agreements are amortized
using the straight-line method over the term of the agreements of approximately
seven years. Patents are being amortized on a straight-line basis over the
remaining lives of the related patents which range from six to 15 years. Debt
issuance costs are amortized using the straight-line method over the estimated
term of the related debt issues.
F-7
<PAGE> 65
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets -- The Company recognizes impairment losses on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. There were no such losses recognized during the
years ended December 31, 1995, 1996 and 1997.
Research and Development -- Research and development costs are charged to
expense as incurred and were approximately $66,000, $59,000 and $7,000 in 1995,
1996 and 1997, respectively.
Income Taxes -- Effective January 1, 1995, the shareholders of the Company
elected to be taxed as a C Corporation and, accordingly, revoked its S
Corporation status. As a result, the Company recorded a deferred tax liability
and recognized income tax expense of $7,305 at the effective date of the change.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the consolidated financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement basis and the tax basis of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
The Company's deferred tax assets and liabilities relate primarily to the
existence of net operating loss carryforwards and differences in the book and
tax basis of property and equipment, intangible assets, and accrued liabilities.
Stock-Based Compensation -- Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has elected to account for its
stock-based compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). Under the provisions of APB 25, compensation cost for
stock options issued to employees is measured as the excess, if any, of the
quoted market price of the Company's common stock at the date of grant over the
amount an employee must pay to acquire the stock. An award to employees which
requires or can compel the Company to settle such award in cash (such as stock
appreciation rights) is accounted for as a liability. The amount of the
liability for such an award is measured each period based on the settlement
value with changes in such value recorded as compensation cost over the service
period.
Stock based transactions with other than employees are measured at fair
value and are reported as expense or an exchange of assets, as appropriate,
under the provisions of SFAS 123.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications -- Certain reclassifications have been made to the 1995
and 1996 financial statements to make them comparable to the 1997 presentation.
These reclassifications had no impact on previously reported net loss.
Recently Issued Accounting Standards -- In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income,
which requires the reporting and display of comprehensive income and its
components in an entity's financial statements, and SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, which specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be required. The Company is required to adopt these
standards in 1998. The Company does not expect the impact of these
pronouncements to be material.
F-8
<PAGE> 66
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
A summary of inventories at December 31, is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Raw materials............................................... $ 176,960 $2,300,745
Work in process............................................. 427,737 692,054
Finished goods.............................................. 573,056 2,662,995
---------- ----------
1,177,753 5,655,794
Less inventory reserves..................................... 22,539 249,933
---------- ----------
$1,155,214 $5,405,861
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Building and improvements................................... $ 423,640 $1,271,309
Office equipment............................................ 223,224 669,316
Plant equipment............................................. 317,761 781,737
Transportation equipment.................................... 12,316 13,283
---------- ----------
976,941 2,735,645
Less accumulated depreciation............................... 207,003 394,137
---------- ----------
$ 769,938 $2,341,508
========== ==========
</TABLE>
5. INTANGIBLE ASSETS
A summary of intangible assets at December 31, is as follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Debt issuance costs......................................... $ 63,947 $ 738,697
Non-compete and consulting agreements....................... 1,473,091 1,473,091
Goodwill.................................................... 1,735,754 13,283,787
Patents..................................................... -- 1,635,000
---------- -----------
3,272,792 17,130,575
Less accumulated amortization............................... 394,989 1,404,169
---------- -----------
$2,877,803 $15,726,406
========== ===========
</TABLE>
The expected amortization charges related to these intangibles are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 1,111,717
1999........................................................ 832,204
2000........................................................ 832,204
2001........................................................ 832,204
2002........................................................ 797,131
Thereafter.................................................. 11,320,946
-----------
$15,726,406
===========
</TABLE>
F-9
<PAGE> 67
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
On September 25, 1995, the Company issued a $1,500,000 note (the "Sirrom
Note") bearing interest at 13.75%. The proceeds of the Sirrom Note were used to
repay debt, finance the acquisition of the net assets of Neostar Medical
Technologies, Inc. ("Neostar") and provide additional working capital. As a
result, the Company recorded an extraordinary loss on the early extinguishment
of previously outstanding debt in the amount of $70,045. In conjunction with the
financing, the Company issued warrants to its lender, Sirrom Capital Corporation
("Sirrom"), to acquire 8.25% of the shares of the Company's voting stock
outstanding as of the date of the agreement.
In connection with the acquisition of Strato/Infusaid Inc. ("Strato")
discussed in Note 13, the Company entered into a $26.5 million Credit Facility
with NationsCredit on July 15, 1997 (the "Credit Facility"). The Credit Facility
provides the Company with a term loan in the amount of $21,500,000 (the "Tranche
A Loan") repayable in quarterly installments ranging from $537,500 to $1,075,000
through 2004, a term loan in the amount of $2,000,000 (the "Tranche B Loan")
repayable in four quarterly installments of $500,000 each occurring the earlier
of the sixth anniversary of the closing date or the date on which the Tranche A
Loan has been repaid in its entirety, and a revolving line of credit of up to
$3,000,000 repayable on the earlier of July 1, 2004 or the date on which all
amounts outstanding under the Tranche A Loan and the Tranche B Loan have been
repaid in full. Borrowings under the revolving line of credit and Tranche A Loan
bear interest at NationsCredit's Commercial Paper Rate plus 4.25% (9.836% at
December 31, 1997). Borrowings under the Tranche B Loan bear interest at
NationsCredit's Commercial Paper Rate plus 5.25% (10.836% at December 31, 1997).
Subject to certain limitations, amounts outstanding under each of the Tranche A
Loan, the Tranche B Loan and the revolving line of credit may be prepaid at the
Company's option subject, in certain cases, to the payment of a prepayment
premium of 3.00%. Amounts outstanding under the Tranche A Loan and the Tranche B
Loan are mandatorily prepayable, without penalty, in increments upon the
occurrence of certain events, including, without limitation, issuances by the
Company of common stock and other equity securities the proceeds of which exceed
$250,000, and consummation by the Company of certain asset sales. The Credit
Facility prohibits or restricts the Company from many actions, including paying
dividends and incurring or assuming other indebtedness or liens.
The Company's obligations under the Credit Facility are secured by liens on
substantially all of the Company's assets, including inventory, accounts
receivable and general intangibles and a pledge of the stock of the Company's
subsidiaries. The Company's obligations under the Credit Facility are also
guaranteed by each of the Company's subsidiaries (the "Guarantees"). The
obligations of such subsidiaries under the Guarantees are secured by liens on
substantially all of their respective assets, including inventory, accounts
receivable and general intangibles. As additional security, the majority
shareholders have pledged all shares of their common stock as collateral.
As of December 31, 1997, there was $21.5 million outstanding under the
Tranche A Loan, $2.0 million outstanding under the Tranche B Loan and zero
outstanding under the revolving line of credit.
In addition to the acquisition of Strato, the Company used proceeds from
the Credit Facility to retire approximately $1,700,000 of the Company's existing
debt. The Company also used proceeds of $400,000 to purchase the warrants issued
in connection with the Sirrom Note from Sirrom thereby terminating all of
Sirrom's rights under the warrants. This purchase resulted in a direct charge to
the Company's accumulated deficit. NationsCredit also effectively purchased the
$1,500,000 Sirrom Note from Sirrom. The Sirrom Note bears interest at the rate
of 13.75% per annum and matures September 25, 2000.
In conjunction with the financing, the Company issued a warrant to
NationsCredit to acquire shares of non-voting Class B Common Stock of the
Company, which then represented 15% of the outstanding common shares of the
Company. The number of shares subject to such warrant will be reduced as
follows: (1) to 7.5% of the outstanding common shares of the Company on a fully
diluted basis in the event the Company
F-10
<PAGE> 68
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
completes an initial public offering for its shares prior to January 1, 1999
(where the net proceeds to the Company are in excess of $25 million) or achieves
minimum earnings before interest, taxes, depreciation, and amortization
("EBITDA") of not less than $10 million for its 1998 fiscal year or (2) to 10%
of the outstanding common shares of the Company on a fully diluted basis in the
event the Company completes an initial public offering of its shares during 1999
but prior to July 16, 1999 (where the net proceeds to the Company are in excess
of $25 million) or achieves EBITDA of not less than $14 million for the twelve
months ending June 30, 1999. The warrant is exercisable at $.01 per share
pursuant to the warrant agreement and expires on July 15, 2007. NationsCredit
can require the Company to repurchase the warrant at the earliest repurchase
date (July 15, 2001 or upon repayment of the associated debt) at the redemption
price as defined in the warrant agreement. As more fully described in Note 8,
accounting for the amortization of the debt discount and debt issue costs
results in an effective interest rate on the NationsCredit debt of approximately
31% for 1997 and a charge to earnings in 1997 of $8,000,000 related to the put
feature.
At December 31, long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
NationsCredit Credit Facility less unamortized discount of
$1,166,667 at December 31, 1997........................... $ -- $22,333,333
Note payable bearing interest payable monthly at a fixed
rate of 13.75%, due September 25, 2000; collateralized by
inventory, accounts receivable, equipment, general
intangibles, trademarks and copyrights (the Sirrom
Note)..................................................... 1,500,000 1,500,000
Note payable, bearing interest payable monthly at prime plus
1% (9.5% at December 31, 1996); retired July 15, 1997..... 1,676,389 --
Note payable (the "Acquisition Note"), non-interest bearing
(less unamortized discount of $937,790 and $774,264 at
December 31, 1996 and 1997, respectively, based on an
imputed interest rate of 10%), with payments due monthly
beginning January 31, 1997 (see below) and continuing
through June 30, 2000 and 5 payments on various dates
through October 31, 2003. The payments are subordinated to
the Sirrom Note........................................... 1,523,227 1,511,749
Note payable, bearing interest at a variable rate (9.25% and
9.5% at December 31, 1996 and 1997, respectively); payable
in monthly payments of interest and principal through May
25, 2000; collateralized by a building.................... 353,455 342,588
Note payable, bearing interest at a fixed rate of 7.9%,
interest and principal payable monthly through May 11,
2000; collateralized by a vehicle......................... -- 9,286
Note payable, bearing interest at a fixed rate of 10%,
interest and principal payable monthly through March 10,
1997...................................................... 743 --
Note payable, bearing interest at a fixed rate of 7.84%,
interest and principal payable monthly through September
30, 1998.................................................. -- 161,719
Note payable, bearing interest at a fixed rate of 7.827%,
interest and principal payable monthly through September
30, 1997.................................................. 111,707 --
Miscellaneous capital lease obligations for office
equipment, requiring monthly payments ranging from $133 to
$2,729, including principal and interest at 9.25%, and
maturing at dates ranging from 1999 to 2001. These
obligations are collateralized by equipment with a net
book value of approximately $108,000 and $89,000 at
December 31, 1996 and 1997, respectively.................. 106,714 71,612
---------- -----------
5,272,235 25,930,287
Less: current portion....................................... 219,413 1,959,482
---------- -----------
Long-term debt, net of current portion...................... $5,052,822 $23,970,805
========== ===========
</TABLE>
F-11
<PAGE> 69
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 1,959,482
1999........................................................ 3,166,572
2000........................................................ 5,224,423
2001........................................................ 4,217,253
2002........................................................ 4,473,682
Thereafter.................................................. 8,829,806
-----------
27,871,218
Less unamortized discount on notes payable.................. (1,940,931)
-----------
Carrying amount of long-term debt........................... $25,930,287
===========
</TABLE>
On July 31, 1997, the Acquisition Note was amended to reduce total payments
due in 1997 from $212,235 to $175,000. The payment of the remaining amount of
$37,235 was deferred until the final payment date of this note of October 31,
2003. The amendment also requires quarterly payments of interest on the deferred
amount at prime plus 1% (9.50% at December 31, 1997).
The Company's long-term debt agreements contain certain restrictive
covenants which require the maintenance of minimum EBITDA, minimum tangible
worth/deficit and a cash flow to debt service ratio as well as place limitations
on dividends, advances, and other borrowings. The Company is in compliance with
or has received appropriate waivers of these covenants.
7. INCOME TAXES
There was an income tax benefit in 1995 of $7,305 related to federal
deferred income taxes. There was no provision or benefit for income taxes during
1996 due to the Company recording a full valuation allowance. The provision
(benefit) for income taxes in 1997 is comprised of the following:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Current:
Federal................................................... $681,209
State..................................................... 102,237
--------
783,446
Deferred tax benefit...................................... (90,299)
--------
693,147
Change in valuation allowance............................... (373,316)
--------
Total provision for income taxes.................. $319,831
========
</TABLE>
F-12
<PAGE> 70
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities at December 31, 1996 and 1997 are
comprised of the following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and returns............... $ 2,659 $ 127,482
Inventory reserve......................................... -- 105,071
Intangible assets......................................... 49,758 413,874
Accrued liabilities....................................... -- 336,840
Net operating loss carryforwards.......................... 328,814 --
--------- ---------
Total gross deferred tax assets................... 381,231 983,267
--------- ---------
Deferred tax liabilities:
Property and equipment.................................... (7,915) (158,886)
--------- ---------
373,316 824,381
Less valuation allowance.................................... (373,316) --
--------- ---------
Net deferred tax asset...................................... $ -- $ 824,381
========= =========
</TABLE>
The Company recorded a full valuation allowance against its net deferred
tax assets in 1995 and 1996. The Company's primary tax assets were its net
operating loss carryforwards, as to which there was uncertainty whether they
could be fully utilized. During 1997, the Company generated taxable income
sufficient to fully utilize the net operating loss carryforwards. No valuation
allowance was recorded against the deferred tax asset at December 31, 1997 as
the Company believes that it is more likely than not that all of the net
deferred tax asset will be realized through future taxable income.
The provision for income taxes differs from the amount which would be
computed by applying the federal statutory rate of 34% to pre-tax earnings as
indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- -----------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory federal
income tax rate................................... $(82,318) $(293,832) $(2,885,624)
Increase (decrease) resulting from:
Non-deductible meals and entertainment expense.... 18,294 21,849 28,698
State income taxes................................ -- -- 64,353
Non-deductible interest and accretion of put
warrant repurchase obligation.................. -- -- 3,343,333
Non-deductible amortization of goodwill........... -- -- 59,985
Change in valuation allowance..................... 56,719 271,983 (373,316)
Other, net........................................ -- -- 82,402
-------- --------- -----------
Total income tax provision (benefit)...... $ (7,305) $ -- $ 319,831
======== ========= ===========
</TABLE>
8. CAPITAL STOCK AND WARRANTS
The Company increased the total number of common shares authorized,
effective July 9, 1997, to 5,000,000, consisting of 4,500,000 shares of Class A
Common Stock at $.001 par value per common share and 500,000 shares of
non-voting Class B Common Stock at $.001 par value per common share. At any
time, each share of Class B Common Stock may, at the option of the holder
thereof, be converted into one share of Class A Common Stock. (See Note 16.)
F-13
<PAGE> 71
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company authorized 5,000,000 shares of preferred stock for
issuance (see Note 16). The preferences, powers, and rights of the preferred
stock are to be determined by the Company's board of directors. None of these
shares are issued and outstanding.
The Company has a 1.99% owner which has anti-dilution rights. Additionally,
a warrant, representing 7.5% of outstanding shares for each period presented,
issued in connection with the Credit Facility, as discussed below and in Note 6,
contains anti-dilution provisions.
As discussed in Note 6, in connection with the Credit Facility, the Company
issued a warrant to NationsCredit to acquire shares of non-voting Class B Common
Stock, representing 15% of outstanding shares. This percentage reduces to 7.5%
under certain conditions including completion of an initial public offering by
the Company prior to January 1, 1999 where the net proceeds are in excess of $25
million. The warrant also contains a put feature which allows the holder to put
the warrant to the Company for cash at an amount calculated as the greater of
several financial tests and at dates which vary as to actions of the Company,
the earliest of which is repayment of the associated debt, or July 15, 2001.
The Company recorded the estimated value of the warrant with the put
feature on July 15, 1997 of $3,000,000 as a discount to the related debt and as
a put warrant repurchase obligation. Subsequent to issuance of the warrant, the
Company's operations and other factors indicated that an initial public offering
of stock could be pursued, and the Company began intense efforts to accomplish
such an offering. The Company and its prospective underwriters anticipate a
public offering in April 1998. A portion of the proceeds will be used to pay off
the Credit Facility as is required by the credit agreement upon successful
completion of an initial public offering. Additionally, the integration of
Strato, medical device market trends, and potential access to the public capital
markets lead management to believe the estimated value of the put warrants has
increased. Therefore, the value assigned to such put warrant is recorded herein
at $11,000,000 at December 31, 1997. The change in value from date of issue of
$8,000,000 has been recorded as a non-cash expense for the accretion of value of
put warrant repurchase obligation in the accompanying Consolidated Statement of
Operations for the year ended December 31, 1997. Additionally, due to the
expected date of debt repayment of April 1998, the debt discount established at
issue date and the associated debt issue costs are being amortized over a nine
month period beginning July 15, 1997. This amortization resulted in a charge to
interest expense of approximately $2,300,000 in 1997, resulting in an effective
rate of interest on the underlying debt of approximately 31% (exclusive of the
$8,000,000 put warrant charges).
Effective January 29, 1998, NationsCredit and the Company amended the
warrant agreement such that NationsCredit's right to put the warrant to the
Company for cash was rescinded. This constituted a forgiveness of the put
obligation estimated at $1,100,000 to be recorded at the date of rescission and
the net recorded value of the warrant was reclassed to additional paid-in
capital in 1998.
9. STOCK-BASED COMPENSATION
In 1995, the Company approved a Stock Appreciation Rights Plan ("SAR Plan")
which provides for the granting of stock appreciation rights to eligible
employees and eligible sales representatives based on their performance as
determined by the Board of Directors. Benefits under the SAR Plan are payable in
cash. If there is a public offering of the Company's stock or an acquisition of
the Company, at the discretion of the Board of Directors, the units may be
canceled or modified and thereafter the vested benefits may be paid in cash, a
number of shares of voting stock, or a number of options to purchase shares of
voting stock. An eligible employee's or eligible sales representative's benefit
attributable to each unit is equal to the excess of the accumulated
deficit/retained earnings value as of the last day of the Company's fiscal year
plus $1.00 over the
F-14
<PAGE> 72
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accumulated deficit/retained earnings value as of the date of the grant. The
accumulated deficit/retained earnings value is calculated according to the
following formula:
retained earnings/(accumulated deficit) X 5%
--------------------------------------------
total number of SAR units
The SAR Plan also provides that the value of each SAR unit shall never be
less than $1.00.
The units become fully vested and are exercisable after four years of
service from the date of the grant. The Company has not restricted the number of
shares of voting stock subject to issuance under the SAR Plan. Further, the
Company has not reserved any of the Company's voting stock for issuance under
the SAR Plan.
Transactions under the SAR Plan are summarized as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
------ -------- ------
<S> <C> <C> <C>
Outstanding, beginning of year............................. -- 29,750 40,900
Granted (at $1.00 per unit)................................ 29,750 30,050 64,200
Canceled................................................... -- (18,900) (5,500)
------ -------- ------
Outstanding, end of year................................... 29,750 40,900 99,600
====== ======== ======
Exercisable, end of year................................... -- -- --
====== ======== ======
</TABLE>
The cumulative expense recorded by the Company with respect to the plan
through December 31, 1997 was approximately $35,000 and has been recorded in
accrued liabilities.
10. RELATED-PARTY TRANSACTIONS
The Company and Cardiac Medical, Inc. ("CMI") are related parties due to
common stock ownership by the Chairman of the Board and Chief Executive Officer
("CEO") and Vice-Chairman of the Board of the Company. The Company and CMI share
office space and certain administrative employees. The Company paid CMI $150,000
in 1995 and expensed $50,000 during each of 1995, 1996 and 1997 related to these
shared services. CMI previously guaranteed the Sirrom Note. On July 15, 1997, in
connection with the Credit Facility, NationsCredit effectively purchased the
Sirrom Note and CMI's guarantee with respect thereto was terminated.
At December 31, 1996 and 1997, the Company has unsecured loans to the
majority shareholders in the form of notes receivable in the amount of $337,837.
The notes require annual payments of interest at 8% beginning on September 28,
1997 and are due September 2000 through October 2000. In addition, the Company
recognized interest income of $6,559, $27,101 and $27,028 during 1995, 1996 and
1997, respectively, related to the notes. The notes and related accrued interest
are recorded as contra-equity in the Consolidated Balance Sheets.
The CEO and the President of the Company, who collectively hold 64% of the
Company's stock, do not draw a salary or other form of compensation from the
Company. Annual salaries totaling $410,000 are anticipated for these officers
subsequent to a successful initial public offering. Estimated fair value
compensation for 1995, 1996 and 1997 was $215,000, $320,000 and $365,000,
respectively.
On February 1, 1996, the Company entered into a Consulting and Services
Agreement with Healthcare Alliance (the "Alliance Agreement"), an affiliate of
one of the Company's directors. The Alliance Agreement provides for (i) the
payment to Healthcare Alliance of an annual consulting fee of $36,000, (ii) the
payment to Healthcare Alliance of an annual performance incentive fee equal to
5% of any annual sales increase achieved by the Company that results from
Healthcare Alliance's efforts and (iii) the grant of up to 1.5% of shares of the
Company's stock owned by the majority shareholders at the time such payment
becomes due, subject to the execution and delivery of certain targeted group
purchasing agreements. The Alliance
F-15
<PAGE> 73
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement terminates on January 31, 1999 and will automatically renew for
another three year term unless the Company notifies Healthcare Alliance 30 days
prior to the beginning of the third year. The Company incurred expense of
$30,000 and $36,000 related to the Alliance Agreement during the years ended
December 31, 1996 and 1997, respectively. There were no incentive fee amounts
paid nor grants of Company stock during the years ended December 31, 1996 and
1997.
On May 8, 1997, the Company entered into an agreement (the "Agreement")
with a director of the Company (the "Director") in which the Director will
provide acquisition consulting and related services to the Company. The Director
will receive a fee (the "General Consulting Fee") equal to 2.5% of the
acquisition purchase price (i) payable by the Company with respect to a company
acquired by the Company or (ii) payable to the Company or its shareholders in
the event the Company is acquired. Such General Consulting Fee is conditioned
upon, and is not payable until, there has occurred an initial public offering of
the Company's capital stock or substantially all of the Company's business or
outstanding shares of capital stock is acquired. Such General Consulting Fee is
payable, at the Director's option, (i) in shares of the Company's common stock
after an initial public offering, (ii) by the Company's issuance to the Director
of warrants or options to purchase, at a nominal exercise price, that number of
shares of common stock (valued at the initial public offering price) which
equals the General Consulting Fee, (iii) in shares of the company which acquires
the Company, in the event the Company is acquired, or (iv) in cash. The
Agreement also provides for payment to the Director for his services in
connection with the Strato Acquisition of $375,000 (the "Consulting Fee"). The
Consulting Fee is payable upon the initial public offering and may be payable,
at the option of the Director, in shares of the Company's stock or warrants or
options to purchase, at a nominal exercise price, that number of shares of the
common stock (valued at the initial public offering price) which equals
$375,000. At December 31, 1997, accrued expenses included $375,000 due to the
Director. The Letter Agreement also provides for payment of $275,000 (the
"Second Consulting Fee") to the Director for services provided in connection
with a second strategic venture. The Second Consulting Fee is payable upon the
completion of the second strategic venture and is payable in warrants or options
to purchase, at a nominal exercise price, that number of shares of the Company's
stock (valued at the initial public offering price) which equals $250,000. As of
December 31, 1997, no amounts have been earned by the Director relating to the
Second Consulting Fee. Both Consulting Fees are to be in lieu of and not in
addition to the General Consulting Fee.
During 1997, an affiliate of one of the Directors of the Company provided
consulting services to the Company. During the year ended December 31, 1997, the
Company incurred expense related to these services in the amount of $235,699.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Concurrent with the acquisition of Neostar, on October 24, 1995, the
Company entered into non-compete and consulting agreements with four previous
shareholders of Neostar. The agreements are non-interest bearing and have been
recorded at their net present values based on an imputed interest rate of 10%.
Payment requirements are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 354,756
1999........................................................ 331,200
2000........................................................ 331,200
2001........................................................ 567,741
2002........................................................ 833,574
----------
Total payments.............................................. 2,418,471
Less amounts representing interest.......................... (618,884)
----------
Present value of payments under non-compete and consulting
agreements................................................ $1,799,587
==========
</TABLE>
F-16
<PAGE> 74
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company leases its facility and certain equipment under operating lease
agreements expiring in various years through 2009. Rent expense under various
operating leases was approximately $25,000, $117,000 and $85,000 during December
31, 1995, 1996 and 1997, respectively. Minimum future rental payments under
operating leases having remaining terms in excess of one year are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 108,000
1999........................................................ 108,000
2000........................................................ 108,000
2001........................................................ 108,000
2002........................................................ 108,000
Thereafter.................................................. 704,666
----------
$1,244,666
==========
</TABLE>
The Company is subject to numerous federal, state and local environmental
laws and regulations. Management believes that the Company is in material
compliance with such laws and regulations and that potential environmental
liabilities, if any, are not material to the consolidated financial statements.
In connection with the 1995 acquisition of Neostar discussed in Note 13,
the Company assumed a license agreement with an individual (the "Licensor") for
the right to manufacture and sell dual lumen fistula needles, dual lumen
over-the-needle catheters, and dual lumen chronic and acute catheters, covered
by the Licensor's patents or derived from the Licensor's confidential
information. Payments under the agreement vary, depending upon the purchaser,
and range from 9% to 15% of Neostar's net sales of such licensed products. Such
payments shall continue until the expiration date of each corresponding Licensed
Patent Right covering each product under the agreement. Payments under this
license agreement totaled approximately $51,000, $241,000 and $249,000 in 1995,
1996 and 1997, respectively.
On February 17, 1993, the Company entered into a supply agreement (the
"Supply Agreement") with one of its vascular access port manufacturers (the
"Manufacturer") for the development and supply of certain vascular access port
products. On January 17, 1997, the Company entered into an agreement with the
Manufacturer to amend the original Supply Agreement and to transfer the
manufacture of the ports to the Company. The new agreement requires the Company
to pay the Manufacturer $680,000 in connection with the transfer of the
manufacturing process. This amount is to cover certain manufacturing equipment,
documentation of the manufacturing process, and training of the Company's
personnel by the Manufacturer. The amount is to be paid based upon ports
produced by the Company over a period of time, with the total balance to be paid
by September 30, 1998. The total amount can be reduced based on additional
purchases of ports from the Manufacturer after September 30, 1997.
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following represent noncash investing and financing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- ----------
<S> <C> <C> <C>
Capital lease obligations for property and equipment... $ -- $114,158 $ --
Short-term debt issued for certain insurance
coverage............................................. 95,512 111,707 161,719
Increase to goodwill................................... -- 52,169 --
Note issued for trade-in of auto....................... -- -- 11,641
Increase to property and equipment..................... -- -- 101,460
Discount recorded on credit facility................... -- -- 3,000,000
</TABLE>
F-17
<PAGE> 75
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. ACQUISITIONS
On October 24, 1995, Horizon Acquisition Corp. ("Horizon"), a wholly-owned
subsidiary of the Company, acquired the net assets of Neostar for $1,559,672 in
cash and a note of $1,356,148, net of a discount of $1,104,869, payable over a
seven-year period. The acquisition has been accounted for under the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets and liabilities of Neostar based on their estimated fair values at
the date of acquisition. Goodwill of $1,735,754 was recorded and is being
amortized over 15 years. Operating results of Neostar since October 24, 1995 are
included in the Company's consolidated financial statements.
On June 20, 1997, the Company, together with Arrow International, Inc.
("Arrow"), an unrelated entity, entered into a joint purchase agreement (the
"Stock Purchase Agreement") to acquire all of the stock of Strato, located in
Norwood, Massachusetts, for a purchase price of $21,250,000 plus the assumption
by the Company and Arrow of certain of Strato's trade debts and accrued
expenses. Strato produces and distributes vascular access products (the "Port
Business") and implantable infusion pump products (the "Pump Business"). Under
the Stock Purchase Agreement, the Company acquired 275,294 shares of Strato's
stock for $19,500,000, and Arrow acquired 24,706 shares of Strato's stock (the
"Arrow Shares") for $1,750,000.
The transaction was completed on July 15, 1997. On that date, the Company
and Arrow entered into an asset purchase and stock redemption agreement (the
"Arrow Agreement") wherein the Company, as beneficial owner of a majority of the
stock of Strato, sold the Pump Business and its related assets to Arrow in
exchange for the Arrow Shares and Arrow's assumption of certain liabilities of
Strato. The assets acquired and liabilities assumed under the Stock Purchase
Agreement were divided between the Company and Arrow as outlined in the Arrow
Agreement.
The Company has accounted for the acquisition under the purchase method of
accounting. Goodwill of $11,548,033 was recorded and is being amortized over
thirty years.
The estimated fair value of assets acquired and liabilities assumed in each
of the acquisitions is as follows:
<TABLE>
<CAPTION>
NEOSTAR STRATO
---------- -----------
<S> <C> <C>
Cash........................................................ $ 27,685 $ --
Accounts receivable, net.................................... 295,707 1,813,863
Inventories................................................. 657,786 4,434,204
Other current assets........................................ 59,335 101,775
Property and equipment...................................... 323,413 758,356
Intangibles and other assets................................ 1,739,756 13,183,033
Deferred income tax asset................................... -- 734,082
Accounts payable and accrued expenses....................... (187,862) (1,525,313)
---------- -----------
Purchase price.................................... $2,915,820 $19,500,000
========== ===========
</TABLE>
The following unaudited pro forma summary combines the results of
operations of the Company with the acquisition of the Port Business of Strato as
if the acquisition had occurred at the beginning of 1996. Certain adjustments,
including interest expense on the acquisition debt, amortization of intangible
assets, removal of the non-recurring accretion of the value of put warrant
repurchase obligation and income tax effects, have been made to reflect the
impact of the purchase transactions. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of what would
have occurred had the
F-18
<PAGE> 76
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition been made at the beginning of the respective fiscal years, or of
results which may occur in the future.
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Sales....................................................... $ 21,661 $ 22,818
Net loss.................................................... (308) (505)
Loss per share -- basic and diluted......................... (0.03) (0.05)
</TABLE>
Pro forma earnings per share for the years ended December 31, 1996 and 1997
is calculated by dividing pro forma net income by the weighted average shares
outstanding of 9,149,080 and 9,419,450, respectively.
14. LOSS PER SHARE
The Company adopted the provisions of Financial Accounting Standards Board
Statement No. 128 "Earnings Per Share" ("FASB 128") in 1997. FASB 128 requires
the presentation of earnings (loss) per share computed as "basic" and "diluted".
There are no differences in the basic and diluted computations for the periods
presented herein. A reconciliation of the denominator is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding................... 9,143,758 9,419,080 9,419,450
Shares assumed issued under the warrants (Note 8)..... -- -- --
Antidilution features of certain shareholders (Note
8).................................................. -- -- --
--------- --------- ---------
Weighted average shares outstanding used to compute
loss per share...................................... 9,143,758 9,419,080 9,419,450
========= ========= =========
</TABLE>
The Company had warrants to purchase common stock outstanding in 1995, 1996
and 1997. Inclusion of the warrants in 1995 and 1996 in weighted average shares
outstanding for diluted EPS would be anti-dilutive due to losses in those years.
Warrants outstanding at December 31, 1997 (see Notes 6 and 8) are convertible to
an estimated 765,000 shares (335,762 on a weighted average basis). Additionally,
if included in the diluted EPS calculation, $8,000,000 would be added to the
numerator as expenses recorded in 1997 associated with the warrants. These
calculations would also result in an anti-dilutive effect and, therefore, are
excluded. A shareholder has anti-dilutive rights which call for a constant 1.99%
ownership. Should such warrant be exercised, shares would also be issued to
maintain this 1.99% ownership percentage. This feature is also anti-dilutive for
all years presented.
15. FINANCIAL INSTRUMENTS
Financial instruments consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Accounts receivable -- trade, net..... $ 959,093 $ 959,093 $ 3,720,031 $ 3,720,031
Accounts payable...................... 685,795 685,795 1,726,395 1,726,395
Long-term debt and non-compete
payable............................. 6,879,889 7,055,206 27,729,874 27,864,642
Put warrant repurchase obligation..... -- -- 11,000,000 11,000,000
</TABLE>
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The carrying amounts reported for the credit facility and a portion
of the other long-term debt approximate fair value because the underlying
instruments are at variable interest rates which reprice frequently. Fair value
for the fixed rate long term debt was estimated using either quoted market
prices for the same or similar issues or the current rates offered to the
Company for debt with similar maturities. The
F-19
<PAGE> 77
HORIZON MEDICAL PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisition Note and the non-compete payable have been recorded at fair value
using either the market prices for the same or similar issues or the current
rates offered to the Company for debt with similar maturities.
16. ANTICIPATED INITIAL PUBLIC OFFERING
The Company's Board of Directors has authorized management to pursue an
initial public offering of the Company's common stock. In anticipation of an
initial public offering, the Company's board of directors increased the number
of authorized common shares to 50,000,000 and preferred shares to 5,000,000 and
effected an approximate 92.42-for-one stock split. The par value of the common
stock remains unchanged. This transaction has been recorded herein in the year
ended December 31, 1997. All share and per share amounts have been restated
retroactively herein to reflect the stock split except with respect to periods
presented in the consolidated statements of shareholders' deficit prior to
December 31, 1997.
F-20
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Strato/Infusaid Inc.
We have audited the accompanying balance sheets of Strato/Infusaid Inc.
(the "Company") as of December 31, 1995, 1996, and June 30, 1997, and the
related statements of operations, shareholder's equity, and cash flows for the
years ended December 31, 1995 and 1996 and the six months ended 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 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 Strato/Infusaid Inc. as of
December 31, 1995 and 1996 and June 30, 1997, and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
September 15, 1997, except
for June 30, 1997 data, as to
which the date is March 21, 1998
F-21
<PAGE> 79
STRATO/INFUSAID INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Accounts receivable -- trade, less allowance for
doubtful accounts of $150,388, $102,442 and $111,672
in 1995, 1996, and 1997, respectively................ $ 3,203,878 $ 2,923,899 $ 2,790,470
Inventories............................................ 9,125,346 9,979,985 10,108,995
Prepaid expenses and other assets...................... 179,295 244,580 576,940
Deferred taxes......................................... 2,717,658 1,757,460 1,799,522
----------- ----------- ------------
Total current assets......................... 15,226,177 14,905,924 15,275,927
Property and equipment, net............................ 3,360,215 2,772,079 2,327,550
Intangible assets, net................................. 8,127,695 7,680,398 7,457,149
Deferred taxes......................................... 471,187 306,685 231,855
----------- ----------- ------------
Total assets................................. $27,185,274 $25,665,086 $ 25,292,481
=========== =========== ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable....................................... $ 1,152,408 $ 997,147 $ 886,669
Accrued sales returns and allowances................... 404,202 404,202 404,202
Accrued wages and benefits............................. 626,236 635,348 580,924
Accrued liabilities.................................... 166,775 188,700 46,394
----------- ----------- ------------
Total liabilities............................ 2,349,621 2,225,397 1,918,189
----------- ----------- ------------
Commitments and contingencies (Note 8)
Common stock, $.01 par value, 300,000 shares
authorized, issued, and outstanding in 1995 and 1996,
respectively......................................... 3,000 3,000 3,000
Additional paid-in capital............................. 64,610,571 64,610,571 64,610,571
Advances from parent (Note 10)......................... 41,550,605 45,112,878 47,441,773
Accumulated deficit.................................... (81,328,523) (86,286,760) (88,681,052)
----------- ----------- ------------
Total shareholder's equity................... 24,835,653 23,439,689 23,374,292
----------- ----------- ------------
Total liabilities and shareholder's equity... $27,185,274 $25,665,086 $ 25,292,481
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 80
STRATO/INFUSAID INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE 30,
1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales........................... $21,225,142 $19,595,940 $ 9,327,908 $ 8,070,086
Cost of sales................... 8,840,877 9,257,372 4,239,099 3,531,525
----------- ----------- ----------- -----------
Gross profit.......... 12,384,265 10,338,568 5,088,809 4,538,561
----------- ----------- ----------- -----------
Selling, general, and
administrative expenses....... 10,433,801 9,758,359 4,446,431 2,756,992
Selling, general, and
administrative
expenses -- related party..... 2,662,000 2,825,000 1,565,000 2,405,000
Research and development
expenses...................... 7,522,000 5,797,000 2,915,000 3,083,000
----------- ----------- ----------- -----------
Total operating
expenses............ 20,617,801 18,380,359 8,926,431 8,244,992
----------- ----------- ----------- -----------
Operating loss........ (8,233,536) (8,041,791) (3,837,622) (3,706,431)
Other expenses, net............. (359,471) (40,813) (215,039) (193,494)
----------- ----------- ----------- -----------
Loss before income tax
benefit............. (8,593,007) (8,082,604) (4,052,661) (3,899,925)
Income tax benefit.............. 3,334,815 3,124,367 1,569,870 1,505,633
----------- ----------- ----------- -----------
Net loss.............. $(5,258,192) $(4,958,237) $(2,482,791) $(2,394,292)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 81
STRATO/INFUSAID INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE 30,
1997
<TABLE>
<CAPTION>
ADDITIONAL ADVANCES
NUMBER OF COMMON PAID-IN FROM ACCUMULATED
SHARES STOCK CAPITAL PARENT DEFICIT TOTAL
--------- ------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994........ 300,000 $3,000 $64,610,571 $37,545,040 $(76,070,331) $26,088,280
Net advances from parent.......... 4,005,565 4,005,565
Net loss.......................... (5,258,192) (5,258,192)
------- ------ ----------- ----------- ------------ -----------
Balance, December 31, 1995........ 300,000 3,000 64,610,571 41,550,605 (81,328,523) 24,835,653
Net advances from parent.......... 3,562,273 3,562,273
Net loss.......................... (4,958,237) (4,958,237)
------- ------ ----------- ----------- ------------ -----------
Balance, December 31, 1996........ 300,000 3,000 64,610,571 45,112,878 (86,286,760) 23,439,689
Net advances from parent.......... 2,328,895 2,328,895
Net loss.......................... (2,394,292) (2,394,292)
------- ------ ----------- ----------- ------------ -----------
Balance, June 30, 1997............ 300,000 $3,000 $64,610,571 $47,441,773 $(88,681,052) $23,374,292
======= ====== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 82
STRATO/INFUSAID INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THE SIX MONTHS ENDED JUNE 30,
1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(5,258,192) $(4,958,237) $(2,482,791) $(2,394,292)
----------- ----------- ----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation........................... 816,945 816,753 373,373 484,090
Amortization........................... 447,297 447,297 223,249 223,249
Provision for doubtful accounts........ 9,230 20,000 -- --
Deferred income taxes.................. 965,555 1,124,700 433,649 32,768
Changes in operating assets and
liabilities, net
Accounts receivable -- trade......... 640,291 259,979 101,996 133,429
Inventories.......................... (390,309) (854,639) (917,544) (129,010)
Prepaid expenses and other assets.... 157,037 (65,285) 47,083 (332,260)
Accounts payable..................... (58,217) (155,261) 46,905 (110,478)
Accrued expenses..................... (61,747) 31,037 (11,385) (196,730)
----------- ----------- ----------- -----------
Net cash used in operating
activities...................... (2,732,110) (3,333,656) (2,185,465) (2,289,334)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures...................... (1,273,455) (228,617) (106,809) (39,561)
----------- ----------- ----------- -----------
Net cash used in investing
activities...................... (1,273,455) (228,617) (106,809) (39,561)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net advances from parent.................. 4,005,565 3,562,273 2,292,274 2,328,895
----------- ----------- ----------- -----------
Net cash provided by financing
activities...................... 4,005,565 3,562,273 2,292,274 2,328,895
----------- ----------- ----------- -----------
Net change in cash and cash
equivalents..................... -- -- -- --
Cash and cash equivalents, beginning of
year...................................... -- -- -- --
----------- ----------- ----------- -----------
Cash and cash equivalents, end of year...... $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 83
STRATO/INFUSAID INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND PRESENTATION
Strato/Infusaid, Inc. (the "Company") produces implantable infusion pumps
and vascular access products such as ports and catheters which are primarily
used in chemotherapy and long-term pain management. The Company was formed from
the merger of Strato Medical Products, Inc. ("Strato") and Infusaid, Inc.
("Infusaid") in January 1994 and is a wholly-owned subsidiary of Pfizer Inc.
("Pfizer"). As discussed in Note 10, the Company was sold in July 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition -- The Company records sales upon shipment of the
related product, net of any discounts.
Cash Management Program -- The Company participates in a consolidated cash
management program with its parent. The program provides for the daily
replenishment of major bank accounts for check clearing requirements.
Accordingly, the Company maintains a cash balance of zero per books and
outstanding checks that had not been paid by the banks are included in the
intercompany account.
Inventories -- Implantable infusion pumps and vascular access products such
as ports and catheters are valued at the lower of average cost or market.
Property and Equipment -- Property and equipment are carried at cost, less
accumulated depreciation, and include expenditures that substantially increase
the useful lives of existing assets. Maintenance, repairs, and minor renovations
are charged to expense as incurred. Upon sale, retirement, or other disposition
of these assets, the cost and related accumulated depreciation are removed from
the respective accounts, and any gain or loss on the disposition is included in
net loss.
The Company provides for depreciation of property and equipment using
primarily the straight-line method designed to depreciate costs over estimated
useful lives as shown below:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
------------
<S> <C>
Item:
Machinery and equipment................................... 8 - 12 years
Office equipment.......................................... 3 - 12 years
</TABLE>
Intangible Assets -- Goodwill, the excess of the purchase price over the
fair value of the net assets acquired in Pfizer's purchase of Strato, is being
amortized on a straight-line basis over 40 years. Patents are being amortized on
a straight-line basis over the lives of the related patents, which are primarily
13.5 years.
Long-Lived Assets -- The Company reviews long-lived assets for impairment
whenever events or changes in business circumstances occur that indicate that
the carrying amount of the assets may not be recoverable. The Company assesses
the recoverability of long-lived assets held and to be used and measures the
impairment, if any, based on a fair value approach. The Company had no such
impairments for the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1997, respectively.
Research and Development -- Research and development costs are charged to
expense as incurred and were $7,522,000, $5,797,000 and $3,083,000 for the years
ended December 31, 1995 and 1996, and the six months ended June 30, 1997,
respectively.
Income Taxes -- The Company is included in the consolidated federal tax
return of its parent, Pfizer. The consolidated income taxes are allocated to the
Company under an agreement with its parent based on its contribution to the
consolidated tax provision or benefit. Current federal tax provisions and
benefits are settled through the intercompany account. The current federal tax
benefits of $3,334,815, $3,124,367, and $1,505,633
F-26
<PAGE> 84
STRATO/INFUSAID INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
were used to reduce the advances from parent in 1995 and 1996, and the six
months ended June 30, 1997, respectively.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the differences between the financial statement basis and
the tax basis of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Such temporary
differences are principally related to using different methods of depreciating
property and equipment and amortizing intangible assets for book and tax
purposes.
Financial Instruments -- The carrying amounts reported in the balance
sheets for cash and cash equivalents, accounts receivable, and accounts payable
approximate fair value because of the immediate or short-term maturity of these
financial instruments.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements -- The unaudited statements of
operations and cash flows for the six months ended June 30, 1996, in the opinion
of management, have been prepared on the same basis as the audited financial
statements and include all significant adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the results of the
interim period.
3. INVENTORIES
A summary of inventories at December 31, 1995 and 1996 and June 30, 1997 is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Raw materials................................... $ 5,298,628 $ 5,391,001 $ 4,801,413
Work in process................................. 1,892,401 2,263,043 2,865,609
Finished goods.................................. 4,674,427 5,276,378 5,466,523
----------- ----------- -----------
11,865,456 12,930,422 13,133,545
Less inventory reserves......................... (2,740,110) (2,950,437) (3,024,550)
----------- ----------- -----------
$ 9,125,346 $ 9,979,985 $10,108,995
=========== =========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 and 1996 and June
30, 1997 is as follows:
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment......................... $ 3,839,629 $ 3,981,367 $ 2,511,928
Office equipment................................ 5,129,274 5,216,153 3,270,625
----------- ----------- -----------
8,968,903 9,197,520 5,782,553
Less accumulated depreciation................... (5,608,688) (6,425,441) (3,455,003)
----------- ----------- -----------
$ 3,360,215 $ 2,772,079 $ 2,327,550
=========== =========== ===========
</TABLE>
F-27
<PAGE> 85
STRATO/INFUSAID INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
A summary of intangible assets at December 31, 1995 and 1996 and June 30,
1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Goodwill........................................ $ 5,820,000 $ 5,820,000 $ 5,820,000
Patents......................................... 3,915,000 3,915,000 3,915,000
----------- ----------- -----------
9,735,000 9,735,000 9,735,000
Less accumulated amortization................... (1,607,305) (2,054,602) (2,277,851)
----------- ----------- -----------
$ 8,127,695 $ 7,680,398 $ 7,457,149
=========== =========== ===========
</TABLE>
6. INCOME TAXES
The benefit (provision) for income taxes for the years ended December 31,
1995 and 1996 and the six months ended June 30, 1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current......................................... $ 4,300,370 $ 4,249,067 $ 1,538,401
Deferred........................................ (965,555) (1,124,700) (32,768)
----------- ----------- -----------
$ 3,334,815 $ 3,124,367 $ 1,505,633
=========== =========== ===========
</TABLE>
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities at December 31, 1995 and 1996 and June 30, 1997 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Allowance for doubtful accounts.................... $ 172,129 $ 151,972 $ 216,875
Inventory reserves................................. 1,151,942 1,254,454 1,271,520
Intangible assets.................................. 429,572 195,830 78,960
Property and equipment............................. 41,615 110,855 152,895
Accrued liabilities and other...................... 1,393,587 351,034 311,127
---------- ---------- ----------
$3,188,845 $2,064,145 $2,031,377
========== ========== ==========
</TABLE>
No valuation allowance was recorded by the Company against the net deferred
tax asset at December 31, 1995 or 1996 or June 30, 1997 as the Company is
compensated for the use of its net operating losses by Pfizer with a direct
reduction to the intercompany payable. Pfizer management feels that it is more
likely than not that the net deferred tax assets will be realized through its
future consolidated taxable income.
The benefit for income taxes differs from the amount that would be computed
by applying the federal statutory rate of 34% to pre-tax earnings for the years
ended December 31, 1995 and 1996 and for the six months ended June 30, 1997 as
indicated below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income tax benefit at the statutory federal income
tax rate......................................... $2,921,622 $2,748,085 $1,325,975
Increase (decrease) resulting from:
Non-deductible meals and entertainment expense... (33,549) (38,893) (19,446)
Non-deductible amortization of goodwill.......... (53,481) (53,481) (26,740)
State tax benefit................................ 500,223 468,656 225,844
---------- ---------- ----------
$3,334,815 $3,124,367 $1,505,633
========== ========== ==========
</TABLE>
F-28
<PAGE> 86
STRATO/INFUSAID INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As discussed in Note 2, income taxes are allocated to the Company under an
agreement with its parent based on its contribution to the consolidated
provision or benefit. Current tax provisions are settled through the
intercompany account. The following unaudited pro forma information sets forth
the income tax benefit and net loss of the Company calculated on a separate
company basis for the years ended December 31, 1995 and 1996 and the six months
ended June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income tax benefit.............................. -- -- --
=========== =========== ===========
Net loss........................................ $(8,593,007) $ 8,082,604 $(3,899,925)
=========== =========== ===========
</TABLE>
Additionally, on a separate company basis the above net deferred tax assets
would not be deemed recoverable which would result in an increase in accumulated
deficit of $3,188,845, $2,064,145 and $2,031,377 in 1995, 1996 and 1997,
respectively.
7. DEFINED BENEFIT AND CONTRIBUTION PLANS
The Company's employees participate in the Pfizer Retirement Annuity Plan
sponsored by Pfizer. Benefits under the plan are generally based on years of
service and employee career earnings. Participants become fully vested after
five years of employment. The Company recognized pension expense related to this
plan of approximately $212,000, $800, and $29,000 for the years ended December
31, 1995 and 1996 and the six months ended June 30, 1997, respectively.
In addition, the Company's employees are eligible to participate in a
defined contribution 401(k) plan maintained by Pfizer. Company matching
contributions to the plan are dollar for dollar for the first 2% of employee
contributions and 50% for the next 4% of employee contributions. Contribution
expense recognized by the Company under this plan totaled approximately
$267,000, $282,000, and $84,000 for the years ended December 31, 1995 and 1996
and the six months ended June 30, 1997, respectively.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office and equipment under operating lease agreements
expiring in various years through 1999. Rent expense under various operating
leases was approximately $635,000, $518,000, and $247,000 for the years ended
December 31, 1995 and 1996 and the six months ended June 30, 1997, respectively.
Approximate minimum future rental payments under operating leases with remaining
terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997........................................................ $423,000
1998........................................................ 423,000
1999........................................................ 70,000
--------
$916,000
========
</TABLE>
The Company is involved in a number of claims and litigation, including
product liability claims and litigation considered normal in the nature of its
business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the financial position or
results of operations of the Company.
The Company participates in Pfizer's consolidated self-insured risk
management program. Pfizer charges the Company, on a monthly basis, for claims
expense incurred on the Company's behalf including an amount for an estimate of
claims incurred but not reported.
Effective January 1, 1995, the Company entered into a license agreement
with an individual (the Licensor) for the right to manufacture and sell certain
products covered by the Licensor's patents or derived from the Licensor's
confidential information agreement. Payments under the agreement vary, depending
upon
F-29
<PAGE> 87
STRATO/INFUSAID INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the purchaser, and range from 5% to 15% of the Company's net sales of the
covered products. Such payments shall continue until the expiration date of each
corresponding Licensed Patent Right covering each product under the agreement.
Payments under this license agreement totaled approximately $38,600, $4,900, and
$5,800 for the years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997, respectively.
9. RELATED-PARTY TRANSACTIONS
As previously noted, the Company is a wholly owned subsidiary of Pfizer. As
such, Pfizer provides certain administrative services to the Company including
legal services, insurance administration, corporate tax preparation and
submission, regulatory consulting, employee benefits administration, and payroll
data processing. Allocated costs associated with these services are charged
directly to the Company by Pfizer and are reflected in the Company's financial
statements. Such costs have been allocated to the Company by Pfizer based on the
Company's size and its historical results with regard to the related expense
categories. It is management's opinion that these allocated costs, while not
unreasonable, may not be indicative of the costs that would have been incurred
by the Company if the Company had performed these functions or received such
services as a stand-alone entity. The approximate amounts of the material
related party transactions for the years ended December 31, 1995 and 1996 and
the six months ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Product liability and business insurance....... $ 417,000 $1,020,000 $ 682,000
Group health insurance......................... 840,000 662,000 336,000
Legal expense.................................. 1,405,000 1,143,000 1,387,000
---------- ---------- ----------
$2,662,000 $2,825,000 $2,405,000
========== ========== ==========
</TABLE>
10. SUBSEQUENT EVENT -- SALE OF THE COMPANY
On July 15, 1997, Horizon Medical Products, Inc. ("Horizon") and Arrow
International, Inc. ("Arrow"), two unrelated parties, completed a joint purchase
agreement to acquire all of the stock of the Company from Pfizer for a purchase
price of $21,250,000 plus the assumption by Horizon and Arrow of certain of the
Company's trade debts and accrued expenses. The advances from parent were
forgiven by Pfizer and converted to additional paid-in capital prior to the sale
of the Company.
F-30
<PAGE> 88
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The accompanying Unaudited Pro Forma Condensed Consolidated Financial
Statements reflect the consolidated financial position of Horizon Medical
Products, Inc. (the "Company") as of December 31, 1997 and the consolidated
results of its operations for the year ended December 31, 1997 after giving pro
forma effect to the Consolidated Statement of Operations for (i) the purchase of
the port business of Strato/Infusaid Inc. (the "Strato/Infusaid Acquisition")
and (ii) the initial public offering of Common Stock by the Company (the
"Offering") and the application of the net proceeds thereof as though they
occurred January 1, 1997 and to the Consolidated Balance Sheet after giving
effect to the Offering and application of the net proceeds thereof as though it
occurred December 31, 1997. The Unaudited Pro Forma Condensed Consolidated
Financial Statements are qualified in their entirety by, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the respective historical financial statements of
the Company and Strato/Infusaid Inc. and related notes thereto included
elsewhere in this Prospectus. The unaudited pro forma information does not
purport to be indicative of actual results that would have been achieved or the
financial position of the Company had the Strato/Infusaid Acquisition and
Offering actually been completed as of the dates indicated in the accompanying
notes thereto nor which may be achieved in the future.
F-31
<PAGE> 89
HORIZON MEDICAL PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
STRATO
JANUARY 1, 1997
THROUGH PRO FORMA OFFERING PRO FORMA
COMPANY JULY 15, 1997(A) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- ----------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $ 15,798 $7,020 $ -- $ 22,818 $ -- $ 22,818
Cost of goods sold.......... 6,273 2,687 (300)(b) 8,660 -- 8,660
--------- ------ ------- --------- ------- -----------
Gross profit................ 9,525 4,333 300 14,158 -- 14,158
Selling, general and 124(c)
administrative expenses... 6,111 2,927 (1,506)(d) 7,656 455(e) 8,111
--------- ------ ------- --------- ------- -----------
Operating income... 3,414 1,406 1,682 6,502 (455) 6,047
Interest income (expense)... (3,971) -- (1,994)(f) (5,965) 6,020(g) 55
Non-recurring accretion of
value of put warrant
repurchase obligation..... (8,000) -- 8,000(h) -- -- --
Other income................ 70 -- -- 70 -- 70
--------- ------ ------- --------- ------- -----------
Income (loss) before income
taxes..................... (8,487) 1,406 7,688 607 5,565 6,172
Income tax expense.......... (320) (622) (170)(i) (1,112) (1,267)(i) (2,379)
--------- ------ ------- --------- ------- -----------
Net income (loss)........... $ (8,807) $ 784 $ 7,518 $ (505) $ 4,298 $ 3,793
========= ====== ======= ========= ======= ===========
Earnings (loss) per share --
basic and diluted......... $ (0.93) $ (0.05)(j) $ 0.30(j)
========= ========= ===========
Weighted average number of
common shares outstanding
basic and diluted......... 9,419,450 9,419,450(k) 12,800,000(k)
========= ========= ===========
</TABLE>
F-32
<PAGE> 90
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS ADJUSTED
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
COMPANY ADJUSTMENTS AS ADJUSTED
-------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 2,894 $ 3,947(1) $ 6,841
Accounts receivable, net............................ 3,720 -- 3,720
Inventories......................................... 5,406 -- 5,406
Prepaid expenses and other current assets........... 367 -- 367
Deferred taxes...................................... 569 -- 569
-------- -------- --------
Total current assets........................ 12,956 3,947 16,903
Property and equipment, net......................... 2,342 2,342
Intangible assets, net.............................. 15,726 (262)(n) 15,464
Deferred taxes...................................... 255 -- 255
Other assets........................................ 298 -- 298
-------- -------- --------
Total assets................................ $ 31,577 $ 3,685 $ 35,262
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................... $ 1,726 $ -- $ 1,726
Accrued liabilities................................. 1,682 -- 1,682
Income taxes payable................................ 410 -- 410
Current portion of long-term debt................... 1,960 (1,761)(l) 199
Current portion of payable under non-compete and
consulting agreements............................ 336 (336)(l) --
-------- -------- --------
Total current liabilities................... 6,114 (2,097) 4,017
Long-term debt, net of current portion................ 23,971 (23,928)(l) 43
Payable under non-compete and consulting agreements,
net of current portion.............................. 1,463 (1,463)(l) --
Put warrant repurchase obligation..................... 11,000 (11,000)(m) --
Other liabilities..................................... 179 179
-------- -------- --------
Total liabilities........................... 42,727 (38,488) 4,239
-------- -------- --------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock..................................... -- -- --
Common stock........................................ 9 4(l) 13
Additional paid-in capital.......................... -- 9,900(m) 42,497
32,597(l)
Shareholders' notes receivable...................... (398) -- (398)
1,100(m)
Accumulated deficit................................. (10,761) (1,428)(n) (11,089)
-------- -------- --------
Total shareholders' equity (deficit)........ (11,150) 42,173 31,023
-------- -------- --------
Total liabilities and shareholders' equity
(deficit)................................. $ 31,577 $ 3,685 $ 35,262
======== ======== ========
</TABLE>
F-33
<PAGE> 91
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(IN THOUSANDS)
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1997 gives effect to the consolidated results of
operations for the year ended December 31, 1997 as if the Strato/Infusaid
Acquisition and the Offering occurred on January 1, 1997. The unaudited
condensed consolidated balance sheet gives effect to the financial position of
the Company as of December 31, 1997 as if the Offering occurred at December 31,
1997.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997, ARE AS FOLLOWS:
(a) Represents the historical operating results of the port business
of Strato for the period January 1, 1997 through the acquisition
date of July 15, 1997. The pump business of Strato, which was sold
immediately after the acquisition, is excluded. The pump business
had net sales, gross profit, selling, general and administrative
expenses and loss before income tax for the period of $2,355,
$587, $7,478 and $6,891, respectively.
(b) Cost of goods sold has been reduced to eliminate overhead cost
allocations which have not been incurred on an ongoing basis
($300).
(c) Reflects the net increase in amortization ($124) of the cost over
fair value of net assets acquired over a period of 30 years.
(d) Selling, general and administrative expenses have been reduced to
eliminate salaries and related benefits from sales personnel
($1,100) and administrative personnel ($406) not retained
following the acquisition.
(e) Reflects the compensation which the Chief Executive Officer and
the President of the Company will begin to receive after
completion of the Offering ($455).
(f) Reflects the increase in interest expense ($1,994) resulting from
additional debt of $23,500 with variable interest at rates of 9.8%
on $21,500 during the period and to 10.8% on $2,000 during the
period associated with the financing of the Strato/Infusaid
Acquisition and amortization of related debt issue costs. A change
in interest rate of 1/8% would have a $29 impact.
(g) Reflects the reduction of interest expense ($6,020) resulting from
the application of the net proceeds of this Offering to repay debt
of the Company.
(h) Reflects the removal of the non-recurring accretion of the value
of put warrant repurchase obligation associated with the Company's
credit facility ($8,000). See Notes 6 and 8 of the Consolidated
Financial Statements of the Company.
(i) Reflects applicable income tax effects of adjustments.
(j) Earnings (loss) per common share is calculated by dividing pro
forma and as adjusted net income by weighted average number of
common shares outstanding. Such pro forma and as adjusted net
income (loss) reflects the impact of the adjustments above.
(k) Weighted average number of common shares outstanding is calculated
based upon the relevant weighted average shares outstanding
assuming anti-dilution features which exist and assuming an
offering of 2,600,000 shares by the Company for As Adjusted.
PRO FORMA ADJUSTMENTS FOR THE UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEET AS OF DECEMBER 31, 1997, ARE AS FOLLOWS:
(l) Reflects receipt and application of the net proceeds to the
Company, including repayment of indebtedness, from the sale of common stock
in this Offering.
(m) Reflects the rescission of the put obligation associated with the
NationsCredit warrant and the anticipated exercise of the warrant.
(n) The use of net proceeds of the Offering to repay outstanding
indebtedness will result in an immediate write-off of $1,428 representing
unamortized debt issue costs existing at December 31, 1997.
F-34
<PAGE> 92
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 25
Management............................ 38
Certain Transactions.................. 42
Principal and Selling Shareholders.... 45
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 50
Underwriting.......................... 51
Certain U.S. Federal Tax
Considerations for Non-U.S. Holders
of Common Stock..................... 52
Notice to Canadian Residents.......... 55
Legal Matters......................... 56
Experts............................... 56
Index to Financial Statements......... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, 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.
======================================================
HORIZON MEDICAL
PRODUCTS, INC.
(HMP(R) LOGO)
3,473,000 Shares
Common Stock
($.001 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY
SECURITIES LLC
------------------------------------------------------
<PAGE> 93
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of certain costs and
expenses incurred in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,700
NASD filing fee............................................. 6,000
Nasdaq National Market listing fee.......................... *
Blue Sky fees and expenses (including counsel fees)......... 12,500
Printing and engraving expenses............................. *
Legal fees and expenses..................................... 360,000
Accounting fees and expenses................................ *
Registrar and Transfer Agent's fees and expenses............ *
Miscellaneous............................................... *
--------
Total............................................. *
========
</TABLE>
- ---------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and Nasdaq National Market listing fee are estimated. The
Company intends to pay all expenses of registration with respect to shares being
sold by the Selling Shareholders hereunder, with the exception of underwriting
discounts and commissions.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Code permits a corporation to eliminate or limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of duty of care or other duty as a director, provided that no
provisions shall eliminate or limit the liability of a director.
The Company's Bylaws also provide that the Company shall 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 (including any action by or in the
right of the Company), by reason of the fact that such person is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including reasonable
attorney's fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the Company
(and with respect to any criminal action or proceeding, if such person had no
reasonable cause to believe such person's conduct was unlawful), to the maximum
extent permitted by, and in the manner provided by, the Georgia Code. In
addition, the Bylaws provide that the Company will advance to its directors or
officers reasonable expenses of any such proceeding.
Notwithstanding any provision of the Company's Articles and Bylaws to the
contrary, the Georgia Code provides that the Company shall not indemnify a
director or officer for any liability incurred in a proceeding in which the
director or officer is adjudged liable to the Company or is subjected to
injunctive relief in favor of the Company: (i) for any appropriation, in
violation of his duties, of any business opportunity of the Company; (ii) for
acts or omissions which involve intentional misconduct or a knowing violation of
law; (iii) for unlawful corporate distributions; or (iv) for any transaction
from which the director or officer received an improper personal benefit.
II-1
<PAGE> 94
The Company has purchased insurance with respect to, among other things,
any liabilities that may accrue under the statutory provisions referred to
above.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Company against certain civil
liabilities that may be incurred in connection with the Offering, including
certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 17, 1995, the Company issued to Cordova 933,451 shares of the
Company's Class A Common Stock (the "Cordova Shares") for an aggregate $10.00,
pursuant to the exercise by Cordova of a warrant (the "Cordova Warrant"). The
Company granted the Cordova Warrant to Cordova in 1994 in connection with a $1.0
million loan made to the Company by Cordova. The Cordova Warrant and Cordova
Shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act (the "Section 4(2) Exemption").
On September 25, 1995, in connection with a $1.5 million loan to the
Company from Sirrom, the Company issued to Sirrom a warrant (the "Sirrom
Warrant") for the purchase of 876,705 shares of the Company's Class A Common
Stock. On July 15, 1997, the Company redeemed the Sirrom Warrant in full. The
Sirrom Warrant was issued pursuant to the Section 4(2) Exemption.
On December 15, 1995, the Company issued 83,179 shares of Class A Common
Stock to Roddy J.H. Clark, a former officer of the Company for an aggregate
$15.00. The shares were issued to Mr. Clark pursuant to the exercise of Mr.
Clark's rights under a Stock Warrant Agreement dated May 1, 1993 between the
Company and Mr. Clark. The issuance to Mr. Clark was made under the Section 4(2)
Exemption.
On March 19, 1996 and in April 1998 Cordova exercised certain anti-dilution
rights relating to the Cordova Warrant (and the shares issued pursuant thereto)
to purchase 1,756 shares and 15,550 shares, respectively, of the Company's Class
A Common Stock for $.001 per share, for an aggregate purchase price of $17.31.
The issuances to Cordova were made pursuant to the Section 4(2) Exemption.
Pursuant to the SAR Plan, from June 1995 through November 1997, the Company
granted an aggregate 124,000 SARs to eligible employees and eligible sales
representatives based on their achievement of certain performance targets. At
March 23, 1998, 99,600 SARs were outstanding. Subject to consummation of the
Offering, (i) all outstanding SARs will be cancelled, (ii) the options to
purchase an aggregate 99,600 shares of Common Stock under the Stock Incentive
Plan will be granted to holders of SARs who are still employed by the Company
upon consummation of the Offering (i.e., the SAR Conversion Options) and (iii)
cash compensation equal to one dollar will be paid for each SAR held by holders
of SARs who are not employed by the Company upon consummation of the Offering.
The SAR Conversion Options will be exercisable, in increments of 25% per year
over four years, commencing on the first anniversary of the option grant date,
at an exercise price per share equal to the initial public offering price. The
foregoing issuances will be made in reliance on Rule 701 promulgated under the
Securities Act (the "Rule 701 Exemption").
The Company will grant under the Stock Incentive Plan, subject to
consummation of the Offering, options to purchase an aggregate of (i) 40,000
shares of Common Stock to Outside Directors (i.e., the Outside Directors'
Options) and (ii) 10,000 shares of Common Stock to J. Ronald Hager, an executive
officer of the Company (i.e., the Executive's Options). The Company intends to
rely on the Rule 701 Exemption for such issuances.
On July 15, 1997 the Company issued to NationsCredit a warrant to purchase
765,000 shares of Common Stock in reliance on the Section 4(2) Exemption.
Concurrently with the consummation of the Offering, the Company will issue to
NationsCredit 765,000 shares of Common Stock upon exercise of warrants to
purchase such stock for an aggregate $765. The issuance to NationsCredit will be
made in reliance on the Section 4(2) Exemption.
II-2
<PAGE> 95
On March 20, 1998 the Company issued to Premier Purchasing Partners, L.P. a
Warrant to purchase up to 500,000 shares of Common Stock, subject to certain
vesting requirements, in reliance on the Section 4(2) Exemption.
All of the foregoing issuances were conducted without an underwriter or
placement agent and give effect to an approximate 92.42-for-one stock split to
be effected upon consummation of the Offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement between the Company and
Credit Suisse First Boston Corporation, BancAmerica
Robertson Stephens and NationsBanc Montgomery Securities LLC
as Representatives of the several underwriters**
3.1 -- Amended and Restated Articles of Incorporation of the
Company*
3.2 -- Amended and Restated Bylaws of the Company*
4.1 -- See Articles II, III, VII and IX of the Amended and Restated
Articles of Incorporation filed as Exhibit 3.1 and Articles
I, VII, VIII and IX of the Amended and Restated Bylaws filed
as Exhibit 3.2*
4.2 -- Specimen Common Stock Certificate**
5.1 -- Opinion of King & Spalding (including consent)**
10.1 -- Promissory Note dated September 28, 1995 made by Marshall B.
Hunt to the order of the Company in the principal amount of
$77,612.43, as amended by Amendment to Promissory Note dated
September 28, 1996*
10.2 -- Promissory Note dated September 28, 1995 made by William E.
Peterson, Jr. to the order of the Company in the principal
amount of $77,612.43, as amended by Amendment to Promissory
Note dated September 28, 1996*
10.3 -- Promissory Note dated September 28, 1995 made by Roy C.
Mallady, Jr. to the order of the Company in the principal
amount of $77,612.43*
10.4 -- Promissory Note dated October 12, 1995 made by Marshall B.
Hunt to the order of the Company in the principal amount of
$35,000.00, as amended by Amendment to Promissory Note dated
October 12, 1995*
10.5 -- Promissory Note dated October 12, 1995 made by William E.
Peterson, Jr. to the order of the Company in the principal
amount of $35,000.00, as amended by Amendment to Promissory
Note dated October 12, 1995*
10.6 -- Promissory Note dated October 12, 1995 made by Roy C.
Mallady, Jr. to the order of the Company in the principal
amount of $35,000.00, as amended by Amendment to Promissory
Note dated October 12, 1995*
10.7 -- Amended and Restated Secured Promissory Note dated July 15,
1997 in the original principal amount of $1.5 million made
by the Company in favor of NationsCredit Commercial
Corporation with Acknowledgment and Consent of Guarantor*
10.8 -- Credit Agreement dated as of July 15, 1997 among the
Company, the Lenders referred to therein and NationsCredit
Commercial Corporation, as Agent (together with the exhibits
thereto)*
10.9 -- Lease Agreement dated as of July 1, 1996 between The
Development Authority of the City of Manchester and the
Company*
10.10 -- Lease Agreement dated as of August 29, 1997 between The
Development Authority of the City of Manchester and the
Company*
10.11 -- 1998 Stock Incentive Plan*
</TABLE>
II-3
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.12 -- Management Agreement dated as of January 1, 1995 between the
Company and Cardiac Medical, Inc., together with
Acknowledgment of Termination of Contract with CMI*
10.13 -- Loan Agreement dated as of September 25, 1995 between the
Company and Sirrom Capital Corporation
10.14 -- Stock Purchase Agreement dated June 20, 1997 among the
Company, Pfizer, Inc., Arrow International, Inc. and
Strato(R)/Infusaid(TM) Inc., as amended by Amendment to
Purchase Agreement, dated June 20, 1997
10.15 -- Asset Purchase and Stock Redemption Agreement dated as of
July 15, 1997 among the Company, Arrow International, Inc.
and Strato(R)/Infusaid(TM) Inc.
10.16 -- Asset Purchase Agreement dated October 24, 1995 by and among
the Company, Horizon Acquisition Corp. and NeoStar Medical
Technologies, Inc.
10.17 -- Secured Subordinated Note dated October 24, 1995 made by
Horizon Acquisition Corp. to the order of NeoStar Medical
Technologies, Inc. in the principal amount of $2,461,017, as
amended by Amendment to Secured Subordinated Note dated July
31, 1997
10.18 -- Agreement dated July 31, 1997 by and among Horizon
Acquisition Corp., the Company, NeoStar Holding, Inc.,
Joseph D. Pike, Thomas F. Darden, II, Williams W. Wells and
Lance J. Bronnenkant
10.19 -- Amendment to Security Agreement dated July 31, 1997 by and
among Horizon Acquisition Corp., NeoStar Holding, Inc.,
Joseph D. Pike, Thomas F. Darden, II, William W. Wells and
Lance J. Bronnenkant
10.20 -- Letter Agreement dated January 8, 1998 between Arrow
International, Inc. and the Company re: the Company's use of
the Norwood facility
10.21 -- Agreement dated January 13, 1995 between the Company and ACT
Medical, Inc.
10.22 -- Horizon Plastic Ports: Term Sheet, dated March 18, 1997
10.23 -- Letter Agreement 2 dated January 17, 1997 to Supply
Agreement between CarboMedics, Inc. and the Company, dated
February 17, 1993, as amended, Development Agreement, dated
February 17, 1993, by and between CarboMedics, Inc. and the
Company, as amended, and Equity Agreement, dated as of
February 17, 1993, by and between CarboMedics, Inc. and the
Company, as amended, together with Letter Agreement dated
February 17, 1993 between CarboMedics, Inc. and the Company
and the aforesaid Supply, Development and Equity Agreements
10.24 -- Agreement dated May 8, 1997 between the Company and Robert
Cohen**
10.25 -- Consulting and Services Agreement dated February 1, 1996
between the Company and Healthcare Alliance, Inc. as amended
10.26 -- Second Amended License Agreement dated January 1, 1995
between Dr. Sakharam D. Mahurkar and NeoStar Medical(R)
Technologies, Inc.**
10.27 -- License Agreement dated July 1995 between Dr. Sakharam D.
Mahurkar and Strato(R)/Infusaid(TM) Inc.**
10.28 -- Additional License Agreement dated January 1, 1997 between
Dr. Sakharam D. Mahurkar and the Company**
10.29 -- Atlanta Office Purchase Agreement**
10.30 -- Form of Employment Agreement between Marshall B. Hunt and
the Company**
10.31 -- Form of Employment Agreement between William E. Peterson,
Jr. and the Company**
10.32 -- Premier Warrant**
10.33 -- Premier Group Purchasing Agreement**
10.34 -- Letter Agreement dated January 29, 1998 between
NationsCredit Commercial Corporation and the Company
regarding the NationsCredit Warrant**
</TABLE>
II-4
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.35 -- Security Agreement dated as of September 25, 1995 between
Sirrom Capital Corporation and the Company
21.1 -- Subsidiaries of the Company*
23.1 -- Consent of King & Spalding (contained in Exhibit 5.1)**
23.2 -- Consent of Coopers & Lybrand L.L.P.
24. -- Power of Attorney*
27.1 -- Financial Data Schedule (for SEC filing purposes only)
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules:
The following financial statement schedule is furnished herewith:
Valuation and Qualifying Accounts for the years ended December 31,
1995, 1996 and 1997.
All other schedules for which provision is made in the applicable
accounting regulation of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act 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 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 the securities being
registered hereunder, 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 Securities Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as 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, 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-5
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Atlanta, State of Georgia, on March 23, 1998.
HORIZON MEDICAL PRODUCTS, INC.
By: /s/ MARSHALL B. HUNT
------------------------------------
Marshall B. Hunt
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARSHALL B. HUNT Chairman, Chief Executive March 23, 1998
- ----------------------------------------------------- Officer (Principal Executive
Marshall B. Hunt Officer) and Director
* Vice Chairman and Director March 23, 1998
- -----------------------------------------------------
Roy C. Mallady, Jr.
* President and Director March 23, 1998
- -----------------------------------------------------
William E. Peterson, Jr.
* Vice President of Finance March 23, 1998
- ----------------------------------------------------- (Principal Financial and
Mark A. Jewett Principal Accounting
Officer)
*By: /s/ MARSHALL B. HUNT
------------------------------------------------
Marshall B. Hunt
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 99
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the consolidated financial statements of
Horizon Medical Products, Inc. as of December 31, 1996 and 1997, and for each of
the three years in the period ended December 31, 1997, which consolidated
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
January 29, 1998
S-1
<PAGE> 100
SCHEDULE II
HORIZON MEDICAL PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
BEGINNING CHARGED TO ENDING
BALANCE EXPENSES WRITE OFFS DEDUCTIONS OTHER(1) BALANCE
--------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for returns and
doubtful accounts............. $ 7,426 $ -- $ -- $ 6,264 $ -- $ 1,182
Inventory Reserve................ -- -- -- -- -- --
Year ended December 31, 1996:
Allowance for returns and
doubtful accounts............. $ 1,162 $ 5,835 $ 7,806 $ -- $ -- $ 6,997
Inventory Reserve................ -- -- -- -- -- --
Year ended December 31, 1997:
Allowance for returns and
doubtful accounts............. $ 6,997 $ 58,916 $ -- $210,098 $452,424 $308,239
Inventory Reserve................ -- 125,000 225,118 -- 350,050 249,932
</TABLE>
- ---------------
(1) Other consists of allowances and reserves acquired through acquisitions.
S-2
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement between the Company and
Credit Suisse First Boston Corporation, BancAmerica
Robertson Stephens and NationsBanc Montgomery Securities LLC
as Representatives of the several underwriters**
3.1 -- Amended and Restated Articles of Incorporation of the
Company*
3.2 -- Amended and Restated Bylaws of the Company*
4.1 -- See Articles II, III, VII and IX of the Amended and Restated
Articles of Incorporation filed as Exhibit 3.1 and Articles
I, VII, VIII and IX of the Amended and Restated Bylaws filed
as Exhibit 3.2*
4.2 -- Specimen Common Stock Certificate**
5.1 -- Opinion of King & Spalding (including consent)**
10.1 -- Promissory Note dated September 28, 1995 made by Marshall B.
Hunt to the order of the Company in the principal amount of
$77,612.43, as amended by Amendment to Promissory Note dated
September 28, 1996*
10.2 -- Promissory Note dated September 28, 1995 made by William E.
Peterson, Jr. to the order of the Company in the principal
amount of $77,612.43, as amended by Amendment to Promissory
Note dated September 28, 1996*
10.3 -- Promissory Note dated September 28, 1995 made by Roy C.
Mallady, Jr. to the order of the Company in the principal
amount of $77,612.43*
10.4 -- Promissory Note dated October 12, 1995 made by Marshall B.
Hunt to the order of the Company in the principal amount of
$35,000.00, as amended by Amendment to Promissory Note dated
October 12, 1995*
10.5 -- Promissory Note dated October 12, 1995 made by William E.
Peterson, Jr. to the order of the Company in the principal
amount of $35,000.00, as amended by Amendment to Promissory
Note dated October 12, 1995*
10.6 -- Promissory Note dated October 12, 1995 made by Roy C.
Mallady, Jr. to the order of the Company in the principal
amount of $35,000.00, as amended by Amendment to Promissory
Note dated October 12, 1995*
10.7 -- Amended and Restated Secured Promissory Note dated July 15,
1997 in the original principal amount of $1.5 million made
by the Company in favor of NationsCredit Commercial
Corporation with Acknowledgment and Consent of Guarantor*
10.8 -- Credit Agreement dated as of July 15, 1997 among the
Company, the Lenders referred to therein and NationsCredit
Commercial Corporation, as Agent (together with the exhibits
thereto)*
10.9 -- Lease Agreement dated as of July 1, 1996 between The
Development Authority of the City of Manchester and the
Company*
10.10 -- Lease Agreement dated as of August 29, 1997 between The
Development Authority of the City of Manchester and the
Company*
10.11 -- 1998 Stock Incentive Plan*
10.12 -- Management Agreement dated as of January 1, 1995 between the
Company and Cardiac Medical, Inc., together with
Acknowledgment of Termination of Contract with CMI*
10.13 -- Loan Agreement dated as of September 25, 1995 between the
Company and Sirrom Capital Corporation
10.14 -- Stock Purchase Agreement dated June 20, 1997 among the
Company, Pfizer, Inc., Arrow International, Inc. and
Strato(R)/Infusaid(TM) Inc., as amended by Amendment to
Purchase Agreement, dated June 20, 1997
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10.15 -- Asset Purchase and Stock Redemption Agreement dated as of
July 15, 1997 among the Company, Arrow International, Inc.
and Strato(R)/Infusaid(TM) Inc.
10.16 -- Asset Purchase Agreement dated October 24, 1995 by and among
the Company, Horizon Acquisition Corp. and NeoStar Medical
Technologies, Inc.
10.17 -- Secured Subordinated Note dated October 24, 1995 made by
Horizon Acquisition Corp. to the order of NeoStar Medical
Technologies, Inc. in the principal amount of $2,461,017, as
amended by Amendment to Secured Subordinated Note dated July
31, 1997
10.18 -- Agreement dated July 31, 1997 by and among Horizon
Acquisition Corp., the Company, NeoStar Holding, Inc.,
Joseph D. Pike, Thomas F. Darden, II, Williams W. Wells and
Lance J. Bronnenkant
10.19 -- Amendment to Security Agreement dated July 31, 1997 by and
among Horizon Acquisition Corp., NeoStar Holding, Inc.,
Joseph D. Pike, Thomas F. Darden, II, William W. Wells and
Lance J. Bronnenkant
10.20 -- Letter Agreement dated January 8, 1998 between Arrow
International, Inc. and the Company re: the Company's use of
the Norwood facility
10.21 -- Agreement dated January 13, 1995 between the Company and ACT
Medical, Inc.
10.22 -- Horizon Plastic Ports: Term Sheet, dated March 18, 1997
10.23 -- Letter Agreement 2 dated January 17, 1997 to Supply
Agreement between CarboMedics, Inc. and the Company, dated
February 17, 1993, as amended, Development Agreement, dated
February 17, 1993, by and between CarboMedics, Inc. and the
Company, as amended, and Equity Agreement, dated as of
February 17, 1993, by and between CarboMedics, Inc. and the
Company, as amended, together with Letter Agreement dated
February 17, 1993 between CarboMedics, Inc. and the Company
and the aforesaid Supply, Development and Equity Agreements
10.24 -- Agreement dated May 8, 1997 between the Company and Robert
Cohen**
10.25 -- Consulting and Services Agreement dated February 1, 1996
between the Company and Healthcare Alliance, Inc. as amended
10.26 -- Second Amended License Agreement dated January 1, 1995
between Dr. Sakharam D. Mahurkar and NeoStar Medical(R)
Technologies, Inc.**
10.27 -- License Agreement dated July 1995 between Dr. Sakharam D.
Mahurkar and Strato(R)/Infusaid(TM) Inc.**
10.28 -- Additional License Agreement dated January 1, 1997 between
Dr. Sakharam D. Mahurkar and the Company**
10.29 -- Atlanta Office Purchase Agreement**
10.30 -- Form of Employment Agreement between Marshall B. Hunt and
the Company**
10.31 -- Form of Employment Agreement between William E. Peterson,
Jr. and the Company**
10.32 -- Premier Warrant**
10.33 -- Premier Group Purchasing Agreement**
10.34 -- Letter Agreement dated January 29, 1998 between
NationsCredit Commercial Corporation and the Company
regarding the NationsCredit Warrant**
10.35 -- Security Agreement dated as of September 25, 1995 between
Sirrom Capital Corporation and the Company
21.1 -- Subsidiaries of the Company*
23.1 -- Consent of King & Spalding (contained in Exhibit 5.1)**
23.2 -- Consent of Coopers & Lybrand L.L.P.
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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<C> <C> <S>
24. -- Power of Attorney*
27.1 -- Financial Data Schedule (for SEC filing purposes only)
</TABLE>
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* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 10.13
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 25th day of September,
1995, is made and entered into on the terms and conditions hereinafter set
forth, by and between HORIZON MEDICAL PRODUCTS, INC., a Georgia corporation
("Borrower"), SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender") and
CARDIAC MEDICAL, INC., a Georgia corporation ("Guarantor").
RECITALS:
WHEREAS, Borrower has requested that Lender make available to Borrower a
term loan in the original principal amount of One Million Five Hundred Thousand
and No/100ths Dollars ($1,500,000) (the "Loan") on the terms and conditions
hereinafter set forth, and for the purpose(s) hereinafter set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower, Borrower
has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements of
Borrower, has agreed to make the Loan upon the terms and conditions hereinafter
set forth; and
WHEREAS, as a condition to the making of the Loan, Guarantor has agreed to
guarantee the obligations of Borrower under this Agreement pursuant to a
Guaranty Agreement of even date herewith (together with all amendments thereto,
and replacements thereof, the "Guaranty");
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower, the Guarantor and Lender hereby agree as follows:
AGREEMENT:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and
conditions hereof, the Lender shall make the Loan to Borrower by wire transfer
in immediately available funds. The Loan shall be evidenced by a Secured
Promissory Note in the original
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<PAGE> 2
principal amount of One Million Five Hundred Thousand and No/100ths Dollars
($1,500,000), substantially in the form of Exhibit A attached hereto and
incorporated herein by this reference (the "Note"), dated as of the date hereof,
executed by Borrower, in favor of Lender. The Loan shall be payable in
accordance with the terms of the Note. The Note, this Agreement, the Guaranty
and any other instruments and documents, now or hereafter evidencing, securing
or in any way related to the indebtedness evidenced by the Note are herein
individually referred to as a "Loan Document" and collectively referred to as
the "Loan Documents."
1.2 Processing Fee. Borrower shall pay Lender a processing fee of Thirty
Seven Thousand Five Hundred Dollars ($37,500) on the date the Loan is funded.
1.3 Partial Prepayment. Borrower may prepay the indebtedness evidenced by
the Note in whole or in part at any time and from time to time.
1.4 Purpose. The purpose of the Loan shall be to finance the acquisition by
Borrower of Neostar Medical Technologies, Inc. ("Neostar"), to refinance certain
existing indebtedness of Borrower and to provide working capital.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower, and as to subsections (g), (h)
and (i), the Guarantor, hereby represent and warrant to Lender as follows:
(a) Corporate Status. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia; and
has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations
under this Agreement and the other Loan Documents to which it is a party.
Borrower is duly qualified to do business and in good standing in each
state in which a failure to be so qualified would have a material adverse
effect on Borrower's financial position or its ability to conduct its
business in the manner now conducted.
(b) Subsidiaries. Borrower neither owns nor has an interest in,
directly or indirectly, any other corporation, partnership, joint venture
or other business organization ("Subsidiaries").
(c) Authorization. Borrower has full legal right, power and authority
to conduct its business and affairs. Borrower has full legal right, power
and authority to enter into and perform its obligations hereunder, without
the consent or approval of any other person, firm, governmental agency or
other legal entity. The execution and delivery of this Agreement, the
borrowing hereunder, the execution and delivery of each Loan Document to
which Borrower is a party, and the performance by Borrower of its
obligations thereunder are within the corporate powers of Borrower and have
been duly
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<PAGE> 3
authorized by all necessary corporate action properly taken, have received
all necessary governmental approvals, if any were required, and do not and
will not contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental
agency, the charter or bylaws of Borrower, or any agreement binding upon
Borrower or its properties. The officer(s) executing this Agreement, the
Note and all of the other Loan Documents to which Borrower is a party are
duly authorized to act on behalf of Borrower.
(d) Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, subject to
limitations imposed by bankruptcy, insolvency, moratorium or other similar
laws affecting the rights of creditors generally or the application of
general equitable principles.
(e) Capitalization. The authorized capital stock of Borrower consists
solely of 1,000,000 shares of common stock, $.001 par value per share
("Common Stock"), of which 101,000 shares (the "Shares") are issued and
outstanding. All of the Shares are duly authorized, validly issued and
outstanding and fully paid and nonassessable and free of preemptive rights.
Except for the Shares, there are no shares of capital stock or other
securities of Borrower issued or outstanding. Except as described on
Schedule 2.1(e), there are no outstanding options, warrants or rights to
purchase or acquire from Borrower any securities of Borrower, and there are
no contracts, commitments, agreements, understandings, arrangements or
restrictions as to which Borrower is a party or by which it is bound
relating to any shares of capital stock or other securities of Borrower
(including the Shares), whether or not outstanding.
(f) Trademarks, Patents, Etc. Schedule 2.1 (f) is an accurate and
complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses, formulas
and applications therefor owned by Borrower or used or required by Borrower
in the operation of Borrower's business, title to each of which is, except
as set forth in Schedule 2.1(f) hereto, held by Borrower free and clear of
all adverse claims, liens, security agreements, restrictions or other
encumbrances. There is no infringement action, lawsuit, claim or complaint
which asserts that Borrower's operations violate or infringe the rights or
the trade names, trademarks, trademark registration, service name, service
mark or copyright of others with respect to any apparatus or method of
Borrower or any adversely held trademark, trade name, trademark
registration, service name, service mark or copyright, and Borrower is not
in any way making use of any confidential information or trade secrets of
any person except with the consent of such person.
(g) No Conflicts. Consummation of the transactions hereby contemplated
and the performance of the obligations of Borrower and the Guarantor under
and by virtue of the Loan Documents and the Guaranty, as the case may be,
will not result in any breach of, or constitute a default under, any
mortgage, security deed or agreement, deed of trust, lease, bank loan or
credit agreement, corporate charter or bylaws, agreement or certificate
3
<PAGE> 4
of limited partnership, partnership agreement, license, franchise or any
other instrument or agreement to which Borrower or the Guarantor is a party
or by which Borrower or the Guarantor, or their respective properties may
be bound or affected or to which Borrower or the Guarantor has not obtained
an effective waiver.
(h) Litigation. There are no actions, suits or proceedings pending, or,
to the knowledge of Borrower, or the Guarantor, threatened, against or
affecting Borrower or the Guarantor or involving the validity or
enforceability of any of the Loan Documents or the Guaranty at law or in
equity, or before any governmental or administrative agency; and to
Borrower's and the Guarantor's knowledge, neither Borrower nor the
Guarantor is in default with respect to any order, writ, injunction, decree
or demand of any court or any governmental authority.
(i) Financial Statements. The financial statements of Borrower dated
July 31, 1995, and the financial statements of the Guarantor dated July 31,
1995, each of which is attached hereto as Schedule 2.1(i)(A), are true and
correct in all material respects have been prepared on the basis of
accounting principles consistently applied, and fairly present the
financial condition of the Borrower and the Guarantor, as the case may be,
as of the date(s) thereof. No material adverse change has occurred in the
financial condition of Borrower or the Guarantor since the date(s) thereof,
and no additional borrowings have been made by Borrower or the Guarantor
since the date(s) thereof other than as set forth on Schedule 2.1(i)(B).
(g) Other Agreements; No Defaults. Borrower is not a party to any
indenture, loan or credit agreement, lease or other agreement or
instrument, or subject to any charter or corporate restriction, that could
have a material adverse effect on the business, properties, assets,
operations or conditions, financial or otherwise, of the Borrower, or the
ability of the Borrower to carry out its obligations under the Loan
Documents to which it is a party. Borrower is not in default in any respect
in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument material
to its business to which it is a party, including but not limited to this
Agreement and the other Loan Documents, and no other default or event has
occurred and is continuing that with notice or the passage of time or both
would constitute a default or event of default under any of same.
(h) Compliance With Law. Borrower has obtained all necessary licenses,
permits and approvals and authorizations necessary or required in order to
conduct its business and affairs as heretofore conducted and as hereafter
intended to be conducted. To Borrower's knowledge, Borrower is in
compliance with all laws, regulations, decrees and orders applicable to it
(including but not limited to laws, regulations, decrees and orders
relating to environmental, occupational and health standards and controls,
antitrust, monopoly, restraint of trade or unfair competition), to the
extent that noncompliance, in the aggregate, cannot reasonably be expected
to have a material adverse effect on its
4
<PAGE> 5
respective business, operations, property or financial condition and will
not materially adversely affect Borrower's ability to perform its
obligations under the Loan Documents.
(i) Debt. Schedule 2.1(1) is a complete and correct list of all credit
agreements, indentures, purchase agreements, promissory notes and other
evidences of indebtedness, guaranties, capital leases and other
instruments, agreements and arrangements presently in effect providing for
or relating to extensions of credit (including agreements and arrangements
for the issuance of letters of credit or for acceptance financing) in
respect of which the Borrower or any of the properties thereof is in any
manner directly or contingently obligated; and the maximum principal or
face amounts of the credit in question that are outstanding and that can be
outstanding are correctly stated, and all liens of any nature given or
agreed to be given as security therefore are correctly described or
indicated in such Schedule.
(j) Taxes. Borrower has filed or caused to be filed all tax returns
that to its knowledge are required to be filed (except for returns that
have been appropriately extended), and has paid, or will pay when due, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any delinquency
with respect thereto (other than taxes, impositions, assessments, fees and
charges currently being contested in good faith by appropriate proceedings,
for which appropriate amounts have been reserved). No tax liens have been
filed against Borrower or any of the property thereof.
(k) Small Business Concern. Borrower, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations, ss.
121.401), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958, as amended, and the regulations
promulgated thereunder. The information set forth in the Small Business
Administration Forms 480, 652 and Part A of Form 1031 regarding Borrower
upon delivery, pursuant to Section 4.1 hereof, will be accurate and
complete. Borrower does not presently engage in, and it will not hereafter
engage in, any activities, and Borrower will not use directly or
indirectly, the proceeds from the Loan, for any purpose for which a Small
Business Investment Company is prohibited from providing funds by the Small
Business Investment Act and the regulations thereunder, including Title 13,
Code of Federal Regulations ss.107.901.
(l) Certain Transactions. Except as set forth on Schedule 2.1(o)
hereto, Borrower is not indebted, directly or indirectly, to any of its
officers or directors or to their respective spouses or children, in any
amount whatsoever; none of said officers or directors or any members of
their immediate families, are indebted to Borrower or have any direct or
indirect ownership interest in any firm or corporation with which Borrower
has a business relationship (other than the Guarantor), or any firm or
corporation which competes with Borrower, except that officers and/or
directors of Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with Borrower. No officer or
director or any member of their immediate families, is,
5
<PAGE> 6
directly or indirectly, interested in any material contract with Borrower.
Except as set forth on Schedule 2.1(o) hereto, Borrower is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
(m) Statements Not False or Misleading. No representation or warranty
given as of the date hereof by Borrower contained in this Agreement or any
schedule attached hereto or any statement in any document, certificate or
other instrument furnished or to be furnished to Lender pursuant hereto,
taken as a whole, contains or will (as of the time so furnished) contain
any untrue statement of a material fact, or omits or will (as of the time
so furnished) omit to state any material fact which is necessary in order
to make the statements contained therein not misleading.
(n) Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or
carry any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
(o) Significant Contracts. Schedule 2.1(r) is a complete and correct
list of all contracts, agreements and other documents pursuant to which
Borrower receives revenues in excess of $25,000. Each such contract,
agreement and other document is in full force and effect as of the date
hereof and Borrower knows of no reason why such contracts, agreements and
other documents would not remain in full force and effect pursuant to the
terms thereof.
(p) Environment. Borrower has duly complied with, and its business,
operations, assets, equipment, property, leaseholds or other facilities are
in compliance with, the provisions of all federal, state and local
environmental, health, and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder. Borrower has been issued and will
maintain all required federal, state and local permits, licenses,
certificates and approvals relating to (1) air emissions; (2) discharges to
surface water or groundwater; (3) noise emissions; (4) solid or liquid
waste disposal; (5) the use, generation, storage, transportation or
disposal of toxic or hazardous substances or wastes (which shall include
any and all such materials listed in any federal, state or local law, code
or ordinance and all rules and regulations promulgated thereunder as
hazardous or potentially hazardous); or (6) other environmental, health or
safety matters. Borrower has not received notice of, or knows of, or
suspects facts which might constitute any violations of any federal, state
or local environmental, health or safety laws, codes or ordinances, and any
rules or regulations promulgated thereunder with respect to its businesses,
operations, assets, equipment, property, leaseholds, or other facilities.
Except in accordance with a valid governmental permit, license, certificate
or approval, there has been no emission, spill, release or discharge into
or upon (1) the air; (2) soils, or any improvements located thereon; (3)
surface water or groundwater; or (4) the sewer, septic system or waste
treatment, storage or disposal system servicing the premises, of any toxic
or hazardous substances or wastes at or from the premises; and accordingly
the premises
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<PAGE> 7
of Borrower are free of all such toxic or hazardous substances or wastes.
There has been no complaint, order, directive, claim, citation or notice by
any governmental authority or any person or entity with respect to (1) air
emissions; (2) spills, releases or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or
waste treatment, storage or disposal systems servicing the premises; (3)
noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or waste; or (6) other environmental, health or safety matters
affecting Borrower or its business, operations, assets, equipment,
property, leaseholds or other facilities. Borrower does not have any
indebtedness, obligation or liability (absolute or contingent, matured or
not matured), with respect to the storage, treatment, cleanup or disposal
of any solid wastes, hazardous wastes or other toxic or hazardous
substances (including without limitation any such indebtedness, obligation,
or liability with respect to any current regulation, law or statute
regarding such storage, treatment, cleanup or disposal).
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower and Guarantor covenant and agree that during the term of this
Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness evidenced
by the Note according to the terms thereof, and shall timely pay or perform, as
the case may be, all of the other obligations of Borrower to Lender, direct or
contingent, however evidenced or denominated, and however and whenever incurred,
including but not limited to indebtedness incurred pursuant to any present or
future commitment of Lender to Borrower, together with interest thereon, and any
extensions, modifications, consolidations and/or renewals thereof and any notes
given in payment thereof.
3.2 Financial Statements and Reports. Borrower and Guarantor shall furnish
to Lender (i) as soon as practicable and in any event within one hundred eighty
(180) days after the end of each fiscal year of Borrower and Guarantor, an
audited (unaudited with respect to Guarantor) balance sheet of Borrower and
Guarantor as of the close of such fiscal year, an audited (unaudited with
respect to Guarantor) statement of earnings and retained earnings of Borrower
and Guarantor as of the close of such fiscal year and an audited (unaudited with
respect to Guarantor) statement of cash flows for Borrower and Guarantor for
such fiscal year, prepared in accordance with generally accepted accounting
principles consistently applied and accompanied by an unqualified audit report
prepared by the accounting firm of Coopers & Lybrand or an independent certified
public accountant selected by Borrower and acceptable to Lender showing the
financial condition of Borrower at the close of such year and the results of its
operations during such year and accompanied by a certificate of the President of
Borrower and Guarantor, stating that to the best of the knowledge of such
officer, Borrower and Guarantor has kept, observed, performed and fulfilled each
covenant, term and condition of this Agreement and the other Loan Documents
during the preceding fiscal year and that no Event of Default has occurred and
is continuing (or if an Event of Default has occurred and is continuing,
specifying the nature of same, the period
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<PAGE> 8
of existence of same and the action Borrower and Guarantor proposes to take in
connection therewith), (ii) within twenty (20) days of the end of each calendar
month, a status report indicating the financial performance of Borrower during
such month and the financial position of Borrower as of the end of such month,
(iii) within thirty (30) days of the end of each quarter, a balance sheet of
Borrower and Guarantor as of the close of such quarter and a statement of
earnings and retained earnings of Borrower and Guarantor as of the close of such
quarter, all in reasonable detail, and prepared substantially in accordance with
generally accepted accounting principles consistently applied (except for the
absence of footnotes and subject to year-end adjustments), and (iv) with
reasonable promptness, such other financial data as Lender may reasonably
request.
3.3 Maintenance of Books and Records; Inspection. Borrower shall maintain
its books, accounts and records in accordance with generally accepted accounting
principles consistently applied, and permit Lender, its officers and employees
and any professionals designated by Lender in writing, at Lender's expense, to
visit and inspect any of its properties, corporate books and financial records,
and to discuss its accounts, affairs and finances with Borrower or the principal
officers of Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such inspection shall materially
interfere with the conduct of Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the other
Loan Documents, Borrower shall maintain, in amounts customary for entities
engaged in comparable business activities, (i) to the extent required by
applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), and (ii) fire and "all risk" casualty
insurance on its properties against such hazards and in at least such amounts as
are customary in Borrower's business. Borrower will make reasonable efforts to
obtain and maintain public liability insurance in an amount, and at a cost,
deemed reasonable to the Borrower's Board of Directors. At the request of
Lender, Borrower will deliver forthwith a certificate specifying the details of
such insurance in effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that Borrower in good faith may
contest any such tax, assessment, governmental charge or levy described in the
foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained
with respect thereto.
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3.6 Corporate Existence. Borrower shall maintain its corporate existence
and good standing in the state of its incorporation, and its qualification and
good standing as a foreign corporation in each jurisdiction in which such
qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure to
do so would not materially adversely affect Borrower's operations or its ability
to fulfill its obligations under the Loan Documents, Borrower shall maintain its
business operations and property owned or used in connection therewith in
compliance with (i) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which Borrower is a party or by which Borrower or any of its
properties is bound. Without limiting the foregoing, Borrower shall pay all of
its indebtedness promptly in accordance with the terms thereof.
3.8 Notice of Default. Borrower shall give written notice to Lender of the
occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to Lender
of (i) any actions, suits or proceedings wherein the amount at issue is in
excess of Twenty-Five Thousand and No/100ths Dollars ($25,000.00) instituted by
any persons whomsoever against Borrower or affecting any of the assets of
Borrower, and (ii) any dispute, not resolved within sixty (60) days of the
commencement thereof, between Borrower on the one hand and any governmental
regulatory body on the other hand, which dispute might materially interfere with
the normal operations of Borrower.
3.10 Conduct of Business. Borrower will continue to engage in a business of
the same general type and manner as conducted by it on the date of this
Agreement.
3.11 ERISA Plan. If Borrower has in effect, or hereafter institutes, a
pension plan that is subject to the requirements of Title IV of the Employee
Retirement Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974,
88 Stat. 829, 29 U.S.C.A. ss. 1001 et seq. (1975), as amended from time to time
("ERISA"), then the following warranty and covenants shall be applicable during
such period as any such plan (the "Plan") shall be in effect: (i) Borrower
hereby warrants that no fact that might constitute grounds for the involuntary
termination of the Plan, or for the appointment by the appropriate United States
District Court of a trustee to administer the Plan, exists at the time of
execution of this Agreement, (ii) Borrower hereby covenants that throughout the
existence of the Plan, Borrower's contributions under the Plan will meet the
minimum funding standards required by ERISA and Borrower will not institute a
distress termination of the Plan, and (iii) Borrower covenants that it will send
to Lender a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the Pension Benefit
Guaranty Corporation, at the time that such notice is so filed.
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3.12 Dividends, Stock Rights, etc. Except as set forth on Schedule 3.12
hereto, Borrower shall not declare or pay any dividend of any kind (other than
stock dividends payable to all holders of any class of capital stock), in cash
or in property, on any class of the capital stock of Borrower, or purchase,
redeem, retire or otherwise acquire for value any shares of such stock, nor make
any distribution of any kind in cash or property in respect thereof, nor make
any return of capital of shareholders, nor make any payments in cash or property
in respect of any stock options, stock bonus or similar plan (except as required
or permitted hereunder), nor grant any preemptive rights with respect to the
capital stock of Borrower, without the prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Except as set forth on Schedule
3.13 hereto, Borrower shall not, without Lender's prior express written consent,
guarantee nor be liable in any manner, whether directly or indirectly, or become
contingently liable after the date of this Agreement in connection with the
obligations or indebtedness of any person or entity whatsoever, except for the
endorsement of negotiable instruments payable to Borrower for deposit or
collection in the ordinary course of business. Borrower shall not, without
Lender's prior express written consent, which shall not be unreasonably
withheld, (i) make any loan, advance or extension of credit to any person other
than in the normal course of its business, or (ii) make any payment on any
subordinated debt.
3.14 Debt. Without the express prior written consent of Lender, Borrower
shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever (excluding the indebtedness evidenced by the Note, the
endorsement of negotiable instruments payable to Borrower for deposit or
collection in the ordinary course of business, trade payables incurred in the
ordinary course of business and the indebtedness listed on Schedule 2.1(1)
hereto).
3.15 No Liens. Borrower shall not create, incur, assume or suffer to exist
any lien, security interest, security title, mortgage, deed of trust or other
encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except:
(a) liens in favor of Lender;
(b) liens for taxes or assessments or other governmental charges or
levies if not yet due and payable;
(c) liens in connection with the leasing of equipment in favor of the
Lessor of such equipment;
(d) liens described on Schedule 2.1(1) hereto.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower shall not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (d) create any
10
<PAGE> 11
Subsidiaries nor convey any of its assets to any Subsidiary. Notwithstanding the
foregoing, Borrower may purchase substantially all of the assets of Neostar
pursuant to the terms and provisions of that certain Letter of Intent dated July
20, 1995 from the Company to Neostar.
3.17 Transactions With Affiliates. Borrower shall not enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a person not
an affiliate. For the purposes of this Section 3.17, "affiliate" shall mean a
person, corporation, partnership or other entity controlling, controlled by or
under common control with Borrower.
3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
its premises; immediately contain and remove the same, in compliance with all
applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
3.19 Agreement Regarding Financial Covenants. In the event that Borrower
enters into any Senior Indebtedness (as hereinafter defined) after the date
hereof, this Agreement shall automatically be deemed to be amended to include
any financial covenants that may be included in the documents or agreements
evidencing, securing or otherwise relating to such Senior Indebtedness (without
giving effect to any subsequent amendment(s) to such financial covenants).
Without limiting the effect of the preceding sentence, upon Lender's request,
Borrower shall enter into any amendments to this Agreement that Lender may
request to cause such financial covenants to be included within this Agreement.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the Loan on the
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material respects
with all of the covenants, agreements, obligations and conditions required
by this Agreement.
11
<PAGE> 12
(b) Lender shall have received an opinion of the Borrower's counsel,
Slaughter & Virgin, dated the Closing Date, in form and substance
satisfactory to Lender's counsel, Bass, Berry & Sims.
(c) Borrower shall have delivered to Lender a Note executed by
Borrower, substantially in the form of Exhibit A attached hereto and
incorporated herein by this reference.
(d) Borrower shall have delivered to Lender a Stock Purchase Warrant
executed by Borrower, substantially in the form of Exhibit B attached
hereto and incorporated herein by this reference.
(e) Borrower shall have delivered to Lender a Security Agreement
executed by Borrower and a related UCC-1 Financing Statement executed by
Borrower, each of which is substantially in the form of Exhibit C attached
hereto and incorporated herein by this reference.
(f) Borrower shall have delivered to Lender the Small Business
Administration Forms 480, 652 and 1031 (Part A) completed by Borrower.
(g) Borrower shall have delivered to Lender the Small Business
Administration Economic Impact Assessment completed by Borrower, a form of
which is attached hereto as Exhibit D and incorporated herein by this
reference.
(h) Lender shall have received the Guaranty executed by the Guarantor,
in substantially the form of Exhibit E attached hereto and incorporated
herein by this reference.
(i) Lender shall have received copies of the corporate charter and
other publicly filed organizational documents of Borrower and Guarantor,
certified by the secretary of Borrower and Guarantor, as the case may be.
(j) Lender shall have received certified (as of the date of this
Agreement) copies of all corporate action taken by Borrower and Guarantor,
including resolutions of its Board of Directors, authorizing the execution,
delivery and performance of the Loan Documents.
(k) Lender shall have received a certificate as to the legal existence
and good standing of each of the Borrower and Guarantor, issued by the
Secretary of State or other appropriate public official in the jurisdiction
in which the Borrower or Guarantor is incorporated.
(1) Lender shall have received certificates of the Secretaries of State
or other appropriate public officials as to each of Borrower's and
Guarantor's qualification to do business and good standing in each
jurisdiction in which a failure to be so qualified would have a material
adverse effect on its financial position or its ability to conduct its
business in the manner now conducted and as hereafter intended to be
conducted.
12
<PAGE> 13
(m) Borrower shall completely repay all of its existing indebtedness to
Cordova Capital Partners, L.P., and shall have obtained full and complete
releases of all existing liens and security interests that Cordova Capital
Partners, L.P. has in any of Borrower's assets.
(n) Borrower shall have delivered to Lender an executed Letter
Agreement regarding the acquisition of Neostar in substantially the form of
Exhibit F attached hereto.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the payment of the principal of or interest on the
indebtedness evidenced by the Note in accordance with the terms of the
Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrower as to any material matter
hereunder or under any of the other Loan Documents, or delivery by Borrower
or Guarantor of any schedule, statement, resolution, report, certificate,
notice or writing to Lender that is untrue in any material respect on the
date as of which the facts set forth therein are stated or certified;
(c) Failure of Borrower or Guarantor to perform any of its obligations,
covenants or agreements under this Agreement, the Note or any of the other
Loan Documents;
(d) Borrower or Guarantor (i) shall generally not pay or shall be
unable to pay its debts as such debts become due; or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for it or
a substantial part of its assets; or (iii) shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now
or hereafter in effect; or (iv) shall have had any such petition or
application filed or any such proceeding commenced against it in which an
order for relief is entered or an adjudication or appointment is made; or
(v) shall indicate, by any act or intentional and purposeful omission, its
consent to, approval of or acquiescence in any such petition, application,
proceeding or order for relief or the appointment of a custodian, receiver
or trustee for it or a substantial part of its assets; or (vi) shall suffer
any such custodianship, receivership or trusteeship to continue un-
discharged for a period of sixty (60) days or more;
(e) Borrower or Guarantor shall be liquidated, dissolved, partitioned
or terminated, or the charter thereof shall expire or be revoked;
13
<PAGE> 14
(f) A default or event of default shall occur under any of the other
Loan Documents and, if subject to a cure right, such default or event of
default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or performance of any
obligation now or hereafter owed to Lender in connection with any other
indebtedness of Borrower now or hereafter owed to Lender;
(h) Borrower or Guarantor shall default in the timely payment or
performance of any other indebtedness or obligation, which in the aggregate
exceeds Twenty-Five Thousand and No/l00ths Dollars ($25,000.00) or
materially adversely affects Borrower's or Guarantor's financial condition;
or
(i) A significant change in the executive staff or management of
Borrower shall occur. A significant change in the executive staff of
Borrower shall be deemed to have occurred if Marshall B. Hunt and William
E. Peterson, Jr. shall each cease to perform substantially the same duties,
or cease to hold the same powers, as they perform or hold as of the date
hereof.
With respect to any Event of Default described above that is capable of
being cured and that does not already provide its own cure procedure (a "Curable
Default"), the occurrence of such Curable Default shall not constitute an Event
of Default hereunder if such Curable Default is fully cured and/or corrected
within thirty (30) days (ten (10) days, if such Curable Default may be cured by
payment of a sum of money) of notice thereof to Borrower given in accordance
with the provisions hereof; provided, however, that this provision shall not
require notice to Borrower and an opportunity to cure any Curable Default of
which Borrower has had actual knowledge for the requisite number of days set
forth.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any Event of
Default described in subsection 5.1(d), the indebtedness evidenced by the Note
as well as any and all other indebtedness of Borrower to Lender shall be
immediately due and payable in full; and upon the occurrence of any other Event
of Default described above, Lender at any time thereafter may at its option
accelerate the maturity of the indebtedness evidenced by the Note as well as any
and all other indebtedness of Borrower to Lender; all without notice of any
kind. Upon the occurrence of any such Event of Default and the acceleration of
the maturity of the indebtedness evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any and all rights
and remedies possessed by Lender pursuant to the terms of the Note and all
of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies that Lender
may now or hereafter possess at law, in equity or by statute.
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<PAGE> 15
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including reasonable attorney's fees,
incurred by Lender in connection with the exercise of its remedies;
Second, to the expenses of curing the default that has occurred, in the
event that Lender elects, in its sole discretion, to cure the default that
has occurred;
Third, to the payment of the obligations of Borrower under the Loan
Documents (the "Obligations"), including but not limited to the payment of
the principal of and interest on the indebtedness evidenced by the Note, in
such order of priority as Lender shall determine in its sole discretion;
and
Fourth, the remainder, if any, to Borrower or to any other person
lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the non-disgorgeable and indefeasible payment by Borrower of all
amounts owed to Lender, at which time Lender shall cancel the Note and deliver
it to Borrower; provided, however, that if at any time Borrower has
non-disgorgeably, indefeasibly and completely satisfied all obligations to
Lender, Borrower may terminate this Agreement by providing written notice to
Lender.
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<PAGE> 16
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever in this Agreement
one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives, successors-in-
title and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrower agrees to pay all reasonable costs and
expenses incurred by Lender in connection with the making of the Loan, including
but not limited to filing fees, recording taxes and reasonable attorneys' fees,
promptly upon demand of Lender. Borrower further agrees to pay all premiums for
insurance required to be maintained by Borrower pursuant to the terms of the
Loan Documents and all of the out-of-pocket costs and expenses incurred by
Lender in connection with the collection of the Loan, amendment to the Loan
Documents, or prepayment of the Loan, including but not limited to reasonable
attorneys' fees, promptly upon demand of Lender.
7.4 Assignment. The Note, this Agreement and the other Loan Documents may
be endorsed, assigned and/or transferred in whole or in part by Lender, and any
such holder and/or assignee of the same shall succeed to and be possessed of the
rights and powers of Lender under all of the same to the extent transferred and
assigned. Lender may grant participations in all or any portion of its interest
in the indebtedness evidenced by the Note, and in such event Borrower shall
continue to make payments due under the Loan Documents to Lender and Lender
shall have the sole responsibility of allocating and forwarding such payments in
the appropriate manner and amounts. Borrower shall not assign any of its rights
nor delegate any of its duties hereunder or under any of the other Loan
Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation of Borrower hereunder and under all of
the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
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<PAGE> 17
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
7.8 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
telecopied, telexed, or sent by certified mail or overnight via nationally
recognized courier service (such as Federal Express), to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery, telecopy or telex or two (2) business days after the date of mailing
(or the next business day after delivery to such courier service), as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement:
<TABLE>
<S> <C>
The Address of Lender is: Sirrom Capital Corporation
Suite 200
500 Church Street
Nashville, TN 37219
Attention: Robert Shuler
with a copy to: Bass, Berry & Sims
First American Center
Nashville, TN 37238
Attention: Maria-Lisa Caldwell, Esq.
The Address of Borrower is: Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Attention: Marshall B. Hunt or William E. Peterson, Jr.
</TABLE>
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with a copy to: Slaughter & Virgin
Suite 1110
400 Colony Square
1201 Peachtree Street, NE
Atlanta, GA 30361
Attention: Nathaniel G. Slaughter III, Esq.
7.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrower were not based upon any fact or material provided by Lender, nor was
the Borrower induced or influenced to enter into this Agreement or the other
Loan Documents by any representation, statement, analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement shall be construed and
enforced under the laws of the State of Tennessee applicable to contracts to be
wholly performed in such State. No amendment or modification hereof shall be
effective except in a writing executed by each of the parties hereto.
7.12 Survival of Representations and Warranties. All representations and
warranties contained herein or made by or furnished on behalf of the Borrower in
connection herewith shall survive the execution and delivery of this Agreement
and all other Loan Documents.
7.13 Jurisdiction and Venue. Borrower hereby consents to the jurisdiction
of the courts of the State of Tennessee and the United States District Court for
the Middle District of Tennessee, as well as to the jurisdiction of all courts
from which an appeal may be taken from such courts, for the purpose of any suit,
action or other proceeding arising out of any of its obligations arising under
this Agreement or any other Loan Documents or with respect to the transactions
contemplated hereby, and expressly waives any and all objections it may have as
to venue in any of such courts.
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement 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.
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7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
7.17 Lender's Limited Agreement to Subordinate. Upon the Borrower's written
election (which may be exercised only once), Lender shall subordinate its liens
and security interests in Borrower's assets to the liens and security interests
of the holders of Senior Indebtedness; provided, however, that (i) the form,
scope and substance of any agreement evidencing such subordination shall be
reasonably acceptable to Lender, (ii) the principal amount of such Senior
Indebtedness shall not exceed $2,000,000 in principal plus interest and expenses
accrued thereon, (iii) the terms of the Senior Indebtedness are commercially
reasonable; (iv) such subordination shall not apply to the assets of Neostar to
be acquired by Borrower or the proceeds thereof (including any accounts or
inventory arising from, or relating to, Neostar's business after Borrower's
acquisition thereof), and (v) Borrower shall have complied with the provisions
of Section 3.19 of this Agreement. As used herein, the term "Senior
Indebtedness" shall refer to the principal of, and all accrued interest on, all
secured indebtedness for borrowed money of Borrower owing to a bank(s) or
financial institution(s); provided, that the aggregate amount of Senior
Indebtedness shall under no circumstances exceed $2,000,000 in principal amount
plus accrued interest and expenses thereon.
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<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
-------
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ Carolyn W. Perrone
----------------------------------------
Title: CEO
-------------------------------------
BORROWER:
---------
HORIZON MEDICAL PRODUCTS, INC.
a Georgia corporation
By: /s/ unreadable
----------------------------------------
Title: CEO
-------------------------------------
GUARANTOR:
----------
CARDIAC MEDICAL, INC.
a Georgia corporation
By: /s/ Roy Mallady Jr.
----------------------------------------
Title: President
-------------------------------------
20
<PAGE> 1
EXHIBIT 10.14
- --------------------------------------------------------------------------------
PURCHASE AGREEMENT
By and Among
PFIZER INC.,
STRATO/INFUSAID, INC.,
HORIZON MEDICAL PRODUCTS, INC.
and
ARROW INTERNATIONAL, INC.
--------------------------------
Dated as of June 20, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Background....................................................................1
ARTICLE I
DEFINITIONS.................................1
1.1 Definitions.........................................................1
ARTICLE II
PURCHASE AND SALE OF THE SECURITIES.....................5
2.1 Purchase and Sale of the Securities and the Foreign Assets..........5
ARTICLE III
THE CLOSING.................................5
3.1 Closing Date........................................................5
3.2 Conditions to Buyer's Obligation....................................5
3.3 Conditions to Seller's Obligations..................................6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES........................7
4.1 Representations and Warranties of Seller and the Company............7
(a) Authority......................................................7
(b) Organization and Standing of Seller and the Company............8
(c) Capital Structure of the Company; Ownership of Securities......8
(d) Subsidiaries of the company....................................9
(e) Financial Statements...........................................9
(f) Taxes..........................................................9
(g) Properties....................................................10
(h) Intellectual Property ........................................10
(i) Contracts ....................................................10
(j) Litigation; Compliance with Laws .............................12
(k) Benefit Plans ................................................13
(l) Absence of Changes or Events .................................15
(m) Licenses; Permits ............................................15
(n) Environmental Matters ........................................16
(o) Employee and Labor Relations .................................17
(p) Undisclosed Liabilities ......................................17
(q) Accounts; Safe Deposit Boxes; Powers of
Attorney; Officers and Directors .............................18
(r) Regulatory Matters ...........................................18
(s) Assignment of Assets of M1000 Business .......................20
4.2 Representations and Warranties of Horizon and Arrow................20
(a) Authority ....................................................20
(b) Sufficient Funds .............................................21
(c) Organization and Standing of Buyer............................21
(d) Litigation; Decrees ..........................................21
(e) Securities Act................................................21
ARTICLE V
COVENANTS..................................22
5.1 Covenants of Seller................................................22
(a) Access.........................................................22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(b) Ordinary Conduct ..............................................22
(c) Confidentiality ...............................................23
(d) Other Transactions ............................................23
(e) Other Seller Obligations ......................................23
(f) Non-competition ...............................................23
5.2 Covenants of Buyer.................................................25
(a) Confidentiality ...............................................25
(b) Financial and Other Information ...............................25
(c) Solicitations Of Employees ....................................25
(d) Employees and Employee Benefits ...............................26
(e) Ongoing Programs ..............................................29
(f) No Impact on Seller's Indemnity ...............................29
(g) Extraordinary Transactions ....................................30
(h) Lease of the Facility .........................................30
5.3 Mutual Covenants...................................................30
(a) Antitrust Notification ........................................30
(b) Publicity .....................................................31
(c) Reasonable Diligent Efforts ...................................31
(d) Cooperation ...................................................31
(e) Tax Treatment .................................................32
(f) Transition Services ...........................................32
ARTICLE VI
OTHER AGREEMENTS..............................32
6.1 Certain Understandings ............................................32
6.2 Further Assurances ................................................33
6.3 Tax Matters .......................................................33
6.4 Liabilities and Causes of Action Relating to Furon ................34
ARTICLE VII
INDEMNIFICATION...............................35
7.1 Indemnification by Seller .........................................35
7.2 Indemnification by Buyer ..........................................37
7.3 Losses Net of Insurance, Etc ......................................38
7.4 Termination of Indemnification ....................................38
7.5 Procedures Relating to Indemnification under
Sections 7.1 and 7.2 ..............................................39
7.6 Exclusive Remedy ..................................................40
7.7 Collateral Sources ................................................40
7.8 Certain Limitations ...............................................41
ARTICLE VIII
MISCELLANEOUS................................41
8.1 Assignment ........................................................41
8.2 No Thirty-Party Beneficiaries .....................................41
8.3 Termination .......................................................41
8.4 Survival of Representations .......................................42
8.5 Expenses ..........................................................42
8.6 Amendments ........................................................43
8.7 Notices ...........................................................43
8.8 Fees ..............................................................44
8.9 Consent to Jurisdiction ...........................................45
8.10 Severability ......................................................45
8.11 Interpretation ....................................................45
8.12 Waiver ............................................................45
8.13 Counterparts ......................................................46
8.14 Entire Agreement ..................................................46
8.15 Governing Law .....................................................46
</TABLE>
<PAGE> 4
LIST OF EXHIBITS & SCHEDULES
Exhibit A Form of Seller's Certificate
Exhibits B-1 & B-2 Form of Buyer's Certificate
Exhibit C Form of Release Agreement
Schedule 2.1(b) Allocation of Purchase Price
Schedule 4.1(a) Authority
Schedule 4.1(b) Qualification to do Business
Schedule 4.1(c) Capital Structure of the Company
Schedule 4.1(d) Subsidiaries
Schedule 4.1(e) Financial Statements
Schedule 4.1(f) Taxes
Schedule 4.1(g) Properties
Schedule 4.1(h) Intellectual Property
Schedule 4.1(i) Contracts
Schedule 4.1(j) Litigation; Compliance with Laws
Schedule 4.1(k) Benefit Plans
Schedule 4.1(1) Absence of Changes or Events
Schedule 4.1(m) Licenses; Permits
Schedule 4.1(n) Environmental Matters
Schedule 4.1(o) Employee and Labor Relations
Schedule 4.1(q) Accounts, Safe Deposit Boxes, Powers
of Attorney, Officers and Directors
Schedule 4.1(r) Regulatory Matters
Schedule 4.1(r)(i) Device Information
Schedule 4.2(d) Litigation; Decrees
Schedule 5.1(b) Ordinary Conduct
Exhibit I Joint Assignment & License Agreement
Exhibit II Transition Services Agreement
Schedule 5.1(c) Confidentiality
Schedule 5.2(d) Buyer's Benefit Plans
Schedule 5.2(d)(i) Company Employees
Schedule 5.2(d)(ii) Excluded Employees
Schedule 5.2(d)(iii)(2) Buyer Qualified Plans
Schedule 5.2(e) Ongoing Programs
Schedule 7.1(a) Seller's Retained Obligations
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT and the Exhibits and Schedules attached hereto
(collectively, this "Agreement") is dated as of June 20, 1997 by and among
Pfizer Inc., a Delaware corporation ("Seller"), Strato/Infusaid, Inc., a
Massachusetts corporation (the "Company"), Horizon Medical Products, Inc., a
Georgia corporation ("Horizon") and Arrow International, Inc. a Pennsylvania
corporation ("Arrow") Arrow and Horizon are hereinafter referred to collectively
and, when the context so indicates, each individually as "Buyer".
Background
A. Seller owns 300,000 shares of Common Stock, par value $.01 per
share, of the Company (the "Securities"), which constitutes all of the
outstanding Common Stock, $.01 par value per share, of the Company (the "Common
Stock").
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer, the Securities and the Foreign Assets (as hereinafter defined), upon the
terms and subject to the conditions hereinafter set forth.
Accordingly, intending to be legally bound, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
(a) Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings:
"Affiliate" of any Person means any Person directly or indirectly
controlling, controlled by or under common control with such Person, and
includes any Person who is an officer, director or employee of such Person and
any Person that would be deemed to be an "affiliate" or an "associate" of such
Person, as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended. As used in
this definition, "controlling" (including, with its correlative meanings,
"controlled by" and "under common control with") means possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities, partnership or other ownership
interests, by contract or otherwise).
"Authority" means any Federal, state, provincial, local or foreign
governmental department, regulatory agency, authority commission, board or court
or other law, rule or regulation-making entity having jurisdiction over the
Company.
"Best Efforts" means a diligent, reasonable and good faith effort to
accomplish the applicable objective, provided
<PAGE> 6
that Best Efforts does not require any unreasonable expenditure of funds or the
incurrence of any unreasonable liability on the part of the obligated party, nor
does it require the obligated party to act in a manner which would otherwise be
contrary to prudent business judgment or normal commercial practices in order to
accomplish the objective.
"Business Day" means any day other than a Saturday, Sunday, or a day
on which banking institutions in New York, New York are authorized or obligated
by law or executive order to close.
"Employee" means an individual listed in Schedule 5.2(d)(i) (as
updated by Seller and the Company on the Closing Date) who, as of the Business
Day immediately preceding the Closing Date, (i) shall be (or in the case of (D)
below, is about to become) an employee of the Company and (ii) either (A) shall
have been employed and at work on the Business Day immediately preceding the
Closing Date, or (B) shall have been on short-term disability (including
maternity disability), workers' compensation, vacation, parental or other leave
of absence consistent with the Company's policies, practices and procedures in
effect at the time such leave commenced, or (C) shall have been receiving short
term disability benefits for no more than 180 consecutive days or (D) shall have
received and accepted an offer of employment with the Company, in the ordinary
course of business, but shall have not yet commenced work.
"Environmental Laws" means foreign and United States federal, state
and local laws, rules, regulations, codes and ordinances, and any orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder, relating to the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act, as further amended
("CERCLA"); the Resource Conservation and Recovery Act of 1976, as amended; the
Federal Water Pollution Control Act, as amended; the Federal Clear Air Act, as
amended; the Toxic Substances Control Act, as amended; the Surface Mining
Control and Reclamation Act of 1977, as amended; the Safe Drinking Water Act, as
amended; the Pollution Control Act of 1990, as amended; the Federal Insecticide,
Fungicide and Rodenticide Act, as amended; and comparable state and local laws,
in all of the foregoing cases, in effect on the date hereof.
"Hazardous Substances" means any substance (a) that is defined as a
"hazardous waste", "hazardous material", "hazardous substance", "toxic
substance" or similar term used under any Environmental Law; or (b) that
contains or consists of oil, petroleum or petroleum products.
"Knowledge" means, with respect to Seller, the actual current
knowledge of the executive officers of Seller and those officers of the Company
identified in Schedule 4.1(q) hereto.
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"Material Adverse Effect" means a material adverse effect on the
financial condition or results of operations of the Company or the Buyer, as the
case may be, other than with respect to any adverse effects which, directly or
indirectly, relate to or result from public or industry knowledge relating to
the transactions contemplated by this Agreement. Seller may, however, at its
option, include in the Schedules of this Agreement or elsewhere items which
would not have a Material Adverse Effect within the meaning of the previous
sentence in order to avoid any misunderstanding, and such inclusion shall not be
deemed to be an acknowledgement by Seller that such items would have a Material
Adverse Effect or further define the meaning of such term for the purpose of
this Agreement.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including an Authority.
(b) Other Definitions. The following defined terms shall have the
meaning set forth in the referenced Section:
<TABLE>
<CAPTION>
Defined Term As Defined in Section
- ------------ ---------------------
<S> <C>
Arrow.................................................. Recitals
Agreement.............................................. Recitals
Annual Financial Statements ........................... 4.1(e)
Basket ................................................ 7.1(a)
Books and Records ..................................... 5.2(b)
Business .............................................. 4.1(b)
Buyer ................................................. Recitals
Buyer Qualified Plan .................................. 5.2(d)(iii)(2)
Cap ................................................... 7.1(a)
Closing ............................................... 3.1
Closing Date .......................................... 3.1
Code .................................................. 4.1(f)
Collateral Source ..................................... 7.3
Common Stock........................................... Recitals
Company ............................................... Recitals
Company's Benefit Plans ............................... 4.1(k)
Confidentiality Agreement ............................. 5.2(a)
Contracts ............................................. 4.1(i)
Controlled Entities ................................... 5.1(f)
Covered Obligations ................................... 7.1(a)
Device ................................................ 4.1(r)
DOJ ................................................... 3.2(c)
Employee Benefit Plans ................................ 4.1(k)
Encumbrances .......................................... 4.1(c)
Environmental Permits ................................. 4.1(n)
ERISA ................................................. 4.1(k)
Facility .............................................. 5.2(h)
FDA ................................................... 4.1(j)
Financial Statements Date ............................. 4.1(e)
Foreign Assets ........................................ 4.1(g)
Form 483s ............................................. 4.1(r)
FTC ................................................... 3.2(c)
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
Furon ........................................................ 6.4(a)
Furon Liabilities ............................................ 6.4(c)
GAAP ......................................................... 4.1(e)
Horizon ...................................................... Recitals
HSR Act ...................................................... 3.2(c)
IDE .......................................................... 4.1(r)
Indemnified Party ............................................ 7.5
Indemnifying Party ........................................... 7.5
IRS .......................................................... 4.1(k)
Joint Agreement .............................................. 5.1(f)
Landlord ..................................................... 5.2(h)
Lease ........................................................ 5.2(h)
Loss ......................................................... 7.1(a)
Loiterman Agreement .......................................... 5.2(f)
M1000 Business ............................................... 4.1
Multiemployer Plans .......................................... 4.1(k)
Multiple Employer Plans ...................................... 4.1(k)
Non-competition Period ....................................... 5.1(f)
Normal Termination Date ...................................... 5.2(h)
Obligations .................................................. 5.2(h)
PBGC ......................................................... 4.1(k)
Permitted Activities ......................................... 5.1(f)
Pfizer Qualified Plans ....................................... 5.2(d)(iii)(1)
PMA .......................................................... 4.1(r)
Purchase Price ............................................... 2.1(b)
Qualified Plan ............................................... 4.1(k)
Recall ....................................................... 4.1(r)
Restricted Products .......................................... 5.1(f)
Restricted Sales Cap ......................................... 5.1(f)
Retirement Plan .............................................. 5.2(d)(iii)(1)
Returns ...................................................... 4.1(f)
Savings Plan ................................................. 5.2(d)(iii)(1)
Seller ....................................................... Recitals
Seller's Tax Returns ......................................... 6.3(a)
Securities ................................................... Recitals
Straddle Returns ............................................. 6.3(b)
Sub-limit .................................................... 7.1(a)
Taxes ........................................................ 4.1(f)
Third Party Claim ............................................ 7.5
Transfer Taxes ............................................... 6.3(b)
Transition Agreement ......................................... 5.3(f)
510(k)........................................................ 4.1(r)
</TABLE>
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ARTICLE II
PURCHASE AND SALE OF THE SECURITIES AND THE FOREIGN ASSETS
2.1 Purchase and Sale of the Securities and the Foreign Assets.
(a) On the terms and subject to the conditions of this Agreement, at
the Closing referred to below, Seller will, or will cause one of its Affiliates
to, sell, transfer and deliver to the respective Buyer, and each Buyer
severally, but not jointly and severally, agrees that it will purchase from the
Seller or one of its Affiliates, such number of the Securities and such portion
of the Foreign Assets as set forth on Schedule 2.1(b). In addition, Seller shall
use its Best Efforts to cause any Japanese import licenses for Company products
to be transferred to Buyer or its designee as soon as reasonably practicable
following the Closing Date.
(b) The aggregate purchase price for the Securities and the Foreign
Assets (the "Purchase Price") shall be twenty one million two hundred fifty
thousand dollars ($21,250,000.00). The Purchase Price shall be allocated between
each Buyer and among the Securities and each of the Foreign Assets as set forth
on Schedule 2.1(b).
ARTICLE III
THE CLOSING
3.1 Closing Date. The closing (the "Closing") of the purchase and sale
of the Securities and the Foreign Assets shall be held at the offices of Dechert
Price & Rhoads, 30 Rockefeller Plaza, New York, New York, at 10:00 a.m. on the
later to occur of (i) July 15, 1997 or (ii) the third Business Day after the
conditions to Closing set forth in Article III of this Agreement shall have been
satisfied; provided, however, that the Closing shall not occur later than the
date specified in Section 8.3 of this Agreement. The date on which the Closing
shall occur is hereinafter referred to as the "Closing Date." All transactions
at the Closing shall be deemed to take place simultaneously and effective as of
12:01 A.M. E.D.T. on the Closing Date.
3.2 Conditions to Buyer's Obligation. The obligation of each Buyer to
purchase and pay for its share of the Securities and the Foreign Assets is
subject to the satisfaction (or waiver by such Buyer) as of the Closing of the
following conditions:
(a) (i) The representations and warranties of Seller and the
Company made in this Agreement shall be true and correct in all material
respects on and as of the Closing, as though made on and as of the Closing Date
except for (1) changes contemplated by this Agreement or attributable to matters
disclosed by Seller in the Schedules hereto and (2) those representations and
warranties that address matters only as of a
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particular date (which shall be true and correct as of that date); (ii) Seller
and the Company shall have performed in all material respects their covenants
contained in this Agreement required to be performed by the time of the Closing;
and (iii) Seller shall have delivered to Buyer a certificate dated the Closing
Date and signed by duly authorized signatories of Seller, in the form of Exhibit
A, confirming the satisfaction of the foregoing clauses (i) and (ii).
(b) No injunction or order of any court or administrative
agency of competent jurisdiction shall be in effect as of the Closing which
restrains or prohibits the purchase and sale of the Securities or the Foreign
Assets.
(c) Any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the regulations promulgated thereunder
(the "HSR Act"), including any extensions of such waiting period, shall have
expired and any investigations by either the Department of Justice ("DOJ") or
the Federal Trade Commission ("FTC") (by means of a request for additional
information or otherwise) shall have been terminated.
(d) All intercompany accounts between Seller and its
Affiliates, on the one hand, and the Company, on the other, shall be paid or
otherwise satisfied in full.
(e) The directors and officers of the Company shall have
delivered resignations to Buyer.
(f) The other Buyer shall contemporaneously consummate the
transactions contemplated by this Agreement.
3.3 Conditions to Seller's Obligations. The obligation of Seller
to sell and deliver the Securities and the Foreign Assets to Buyer is subject to
the satisfaction (or waiver by Seller) as of the Closing of the following
conditions:
(a) (i) The representations and warranties of Buyer made in
this Agreement shall be true and correct on and as of the Closing, as though
made on and as of the Closing Date except for (1) changes contemplated by this
Agreement or attributable to matters disclosed by Buyer in the Schedules hereto,
(2) those representations and warranties that address matters only as of a
particular date (which shall be true and correct as of that date), and (3)
breaches or inaccuracies of representations and warranties that do not,
individually or in the aggregate, have a Material Adverse Effect; (ii) Buyer
shall have performed in all material respects the covenants of Buyer contained
in this Agreement required to be performed by the time of the Closing; and (iii)
Buyer shall have delivered to Seller a certificate dated the Closing Date and
signed by duly authorized signatories of Buyer, in the form of Exhibit B,
confirming the satisfaction of the foregoing clauses (i) and (ii).
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(b) No injunction or order of any court or administrative
agency of competent jurisdiction shall be in effect as of the Closing which
restrains or prohibits the purchase and sale of the Securities or the Foreign
Assets.
(c) Any applicable waiting period under the HSR Act, including
any extensions of such waiting period, shall have expired and any investigations
by either DOJ or FTC (by means of a request for additional information or
otherwise) shall have been terminated.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller and the Company.
Seller and the Company hereby jointly and severally represent and warrant
(other than with respect to the Company's manufacture, marketing, distribution
and sale of the M1000 programmable implantable pump (the "M1000 Business"), for
which neither Seller nor the Company makes any representation or warranty except
as provided in Section 4.1(s) of this Agreement) to each Buyer as follows:
(a) Authority. Each of Seller and the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate acts and other proceedings
required to be taken by each of Seller and the Company to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by each of Seller and the Company
and constitutes the legal, valid and binding obligation of each of them,
enforceable against them in accordance with its terms. Except as set forth on
Schedule 4.1(a), the execution, delivery and performance by Seller and the
Company of this Agreement and the consummation by each of them of the
transactions contemplated hereby will not (i) violate any provision of law, rule
or regulation to which either of them is subject, (ii) violate any order,
judgment, injunction, award or decree applicable to either of them, (iii)
violate the certificate or articles of incorporation, bylaws or other similar
governing documents of either of them, (iv) constitute a default under or give
rise to a right of termination, cancellation or acceleration of any right or
obligation of the Company under any provision of any agreement, contract or
other instrument binding upon the Company set forth on Schedule 4.1(i), or (v)
result in the creation or imposition of any lien, encumbrance, charge or claim
upon any of the assets of the Company or the Securities, except in the case of
any of the foregoing clauses (i)-(v) for any such violation, conflict, default,
right or lien which would not individually or in the aggregate have a Material
Adverse Effect. Except as set forth on Schedule 4.1(a) hereto, the execution,
delivery and performance by Seller and the Company of this Agreement and the
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consummation by each of them of the transactions contemplated hereby do not
require any consent from or filing with any Authority except for (i) the filing
of a report under the HSR Act and the expiration of the applicable waiting
period; (ii) any consent or filing that Buyer is required to obtain or make; and
(iii) consents and filings which, if not obtained or made, will not individually
or in the aggregate have a Material Adverse Effect.
(b) Organization and Standing of Seller and the Company. Seller is a
corporation duly organized and validly existing under the laws of the State of
Delaware. The Company is a corporation duly organized and validly existing under
the laws of the Commonwealth of Massachusetts. Seller has full corporate power
and authority and possesses all material governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it to use its
corporate name and to own, lease or otherwise hold its properties and assets and
to carry on its business in all material respects as presently conducted. The
Company has full corporate power and authority and possesses all material
governmental franchises, licenses, permits, authorizations and approvals
necessary to enable it to use its corporate name and to own, lease or otherwise
hold its properties and assets and to carry on its business (the "Business") in
all material respects as presently conducted. The Company is duly qualified or
registered as a foreign corporation to do business, and is in good standing in
the jurisdictions set forth on Schedule 4.1(b), which constitute all
jurisdictions in which the character of the properties owned, operated or leased
by it or the nature of its activities is such that such qualification is
required by applicable law, except where the failure to so qualify and be in
good standing would not, individually or in the aggregate, have a Material
Adverse Effect. The Company has delivered to Buyer true and complete copies of
the Articles of Organization, as amended to date, and the Bylaws, as in effect
on the date hereof, of the Company.
(c) Capital Structure of the Company; Ownership of Securities. The
authorized capital stock of the Company consists of which 3OO,000 shares of
Common Stock, of which 300,000 shares are duly authorized, validly issued and
outstanding, fully paid and nonassessable. Except as described on Schedule
4.l(c), there are no outstanding warrants, options, agreements, subscriptions,
convertible or exchangeable securities or other commitments pursuant to which
the Company is or may become obligated to issue, sell, purchase, return or
redeem any shares of capital stock or other securities of the Company and no
equity securities of the Company are reserved for issuance for any purpose.
Seller owns of record and beneficially the Securities, free and clear of any
claims, liens, encumbrances, security interests, options, charges or
restrictions whatsoever ("Encumbrances"). At the Closing, Seller will convey to
Buyer good and marketable title to the Securities free and clear of all
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Encumbrances other than any Encumbrance (i) created by Buyer or (ii) of which
Buyer has knowledge as of the Closing Date.
(d) Subsidiaries of the Company. The Company does not,
directly or indirectly, own any stock of, or any other interest in, any other
corporation or business entity other than those entities listed on Schedule
4.1(d).
(e) Financial Statements. Schedule 4.1(e) sets forth the
unaudited balance sheet of the Company as of December 31, 1996 (the "Financial
Statements Date"), and the related statement of income for the year then ended,
together with the notes to such financial statements (collectively, the "Annual
Financial Statements"). The Annual Financial Statements have been prepared in
accordance with the books and records of the Company. Except as set forth on
Schedule 4.1(e), the Annual Financial Statements fairly present, in all material
respects, the financial position of the Company as of December 31, 1996 and the
results of operations of the Company for the year then ended, in conformity with
United States generally accepted accounting principles as applied by Seller
("GAAP") and in a manner consistent with prior practice.
(f) Taxes.
(i) For purposes of this Agreement, (A) "Tax" or "Taxes"
shall mean all Federal, state, local and foreign income, franchise, sales and
use and other taxes and assessments, including all interest, penalties and
additions imposed with respect to such amounts and (B) "Code" shall mean the
Internal Revenue Code of 1986, as amended.
(ii) Except as set forth on Schedule 4.1(f): (A) the
Company has filed or caused to be filed in a timely manner (within any
applicable extension periods) all Tax returns, reports and forms required to
have been filed by the Code or by applicable state, local or foreign Tax laws
(collectively, "Returns") other than those which the failure to file would not
have a Material Adverse Effect; (B) all Taxes shown to be due on such Returns
have been timely paid in full; and (C) no Tax liens have been filed and no
material claims are being asserted in writing with respect to any Taxes. Except
as set forth on Schedule 4.1(f), no presently effective waivers or extensions of
statutes of limitation with respect to Taxes have been given by the Company for
any taxable years. Except as set forth above or on Schedule 4.1(f), as of the
date of this Agreement, the Returns filed by, or with respect to, the Company
are not being examined by, and no written notification of intention to examine
has been received from the Internal Revenue Service or, to Seller's Knowledge,
any other taxing authority with respect to Taxes. Except as set forth on
Schedule 4.1(f), no currently pending issues involving the Company have been
raised in writing by the Internal Revenue Service or, to Seller's Knowledge, any
other taxing authority in connection with any Return. Except as set
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forth in Schedule 4.1(f), the Company has no agreement with Seller or any of its
Affiliates or, to the Knowledge of Seller, with any other Person regarding the
filing of Returns or relating to the sharing of Tax benefits or liabilities with
such Persons.
(g) Properties. (i) The Company has good and valid title to all its
owned properties and assets, real and personal, tangible and intangible
(including those reflected on the Annual Financial Statements or acquired by the
Company since the Financial Statements Date, except property sold or otherwise
disposed of since the Financial Statements Date), and (ii) Seller has good and
valid title to the those certain assets identified on Schedule 4.1(g) as the
foreign assets of the Business (the "Foreign Assets"), in each case free and
clear of all mortgages, liens, attachments, pledges, encumbrances or security
interests of any nature whatsoever, except (a) those disclosed in the Annual
Financial Statements, (b) any liens for current Taxes not yet due and payable or
which may thereafter be paid without penalty, (c) encumbrances described in
Schedule 4.1(g) hereto, (d) zoning, building and other similar governmental
restrictions and liens imposed by operation of law (including without limitation
mechanics', carriers', workmen's, repairmen's, landlord's or other similar liens
arising from or incurred in the ordinary course of business and for which the
underlying payments are not yet delinquent), and (e) easements, covenants,
rights-of-way or other similar restrictions and imperfections of title, none of
which items referred to in clauses (d) and (e) materially impair the use of the
property to which they relate in the Business taken as a whole. Set forth on
Schedule 4.1(g) hereto is a list of all real estate owned or leased by the
Company in the United States.
(h) Intellectual Property. Schedule 4.1(h) sets forth a true and
complete list of all (i) patents owned by or licensed to the Company, (ii)
trademarks, trade names, and service marks currently in use by the Company in
the Business and (iii) material copyrights and applications therefor owned by or
licensed to the Company. Except as set forth in Schedule 4.1(h), Seller has no
notice or Knowledge of any objections or claims being asserted in writing by any
Person with respect to the ownership, validity, enforceability or use of any
such patents, trademarks, trade names, copyrights and applications therefor or
challenging or questioning the validity or effectiveness of any such license
which would have a Material Adverse Effect.
(i) Contracts. Except as described in Schedule 4.1(i) or the other
Schedules hereto (and except for purchase order agreements (other than
requirements contracts) for inventory purchased in the ordinary course of
business consistent with past practice), the Company is not as of the date of
this Agreement party to or bound by any of the following written agreements:
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(i) employee collective bargaining agreement or other contract
with any labor union;
(ii) employment agreements with any director, officer or
employee (excluding any such contracts or arrangements for which the total
compensation during each of the last two (2) years was less than fifty thousand
dollars ($50,000) per person);
(iii) (A) lease or similar agreement under which the Company
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by a third party, (B) continuing contract for
the future purchase of materials, supplies or equipment, (C) management,
service, consulting or other similar type of contract, (D) distribution or sales
agency agreement or arrangement, or (E) advertising agreement or arrangement, in
any such case which has an aggregate future liability in excess of fifty
thousand dollars ($50,000) or which is not terminable by the Company (x) on not
more than ninety (90) days' notice without penalty or premium or (y) for a cost
of less than twenty five thousand dollars ($25,000);
(iv) agreement or contract under which the Company has
borrowed or loaned any money or issued any note, bond, indenture or other
evidence of indebtedness or guaranteed indebtedness, liabilities or obligations
of others, in each case for an amount in excess of twenty five thousand dollars
($25,000) (other than (A) endorsements for the purpose of collection in the
ordinary course of business, and (B) advances to employees of the Company in the
ordinary course of business);
(v) mortgage, pledge, security agreement, deed of trust or
other document, in each case granting a lien (including liens upon properties
acquired under conditional sales, capital leases or other title retention or
security devices) securing obligations in excess of twenty five thousand dollars
($25,000).
(vi) license of any patent, trademark, trade name, or
copyright by or to the Company involving a royalty or similar payment by or to
the Company during the immediately preceding or succeeding twelve (12) months,
in each case in excess of ten thousand dollars ($10,000) for such twelve (12)
month period;
(vii) lease or similar agreement under which the Company is
lessee of any real property; and
(viii) any other agreement, license, undertaking, covenant or
understanding involving a payment by the Company during the immediately
preceding or succeeding twelve (12) month period, in each case in excess of
fifty thousand dollars ($50,000) in the aggregate for such twelve (12) month
period.
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To the Knowledge of Seller after reasonable investigation, each
agreement, contract, lease, license, commitment or instrument of the Company
described on Schedule 4.1(i) or the other Schedules hereto (collectively, the
"Contracts") is in full force and effect, except as disclosed on Schedule 4.1(i)
or the other Schedules hereto. To the Knowledge of Seller after reasonable
investigation, the Company is not (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder and no other party to any of the Contracts is (with or without the
lapse of time or the giving of notice, or both) in breach or default in any
material respect thereunder.
(j) Litigation; Compliance with Laws.
(i) Except as set forth in Schedule 4.1(j) or otherwise
described in Section 4.1(r) hereto, there is no action, suit, proceeding or
investigation pending or, to the Knowledge of Seller, threatened, against or
involving the Company or its assets (whether or not covered by insurance)(except
for matters relating to Environmental Laws described in Section 4.1(n) hereto)
which would, individually or in the aggregate, have a Material Adverse Effect.
To the knowledge of Seller, there exists no basis for the commencement of any
action, proceeding or investigation against the Company which would,
individually or in the aggregate, have a Material Adverse Effect. Except as set
forth on Schedule 4.1(j), there is no outstanding judgment, order, writ,
injunction or decree against the Company or related to its assets, other than
any such judgment, order, writ, injunction or decree which would not,
individually or in the aggregate, have a Material Adverse Effect.
(ii) There is no action, suit, investigation or proceeding
pending against, or to the Knowledge of Seller threatened against or affecting,
the Company before any court or arbitrator or any Authority which in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
(iii) Except as set forth on Schedule 4.1(j) (or, with
respect to matters described in either Section 4.1(n) or Section 4.1(r) hereto),
the Company is in compliance with all applicable laws, statutes, rules,
regulations, ordinances, orders, judgments and decrees, local, Federal, state,
domestic or foreign (including, without limitation, applicable insurance
requirements, requirements of any Board of Fire Underwriters or similar body,
building, zoning, occupational safety and health, pension, fair employment,
equal opportunity, safety, health, procurement, reimbursement, consumer
protection or similar laws, rules, regulations and ordinances), other than any
such failure which would not have a Material Adverse Effect. No notice has been
received by the Company or Seller, and neither the Company nor Seller has
Knowledge of any notice being given, with respect to any violation of any such
legal requirements. There is no
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<PAGE> 17
action or proceeding by the U.S. Food and Drug Administration (the "FDA"), the
Health Care Financing Agency or other agency or part of the U.S. Department of
Health & Human Services or any other Authority, including, but not limited to,
recall procedures, pending or, to Seller's or the Company's Knowledge,
threatened against the Company relating to the safety or efficacy of or use or
charges for any of its products developed or sold in connection with the
Business.
(k) Benefit Plans.
(i) Schedule 4.1(k) sets forth a complete and correct list
of all "employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and any other
pension plans or employee benefit arrangements or payroll practices (including,
without limitation, severance pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, stock purchase arrangements or policies) maintained, or
contributed to, by the Company for the benefit of any employees of the Company
or to which the Seller or the Company contributes or is obligated to contribute
with respect to employees of the Company ("Employee Benefit Plans"). Schedule
4.1(k) identifies, in separate categories, Employee Benefit Plans that are (i)
subject to Section 4063 and 4064 of ERISA ("Multiple Employer Plans"), (ii)
multiemployer plans (as defined in Section 4001(a) of ERISA) ("Multiemployer
Plans") or (iii) welfare plans providing continuing benefits after the
termination of employment (other than as required by Section 4980B of the Code
and at the former employee's own expense).
(ii) To the Knowledge of Seller, none of the Company or
any ERISA Affiliate (defined as any trade or business which, with the Company,
is treated as a single employer under Section 414(b), (c) or (m) of the Code)
has incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC")
under, arising out of or by operation of Title IV of ERISA (other than any
liability for premiums to the PBGC arising in the ordinary course of business),
including, without limitation, any material liability in connection with (i) the
termination or reorganization of any employee pension benefit plan subject to
Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple
Employer Plan, and no fact or event exists which could reasonably be expected to
give rise to any such material liability. Except as set forth on Schedule
4.1(k), to Seller's Knowledge, no complete or partial termination has occurred
within the five (5) years preceding the date hereof with respect to any Employee
Benefit Plan.
(iii) Each of the Employee Benefit Plans intended to
qualify under Section 401 of the Code ("Qualified Plans") has received a
favorable determination letter from the Internal Revenue Service ("IRS") that
such plan is so qualified,
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<PAGE> 18
and, to the Knowledge of Seller, since the date of such IRS determination,
except as disclosed on Schedule 4.1(k), nothing has occurred with respect to the
operation of any such plan which, either individually or in the aggregate, would
likely cause the loss of such qualification.
(iv) To the Knowledge of Seller, all contributions and
premiums required by law or by the terms of any Employee Benefit Plan or any
agreement relating thereto have been timely made (without regard to any waivers
granted with respect thereto) and, except as disclosed on Schedule 4.1(k), no
accumulated funding deficiencies exist in any of the Employee Benefit Plans
subject to Section 412 of the Code.
(v) To the Knowledge of Seller, the liabilities of each
Employee Benefit Plan that has been terminated or otherwise wound up within the
two (2) years preceding the date hereof, have been fully discharged in
compliance with applicable law.
(vi) Except as disclosed on Schedule 4.1(k), to the
Knowledge of Seller, there has been no "reportable event" as that term is
defined in Section 4043 of ERISA and the regulations thereunder with respect to
any of the Employee Benefit Plans subject to Title IV of ERISA which would
require the giving of notice, or any event requiring notice to be provided under
Section 4063(a) of ERISA.
(vii) To the Knowledge of Seller, there has been no
violation of ERISA with respect to the filing of applicable returns, reports,
documents and notices regarding any of the Employee Benefit Plans with the
Secretary of Labor or the Secretary of the Treasury or the furnishing of such
notices or documents to the participants or beneficiaries of the Employee
Benefit Plan which, either individually or in the aggregate, could result in
material liability to the Company.
(viii) Complete and correct copies of the following
documents, with respect to each of the Employee Benefit Plans (as applicable),
have been delivered to Buyer: (i) any plan documents and related trust
documents, and all amendments thereto; (ii) the most recent Forms 5500 and
schedules thereto; (iii) the most recent IRS determination letter; (iv) the most
recent summary plan descriptions; and (v) written descriptions of all nonwritten
agreements relating to the Employee Benefit Plans.
(ix) To the Knowledge of Seller, there are no pending
legal proceedings which have been asserted or instituted against any of the
Employee Benefit Plans, the assets of any such plans or the Company or the plan
administrator or any fiduciary of the Employee Benefit Plans with respect to the
operation of such plans (other than routine, uncontested benefit claims), which
either individually or in the aggregate could reasonably be expected to result
in a Material Adverse Effect.
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<PAGE> 19
(x) To the Knowledge of Seller, each of the Employee Benefit
Plans has been maintained, in all material respects, in accordance with its
terms and all provisions of applicable laws and regulations, except where
noncompliance would not have a Material Adverse Effect. To the Knowledge of
Seller, all amendments and actions required to bring each of the Employee
Benefit Plans into conformity in all material respects with all of the
applicable provisions of ERISA and other applicable laws and regulations have
been made or taken except to the extent that such amendments or actions are not
required by law to be made or taken until a date after the Closing Date.
(xi) Except as disclosed on Schedule 4.1(k), none of the
Company or any ERISA Affiliate maintains a welfare benefit plan providing
continuing benefits to Company employees after the termination of employment
(other than as required by Section 4980B of the Code and at the former
employee's own expense), and the Company and each of the ERISA Affiliates have
complied in all material respects with the notice and continuation requirements
of Section 4980B of the Code and the regulations thereunder.
(xii) To the Knowledge of Seller, none of the Company or any
ERISA Affiliate has divested any business or entity maintaining or sponsoring a
defined benefit pension plan having unfunded benefit liabilities (within the
meaning of Section 4001(a)(18) of ERISA) or transferred any such plan to any
Person other than the Company or any ERISA Affiliate during the five-year period
ending on the Closing Date in a transaction that could reasonably be expected to
result in a Material Adverse Effect.
(xiii) Except as disclosed on Schedule 4.1(k), no Employee
Benefit Plan will require the payment by the Company of material amounts of
severance benefits, separation pay or any similar pay as a result of the
consummation of the transactions contemplated by this Agreement.
(l) Absence of Changes or Events. Except as set forth in Schedule
4.1(1) or any other Schedule to this Agreement, from the Financial Statements
Date until the Closing Date, the Business has been conducted in the ordinary
course consistent with past practice and there has not been any change in the
financial condition or results of operations of the Company taken as a whole
(other than changes relating to the economy in general or industry conditions),
which would, individually or in the aggregate, have a Material Adverse Effect.
(m) Licenses; Permits. To the Knowledge of Seller, all material
governmental licenses, permits or authorizations of the Company are validly held
by the Company, the Company has complied in all material respects with all
requirements in connection therewith and the same will not be subject to
suspension, modification or revocation as a result of
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<PAGE> 20
this Agreement or the consummation of the transactions contemplated hereby,
except as set forth on Schedule 4.l(m) or which relate to matters described in
Section 4.1(r) hereto. To the Knowledge of Seller, the Company has all of the
governmental licenses, permits or authorizations which are required to carry on
the Business as such business is now conducted, except for such licenses,
permits or authorizations the failure to obtain which would not have a Material
Adverse Effect.
(n) Environmental Matters. Except as set forth on Schedule 4.1(n)
hereto or as described in Section 4.1(n) hereto:
(i) The Company has all material permits, licenses, and other
authorizations required for the operations, or conduct of the Business under
applicable Environmental Laws (the "Environmental Permits"). The Company is, and
at all times since the Company has been owned by the Seller, or to Seller's
Knowledge, prior to Seller's ownership of the Company, has been, in compliance
with all terms and conditions of the Environmental Permits, and with all
applicable Environmental Laws, except for such noncompliance which would not
have a Material Adverse Effect. Set forth in Schedule 4.1(n) hereto is a list of
the Environmental Permits.
(ii) Since the Company has been owned by Seller or, to Seller's
Knowledge, prior to Seller's ownership of the Company, the Company has received
no written notice of any citation, summons, order, complaint, penalty,
investigation, or review by any Authority or other Person with respect to any
violation by the Company of any Environmental Law (including, without
limitation, any violation by the Company with respect to items 1, 2 and 3 listed
on Schedule 4.1(n), which are excluded from all other representations of Seller
and the Company hereunder), except for such violations which would not have a
Material Adverse Effect, and there is no action, suit, investigation or
proceeding pending, or to Seller's Knowledge, threatened, against or involving
the Company involving or arising out of any alleged violation of Environmental
Law except for such actions or proceedings which would not have a Material
Adverse Effect.
(iii) Since the Company has been owned by Seller or, to
Seller's Knowledge, prior to Seller's ownership of the Company, the Company has
received no written requests for information, notice of claim, demand, or
notification that it is, or may be, potentially responsible with respect to any
investigation or cleanup of any threatened or actual release of any Hazardous
Substance or with respect to any personal injury or property damage arising from
or caused by exposure to, or the threatened or actual release of, any Hazardous
Substance, and there is no action, suit, investigation or proceeding pending, or
to Seller's Knowledge, threatened, against or involving the
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<PAGE> 21
Company involving any potential liability caused by or relating to Hazardous
Substances.
(iv) To Seller's Knowledge, there are no above-ground or
underground storage tanks, no friable asbestos and no polychlorinated biphenyls
on property currently leased by the Company.
(v) Since the Company has been owned by Seller or, to Seller's
Knowledge, prior to Seller's ownership of the Company, no employees of the
Company have been exposed to any Hazardous Substances in connection with
employment with the Company which exposure is reasonably likely to give rise to
liability of the Company under Environmental Laws or other statutory or common
law, except for such liability which would not have a Material Adverse Effect.
(vi) To Seller's Knowledge, no site assessment, audit or other
investigation has been conducted by or on behalf of the Company by a third party
professional engineer as to environmental matters at any property owned, leased,
operated or occupied by the Company.
(vii) To Seller's Knowledge, no disposal, release or burial of
any Hazardous Substances has occurred on any facilities or properties owned,
leased or operated by the Company which require remediation by the Company under
applicable Environmental Laws except for such remediation which would not have a
Material Adverse Effect.
(o) Employee and Labor Relations. Except as set forth in Schedule
4.1(o) hereto:
(i) there is no labor strike, dispute, slowdown or work
stoppage, boycott, picketing, handbilling or lockout actually pending or, to the
Knowledge of Seller, threatened against or affecting the Company which would
have a Material Adverse Effect and during the past year there has not been any
such action; and
(ii) there is no unfair labor practice charge, petition,
application or complaint against the Company pending or, to the Knowledge of
Seller, threatened before the National Labor Relations Board or the
Massachusetts Labor Relations Commission which would have a Material Adverse
Effect; and
(iii) there is no complaint against the Company pending, or to
the Knowledge of Seller, threatened before the Equal Employment Opportunity
Commission, the Massachusetts Commission Against Discrimination or the
Department of Labor and Workplace Development which would have a Material
Adverse Effect.
(p) Undisclosed Liabilities. To the Knowledge of Seller, after
reasonable investigation, the Company does not have
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<PAGE> 22
any material liabilities or obligations or any nature (whether accrued,
absolute, contingent, unasserted or otherwise) required by GAAP to be reflected
on a balance sheet or in notes thereto, except (i) as set forth or reflected on
the Annual Financial Statements (or described in the notes included therein),
(ii) for items disclosed in the Schedules hereto or for which Buyer shall be
otherwise indemnified by Seller hereunder, including, without limitation, Losses
arising from those items identified on Schedule 7.1(a), (iii) for purchase
contracts and orders for inventory in the ordinary course of business and (iv)
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the Financial Statements Date and not in
violation of this Agreement.
(q) Accounts; Safe Deposit Boxes; Powers of Attorney; Officers and
Directors. Attached hereto as Schedule 4.1(q) are (i) a true and correct list of
all bank and savings accounts, certificates of deposit and safe deposit boxes
and outstanding powers of attorney of the Company and those Persons authorized
to sign thereon, (ii) true and correct copies of all corporate borrowing,
depository and transfer resolutions and those Persons entitled to act
thereunder, and (iii) a true and correct list of all officers and directors of
the Company.
(r) Regulatory Matters. Except as set forth on Schedule 4.1 (r), the
Company, and the products sold by the Company, are in compliance with all
current and otherwise applicable statutes, rules, regulations, standards, guides
or orders administered or issued by the FDA and all other Authorities (except
for environmental Authorities) having regulatory authority over the products of
the Company (except as relates to Environmental Laws described in Section
4.l(n) hereto) and the Business, other than any such failure to comply which,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as set forth on Schedule 4.l(r) hereto, since January 1, 1994
no Notice of Adverse Findings, Warning Letter, Section 305 notice, subpoena, or
other similar communication by any Authority has been given with respect to the
Company or the Business, and there have been no recalls, field notifications,
alerts or seizures requested or threatened relating to the products sold by the
Company.
Except as set forth on Schedule 4.1(r) hereto, the Company has made
available to Buyer a copy of all currently active investigational device
exemptions ("IDE") filed with or approved by FDA by or on behalf of the Company
and all premarket approval ("PMA") and premarket notification ("510(k)")
clearance or concurrence letters received from the FDA and comparable
communications received from any other applicable Authority and provided Buyer
with access to all related documents and information, including device master
files and post-market studies.
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<PAGE> 23
Except as set forth on Schedule 4.1(r) hereto, the Company has made
available to Buyer in a manner so as to provide Buyer an opportunity to review
all FDA inspection reports ("Forms 483s") or comparable reports of a foreign
Authority, the Company's Responses to such Form 483s or comparable foreign
reports and the FDA Establishment Inspection Reports which the Company has
obtained for all FDA inspections of the Company's facilities since January 1,
1994. The Company has also furnished Buyer with access to all internal
inspection reports (as required by 21 C.F.R. Section 820.20) conducted by the
Company since January 1, 1994, as well as the written procedure for such audits.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review copies of all complaint files (as required by 21
C.F.R. Section 820.198) and foreign vigilance reports as well as all Medical
Device Reports filed by the Company, and maintained by such person (as required
by 21 C.F.R. Section 803) as well as copies of all related documents and a copy
of the Company's corporate policy for maintaining such files and filing such
reports.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review copies of all labels and the label history for
all of the Company's products in the Company's possession.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review copies of all regulatory approvals obtained from
any foreign regulatory agency related to the products distributed and sold by
the Company.
The Company has offered to make available to Buyer in a manner so as to
provide Buyer an opportunity to review all information pertaining to the matter
that was resolved pursuant to the November 24, 1993 consent agreement between
the Company and the FDA and the payment by the Company to the FDA of the civil
penalty specified therein.
The Company has made available to Buyer in a manner so as to provide
Buyer an opportunity to review and has otherwise disclosed to Buyer all material
information related to the voluntary recall (the "Recall") by the Company of its
Infuse-A-Port Implantable Port System (the "Device") initiated on or about April
30, 1997 through notification to FDA and all affected distributors and
customers. RELEVANT INFORMATION PROVIDED OR MADE AVAILABLE TO BUYER INCLUDES,
BUT IS NOT LIMITED TO, THOSE ITEMS CONTAINED IN SCHEDULE 4.1 (r)(i). Buyer
acknowledges that the Recall, which impacted over two thousand nine hundred
(2,900) units and has been designated by FDA as a Class II recall (FDA
#Z-578/579-7), was conducted as a result of the discovery that the catheters or
ports of certain lots of the Device may contain stainless steel spheres which
could result in metallic spheres
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<PAGE> 24
flushing from the catheter or port. Buyer acknowledges that the Recall was
necessitated by a process utilized by a contract vendor who supplied catheters
to the Company and that the impact of the Recall and the resulting delay in the
Company's ability to provide replacement products conforming to product
specifications and Company standards to the Company's sales representatives may
have caused a Material Adverse Effect on sales of the Company's products in
Japan, the principal market for the Device. Buyer further acknowledges that the
Recall may also have had a material adverse impact on the operations of the
Company's exclusive distributor of the Device in Japan.
(s) Assignment of Assets of M1000 Business. The transfer by
the Company of those assets identified in Schedule A to that certain Joint
Assignment and License Agreement dated on or prior to the Closing Date between
the Company and Programmable Pump Technologies, Inc. will not have a material
adverse impact on the Company's ability to manufacture, market and sell any of
the Company's existing products as of the date hereof (other than the M1000
programmable pump) and none of those assets are required in the manufacture of
such products.
4.2 Representations and Warranties of Horizon and Arrow. Each
Buyer (for itself only) hereby severally, and not jointly, represents and
warrants to the Company and Seller as follows:
(a) Authority. Such Buyer has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate acts and other proceedings required to be
taken by such Buyer to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and properly taken. This Agreement has been duly executed and delivered by
such Buyer and constitutes the legal, valid and binding obligation of such
Buyer, enforceable against such Buyer in accordance with its terms. The
execution, delivery and performance by such Buyer of this Agreement and the
consummation by such Buyer of the transactions contemplated hereby will not (i)
violate any provision of law, rule or regulation to which such Buyer is subject,
(ii) conflict or violate any order, judgment, injunction, award or decree
applicable to such Buyer, (iii) violate or conflict with the certificate or
articles of incorporation, bylaws or other similar governing documents of such
Buyer, (iv) constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of such Buyer under any
provision of any agreement, contract or other instrument binding upon such Buyer
or any license, franchise, permit or other similar authorization held by such
Buyer, or (v) result in the creation or imposition of any lien, encumbrance,
charge or claim upon any of the assets of such Buyer, except in the case of any
of the foregoing clauses (i)-(v) for any such violation, conflict, default,
right or lien which would not individually or
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<PAGE> 25
in the aggregate have a Material Adverse Effect. The execution, delivery and
performance by such Buyer of this Agreement and the consummation by such Buyer
of the transactions contemplated hereby do not require any consent from or
filing with any Authority except for (i), with respect to Horizon only, the
filing of a report under the HSR Act and the expiration of the applicable
waiting period; (ii) any consent or filing that the Company or Seller is
required to obtain or make; and (iii) consents and filings which, if not
obtained or made, will not individually or in the aggregate have a Material
Adverse Effect or have a material adverse effect on the ability of the parties
hereto to consummate the transactions contemplated hereby.
(b) Sufficient Funds. Such Buyer has sufficient funds to pay
its share of the Purchase Price in full as specified on Schedule 2.1(b).
(c) Organization and Standing of Buyer. Horizon (but not
Arrow) represents and warrants that it is a corporation duly organized and
validly existing under the laws of the State of Georgia. Arrow (but not Horizon)
represents and warrants that it is a corporation duly organized and validly
existing under the laws of the Commonwealth of Pennsylvania. Such Buyer has full
corporate power and authority and possesses all material governmental
franchises, licenses, permits, authorizations and approvals necessary to enable
it to use its corporate name and to own, lease or otherwise hold its properties
and assets and to carry on its business in all material respects as presently
conducted.
(d) Litigation; Decrees. Schedule 4.2(d) sets forth a list as
of the date of this Agreement of all lawsuits, claims, proceedings or
investigations pending or, to the knowledge of such Buyer, threatened by or
against or affecting such Buyer or any of its subsidiaries or any of its
properties, assets, operations or businesses or which challenge the legality of
this Agreement or any action to be taken in connection herewith. To the
knowledge of such Buyer, neither it nor any of its subsidiaries is in default
under any judgment, order or decree having a Material Adverse Effect.
(e) Securities Act. The Securities purchased by such Buyer
pursuant to this Agreement are being acquired for investment purposes only and
not with a view to any public distribution thereof, and such Buyer will not
offer to sell or otherwise dispose of the Securities so acquired by it in
violation of any of the registration requirements of the Securities Act of 1933,
as amended, or any applicable state securities laws.
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<PAGE> 26
ARTICLE V
COVENANTS
5.1 Covenants of Seller. Seller covenants and agrees as
follows:
(a) Access. Prior to the Closing, Seller will, and will
cause the Company to, give Buyer and its representatives, employees, counsel and
accountants reasonable access to the properties, books and records of the
Company during mutually agreeable business hours; it being understood that
Seller, in its sole discretion may deny or restrict any access involving
possible breaches of applicable confidentiality agreements with third parties,
environmental reviews not previously approved by Seller in its sole discretion
or possible waivers of any applicable attorney-client privileges.
(b) Ordinary Conduct. From and after the date hereto and
prior to Closing, and unless Buyer shall otherwise consent or agree in writing
and except as contemplated by this Agreement or as disclosed on Schedule 5.1(b)
hereto, Seller covenants and agrees that the Company:
(i) will use its reasonable best efforts to conduct
the Business in the ordinary course and shall not sell or convey any assets
owned by the Company and utilized in the Business other than in the ordinary
course;
(ii) will use its Best Efforts to preserve its
business organization intact, to maintain the services of its present key
employees and to preserve the goodwill of the suppliers, customers and others
having business dealings with the Company;
(iii) will not amend its Articles of Organization,
Bylaws or other similar governing documents;
(iv) will not issue any capital stock or rights,
warrants or options to acquire shares of such capital stock or issue any
securities convertible into such shares or convertible into securities in turn
so convertible, or grant any options, warrants or rights to acquire any such
convertible securities;
(v) will not split, combine or reclassify its
outstanding capital stock;
(vi) will not declare or pay any dividend or other
distribution in respect of any class of its capital stock, or make any payment
to redeem, purchase or otherwise acquire, or call for redemption, any of such
stock; (it being understood that Seller and the Company shall be permitted to
maintain and adjust the intercompany payable owed by the Company to Seller and
its Affiliates); and
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<PAGE> 27
(vii) will not merge or consolidate with any other
corporation or, except in the ordinary course of business, acquire any property
or assets of any other Person.
(c) Confidentiality. Except as described in Schedule
5.1(c), for a period of three (3) years from the Closing, Seller will keep
confidential and cause its Affiliates and instruct its and their officers,
directors, employees and advisors to keep confidential all non-public
information relating to the Company and the Business, except as required by
applicable law, legal process or securities exchange requirements and except for
information which becomes public other than as a result of a breach of this
Section 5.1(c).
(d) Other Transactions. Prior to the Closing, none of
Seller, the Company nor any of their Affiliates shall, nor shall they permit any
of their respective officers, directors or other representatives to, directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any information or assistance to, any Person
(other than Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Company.
(e) Other Seller Obligations. Seller shall defend and pay
all amounts owing, and reasonable expenses incurred by Seller, in connection
with (i) any claim asserted against the Company in any litigation, arbitration,
suit or proceeding commenced on or prior to the Closing Date or in any written
notice delivered to the Company prior to the Closing Date, regardless of the
nature of the claim, including, without limitation, the claims and litigation
described in Schedule 4.1(j) attached hereto, (ii) any claim involving
liabilities or obligations of the Company involving death or bodily injury to a
third party as and to the extent involving products of the Company sold prior to
the Closing Date, regardless of whether such claim is asserted prior to or
following the Closing Date and (iii) any claim asserted for indemnification
(whether under the articles of incorporation or bylaws of the Company or under
the laws of the Commonwealth of Massachusetts) by a director, officer or
employee of the Company who served in such capacity prior to the Closing Date
where such claim is based upon events which occurred prior to the Closing Date.
Horizon, Arrow and the Company shall cooperate with Seller in connection with
Seller's defense and resolution of such claims, including, without limitation,
by providing Seller with access to the records, files and other information of
Horizon, Arrow or the Company, as the case may be, as reasonably requested by
Seller in connection therewith.
(f) Non-competition. As a further inducement to Buyer to
purchase the Securities, Seller agrees that, for a period beginning on the
Closing Date and ending on the third anniversary of the Closing Date (the
"Non-competition Period"), neither
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<PAGE> 28
Seller nor any of its controlled Affiliates, whether by ownership in the
aggregate of at least twenty percent (20%) of the outstanding voting capital
stock or other comparable equity interests, contract, management or otherwise
("Controlled Entities"), will, directly or indirectly, compete with the Company
by engaging, other than with respect to the Permitted Activities described
below, in the development, license manufacture, sale or distribution, on a
worldwide basis, of (i) implantable infusion pumps or (ii) access devices which
compete with ports or catheters presently sold or in development by the Company
as of the date hereof (the products referred to in clauses (i) and (ii),
"Restricted Products"). Notwithstanding anything to the contrary contained in
this Section 5.1(f), none of the following (each, a "Permitted Activity") shall
be deemed a breach of this Section 5.1(f):
(i) the development, license, manufacture, sale and
distribution of Restricted Products (other than nonprogrammable implantable
infusion pumps) by Seller and its Controlled Entities, other than any Restricted
Products manufactured, sold or distributed by the Company or any Person other
than Seller and its Controlled Entities, substantially in the manner as in
effect on the date hereof; or
(ii) the M1000 (as such term is defined in the Joint
Assignment and License Agreement between the Company and Programmable Pump
Technologies, Inc. (the "Joint Agreement") attached as Exhibit I to Schedule
5.1(b) hereto) in the Field of Use (as such term defined in the Joint
Agreement); or
(iii) investments in or ownership of any class of equity
securities of any Controlled Entity for whom less than the lower of (i) ten
million dollars ($10,000,000.00) and (ii) ten percent (10%) of such Controlled
Entity's gross revenues are derived from the manufacture, sale and distribution
of Restricted Products during the twelve (12) calendar months prior to initial
investment by Seller (the "Restricted Sales Cap"); it being understood and
agreed that in the event that Seller acquires any Controlled Entity which
exceeds the foregoing Restricted Sales Cap, (A) Seller shall have twelve (12)
calendar months to divest or alter the operations of such Controlled Entity such
that the gross revenues of the Controlled Entity derived from the manufacture,
sale and distribution of Restricted Products during the twelve (12) calendar
months following initial investment by Seller do not exceed the Restricted Sales
Cap and (B) the Non-competition Period shall be extended for a period of time
equal to the time between investment in or ownership of equity securities of the
Controlled Entity and such divestment or alteration of operations.
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5.2 Covenants of Buyer. Each of Horizon and Arrow severally, and
not Jointly (except with respect to Section 5.2(b), for which Horizon and Arrow
jointly and severally), covenant and agree as follows:
(a) Confidentiality. Buyer acknowledges that all information
being provided to it by Seller and the Company is subject to the terms of
certain confidentiality agreements dated February 7, 1997 between Horizon and
Seller and dated January 24, 1997 between Arrow and Seller (together the
"Confidentiality Agreement"). Effective upon, and only upon, the Closing, the
Confidentiality Agreement shall terminate.
(b) Financial and Other Information. Buyer will (i) hold all
of the books and records of the Company existing on the Closing Date (or copies,
microfiche or other comparable reproductions thereof) (collectively, "Books and
Records") and not destroy or dispose of any thereof for a period of eight (8)
years from the Closing Date or such longer time as may be required by law, and
thereafter, if it desires to destroy or dispose of any of such Books and
Records, will offer first in writing at least sixty (60) days prior to such
destruction or disposition to surrender them to Seller and (ii) provide to
Seller financial information with respect to the Company for the portion of the
current fiscal year during which the Securities were owned by Seller in
accordance with past practice to allow Seller to comply with securities law,
financial and tax reporting and accounting requirements. Buyer shall reasonably
cooperate with Seller after the Closing Date so that Seller has access to the
business records, contracts, regulatory filings and related materials, and other
information relating to the Company and the Business as is reasonably necessary
for (a) the preparation for or the prosecution or defense of any suit, action,
litigation or administrative, arbitration or other proceeding or investigation
by or against Seller, (b) the preparation and filing of any tax return or
election relating the Company and the Business and any audit by any taxing
authority of any Returns of Seller relating thereto, and (c) the preparation and
filing of any other documents required by any Authority. The access to Books and
Records contemplated by this Section 5.2(b) shall be during normal business
hours and upon not less than two (2) Business Days prior written request.
(c) Solicitations of Employees. If this Agreement is
terminated in accordance with Section 8.3, each of Horizon and Arrow agrees that
neither of them nor any of their Affiliates will solicit, entice or offer
employment to any employees of the Company for a period of three (3) years from
the date of this Agreement; provided, that the foregoing shall not prohibit
either of Horizon or Arrow from employing any individuals who have received
notice of termination from, or ceased to be employed by, the Company prior to
the first time such individuals discussed, with any representative of either of
Horizon or Arrow, employment by either of them.
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(d) Employees and Employee Benefits.
(i) Offer of Employment; Continued Employment; Severance.
Each of Horizon and Arrow agrees to continue the employment as of the Closing
Date of each Employee at a rate of pay at least equal to the Employee's rate of
pay in effect on the Business Day immediately preceding the Closing Date and
with such other benefits as are set forth in Schedule 5.2(d). Such employment
shall be at a location within a twenty-five (25) mile radius of the Facility.
Schedule 5.2(d)(i) (which shall be updated by Seller on the Closing Date) shall
set forth each Employee's current rate of pay, position and date of hire. For
purposes of this covenant, Buyer shall be entitled to rely on the accuracy
thereof and, with respect to such Employee's benefits under the Company's
Benefit Plans, on the materials referred to in Schedule 4.1(k). Each of Horizon
and Arrow shall have no obligation whatsoever with regard to any employees or
former employees of Seller, including but not limited to (a) retired or inactive
employees, who are not or shall have ceased to be Employees as of the Business
Day immediately preceding the Closing Date, (b) those individuals listed on
Schedule 5.2(d)(ii) or (c) Employees who do not accept the offer of employment
given by either of Horizon or Arrow in accordance with this Section 5.2(d) and
do not work for Horizon or Arrow, as the case may be at least one day. Each of
Horizon or Arrow, as the case may be, shall be solely responsible for all
salaries or wages accruing on or after the Closing Date with respect to the
Employees. Each of Horizon and Arrow may, at its discretion, change the
conditions of employment after the Closing Date except for (x) the location
requirement described in the second sentence of this Section 5.2(d)(i) and (y)
pay and benefits comparability requirements, employee separation plan
obligations and other benefits described in Schedule 4.1(k), all of which
matters described in clauses (x) and (y) shall remain unchanged until the date
immediately following the second anniversary of the Closing Date.
Notwithstanding the foregoing sentence, either of Horizon or Arrow may terminate
an Employee during such two (2) year period due to "Performance-Related
Terminations" or "Curtailment or Cessation of Operations/Reorganization/Position
Elimination Terminations" (as those terms are described in Seller's Employee
Separation Plan attached as Schedule 4.1(k) hereto) so long as Horizon or Arrow
(i) first offers such Employee the opportunity to sign a release agreement in
substantially the form attached hereto as Exhibit C, (ii) pays or otherwise
provides severance benefits to such Employee in accordance with Seller's
Employee Separation Plan as described in Schedule 4.1(k) and (iii) provides
continuation of medical and dental benefits for six (6) months thereafter;
provided, however, that either of Horizon or Arrow may terminate an Employee
without paying or otherwise providing severance benefits to such Employee in
accordance with such policy if such Employee is terminated, in Horizon or
Arrow's reasonable discretion, as the case may be, "for cause" (as such term is
defined in Seller's Employee Separation Plan attached as Schedule 4.1(k)
hereto). Seller agrees to reimburse either Buyer
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for the actual cost of benefits provided by such Buyer pursuant to clause (iii)
in the foregoing sentence within thirty (30) days following receipt by Seller of
a quarterly written statement for each three (3) month period following the
Closing Date identifying those Employees terminated by such Buyer during such
three (3) month period and such Buyer's actual cost to provide such benefits;
provided that such Buyer shall, upon written request of Seller, provide Seller
or its designee with reasonable access to the books and records of the Company
and its Affiliates during normal business hours reasonably necessary to confirm
the termination of any such Employee and/or such Buyer's actual cost of
providing such Employee with the benefits described in clause (iii) of the
foregoing sentence. Notwithstanding anything to the contrary herein, on the date
immediately following the second anniversary of the Closing Date, Horizon and
Arrow shall provide pay and benefits and severance plans, programs and policies
(other than those relating to internal procedures for approval of group
terminations or curtailments) which are substantially comparable to those
provided to other similarly situated employees of either of them, as the case
may be. Employees shall also be provided credit for all service with Seller and
its Affiliates, to the same extent as such service was credited for such purpose
by Seller and its Affiliates, under (x) all of the Company's Benefits Plan
described in Schedule 4.1(k) for purposes of eligibility, vesting and benefit
accrual and (y) severance plans, programs and policies for purposes of
calculating the amount of each Employee's severance benefits described in
Schedule 4.1(k). In reliance upon the covenants of each Buyer contained in this
Section 5.2(d)(i), Seller represents and warrants that the sale of the
Securities and Foreign Assets contemplated by this Agreement will not give rise
to any severance or termination benefits under any of the Benefit Plans
described in Schedule 4.1(k) hereto for which Buyer shall be responsible. Seller
acknowledges that the benefits to be provided by each Buyer as described in
Schedule 5.2(d) hereto are substantially comparable to the benefits offered by
Seller to such Employees immediately prior to the date hereof.
(ii) No Third-Party Beneficiaries; No Buyer Limitations.
Nothing expressed or implied in this Section 5.2 shall create any third-party
beneficiary or other rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company with respect to continued
employment (or resumed employment) with Horizon or Arrow, as the case may be, or
any Affiliate of either of them. Further, no provision of this Section 5.2 shall
create any such rights in any employee or former employee (including any
beneficiary or dependent thereof) of the Company with respect to any benefits
that may be provided, directly or indirectly, under any employee compensation
and benefits plans, programs, policies or arrangements or any plan or
arrangement which may be established by either of Horizon or Arrow.
Notwithstanding anything contained herein to the contrary, no provision of this
Agreement shall constitute a limitation on rights to amend, modify or
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terminate, after the Closing Date, any specific plan or arrangement of either or
Horizon or Arrow, except to the extent that comparability requirements as to a
type of plan or arrangement (or a group of plans or arrangements) may create
such a limitation.
(iii) Qualified Plans.
(1) Seller sponsors the following qualified
plans under Section 401(a) of the Code (collectively the "Pfizer Qualified
Plans"): the Pfizer Savings and Investment Plan (the "Savings Plan") and the
Pfizer Retirement Annuity Plan (the "Retirement Plan"). Effective as of the
Closing Date, Seller shall cause each Employee who is a participant in each
Pfizer Qualified Plan to become one hundred percent (100%) vested in his or her
accrued benefit under such plan.
(2) Effective on the Closing Date, each
participant in a Pfizer Qualified Plan who is an Employee shall cease to be an
active participant under each such plan, and shall become a participant of the
Horizon or Arrow's Qualified Plans as listed in Schedule 5.2(d)(iii)(2) (such
plans being collectively referred to as the "Buyer Qualified Plans"), as the
case may be. The Buyer Qualified Plans will recognize the accrued service of
Employees with Seller, the Company and each of their Affiliates prior to the
Closing Date for all purposes, to the extent credited under the terms of the
corresponding Pfizer Qualified Plan as in effect on the Closing Date. As soon as
practicable after the date hereof, Seller shall deliver such service data to
either of Horizon or Arrow.
(3) Seller shall cause as soon as practicable
after the Closing Date, the Savings Plan to transfer the account balance of each
Employee to the corresponding Buyer Qualified Plan as of the valuation date next
preceding the date of transfer. Horizon and Arrow, on the one hand, and Seller,
on the other hand, each agree to use its Best Efforts and to cooperate with the
other to effect as promptly as possible the transfers of assets contemplated
under this Section 5.2(d)(iii)(3) subject to the Seller's receipt of
satisfactory evidence that the Buyer Qualified Plans are in compliance with all
relevant tax and labor laws; such evidence shall include, but not be limited to,
a current determination letter from the IRS, if available, and satisfactory
representations from the administrators of the Buyer Qualified Plans. If a
current determination letter has not been obtained, Horizon or Arrow, as the
case may be, and such party's counsel shall each provide a representation that
the Buyer Qualified Plans are qualified under Section 401(a) of the Code and
that a timely application for a determination letter is pending and that Horizon
or Arrow, as the case may be, will take all necessary steps to secure a
determination letter.
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(4) Seller will give Horizon and Arrow
reasonable access to any records of Seller necessary to administer the
retirement benefits of Employees transferred to the Buyer Qualified Plans.
(iv) Accrued Entitlements. Seller shall provide to
Horizon and Arrow a statement of all accrued entitlements for Employees,
including but not limited to vacation days, wages and other compensation
consistent with past practice.
(v) Medical and Welfare Plan Obligations. On the
Closing Date, Horizon or Arrow, as the case may be, shall include the Employees
in its welfare plans and agrees to waive any waiting periods or limitations for
preexisting conditions under its medical, dental, and short-term and long-term
disability plans. Claims by an Employee for medical and dental services rendered
on or after the Closing Date shall be the responsibility of the medical and
dental plans provided by Horizon or Arrow, as the case may be, to the Employees.
Claims incurred for medical and dental services for Employees rendered prior to
the Closing Date shall be the responsibility of the group medical and dental
plans of Seller which covered such Employees prior to the Closing Date.
(vi) Closing of the Facility. Buyer agrees that
after the Closing if Buyer elects to terminate the Employees who are employed at
the Facility, Buyer will provide any and all notices required by the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. ss. 2101 et. seq. and its
applicable regulations, and its Massachusetts counterpart, Mass Gen. L. ch. 151
ss.71A et seq. Buyer further agrees that it will indemnify Seller and hold
Seller harmless against any loss, expense, damage, claim, liability, obligation,
judgment or injuries suffered or sustained by Seller by reason of any act,
omission or alleged act or omission arising out of Buyer's obligations under
this Section 5.2 (d)(vi), including without limitation, any judgment, award,
settlement, attorneys' fees and other costs and expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claims, all
costs of which shall be paid by Buyer as incurred.
(e) Ongoing Programs. Arrow shall cause the Company to
continue those programs as described on Schedule 5.2(e).
(f) No Impact on Seller's Indemnity. Horizon and Arrow
shall not, and shall not permit the Company or any other Affiliate to, act or
fail to act where such action or inaction could or does materially adversely
impact or otherwise materially increase Seller's indemnification obligations
described in Section 7.1(a) of this Agreement relating to any Loss arising from
the Joint Development and Consulting Agreement dated March 5, l989 between David
A. Loiterman, M.D. and Strato Medical Corporation (the "Loiterman Agreement") as
in effect on the date
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hereof. In addition, Horizon shall, upon the mutual written request of Seller
and David A. Loiterman, M.D., take all reasonable steps necessary to cause the
Company to assign, without recourse, the Loiterman Agreement to Seller or its
designee as soon as reasonably practicable following receipt of such written
request.
(g) Extraordinary Transactions. On or after the Closing Date,
Buyer shall not permit the Company to effect any extraordinary transactions that
could reasonably result in Tax liability to the Seller (other than as a result
of the sale of the Securities and the Foreign Assets as contemplated by this
Agreement).
(h) Lease of the Facility. (i) Arrow shall not, and shall not
permit the Company or any Affiliate of either of them, to (i) exercise or enter
into any extension or renewal of the term of the Lease dated March 1, 1994
between John Hancock Mutual Life Insurance Company (together with its successors
and assigns, the "Landlord") and Infusaid, Inc. (the "Lease") relating to
certain real property located at 1400 Providence Highway, Norwood, Massachusetts
(the "Facility") beyond February 28, 1999 (the "Normal Termination Date")
pursuant to any option, right of first offer or otherwise, (ii) expand the
premises leased under the Lease pursuant to any option, right of first offer or
otherwise, (iii) assign, other than to Arrow or an Affiliate of Arrow, the Lease
or any right thereunder prior to the Normal Termination Date without the prior
written consent of Seller, (iv) holdover or (v) otherwise remain in possession
of the Facility or the premises leased under the Lease following the Normal
Termination Date unless and until Arrow has provided Seller with an absolute,
unconditional written termination from the Landlord of Seller's guarantee and
indemnity obligations under the Lease (collectively, the "Obligations").
(ii) On or as soon as reasonably practicable
following the Closing Date, the Company shall obtain and thereafter utilize a
new EPA identification number for the generation of Hazardous Substances
disposed of after the Closing Date.
5.3 Mutual Covenants. Each of Seller and Buyer covenants and agrees as
follows:
(a) Antitrust Notification. Seller and Horizon agree to file
or cause to be filed all necessary documentation with the appropriate
Authorities as soon as practicable to obtain as soon as possible all consents
required by any Authorities in order to consummate the transactions contemplated
by this Agreement. Without limiting the generality of the foregoing, Seller and
Horizon agree to file or cause to be filed, respectively, as soon as practicable
after the date hereof, but in no event more than five (5) Business Days after
the date hereof, an acquired person's and acquiring person's HSR Act
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notification and report form with respect to the transactions contemplated by
this Agreement required by the HSR Act. Seller and Horizon further agree to use
their Best Efforts to comply promptly with and, where appropriate, to respond in
cooperation with each other to, all requests or requirements which applicable
Federal, state, local, foreign or other applicable law or governmental officials
may impose on them with respect to the transactions which are the subject of
this Agreement.
(b) Publicity. Prior to the Closing, Seller on the one hand,
and Horizon or Arrow, severally and not jointly, on the other hand, agree that
no public release or announcement concerning the transactions contemplated
hereby shall be issued by any of them without the prior consent (which consent
shall not be unreasonably withheld) of the other, except as such release or
announcement may be required by law or the rules or regulations of any United
States or foreign securities exchange or The Nasdaq Stock Market, in which case
the party required to make the release or announcement shall allow the other
party reasonable time to comment on such release or announcement in advance of
such issuance. Notwithstanding the foregoing, Arrow may issue a public release
or announcement concerning the transactions contemplated hereby on or prior to
June 30, 1997 upon receipt of the prior written approval of such release or
announcement by Seller, which approval shall not be unreasonably withheld.
(c) Reasonable Diligent Efforts. Subject to the terms and
conditions of this Agreement, each party will, severally, use its reasonable
diligent efforts to cause the Closing to occur as promptly as reasonably
possible.
(d) Cooperation. Horizon, Arrow and Seller shall cooperate
with each other and shall cause their officers, employees, agents, auditors and
representatives to cooperate with the others during the period prior to the
Closing and for a period of one hundred twenty (120) days after the Closing to
ensure the orderly transition of the Company from Seller and its Affiliates to
Buyer and reasonably to minimize any disruption to the respective businesses of
the Company, Seller, Buyer and any of their Affiliates that might result from
the transactions contemplated hereby. With respect to the period after the
Closing each of Horizon, Arrow and Seller shall reimburse the others for
reasonable out-of-pocket costs and expenses incurred in assisting such party
pursuant to this Section 5.3(d). Neither of Horizon, Arrow, Seller nor any of
their Affiliates shall be required by this Section 5.3(d) to take any action
that would unreasonably interfere with the conduct of its business. In addition,
after the Closing Date, Arrow shall utilize its Best Efforts to assist Seller in
its efforts to secure the release of Seller from the Obligations as soon as
reasonably practicable after the Closing Date (it being understood that Arrow
shall not be obligated to pay any monetary sums in connection with the
foregoing).
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(e) Tax Treatment. Seller, on the one hand, and Horizon and
Arrow, on the other hand, agree to treat the sale of the Securities contemplated
by this Agreement in accordance with its form as a sale of capital stock of the
Company for tax purposes.
(f) Transition Services. On or prior to the Closing Date,
Horizon, Arrow and the Company shall execute and deliver to Seller and Seller
shall execute and deliver to Horizon, Arrow and the Company a transition
services agreement in a form reasonably acceptable to each of them (the
"Transition Agreement") relating to certain services to be provided by the
parties to this Agreement. Notwithstanding any other provision of this
Agreement, Horizon, Arrow and the Company, on the one hand, and Seller, on the
other hand, covenant to utilize Best Efforts to comply with any and all
provisions of the Transition Agreement.
ARTICLE VI
OTHER AGREEMENTS
6.1 Certain Understandings. Each of the parties is sophisticated
and was advised by experienced counsel and, to the extent it deemed necessary,
other advisors in connection with this Agreement. Each Buyer acknowledges that,
solely as of the signing of this Agreement, it has performed a comprehensive due
diligence investigation of the business and operations of the Company and has no
actual knowledge of any misrepresentation or breach of a warranty of Seller
herein (as contrasted with actual knowledge of a fact underlying a
misrepresentation or breach). Buyer also acknowledges that pursuant to Section
5.l(a) hereof Buyer will have access to the properties, books and records of the
Company so that Buyer may conduct any additional due diligence it deems
necessary (other than with respect those items specified on Schedule 5.1(b)
hereto). Each of the parties hereby acknowledges that (i) no party has relied or
will rely in respect of this Agreement or the transactions contemplated hereby
upon any document or written or oral information previously furnished to or
discovered by it or its representatives, other than this Agreement (including
the Schedules hereto) and other documents delivered at the Closing, (ii) there
are no representations or warranties by or on behalf of any party hereto or any
of its respective Affiliates or representatives other than those expressly set
forth in this Agreement or in documents delivered at the Closing, and (iii) the
parties' respective rights and obligations with respect to this Agreement and
the events giving rise thereto will be solely as set forth in this Agreement.
Subject to the last sentence of Section 7.6, none of Seller, the Company, nor
any other Person will have or be subject to any liability to Buyer or any other
Person resulting from the distribution to Buyer, or Buyer's use of, any
information not contained in this Agreement (including, without limitation, any
offering memorandum, brochure or other publication provided to Buyer, and any
other document or information provided to Buyer in
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connection with the sale of the Securities). Notwithstanding anything contained
herein to the contrary, neither the Company nor Seller makes any representation,
warranty or covenant of any kind with respect to any projections, estimates or
budgets heretofore delivered to or made available to Buyer, except as set forth
in Sections 4.1(a), 4.1(c), 4.1(j), 4.1(l) and 4.1(p) of this Agreement, of
future revenues, expenses or expenditures, future results of operations (or any
component thereof), future cash flows or future financial condition (or any
component thereof) of the Company or the future business and operations of the
Company.
6.2 Further Assurances. From time to time, as and when requested
by either party hereto, the other party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
6.3 Tax Matters. (a) Seller shall be responsible for the
preparation, on a basis consistent with Returns filed for previous periods, and
filing of all Federal, state and local income Tax Returns of the Company for all
taxable periods ending on or before the Closing Date and all other Returns of
the Company that are due (giving effect to valid extensions) on or before the
Closing Date ("Seller's Tax Returns"). Seller shall make all payments required
with respect to Seller's Tax Returns.
(b) Buyer will be responsible for the timely (i) preparation and filing
of all other Returns of the Company and (ii) payment of all Taxes related
thereto, including Returns for periods beginning before the Closing Date but
ending after the Closing Date ("Straddle Returns") which shall be prepared and
filed by Buyer in a manner consistent with Seller's Tax Returns for previous
periods. In the case of such Straddle Returns, Buyer shall provide Seller with
copies of such Returns as filed, after which Seller shall reimburse Buyer for
the portion of Taxes shown to be due on such Returns which is accruable to
pre-Closing periods. Buyer shall also be responsible for all sales, use,
documentary, stamp or other transfer Taxes incurred in connection with the sale
of the Company and the Foreign Assets (collectively, "Transfer Taxes").
(c) Seller and Buyer shall provide reasonable cooperation to each other
in connection with (i) the preparation or filing of any Return, Tax election,
Tax consent or certification, or any claim for a Tax refund, (ii) any
determination of liability for Taxes, and (iii) any audit, examination or other
proceeding in respect of Taxes related to the Company. Such cooperation shall
include making available, on a reasonable basis, employees of the Seller, Buyer,
or the Company, as the case may be, whose out-of-pocket costs, if any, shall be
reimbursed by the party to which such employees are made
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available. After the Closing Date, Seller and Buyer shall make available to each
other, as reasonably requested, all information, records or documents of the
Company for all periods prior to and including the Closing Date and shall
preserve all such information, records and documents until the expiration of any
applicable statute of limitations, including extensions thereof, provided that
notice of such extension is given to the party which did not grant the
extension, but in all events such information, records and documents shall be
preserved for a period of not less than eight (8) years.
(d) Seller shall have the right, at its own expense, to control any
audit or examination by any Authority, to initiate any claim for refund, to
amend any Seller's Tax Return or Straddle Return or to contest, resolve and
defend against any assessment, notice of deficiency, or other adjustment or
proposed adjustment relating to Seller's Tax Returns (whether or not a Tax
Return was actually filed). Buyer shall notify Seller within ten (10) days
following receipt of notice from any taxing or other Authority relating to any
proposed investigation, audit or other proceeding that may affect Seller's Tax
Returns or Straddle Returns.
(e) Seller shall be entitled to any refund or credit of Taxes of the
Company with respect to (i) any taxable period that ends on or prior to the
Closing Date and (ii) its portion of Taxes paid with respect to Straddle
Returns.
(f) Tax Indemnity - Notwithstanding the provisions of Article VII of
this Agreement, Seller agrees to indemnify Buyer for and hold Buyer harmless
from any Taxes of the Company with respect to Seller's Tax Returns or otherwise
with respect to any Taxes relating to the ownership and operation of the
Business prior to the Closing Date (including, without limitation, all interest,
penalties, reasonable costs of defense and reasonable legal fees and expenses
incurred by Buyer). Notwithstanding the provisions of Article VII of this
Agreement, Horizon and Arrow shall be jointly and severally liable to indemnify
and hold Seller harmless for all Tax liabilities of the Company, including,
without limitation, all interest, penalties, reasonable costs of defense and
reasonable legal fees incurred by Seller, payable with respect to any period
after the Closing Date or with respect to any Straddle Returns (other than
amounts that are the responsibility of Seller pursuant to Section 6.3(b) of this
Agreement), including any such liabilities incurred as a result of the transfer
either (i) by the Company of any Company assets to Arrow, Horizon or both of
them; or (ii) of any Company assets among Horizon and Arrow, whether such
liabilities are considered attributable to any period before, after or including
the Closing Date.
6.4 Liabilities and Causes of Action Relating to Furon. (a) As of the
date hereof there exists an unresolved dispute between Seller and Furon Company,
Inc. ("Furon") relating
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to the quality of catheters supplied by Furon to the Company. In that dispute
Seller alleges (i) that Furon breached its warranties by supplying catheters
contaminated with steel deflashing beads; (ii) that the presence of the beads
rendered the catheters and the finished ports into which they were incorporated
adulterated; (iii) that the Company was obliged to recall adulterated product;
(iv) that the Company was unable to obtain cover for the contaminated catheters
in sufficient time to supply its distributors to enable them to meet their
demands; (e) and that both (A) the losses incurred as a result of Furon's
breaches of warranty and (B) the pendency of Seller's dispute with Furon
resulted in a lower price for the sale of the Company by Seller.
(b) In the dispute with Furon, Seller seeks recovery of (i) damages for
the costs of the Recall; (ii) the cost of cover; (iii) the lost profits on sales
unrealized as a result of Furon's breach; (iv) the reduction in the sale price
for the Company occasioned by the foregoing; and (v) any other damages arising
from Furon's breach. In addition, Seller seeks (vi) indemnification for any
claims made against Seller by its distributors as a result of their lost sales;
and (vii) indemnification for products liability claims made against Seller
and/or its distributors resulting from contaminated catheters.
(c) The Company shall retain all liabilities arising from the breaches
by Furon (the "Furon Liabilities"), including (i) liabilities resulting from
claims by distributors for lost sales or profits resulting from the Company's
inability to ship product due to inadequate supplies of catheters; and (ii)
other liabilities attributable to Furon's breaches (other than those described
in clause (ii) of Section 5.1(e) of this Agreement).
(d) The Company shall retain all claims and causes of action against
Furon arising from Furon's supply of catheters and its breaches of the supply
agreement and all damages caused thereby to Buyer, the Company or Seller. Seller
will take such actions and execute such documents as will enable the Company to
perfect and pursue such claims and causes of action against Furon, and will
perform such additional acts as are specified in Sections 8.7 and 5.3(d) of this
Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Seller. (a) Seller hereby agrees to indemnity
Buyer, its Affiliates and, after the Closing Date, the Company and their
respective officers and directors against and hold them harmless on a net
after-Tax basis from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses and costs of enforcing any right to
indemnification pursuant to this Agreement but excluding unforeseen or other
consequential damages and punitive damages other than unforeseen or other
consequential damages and punitive
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damages suffered or incurred by or otherwise awarded in favor of any Person,
other than Buyer, Seller, the Company or any of their Affiliates, who initiates
a Third Party Claim in connection with any of the obligations identified in
clauses (i), (ii) and (iii) of the first sentence of Section 5.1(e) of this
Agreement or on Schedule 7.1(a)) (a "Loss") suffered or incurred by any such
indemnified party (other than any relating to Taxes, for which indemnification
provisions are set forth in Section 6.3 of this Agreement) as a direct
consequence of (i) any breach of any representation or warranty of Seller
contained in this Agreement which by the terms of Section 8.4 survives the
Closing, or (ii) any breach of any covenant of Seller contained in this
Agreement or (iii) those matters specifically identified on Schedule 7.1(a) (the
"Covered Obligations") or (iv) the release or threatened release of any
Hazardous Substance during the Company's ownership, lease or operation of real
property now or formerly owned, leased or operated by the Company (or with
respect to the Facility, during or prior to the Company's lease of the Facility)
to the extent arising prior to the Closing Date at, on, in or under any portion
of such real property which requires remediation under applicable Environmental
Laws or which constitutes a violation of applicable Environmental Laws or the
off-site disposal or shipment for disposal by the Company prior to the Closing
Date of any Hazardous Substance; provided, however, that Seller shall not have
any liability hereunder (other than with respect to clauses (ii) and (iii)
above) unless and until the aggregate of all Losses, for which Seller would, but
for this proviso, be liable exceeds on a cumulative basis a dollar amount equal
to four hundred and twenty-five thousand dollars ($425,000) (the "Basket"), and
then only to the extent of any amount which, in the aggregate, exceeds the
Basket; provided, further, that Seller shall not have any liability hereunder
unless and until the amount of Loss with respect to each individual matter, or
series of related matters, exceeds twenty five thousand dollars ($25,000) (the
"Sub-limit"); provided, further, that the maximum aggregate obligation of Seller
to Buyer (including, but not limited to, liabilities of Seller for costs,
expenses and attorneys' fees paid or incurred in connection therewith or in
connection with the curing of any or all breaches of the Seller's
representations and warranties) collectively pursuant to this Section 7.1(a)(i)
shall not exceed three and one half million dollars ($3,500,000) (the "Cap");
provided, further that (i) the Basket, the Sub-limit and the Cap shall not apply
to Seller's indemnity obligations under this Section 7.1 relating to the Covered
Obligations and no Losses relating to the Covered Obligations shall be included
in any way in determining the Basket, the Sub-limit and the Cap and (ii) the Cap
shall not apply to Seller's indemnity obligations under this Section 7.1
relating to Seller's representations and warranties in the first three sentences
of Section 4.1(a), in Section 4.1(c) of this Agreement and the first sentence of
Section 4.1(g) and no Losses relating to such representations and warranties
shall be included in any way in determining the Cap.
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<PAGE> 41
(b) Buyer acknowledges and agrees that Seller shall not have
any liability under any provision of this Agreement for any Loss to the extent
that such Loss relates to actions taken by or omitted to be taken by Buyer, the
Company or their respective Affiliates after the Closing Date. Buyer shall take
and cause its Affiliates (including the Company) to take all reasonable steps to
mitigate any Loss upon becoming aware of any event which would reasonably be
expected to, or does, give rise thereto, including incurring costs only to the
minimum extent necessary to remedy the breach which gives rise to the Loss.
7.2 Indemnification by Buyer. (a) Each Buyer and, after the
Closing, the Company, hereby agrees to indemnify Seller and its Affiliates and
their respective officers and directors against and hold them harmless on a net
after-Tax basis from any Loss suffered or incurred by any such indemnified party
(other than any relating to Taxes, for which indemnification provisions are set
forth in Section 6.3 of this Agreement) as a direct consequence of (i) any
breach of any representation or warranty of such Buyer contained in this
Agreement which by the terms of Section 8.4 survives the Closing, (ii) any
breach of any covenant of such Buyer contained in this Agreement, (iii) any
obligation or liability of the Company arising on or after the Closing Date
(except to the extent, but only to the extent, Seller is obligated to indemnify
Buyer pursuant to Section 7.1(a) of this Agreement), (iv) any Obligations, (v)
any Furon Liabilities (other than those described in clause (ii) of Section
5.1(e) of this Agreement) and (vi), without limiting the indemnity provided in
clause (iii) of this Section 7.2(a), the release or threatened release, or the
exacerbation of any pre-Closing release (but only to the extent of such
exacerbation), of any Hazardous Substance, to the extent arising after the
Closing Date at, on or under any portion of the real property owned, leased or
operated by the Company which requires remediation under applicable
Environmental Laws or which constitutes a violation of applicable Environmental
Laws or the off-site disposal or shipment for disposal by the Company on or
after the Closing Date of any Hazardous Substance; provided, however, that such
Buyer shall not have any liability hereunder (other than with respect to clauses
(ii), (iii), (iv) and (v) above) unless and until the aggregate of all Losses,
for which Horizon and Arrow together would, but for this proviso, be liable
exceeds on a cumulative basis the Basket, and then only to the extent of any
amount which, in the aggregate, exceeds the Basket; provided, further, that such
Buyer shall not have any liability hereunder unless and until the amount of Loss
with respect to each individual matter, or series of related matters, exceeds
the Sub-Limit; provided, further, that the maximum aggregate obligation of
Horizon and Arrow together to Seller (including, but not limited to, liabilities
of Horizon or Arrow for costs, expenses, attorneys' fees paid or incurred in
connection therewith or in connection with the curing of any or all breaches of
Horizon or Arrow's representations or warranties) collectively pursuant to
clause (i) of this Section 7.2(a) shall not exceed the Cap. Notwithstanding any
provision of this
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<PAGE> 42
Agreement to the contrary, neither Horizon nor Arrow shall be liable or
otherwise responsible under this Agreement for the other's failure to close the
transactions contemplated by, or perform the other obligations under, this
Agreement. Notwithstanding anything to the contrary in this Section 7.2(a),
Arrow shall have no liability pursuant to clause (v) of the first sentence of
this Section 7.2(a).
(b) Seller shall take all reasonable steps to mitigate any Loss
upon becoming aware of any event which would reasonably be expected to, or does,
give rise thereto, including incurring costs only to the minimum extent
necessary to remedy the breach which gives rise to the Loss.
7.3 Losses Net of Insurance, Etc. The amount of any Loss for which
indemnification is provided under this Article VII shall be net of (i) in the
case of Section 7.1, any accruals or reserves on the Annual Financial Statements
which relate specifically to such Loss, (ii) any amounts recovered by the
indemnified party pursuant to any indemnification by or indemnification
agreement with any third party, (iii) the positive difference, if any, between
(a) any insurance proceeds or other cash receipts or sources of reimbursement
recovered as an offset against such Loss and (b) the net present value of any
increase in insurance premiums payable by the Indemnified Party (as such term is
defined in Section 7.5 of this Agreement) which such party is able to
demonstrate to the Indemnifying Party (as such term is defined in Section 7.5 of
this Agreement) is directly attributable to any insurance proceeds paid on
account of such Loss (each such Person named in clauses (i), (ii) and (iii), a
"Collateral Source") and (iv) an amount equal to the Tax benefit, if any,
attributable to such Loss. If the amount to be netted hereunder from any payment
required under Sections 7.1 or 7.2 is determined after payment by the
indemnifying party of any amount otherwise required to be paid to an indemnified
party pursuant to this Article VII, the indemnified party shall repay to the
indemnifying party, promptly after such determination, any amount that the
indemnifying party would not have had to pay pursuant to this Article VII had
such determination been made at the time of such payment.
7.4 Termination of Indemnification. The obligations to indemnify and
hold harmless a party hereto, pursuant to Sections 7.1(a)(i) and 7.2(a)(i),
shall terminate when the applicable representation or warranty terminates
pursuant to Section 8.4; provided; however, that the obligation of Seller to
indemnify and hold harmless Buyer pursuant to Sections 7.1(a)(iv) with respect
to the Facility shall terminate on the third anniversary of the date hereof;
provided, further, that the obligation of Seller to indemnify and hold harmless
Buyer pursuant to Sections 7.1(a)(iv) with respect to the real property owned,
leased or operated by the Company, other than the Facility shall terminate on
the tenth anniversary of the date hereof; provided, further, that the obligation
of Seller to indemnify and
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<PAGE> 43
hold harmless Buyer pursuant to Sections 7.1(a)(iv) with respect to (i) the
off-site disposal or shipment for disposal by the Company prior to the Closing
Date of any Hazardous Substance and (ii) the real property located outside of
the United States owned by Seller or its Affiliates and utilized by the Company
shall survive indefinitely; provided, further, that such obligations to
indemnify and hold harmless shall not terminate with respect to any item as to
which the person to be indemnified (or the related party thereto) shall have,
before the expiration of the applicable period, previously made a claim by
delivering a notice (stating in reasonable detail the basis of such claim) to
the party providing the indemnification.
7.5 Procedures Relating to Indemnification under Sections 7.1 and 7.2.
In order for a party (the "Indemnified Party") to be entitled to any
indemnification provided for under Sections 7.1 or 7.2 of this Agreement in
respect of, arising out of or involving a claim or demand made by any Person
against the Indemnified Party (a "Third Party Claim"), such Indemnified Party
must notify the party from whom indemnification is sought (the "Indemnifying
Party") in writing of the Third Party Claim within ten (10) Business Days after
receipt by such Indemnified Party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been prejudiced as a result of such failure (except that the
Indemnifying Party shall not be liable for any expenses incurred during the
period in which the Indemnified Party failed to give such notice). Thereafter,
the Indemnified Party shall deliver to the Indemnifying Party, within five (5)
Business Days after the Indemnified Party's receipt thereof, copies of all
notices and documents (including court papers) received by the Indemnified Party
relating to the Third Party Claim.
If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party will be entitled to participate in the defense thereof and,
if it so chooses, assume at any time the defense thereof with counsel selected
by the Indemnifying Party and reasonably acceptable to the Indemnified Party.
Should the Indemnified Party so elect to assume and control the defense and
settlement of a Third Party Claim, the Indemnifying Party will not be liable to
the Indemnified Party for legal expenses subsequently incurred by the
Indemnified Party in connection with the defense or settlement thereof. If the
Indemnifying Party assumes such defense, the Indemnified Party shall have the
right to participate in, but not control, the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party. The Indemnifying Party shall be liable for the fees and
expenses of counsel employed by the Indemnified Party for any period during
which the Indemnifying Party has not assumed the defense thereof (subject to the
first sentence of the first paragraph of this Section 7.5). Whether or not the
Indemnifying Party chooses to defend or prosecute any
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<PAGE> 44
Third Party Claim, both parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
Indemnifying Party's written request) the provision to the Indemnifying Party of
records and information which are reasonably relevant to such Third Party Claim,
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Whether or not the Indemnifying Party shall have assumed the defense of a Third
Party Claim, the Indemnifying Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim without the
Indemnifying Party's prior written consent.
7.6 Exclusive Remedy. The indemnification provided in this Article VII
shall be the sole and exclusive remedy after the Closing Date for monetary
damages available to Buyer and Seller for breach of any of the terms,
conditions, representations or warranties contained herein. As between Seller,
on the one hand, and Buyer and its Affiliates, including without limitation
after the Closing, the Company, on the other hand, the rights and obligations
set forth in this Agreement will be the exclusive rights and obligations with
respect to this Agreement, the events giving rise to this Agreement and the
transactions provided for herein or contemplated hereby (other than, prior to
the Closing, the Confidentiality Agreement). Without limiting the generality or
effect of the foregoing, as a material inducement to the other parties hereto
entering into this Agreement, and in light of, among other factors, the
acknowledgements contained in this Section 7.6, each of the parties to this
Agreement hereby waives any claim or cause of action, known and unknown,
foreseen and unforeseen, which exists or may arise in the future, or which it
otherwise might assert, including without limitation under the common law or
Federal or state securities laws, trade regulation laws, Environmental Laws
(including CERCLA or any other statutes now or hereafter in effect) or other
laws, by reason of this Agreement, the events giving rise to this Agreement and
the transactions provided for herein or contemplated hereby or thereby (other
than in respect of the Confidentiality Agreement), except for (i) claims or
causes of action brought under and subject to the terms and conditions of this
Agreement, or (ii) injunctive or other equitable relief (other than for
rescission or rescissory or similar damages). Notwithstanding any other
provision contained in this Section 7.6, none of the parties to this Agreement
shall be deemed to have waived or otherwise limited such party's rights on
account of any fraudulent act by any of the other parties hereto.
7.7 Collateral Sources. Indemnification under this Article VII shall
not be available to any Indemnified Party unless such Indemnified Party
concurrently seeks recovery from any Collateral Source for such claim. Any
Indemnifying Party may, in its sole discretion, require any Indemnified Party to
grant an assignment of the right of such Indemnified Party to assert a claim
against any Collateral Source. In the event of
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<PAGE> 45
such assignment, the Indemnifying Party will pursue such claim at its own
expense.
7.8 Certain Limitations. Seller hereby agrees that if any payment by
Seller is made under the terms of this Agreement, Seller shall have no rights or
causes of action against the Company or any director, officer, employee or agent
thereof, whether by reason of contribution, indemnification, subrogation, set
off or otherwise (including, without limitation, by reason of the making of the
Company of representations and warranties hereunder, it being understood and
agreed that the Company made such representations and warranties for the benefit
of Seller), in respect of any such payments, any action or inaction at or prior
to the Closing Date, or in respect of any representation, warranty, covenant or
agreement made by the Company hereunder, and shall not take any action against
the Company or any director, officer, employee or agent thereof with respect
thereto. Any such rights which Seller may, by operation of law or otherwise,
have against the Company or any director, officer, employee or agent thereof
shall, at the Closing Date, be deemed to be hereby expressly and knowingly
waived.
ARTICLE VIII
MISCELLANEOUS
8.1 Assignment. This Agreement and the rights hereunder shall not be
assignable or transferable by Buyer at any time prior to the Closing Date or
Seller (including by sale of stock, operation of law in connection with a
merger, or sale of substantially all the assets of Buyer) without the prior
written consent of the other party hereto. This Agreement shall inure to the
benefit of, and be binding upon and enforceable against, the successors and
permitted assigns of the respective parties hereto.
8.2 No Third-Party Beneficiaries. Except as provided in Article VII,
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or be construed to
give to any Person, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
8.3 Termination.
(a) This Agreement may be terminated by written notice given by
Buyer to Seller or Seller to Buyer (i) if the Closing shall not have occurred by
August 29, 1997, other than as a result of a material default by the party
seeking to terminate, or (ii) if Horizon is unable to provide by June 20, 1997
written confirmation to Seller reasonably sufficient to demonstrate that Horizon
has secured adequate financing to consummate the transactions contemplated by
this Agreement, which right must be exercised by June 25, 1997, or (iii) if (x)
the purchase and sale of the Securities contemplated hereby shall violate any
non-
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<PAGE> 46
appealable final order, decree or judgment of any Authority having competent
jurisdiction or (y) there shall be a statute, rule or regulation which makes the
purchase and sale of the Securities contemplated hereby illegal or otherwise
prohibited.
(b) In the event of termination by Seller or Buyer pursuant to
paragraph (a) of this Section 8.3, written notice thereof shall forthwith be
given to the other and the transactions contemplated by this Agreement shall be
terminated, without further action by either. If the transactions contemplated
by this Agreement are terminated as provided herein:
(i) Buyer shall return all documents and other material
received from Seller, the Company, or any of their Affiliates relating to the
transactions contemplated hereby, whether so obtained before or after the
execution hereof, to Seller;
(ii) all confidential information received by Buyer with
respect to the Business shall be treated in accordance with the Confidentiality
Agreement, which shall remain in full force and effect notwithstanding the
termination of this Agreement;
(iii) only the provisions of Sections 5.2(a), 5.2(c), 8.5,
8.9, 8.10, 8.11 and 8.15 hereof shall remain in full force and effect; and
(iv) in no event shall any termination of this Agreement
limit or restrict the rights and remedies of any party hereto against any other
party which has willfully breached any of the agreements or other provisions of
this Agreement prior to termination hereof.
8.4 Survival of Representations. The representations and warranties in
this Agreement shall survive the Closing solely for purposes of Sections 7.1 and
7.2 of this Agreement and shall terminate at the close of business on the first
anniversary of the date hereof; provided, however that (i) the representations
and warranties in Section 4.1(c) of this Agreement shall survive indefinitely,
subject to any applicable statute of limitations, (ii) the representation and
warranties in Section 4.1(n) of this Agreement shall terminate at the close of
business on the day eighteen (18) months following the date hereof and (iii) the
representations and warranties contained in Section 4.1(k) and the first
sentence of Section 4.1(g) of this Agreement shall terminate at the close of
business on the fifth anniversary of the date hereof.
8.5 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs or expenses, except as may otherwise be expressly provided
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<PAGE> 47
in this Agreement. Notwithstanding the foregoing, Seller and Horizon shall each
be responsible for and pay one-half of the HSR Act filing fees to be incurred by
the parties in making the HSR Act filing required by Section 5.3(a) of this
Agreement.
8.6 Amendments. No amendment to or modification of this Agreement shall
be effective unless it shall be in writing and signed by each of the parties
hereto.
8.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given (a) on the date of delivery if delivered
personally; (b) on the date of transmission if sent via facsimile transmission
to the facsimile number given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (c) on the date after
delivery to a reputable nationally recognized overnight courier service or (d)
three (3) days after being mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) If to Horizon,
Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, NW
Atlanta, Georgia 30327
Attention: President
Telecopier: (404) 233-0171
With a required copy to:
Slaughter & Virgin, P.C.
Suite 1110
400 Colony Square
1201 Peachtree Street, NE
Atlanta, Georgia 30361
Attention: N.G. Slaughter, III
Telecopier: (404) 872-7879
(ii) If to Arrow,
Arrow International, Inc.
2400 Bernville Road
Reading, Pennsylvania 19605
Attention: President
Telecopier: (610) 478-3177
With a required copy to:
Nixon, Hargrave, Devans & Doyle, LLP
437 Madison Avenue
New York, New York 10022
Attention: Richard F. Langan, Jr.
Telecopier: (212) 940-3111
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<PAGE> 48
(iii) If to the Company, to:
Strato/Infusaid
1400 Providence Highway
Norwood, Massachusetts 02062-5032
Attention: President
Telecopier: (617) 769-0772
(iv) If to Seller, to:
Pfizer Inc.
235 East 42nd Street
New York, New York 10017-5755
Attention: Peter L. Garrambone
Telecopier: (212) 573-3824
With a required copy to:
Pfizer Inc.
235 East 42nd Street
New York, New York 10017-5755
Attention: Office of the General
Counsel
Telecopier: (212) 573-1445
and
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: David E. Schulman
Telecopier: (215) 994-2222
Such addresses may be changed, from time to time by means of a notice given in
the manner provided in this Section (provided that no such notice shall be
effective until it is received by the other parties hereto).
8.8 Fees. Each party hereto hereby agrees that (a) the only brokers or
finders that have acted for such party in connection with this Agreement or the
transactions contemplated hereby or that may be entitled to any brokerage fee,
finder's fee or commission in respect thereof are Lazard Freres & Co. LLC with
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<PAGE> 49
respect to Seller and (b) such party will pay all fees or commissions which may
be payable to the firms so named.
8.9 Consent to Jurisdiction. Buyer and Seller each irrevocably submits
to the non-exclusive jurisdiction of (a) the state courts of the State of New
York, New York County, and (b) the United States District Court for the Southern
District of New York, for the purposes of any suit, action or other proceeding
arising out of this Agreement or any transactions contemplated hereby. Buyer and
Seller consent to service of process in accordance with the procedures set forth
in Section 8.7 of this Agreement or as otherwise permitted by law.
8.10 Severability. If any provision of this Agreement or the
application of any such provision to any Person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
8.11 Interpretation. All references to immediately available funds or
dollar amounts contained in this Agreement shall mean United States dollars. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. The
parties acknowledge and agree that (i) each party and its counsel have reviewed
the terms and provisions of this Agreement and have contributed to its revision,
(ii) the normal rule of construction, to the effect that any ambiguities are
resolved against the drafting party, shall not be employed in the interpretation
of it, and (iii) the terms and provisions of this Agreement shall be constructed
fairly as to all parties hereto, regardless of which party was generally
responsible for the preparation of this Agreement. All information disclosed by
Seller in any Schedule hereto or any representation or warranty herein shall be
deemed to have been disclosed in any other Schedule hereto or any representation
or warranty herein where such disclosure of such information is required or
pertains to a representation or warranty made by Seller herein. Reference in
this Agreement to dollar amount thresholds (including such references in Article
VII of this Agreement) shall not, for purposes of this Agreement, be deemed to
be evidence of materiality or a Material Adverse Effect.
8.12 Waiver. Waiver of any term or condition of this Agreement by any
party shall be effective if in writing and shall not be construed as a waiver of
any subsequent breach or failure of the same term or condition, or a waiver of
any other term of this Agreement. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
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<PAGE> 50
8.13 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
8.14 Entire Agreement. This Agreement, including the Schedules hereto
and the other documents delivered pursuant to this Agreement, and the
Confidentiality Agreement, contain the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements, negotiations,
correspondence, undertakings and understandings, oral or written, relating to
such subject matter.
8.15 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within the State of New York,
without regard to the conflicts of law principles thereof.
[Remainder of this Page Intentionally Left Blank]
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<PAGE> 51
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
PFIZER INC.
By: /s/ Peter L. Garrambone
------------------------------
Peter L. Garrambone
Senior Vice President
Medical Technology Group
STRATO/INFUSAID, INC.
By: /s/ Robert C. Ross
-----------------------------
Robert C. Ross
Vice President
HORIZON MEDICAL PRODUCTS, INC.
By: /s/ Marshall B. Hunt
------------------------------
Name: Marshall B. Hunt
Title: Chief Executive Officer
ARROW INTERNATIONAL, INC.
By: /s/ Marlin Miller, Jr.
------------------------------
Name: Marlin Miller, Jr.
Title: President
<PAGE> 52
AMENDMENT TO PURCHASE AGREEMENT
This is an amendment to the Purchase Agreement dated as of June 20,
1997 among Pfizer Inc., Strato/Infusaid, Inc., Arrow International, Inc. and
Horizon Medical Products, Inc. (the "Purchase Agreement"). Each term utilized
herein but otherwise not defined shall have the meaning given to such term in
the Purchase Agreement.
For good and valuable consideration, and intending to be legally bound,
Seller, Buyer and the Company agree as follows:
A. The last sentence of Section 3.1 of the Purchase Agreement,
Closing Date, shall be amended and restated in its entirety as follows:
All transactions at the Closing shall be deemed to take place
simultaneously and effective as of 11:50 P.M. E.D.T. on the Closing
Date.
B. The last sentence of Section 5.2(d)(iii)(1) of the Purchase
Agreement shall be deleted in its entirety.
C. The first sentence of Section 8.1 of the Purchase Agreement,
Assignment, shall be amended and restated in its entirety as follows:
This Agreement and the rights hereunder shall not be
assignable or transferable by Buyer at any time prior to the Closing
Date or Seller (including by sale of stock, operation of law in
connection with a merger, or sale of substantially all the assets of
Buyer) without the prior written consent of the other party hereto;
provided, however that Arrow may transfer or assign, in whole or in
part, to Arrow Interventional, Inc., a Delaware corporation and
Affiliate of Arrow, its rights under this Agreement prior to the
Closing Date upon delivery of written notice to the parties to this
Agreement; provided, further, that any such transfer or assignment
shall not relieve Arrow of its obligations under this Agreement or
prejudice the rights of Seller to receive Arrow's share of the Purchase
Price to be paid to Seller pursuant to Article II of this Agreement.
All other terms of the Purchase Agreement shall remain in full force
and effect.
<PAGE> 53
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the 15 day of July, 1997.
PFIZER INC.
By: /s/ Peter L. Garrambone
------------------------------
Peter L. Garrambone
Senior Vice President
Medical Technology Group
STRATO/INFUSIAD, INC.
By: /s/ Robert C. Ross
------------------------------
Robert C. Ross
Vice President
HORIZON MEDICAL PRODUCTS, INC.
By: /s/ Marshall B. Hunt
------------------------------
Marshall B. Hunt,
Chief Executive Officer
ARROW INTERNATIONAL, INC.
By: /s/ John H. Broadbent, Jr.
------------------------------
John H. Broadbent, Jr.
Vice President-Finance
<PAGE> 1
EXHIBIT 10.15
ASSET PURCHASE AND STOCK REDEMPTION AGREEMENT
among
ARROW INTERVENTIONAL, INC.
HORIZON MEDICAL PRODUCTS, INC.
and as joining party
STRATO/INFUSAID, INC.
July 15, 1997
<PAGE> 2
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<S> <C> <C>
1. Purchase and Sale of Assets; Assumed Liabilities.................... 2
1.1 Purchase and Sale of Assets............................ 2
1.2 Excluded Assets........................................ 2
1.3 Assumed Liabilities.................................... 2
1.4 Liabilities Not Assumed................................ 3
1.5 Deferred Assigned Contracts. 4
2. Transfer of Arrow Shares as Purchase Consideration.................. 5
3. Closing............................................................. 5
3.1 Date and Place of Closing.............................. 5
3.2 Deliveries by the Company.............................. 5
3.3 Deliveries by Arrow.................................... 6
4. Representations and Warranties of Horizon........................... 7
4.1 organization and Good Standing......................... 7
4.2 Due Authorization; Enforceability; No Conflict......... 8
4.3 Litigation............................................. 10
4.4 Title.................................................. 10
4.5 Purchased Assets....................................... 10
4.6 Brokers................................................ 10
5. Arrow's Representations and Warranties.............................. 11
5.1 organization and Good Standing......................... 11
5.2 Due Authorization; Enforceability; No Conflict......... 11
5.3 Litigation............................................. 12
5.4 Brokers................................................ 12
5.5 Title to Arrow Shares.................................. 12
5.6 No other Representations............................... 12
6. General Covenants of Horizon and Arrow.............................. 13
7. Conditions Precedent to Arrow's obligations......................... 13
7.1 Stock Acquisition...................................... 13
7.2 Consents............................................... 13
7.3 Representations, Warranties & Covenants................ 13
7.4 Litigation Affecting Closing........................... 13
7.5 Closing Deliveries..................................... 14
8. Conditions Precedent to Horizon's obligations....................... 14
8.1 Representations, Warranties & Covenants................ 14
8.2 Stock Acquisition...................................... 14
8.3 Litigation Affecting Closing........................... 14
8.4 Closing Deliveries..................................... 14
8.5 Consents............................................... 15
9. Additional Covenants................................................ 15
9.1 Closing Balance Sheet and Tax Allocation............... 15
9.2 Collections............................................ 17
9.3 Arrow's Use of "Infusaid; Silicone Adhesives".......... 17
9.4 Company's Temporary Use of Norwood, MA Plant;
Special Indemnity...................................... 17
</TABLE>
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<TABLE>
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Page
<S> <C> <C> <C>
9.5 Indemnification of Pfizer under Stock Purchase
Agreement.............................................. 19
9.6 Indemnification of Arrow and Horizon under Stock
Purchase Agreement..................................... 21
9.7 Performance of obligations Under Stock Purchase
Agreement.............................................. 22
9.8 Phone Switch........................................... 22
10. Survival and Indemnification........................................ 23
10.1 Survival............................................... 23
10.2 Indemnification of Arrow............................... 23
10.3 Indemnification of Horizon and the Company............. 24
10.4 Notice of Claims....................................... 24
10.5 Defense of Third Party Claims.......................... 24
10.6 Certain Limitations.................................... 25
10.7 Bulk Sales Indemnity................................... 25
10.8 Exclusive Remedies..................................... 25
11. Miscellaneous....................................................... 25
11.1 Termination of Agreement; Liabilities.................. 25
11.2 Further Assurances..................................... 26
11.3 Benefit of Agreement................................... 26
11.4 Expenses............................................... 26
11.5 Covenants Not to Compete; Use of "Infusaid" on Pumps... 26
11.6 Confidentiality........................................ 27
11.7 Entire Agreement; Amendments........................... 28
11.8 Stock Purchase Agreement............................... 28
11.9 Counterparts........................................... 28
11.10 Section and Paragraph Headings......................... 28
11.11 Notices................................................ 28
11.12 Governing Law.......................................... 30
11.13 Submission to Jurisdiction; Consent to Service of
Process................................................ 30
11.14 Interpretation......................................... 30
1.1 Purchased Assets Schedule.............................. 34
1.2 Certain Excluded Assets................................ 43
1.3 Arrow Employees........................................ 45
1.4 Horizon Employees...................................... 46
4.2 Conflict and Consent Schedule.......................... 47
4.4 Title Exceptions....................................... 48
5.2 Conflict Schedule...................................... 49
11.5(b) List of Distributors of Port Products.................. 50
3.2(a) Bill of Sale and General Assignment.................... 51
</TABLE>
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<TABLE>
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Page
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3.2(b) Assignment and Assumption of Lease Agreement........... 52
3.2(c) opinion of Slaughter & Virgin.......................... 53
3.3(a) Assumption Agreement................................... 54
3.3(c) opinion of Nixon, Hargrave, Devans & Doyle LLP......... 55
7.3(a) Certificate of Horizon................................. 56
7.3(b) Certificate of the Company............................. 57
8.1 Certificate of Arrow................................... 58
</TABLE>
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<PAGE> 5
ASSET PURCHASE AND STOCK REDEMPTION AGREEMENT
THIS ASSET PURCHASE AND STOCK REDEMPTION AGREEMENT
(hereinafter referred to as the "Agreement") is made as of July 15, 1997 by and
among ARROW INTERVENTIONAL, INC., a Delaware corporation ("Arrow"), HORIZON
MEDICAL PRODUCTS, INC., a Georgia corporation ("Horizon") and, by joining as an
additional party hereto immediately following consummation of the transactions
hereunder, STRATO/INFUSAID, INC., a Massachusetts corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is a wholly owned subsidiary of Pfizer
Inc., a Delaware corporation ("Pfizer"), and is in the business, among other
things, of manufacturing and distributing vascular access products (the "Port
Business") and implantable infusion pump products (the "Pump Business");
WHEREAS, Arrow wishes to acquire the Pump Business, and
Horizon wishes to acquire the Port Business;
WHEREAS, Arrow, Horizon, Pfizer and the Company have entered
into a certain Purchase Agreement dated as of June 20, 1997 (such Purchase
Agreement, as amended from time to time, the "Stock Purchase Agreement"; terms
used herein and otherwise not herein defined shall have the respective meanings
assigned to such terms in the Stock Purchase Agreement);
WHEREAS, pursuant to the Stock Purchase Agreement (i) Arrow
has agreed to acquire from Pfizer and/or any affiliate of Pfizer 24,706 shares
(the "Arrow Shares") of the capital stock of the Company (the "Common Stock")
and certain of those "Foreign Assets" described in Schedule 2.1(a) to the Stock
Purchase Agreement under the caption "Pump Related Foreign Assets", and (ii)
Horizon has agreed to acquire from Pfizer and/or any affiliate of Pfizer 275,294
shares (the "Horizon Shares") of the Common Stock and certain of those "Foreign
Assets" described in Schedule 2.1(a) to the Stock Purchase Agreement under the
caption "Port Related Foreign Assets"; and
WHEREAS, on the Closing Date and immediately following
consummation of the transactions contemplated by the Stock Purchase Agreement
(the "Stock Acquisition"), Arrow wishes to acquire from the Company, and
Horizon, as the beneficial owner of a majority of the Common Stock, wishes to
cause the Company to transfer, sell and assign to Arrow, the Pump Business in
exchange for the Arrow Shares, all upon and subject to the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration, the
receipt, adequacy and sufficiency of
<PAGE> 6
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which are hereby acknowledged, Horizon, Arrow and, when made additional party
hereto, the Company, agree as follows:
1. Purchase and Sale of Assets; Assumed Liabilities
1.1 Purchase and Sale of Assets. On the Closing Date and
immediately following consummation of the Stock Acquisition, upon and subject to
the terms and conditions of this Agreement, Horizon shall cause the Company to
sell, transfer, assign, convey and deliver to Arrow, and Arrow shall purchase
and acquire from the Company, the "Purchased Assets" described on Schedule 1.1
hereto (the "Purchased Assets"). Notwithstanding any provision of this Agreement
to the contrary, to the extent any assets of the Company do not relate
principally to the Port Business or the Pump Business (e.g., office furniture
and equipment and computers) (other than (except as provided in Section 1.2(v)
below) leasehold improvements and fixtures relating to the Facility (which
Facility shall also be referred to in this Agreement as the "Plant")), fifty
percent (50%) in value of such assets, as determined by Coopers & Lybrand
pursuant to Section 9.1(a), shall be sold, transferred, assigned, conveyed and
delivered to Arrow and shall constitute Purchased Assets.
1.2 Excluded Assets. Except as provided in Section 1.1, the
Company shall retain and shall not be caused to sell or deliver to Arrow, and
Arrow shall not purchase from the Company the following assets, all of which
shall be excluded from the Purchased Assets: (i) all original books or records
of the Company which pertain to the financial accounting and tax aspects of the
Company for periods preceding the Closing Date (all of which shall be maintained
by the Company and Horizon in accordance with Section 5.2(b) of the Stock
Purchase Agreement); (ii) subject to Section 5.2(d) of the Stock Purchase
Agreement, pension, profit sharing, retirement, bonus and savings plans or
trusts and, except as otherwise provided in the Stock Purchase Agreement, any
assets thereof and all other plans, agreements or understandings to provide
employee benefits of any kind for employees of the Company; (iii) subject to
Section 9.3 below, all rights in and to the name "Strato" or "Infusaid" and any
logo or variation thereof; (iv) those assets of the Company which are not
expressly transferred pursuant to Section 1.1 hereof, including, without
limitation, those listed on Schedule 1.2 hereof; (v) all warehousing and
distribution equipment in the inventory and shipping areas of the Plant and the
Company exhibit booths (other than graphics and display materials which relate
principally to the Pump Business); and (vi) all rights which accrue to or are
retained by the Company under and by virtue of this Agreement (collectively, the
"Excluded Assets").
1.3 Assumed Liabilities. On the Closing Date and immediately
following consummation of the Stock Acquisition, Arrow shall assume from the
Company and, without waiving,
<PAGE> 7
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releasing discharging or terminating in any respect the right to such
indemnification from or other undertaking of, Pfizer under the Stock Purchase
Agreement, pay and perform, without duplication (i) except for liabilities
referred to in the second sentence of Section 1.4, all obligations and
liabilities of the Company outstanding as of the Closing Date that are related
to or arise from the Pump Business, excluding, however, such liabilities and
obligations that are retained by and are the responsibility of Pfizer under the
Stock Purchase Agreement, (ii) all obligations and liabilities of the Company
which arise in connection with the Purchased Assets on and after the Closing
Date (including without limitation any personal injury or property damage
whatsoever caused by or through any of the Purchased Assets and any taxes,
interest and penalties which arise after the Closing Date as a result of Arrow's
ownership or operation of the Pump Business), (iii) all obligations and
liabilities of the Company under the Lease Agreement and all obligations and
liabilities of the Company for the Plant, except (x) for those created after the
Closing by Horizon or the Company, (y) as otherwise provided in Section 9.4
hereof and (z) for the obligations and liabilities that are retained by and are
the responsibility of Pfizer under the Stock Purchase Agreement, (iv) all
obligations and liabilities of the Company to each of the "Arrow Employees"
listed on Schedule 1.3 hereto, excluding, however, such obligations and
liabilities that are retained by and are the responsibility of Pfizer under the
Stock Purchase Agreement, and (v) all obligations under the agreements,
instruments, indentures, commitments and undertakings referred to on Schedule
1.1 hereto as the "Assigned Contracts" provided, however, that to the extent any
such Assigned Contract is only partially assigned to Arrow (as is the case with
each Assigned Contract marked with an asterisk on Schedule 1.1), Arrow shall
assume liabilities and obligations thereunder only to the extent such
liabilities and obligations pertain to rights assigned to Arrow (all of such
liabilities and obligations in above clauses (i), (ii), (iii), (iv), and (v),
but specifically excluding those described in Section 1.4 below, are hereinafter
referred to as the "Assumed Liabilities"). With respect to any of the
above-described obligations and liabilities that would be Assumed Liabilities
except that such liabilities and obligations were retained by and are the
responsibility of Pfizer under the Stock Purchase Agreement; solely to the
extent such obligations and liabilities are retained by and the responsibility
of Pfizer under the Stock Purchase Agreement, neither Horizon nor the Company
will be responsible for or required to pay such obligations and liabilities,
and, solely to such extent, Arrow, if necessary, will pay such obligations and
liabilities and seek indemnification from Pfizer under the Stock Purchase
Agreement for such obligations and liabilities.
1.4 Liabilities Not Assumed. Arrow shall not and will not
accept or assume any liability or obligation of the Company
<PAGE> 8
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other than the Assumed Liabilities which Arrow is expressly agreeing to accept
or assume pursuant to this Agreement. Without limiting the foregoing, the
Company shall not assign or transfer to Arrow, and Arrow shall not and will not
accept or assume any liability or obligation of the Company (i) except as
expressly provided in Section 1.3(ii), arising from or related to any federal,
state or local income, sales, use, excise or other tax of the Company (including
without limitation any such taxes incurred by the Company as a result of the
transactions contemplated hereby); (ii) except for the Arrow Employees, relating
to any other employees, former employees or retirees of the Company (including
without limitation those listed on Schedule 1.4 hereto) or arising by reason of
any such other person's employment or termination of employment by the Company,
including, without limitation, those relating to the Company's terms or
conditions of employment, policies, practices, compensation, wages, payroll
expenses, accrued vacation and sick leave, medical benefits, benefit or welfare
plans, pension plans, compliance with applicable federal, state or local labor
and/or employment laws, rules, regulation or orders, or any other
employment-related obligation; (iii) arising from or otherwise associated with
or relating to the Port Business (including without limitation any personal
injury or property damage whatsoever caused by or through any products of the
Port Business); (iv) arising from or related to any the Company's lack of
compliance with any applicable federal, state or local laws, rules, regulations,
ordinances or orders, except to the extent such lack of compliance is related to
or arises from the Plant, the Pump Business or the Arrow Employees; (v) any
liabilities or obligations relating to Excluded Assets; or (vi) any liabilities
or obligations not expressly assumed by Arrow hereunder.
1.5 Deferred Assigned Contracts. If, on the Closing Date, (i)
Horizon or the Company has not obtained any Consent required to permit or enable
the Company to transfer or assign (a "Transfer) all of the Company's right,
title or interest in and obligations under any assigned agreement, instrument or
indenture constituting a portion of the Purchased Assets (each, an "Assigned
Contract") referred to on Schedule 1.1 hereto or if an attempted assignment,
transfer or conveyance of any Assigned Contract included in the Purchased Assets
would be ineffective or would adversely affect the Company's ability to convey
the same and (ii) the conditions precedent to the Closing set forth herein have
nevertheless been satisfied, then such Assigned Contract shall constitute a
"Deferred Assigned Contract" and shall not be transferred to Arrow on the
Closing Date, but thereafter (A) Horizon and the Company will continue to use
all reasonable efforts, and Arrow will cooperate with Horizon and the Company,
to obtain the Consent and/or to remove any other impediments to the Transfer of
each such Deferred Assigned Contract, (B) until the Transfer of any such
Deferred Assigned Contract, Horizon and the Company ensure that Arrow shall
receive the benefits under
<PAGE> 9
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such Deferred Assigned Contract after the Closing Date to the same extent as if
it were the Company, with, to the extent provided in clause (D) below, all costs
and expenses thereof, as well as all gains, income, losses, taxes or other items
generated thereby to be for Arrow's account, (C) the Company will transfer or
assign each such Deferred Assigned Contract to Arrow within five (5) business
days after the receipt of such Consent and/or the removal of such impediment,
and (D) Arrow shall assume the Company's obligations and liabilities thereunder
and such liabilities and obligations will be deemed to constitute Assumed
Liabilities, and, Arrow shall perform such obligations of the Company arising
under such Deferred Assigned Contract. In addition, with respect to each
"Retained Contract" described on Schedule 1.1 hereto, Horizon and, when joined
as party hereto, the Company agree that, until expiration or termination
thereof, the Company will cooperate with Arrow in any lawful arrangement to
provide that Arrow shall receive such portion of the benefits of the interest
thereunder after the Closing Date as the parties shall mutually agree to the
same extent as if it were the Company, with all costs and expenses thereof, as
well as all gains, income, losses, taxes or other items generated thereby to be
for the account of the respective parties as shall be mutually agreed.
2. Transfer of Arrow Shares as Purchase Consideration. In
consideration for the Company's sale, transfer and delivery of the Purchased
Assets to Arrow, Arrow will tender and deliver to the Company all of the stock
certificates representing the Arrow Shares, duly endorsed in blank or
accompanied by duly executed instruments of transfer, and Horizon agrees to
cause the Company to accept, and upon its execution hereof the Company agrees to
accept, the Arrow Shares, together with Arrow's assumption of the Assumed
Liabilities, as payment in full for the Purchased Assets.
3. Closing
3.1 Date and Place of Closing. The purchase and sale of the
Purchased Assets and assumption of the Assumed Liabilities contemplated by this
Agreement (the "Closing") will occur, and will be effective, immediately
following consummation of the Stock Acquisition at the time and location and on
the Closing Date referred to in the Stock Purchase Agreement, or at such other
time and place as may be agreed upon by Arrow and Horizon.
3.2 Deliveries by the Company. At the Closing, Horizon shall
deliver, and/or shall cause the Company to deliver, to Arrow the following:
(a) A Bill of Sale and General Assignment from the Company in
the form of Exhibit 3.2(a) hereto conveying good and
marketable title to the
<PAGE> 10
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Purchased Assets free and clear of all Encumbrances
(except as otherwise provided in Section 4.4 hereof).
(b) An Assignment and Assumption of Lease Agreement
between the Company and Arrow in the form of Exhibit
3.2(b) hereto (the "Lease Assignment").
(c) A legal opinion of Slaughter & Virgin, special
counsel to the Company, in the form of Exhibit
3.2(c) hereto.
(d) Two counterparts of this Agreement, fully executed
and delivered by the Company as joining party
hereto.
(e) A certificate of Horizon as required by Section
7.3(a) hereof.
(f) A certificate of the Company as required by
Section 7.3(b) hereof.
(g) A certified copy of the corporate charters and
by-laws of each of the Company and Horizon, and the
resolutions of the Board of Directors and majority
shareholders of the Company authorizing the
transactions contemplated by this Agreement.
(h) Certificates and reports from the appropriate public
officials evidencing the Company's and Horizon's good
standing in the respective jurisdictions of their
organization and any other jurisdiction in which
either the Company or Horizon is qualified to conduct
business.
(i) Subject to Section 9.4 hereof, actual possession and
operating control of the Purchased Assets (including
without limitation actual possession of the Company's
premises in Norwood, Massachusetts).
(j) Such other instruments, assignments, assumptions,
special or limited warranty deeds, terminations,
releases and other instruments of transfer,
assignment and release of the Company and Horizon
as shall be reasonably deemed necessary by Arrow
to vest in Arrow good and marketable title to the
Purchased Assets, free and clear of any and all
Encumbrances (except as provided in Section 4.4
hereof).
3.3 Deliveries by Arrow. At the Closing, Arrow shall
deliver or cause to be delivered (i) to the Company all stock
<PAGE> 11
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certificates evidencing the Arrow Shares in accordance with Section 2 hereof,
free and clear of all Encumbrances, and (ii) to Horizon and/or the Company the
following:
(a) An Assumption Agreement in the form of Exhibit 3.3(a)
hereto, pursuant to which Arrow will assume the
Assumed Liabilities as set forth in Section 1.3
hereof.
(b) A counterpart of the Lease Assignment.
(c) A legal opinion of Nixon, Hargrave, Devans & Doyle
LLP, special New York counsel to Arrow, in the form
of Exhibit 3.3(c) hereto.
(d) A certificate of Arrow as required by Section 8.1
hereof.
(e) A certified copy of the corporate charter and by-laws
of Arrow, and the resolutions of the Board of
Directors of Arrow authorizing the transactions
contemplated by this Agreement.
(f) Certificates and reports from the appropriate public
officials evidencing Arrow's good standing in its
jurisdiction of organization and in the Commonwealth
of Massachusetts.
(g) A resale certificate pursuant to which Arrow shall
certify that any inventory included in the Purchased
Assets will be acquired by Arrow for resale.
(h) Such other instruments, assignments, assumptions,
special or limited warranty deeds, terminations,
releases and other instruments of transfer of Arrow
as Horizon shall deem reasonably necessary to vest in
Horizon title to the Arrow Shares, free and clear of
all Encumbrances.
4. Representations and Warranties of Horizon. Horizon
and, when joined as party hereto, the Company hereby represent and warrant to
Arrow, jointly and severally, as follows:
4.1 Organization and Good Standing. (a) Horizon is a
corporation duly organized, validly existing and in good standing under the laws
of Georgia, and has the requisite corporate power and authority to execute and
deliver this Agreement and the documents, agreements and certificates
(collectively, the "Horizon Transfer Documents") which are required to be
executed and delivered by Horizon pursuant to this Agreement and to
<PAGE> 12
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perform in all respects its obligations hereunder and thereunder. Horizon is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the nature of its business or the character of the assets
owned or leased by Horizon makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed would not impair or
otherwise adversely affect the transactions contemplated hereunder.
(b) On the Closing Date and (with respect to the making of
this representation and warranty by Horizon, to Horizon's knowledge) the Company
shall be (i) a corporation duly incorporated, validly existing and in good
standing under the laws of Massachusetts, and shall have the requisite corporate
power and authority to execute and deliver the documents, agreements and
certificates (collectively, the "Company Transfer Documents") which are required
to be executed and delivered by the Company pursuant to this Agreement and to
perform in all respects its obligations thereunder, and (ii) duly qualified or
licensed to do business and in good standing in each jurisdiction in which the
nature of its business or the character of the assets owned or leased by the
Company makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not impair or otherwise adversely
affect the transactions contemplated hereunder. The representations and
warranties made by Horizon (but not the representations and warranties made by
the Company) in this Section 4.1(b) is based solely upon the representations and
warranties from Pfizer and the Company to Horizon and Arrow in Section 4.1(b) of
the Stock Purchase Agreement, and for any breach of such representations and
warranties made by Horizon, Arrow's sole remedy shall be against Pfizer under
the Stock Purchase Agreement.
4.2 Due Authorization; Enforceability; No Conflict. (a) The
execution, delivery and performance of this Agreement and the Horizon Transfer
Documents have been duly authorized by all requisite corporate action on the
part of Horizon. This Agreement has been duly executed and delivered by Horizon
and constitutes, and each of the Horizon Transfer Documents when executed and
delivered will constitute, the valid and binding obligation of Horizon,
enforceable in accordance with and subject to their respective terms, except as
limited by bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights or contractual obligations generally. Except as
set forth on Schedule 4.2 attached hereto or any other Schedule to this
Agreement, the execution, delivery and performance by Horizon of this Agreement
and the Horizon Transfer Documents and the consummation of the transactions
contemplated hereby and thereby will not: (i) violate any provision of the
Certificate of Incorporation or By-laws of Horizon; (ii) result in the creation
of any Encumbrances upon any of the Purchased Assets; (iii) violate any
provision of any
<PAGE> 13
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judicial or administrative order, award, judgment or decree applicable to any
Horizon; (iv) conflict with, result in a material breach of or constitute a
default under any agreement or instrument to which Horizon is a party or by
which it is bound; (v) violate, in any material respect, any applicable law,
rule, ordinance or regulation applicable to any Horizon; or (vi) except for the
consents and approvals listed on Schedule 4.2 hereto (collectively, the
"Consents"), require Horizon to obtain the consent, approval or authorization
of, or require Horizon to file any certificate, notice, application, report or
other document with, any federal, state or local governmental authority or
agency or other person or entity.
(b) On the Closing Date, the execution, delivery and
performance of the Company Transfer Documents shall have been duly authorized by
all requisite corporate action on the part of the Company, and each of the
Company Transfer Documents will have been duly executed and delivered by the
Company and will constitute the valid and binding obligation of the Company,
enforceable in accordance with and subject to their respective terms, except as
limited by bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights or contractual obligations generally. Except as
set forth on Schedule 4.2 attached hereto (as updated as of the Closing Date),
on the Closing Date the execution, delivery and performance by the Company of
the Company Transfer Documents and the consummation of the transactions
contemplated thereby will not (and with respect to the making of this
representation and warranty by Horizon, to Horizon's knowledge): (i) violate any
provision of the Certificate of Incorporation or By-laws of any the Company;
(ii) except with respect to any Deferred Assigned Contract during any period
prior to the time at which any required third party consent to assignment
thereof shall have obtained, result in the creation of any Encumbrances upon any
of the Purchased Assets; (iii) violate any provision of any judicial, arbitral
or administrative order, award, judgment or decree applicable to the Company;
(iv) violate, in any material respect, any applicable law, rule, ordinance or
regulation applicable to any the Company; or (vi) except for the Consents on
Schedule 4.2 hereto (as updated as of the Closing Date), require the Company to
obtain the consent, approval or authorization of, or require any the Company to
file any certificate, notice, application, report or other document with, any
federal, state or local governmental authority or agency or other person or
entity. To the extent, if any, the representations and warranties made by
Horizon and the Company in the preceding sentence are the same in all material
respects to the representations and warranties from Pfizer and the Company to
Horizon and Arrow in Section 4.1(a) of the Stock Purchase Agreement, Arrow's
remedy for a breach of such representations and warranties shall be against
Pfizer under the Stock Purchase Agreement.
<PAGE> 14
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4.3 Litigation. There are no judicial or administrative
actions, suits or proceedings or, to the knowledge of Horizon, any
investigations pending against Horizon or (with respect to the making of this
representation and warranty by Horizon, to the knowledge of Horizon) the Company
which would, if adversely determined, prevent, hinder, delay or otherwise
adversely affect the consummation of the transactions contemplated hereby.
Neither Horizon nor (with respect to the making of this representation and
warranty by Horizon, to the knowledge of Horizon), on the Closing Date the
Company is a party to or subject to the provisions of any order, decree or
judgment of any court or of any governmental authority agency which may prevent,
hinder or otherwise adversely affect the consummation of the transactions
contemplated hereby. To the extent, if any, the representations and warranties
in this Section 4.3 with respect to matters relating to the Company are the same
in all material respects to the representations and warranties from Pfizer and
the Company to Horizon and Arrow in Section 4.1(j) of the Stock Purchase
Agreement, Arrow's remedy for a breach of such representations and warranties
shall be against Pfizer under the Stock Purchase Agreement.
4.4 Title. On the Closing Date, the Company will have, and
upon completion of the Closing will have conveyed to Arrow good and marketable
title to the Purchased Assets owned by the Company, free and clear of all
Encumbrances, except as set forth on Schedule 4.4 hereto. This representation
and warranty made by Horizon (but not the representation and warranty made by
the Company) is only as to Horizon's knowledge and shall apply only to the
Company's conveyance of good and marketable title to the Purchased Assets, free
and clear of all Encumbrances, as of the Closing. If the Company does not convey
such good and marketable title to the Purchased Assets, free and clear of all
Encumbrances, as a result of some defect in title occurring prior to the closing
under the Stock Purchase Agreement or some Encumbrance in existence prior to the
closing under the Stock Purchase Agreement, Arrow's sole remedy for such defect
or Encumbrance shall be against Pfizer under the Stock Purchase Agreement.
4.5 Purchased Assets. EXCEPT AS PROVIDED IN THIS AGREEMENT,
NEITHER HORIZON NOR, ON THE CLOSING DATE, THE COMPANY MAKES ANY REPRESENTATION
OR WARRANTY (AND EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE), EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION OF
THE PURCHASED ASSETS, ALL OF WHICH ARE BEING SOLD TO, AND PURCHASED BY ARROW,
"AS IS".
4.6 Brokers. Neither Horizon nor any affiliate thereof has
retained, employed or dealt with any third-party broker, finder or investment
banker in connection with this Agreement or the transactions contemplated hereby
and no broker
<PAGE> 15
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or other third party is entitled to any commission or finder's fee as a result
of any agreement or action taken by Horizon or the Company or its affiliates in
connection with such transactions.
5. Arrow's Representations and Warranties. Arrow hereby
represents and warrants to Horizon and, when joined as a party hereto, the
Company as follows:
5.1 Organization and Good Standing. Arrow is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and has the requisite corporate power and authority to execute and
deliver this Agreement and the documents, agreements and certificates
(collectively, the "Arrow Transfer Documents") which are required to be executed
and delivered by Arrow pursuant to this Agreement and to perform in all respects
its obligations hereunder and thereunder. Arrow is duly qualified or licensed to
do business and in good standing in each jurisdiction in which the nature of its
business or the character of the assets owned or leased by Arrow makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not impair or otherwise adversely affect the
transactions contemplated hereunder.
5.2 Due Authorization; Enforceability; No Conflict. The
execution, delivery and performance of this Agreement and the Arrow Transfer
Documents have been duly authorized by all requisite corporate action on the
part of Arrow. This Agreement has been duly executed and delivered by Arrow and
constitutes, and each of the Arrow Transfer Documents when executed and
delivered will constitute, the valid and binding obligation of Arrow,
enforceable in accordance with and subject to their respective terms, except as
limited by bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights or contractual obligations generally. Except as
set forth on Schedule 5.2 attached hereto or on any other Schedule to this
Agreement, the execution, delivery and performance by Arrow of this Agreement
and the Arrow Transfer Documents and the consummation of the transactions
contemplated hereby and thereby will not: (i) violate any provision of the
Certificate of Incorporation or By-laws of Arrow; (ii) result in the creation by
Arrow of any Encumbrances upon any of the Arrow Shares; (iii) violate any
provision of any judicial, arbitral or administrative order, award, judgment or
decree applicable to Arrow; (iv) conflict with, result in a material breach of
or constitute a default under any agreement or instrument to which Arrow is a
party or by which it is bound; (v) violate, in any material respect, any
applicable law, rule, ordinance or regulation applicable to Arrow; or (vi)
except for obtaining the Consents, require Arrow to obtain the consent, approval
or authorization of, or require Arrow to file any certificate, notice,
application, report or other document with, any federal,
<PAGE> 16
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state or local governmental authority or agency or other person or entity.
5.3 Litigation. There are no judicial, arbitral or
administrative actions, suits or proceedings or, to the knowledge of Arrow, any
investigations pending against Arrow which would, if adversely determined,
prevent, hinder, delay or otherwise adversely affect the consummation of the
transactions contemplated hereby. Arrow is not a party to or subject to the
provisions of any order, decree or judgment of any court or of any governmental
agency which may prevent, hinder or otherwise adversely affect the consummation
of the transactions contemplated hereby.
5.4 Brokers. Neither Arrow nor any affiliate thereof has
retained, employed or dealt with any third-party broker, finder or investment
banker in connection with this Agreement or the transactions contemplated hereby
and no broker or other third party is entitled to any commission or finder's fee
as a result of any agreement or action taken by Arrow or its affiliates in
connection with such transaction.
5.5 Title to Arrow Shares. Upon (but subject to consummation
of) the Stock Acquisition, to Arrow's knowledge, Arrow will own of record and
beneficially all of the Arrow Shares, free and clear of all Encumbrances (except
for Encumbrances contemplated by Stock Purchase Agreement). The Arrow Shares
will be conveyed by Arrow to the Company free and clear of any Encumbrance
created by Arrow other than Encumbrances in favor of the Company or Horizon
created pursuant to this Agreement and restrictions under applicable securities
laws. With the exception of the immediately preceding sentence, this
representation and warranty made by Arrow is only as to Arrow's knowledge and
shall apply only to Arrow's conveyance of the Arrow Shares, free and clear of
all Encumbrances created by Arrow, as of the Closing. If Arrow does not convey
such good and marketable title to the Arrow Shares, free and clear of all
Encumbrances, as a result of some defect in title occurring prior to the closing
under the Stock Purchase Agreement or some Encumbrance in existence prior to the
closing under the Stock Purchase Agreement, Horizon's and the Company's sole
remedy for such defect or Encumbrance shall be against Pfizer under the Stock
Purchase Agreement. If requested by Horizon, Arrow will assign to Horizon
Arrow's indemnification claim against Pfizer for any defect in title or
Encumbrance to which the immediately preceding sentence is applicable.
5.6 No Other Representations. EXCEPT AS PROVIDED IN THIS
AGREEMENT, ARROW MAKES NO OTHER REPRESENTATIONS OR WARRANTIES TO HORIZON OR,
WHEN JOINED AS A PARTY, THE COMPANY, EXPRESSED OR IMPLIED.
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6. General Covenants of Horizon and Arrow. Horizon and Arrow
agree that from the date of this Agreement until the Closing Date they will use
their reasonable best efforts to take any and all action necessary and advisable
under the Stock Purchase Agreement to consummate the Stock Acquisition as
promptly as possible. In addition, Horizon shall use its reasonable best efforts
to cause the Company to execute and deliver this Agreement on the Closing Date.
7. Conditions Precedent to Arrow's Obligations. The
obligations of Arrow under this Agreement are subject to the fulfillment on or
before the Closing Date of each of the following conditions:
7.1 Stock Acquisition. The Stock Acquisition and all other
transactions contemplated by the Stock Purchase Agreement to be consummated on
the Closing Date shall have been consummated to the effect, among other things,
that Arrow shall have acquired the Arrow Shares from Pfizer.
7.2 Consents. Horizon and the Company shall have delivered
Arrow evidence, in form and substance reasonably satisfactory to Arrow, that
neither Horizon nor the Company has created any Encumbrances on the Purchased
Assets.
7.3 Representations, Warranties & Covenants. (a) The
representations and warranties of Horizon contained in this Agreement shall be
true and correct in all material respects at and as of the date hereof and at
and as of the Closing Date with the same force and effect as though made at and
as of the Closing Date, except for changes therein as may be specifically
contemplated by this Agreement. Horizon shall have duly performed and complied
in all material respects with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or on the Closing
Date. Horizon shall have delivered to Arrow a certificate dated the Closing Date
to the foregoing effect, in the form attached hereto as Exhibit 7.3(a).
(b) The representations and warranties herein of the Company,
when joined a party hereto, shall be true and correct in all material respects
at and as of the Closing Date, and the Company shall have delivered to Arrow a
certificate dated the Closing Date to the foregoing effect, in the form attached
hereto as Exhibit 7.3(b).
7.4 Litigation Affecting Closing. There shall not be pending
or threatened any action or proceeding for any injunction, writ or preliminary
restraining order or for any order of any court, governmental agency or
arbitrator, domestic or foreign, federal, state, or local, of competent
jurisdiction, or any investigation or examination which might result in such an
<PAGE> 18
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action or proceeding, directing that the sale of the Purchased Assets to Arrow
or any of the other transactions contemplated by this Agreement not be
consummated or otherwise challenging the legality thereof, and there shall not
be in effect on the Closing Date any such injunction, writ or preliminary
restraining order or such other order.
7.5 Closing Deliveries. At the Closing, Horizon and the
Company shall have delivered to Arrow such instruments, documents and
certificates as are required pursuant to Section 3.2 hereof.
8. Conditions Precedent to Horizon's Obligations. The
obligations of Horizon under this Agreement are subject to the fulfillment on or
before the Closing Date of each of the following conditions:
8.1 Representations, Warranties & Covenants. The
representations and warranties of Arrow contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date with the
same force and effect as though made at and as of the Closing Date, except for
such changes therein as may be specifically contemplated by this Agreement.
Arrow shall have duly performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or on the Closing Date. Arrow shall have delivered to the
Company a certificate dated the Closing Date to the foregoing effect, in the
form attached hereto as Exhibit 8.1.
8.2 Stock Acquisition. The Stock Acquisition and all other
transactions contemplated by the Stock Purchase Agreement to be consummated on
the Closing Date shall have been consummated to the effect, among other things,
that Horizon shall have acquired the Horizon Shares from Pfizer.
8.3 Litigation Affecting Closing. There shall not be pending
or threatened any action or proceeding for any injunction, writ or preliminary
restraining order or for any order of any court, governmental agency or
arbitrator, domestic or foreign, federal, state, or local, of competent
jurisdiction, or any investigation or examination which might result in such an
action or proceeding, directing that the sale of the Purchased Assets to Arrow
or any of the other transactions contemplated by this Agreement not be
consummated or otherwise challenging the legality thereof, and there shall not
be in effect on the Closing Date any such injunction, writ or preliminary
restraining order or such other order.
8.4 Closing Deliveries. At the Closing, Arrow shall have
delivered to Horizon and the Company such instruments,
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documents and certificates as are required pursuant to Section 3.3 hereof.
8.5 Consents. Horizon shall be satisfied that the Consents
listed on Schedule 4.2 hereto shall have been obtained.
9. Additional Covenants
9.1 Closing Balance Sheet and Tax Allocation.
(a) Promptly after the Closing but in any event within 30
calendar days thereafter, subject to the terms of this Agreement and Schedules
to this Agreement (including, without limitation, Section 1 and Section 9.1(b)),
Horizon and the Company shall have caused Coopers & Lybrand to provide Arrow
with a balance sheet for each of the Pump Business and the Port Business as at
the Closing (but after giving effect to the transactions hereunder) and
schedules with such balance sheet that identify and divide accounts receivable,
prepaid expenses, inventories, accounts payable, accruals and other liabilities
between the Port Business and the Pump Business. The fees and expenses of
Coopers & Lybrand in connection with the foregoing shall be shared equally
between Horizon and Arrow, and Horizon will be responsible for the costs of such
accounting firm for matters other than those in this Section 9.1(a).
(b) Notwithstanding any provision of this Agreement to the
contrary, the parties agree that, after the Closing, they shall use their
reasonable commercial efforts to evaluate the Intellectual Property (as defined
below) of the Company as in existence immediately prior to the Closing (other
than the patents and patent applications listed on Schedule 1.1) to determine
whether any portion thereof relates principally to the Pump Business. To the
extent any portion of such Intellectual Property relates principally to the Pump
Business, Horizon and the Company shall cause such Intellectual Property to be
sold, assigned, conveyed, transferred and delivered to Arrow and shall enter
into such agreements, instruments and indentures as shall be reasonably
necessary to cause such sale, assignment, conveyance, transfer and delivery. To
the extent that the existing products and products under development as of the
date hereof of the Port Business or the Pump Business use any rights or property
relating to any Intellectual Property conveyed or to be conveyed to Arrow
pursuant to this Agreement or any Intellectual Property retained or to be
retained by the Company or constituting an Excluded Asset, each of Arrow and the
Company hereby grants a non-exclusive, fully paid up, royalty-free,
non-terminable, worldwide right and license to the other party to use such
Intellectual Property solely in connection with the manufacture, arrangements
with third parties to have manufactured, use, import, or sale of any such
existing product or product under development as of the date hereof; provided,
<PAGE> 20
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however, that (i) such license may only be assigned to an Affiliate of such
party and then only with the prior written consent of the licensor (which will
not be unreasonably withheld, delayed or conditioned) and (ii) with respect to
trademarks, such license shall expire (but otherwise remain in effect with
regard to other types of Intellectual Property) upon the sale of all inventory
(including all raw materials, work in progress and finished goods) existing on
the Closing Date that bears a trademark licensed pursuant to this paragraph.
Each party agrees to maintain and cause its employees, agents and
representatives to maintain, the confidentiality of any confidential information
which is not publicly known and is in the possession of or disclosed to a Person
owing a duty of confidentiality hereunder (an "Obligated Party") constituting a
portion of such Intellectual Property provided, however, that the foregoing
shall not apply to: (i) information that becomes a matter of public knowledge
through no fault of an Obligated Party, is rightfully disclosed by a third party
without a duty of confidentiality or is independently developed by the Obligated
Party and (ii) any disclosure made in response to a valid order or other process
of a court or governmental body ("Order") and, if the Obligated Party promptly
notifies the other parties of such Order and, to the extent practicable, makes a
good faith effort to obtain a protective order requiring that such information
remains confidential and used only for the Order's purpose. As used herein,
"Intellectual Property" shall mean all copyrights (including, without
limitation, the exclusive right to reproduce, distribute copies of, display and
perform the copyrighted work and to prepare derivative works), copyright
registrations and applications, trademark rights (including, without limitation,
trade dress), trademark registrations and applications, service mark rights,
service mark registrations and applications, patent rights (including, without
limitation, the right to apply therefor), patent applications therefor
(including, without limitation, the right to claim priority under applicable
international conventions) and all patents issuing thereon and all renewals and
extensions thereof, regardless of whether any of such rights arise under the
laws of the United States of America or of any other state, country or
jurisdiction; provided, however, that the term "Intellectual Property" shall not
include the "Infusaid" trademark (which shall be subject to Section 9.3 hereof).
(c) The purchase consideration consisting of the sum of
Arrow's tax basis in the Arrow Shares plus the Assumed Liabilities shall be
allocated among the Purchased Assets for purposes of Section 1060 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder. Arrow
agrees to file, and Horizon agrees to cause the Company to file, with their
respective federal income tax returns an initial asset acquisition statement and
any supplemental statements on Internal Revenue Service Form 8594 required by
Temporary Treasury
<PAGE> 21
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Regulation Section 1. 1060-1T, all in accordance with and accurately reflecting
the agreed upon allocation.
9.2 Collections. Horizon agrees to remit and to cause the
Company to remit, as the case may be, to Arrow promptly any and all amounts paid
to or received by Horizon or the Company in respect of the Purchased Assets
(including without limitation collections in respect of the Accounts Receivable
described on Schedule 1.1 hereto or otherwise of the Pump Business), and
promptly upon Arrow's request provide Arrow with an accounting of any and all
amounts so collected. Arrow agrees to remit to the Company promptly any and all
amounts paid to or received by Arrow in respect of the Port Business (including
without limitation collections in respect of accounts receivable of the Port
Business), and promptly upon the Company's request provide the Company with an
accounting of any and all amounts so collected.
9.3 Arrow's Use of "Infusaid"; "Silicone Adhesives". (a)
Subject to consummation of the transactions hereunder, effective as of the
Closing Date and for a period of twelve months thereafter and for no additional
consideration hereunder, Horizon hereby irrevocably grants to Arrow the
non-exclusive, fully paid up, royalty-free, non-terminable, worldwide right and
license to use the trademark and trade name "Infusaid" and any logo and
variation thereof in connection with Arrow's conduct of the Pump Business but
not the right for Arrow to sublicense or grant to others (except for Arrow's
affiliates, distributors, sales representatives and other representatives in the
marketing, offer for sale and sale of the products of the Pump Business) the
right to use such trademark or tradename.
(b) For a one-year period commencing on the Closing Date, the
Company shall order, on behalf of and at the expense of Arrow, and request and
use its reasonable commercial efforts to cause Dow to deliver to Arrow at such
time and places as may be reasonably requested by Arrow, such quantities of
silicone adhesives, elastomers and other supplies that may be ordered and
purchased under the Material Supply Agreement dated November 22, 1996 between
the Company and Dow Corning Corporation (the "Supply Agreement"), to the extent
such supplies are available from Dow under the Supply Agreement and, equitably
apportioning any available supplies between Arrow and the Company, taking into
consideration Arrow's and the Company's needs for such supplies.
9.4 Company's Temporary Use of Norwood, MA Plant; Special
Indemnity. During a period of up to one hundred eighty (180) days after the
Closing Date (the "Transition Period"), the Company shall be permitted, free of
rent and other periodic charges (other than long distance telephone charges,
hazardous waste disposal charges associated with the Company's operations,
product sterilization charges associated with the Company's operations and
similar charges (but not including water, electric
<PAGE> 22
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or gas utilities)), to have access to, and continue the manufacturing of
products of the Port Business at, the existing plant of the Company located at
1400 Providence Highway, Norwood, Massachusetts (the "Plant"), and in connection
therewith Horizon and, when joined as party hereto, the Company hereby covenant
and agree, jointly and severally, as follows:
(a) The Company will use the Plant only in accordance with,
and subject to, (i) all applicable laws, regulations, policies, permits,
licenses, authorizations and orders, and (ii) the terms and conditions of the
"Lease Agreement" described on Schedule 1.1 hereto (a true and complete copy of
which has been made available to and reviewed by Horizon). The Company shall
keep, observe and perform every term, provision, covenant and condition on
Arrow's part pertaining to the Plant which is required to be kept, observed and
performed pursuant to the Lease Agreement and which arises or accrues during the
Transition Period (other than the payment of rent and other periodic charges
under the Lease Agreement). The Company shall not (i) take any action
inconsistent with the terms of the Lease Agreement, (ii) do or permit to be done
by its agents, contractors, employees, invitees, visitors or licensees, anything
prohibited to Arrow as the tenant/assignee under the Lease Agreement or which
would constitute, with or without the giving of notice or the passage of time or
both, a default under the Lease Agreement; or (iii) take any action or do or
permit anything which would result in any additional cost (other than ordinary
wear and tear of that portion of the Plant used by the Company as permitted
under this Section 9.4) or other liability to Arrow under the Lease Agreement.
(b) There will be no restriction on the production level of
Company products during the Transition Period; provided, however, that the
Company's use of space in the Plant during the Transition Period for production
of its products will not exceed the space used by the Company during the 6-month
period immediately preceding the Closing Date for the production of such
products; and provided further that Horizon's or the Company's use of the Plant
and any equipment thereon during the Transition Period shall not interfere with
or restrict Arrow's operations at the Plant or any services which Arrow may be
required to render to Pfizer and affiliates under the Transition Services
Agreement.
(c) The Company and/or Horizon shall at all times during the
Transition Period maintain workmen's compensation insurance for the employees,
agents and contractors of the Company and Horizon who have access to the Plant,
and public liability, property damage, fire and extended coverage and
comprehensive general liability insurance (including without limitation product
liability), all of which insurance shall (A) cover any acts, omissions or
occurrences at, or damage to the Plant, (B) be in amounts and issued by
companies acceptable to
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Arrow, and (C) contain endorsements in form acceptable to Arrow each of which
shall name Arrow as loss payee of all casualty insurance policies covering the
Plant, and as an additional insured in respect of all other insurance maintained
by the Company and/or Horizon with respect to the Plant.
(d) The Company shall indemnify, defend and hold harmless
Arrow from and against any and all Loss and Expense (as such term is defined in
Section 10.2 hereof but excluding rent and other periodic charges which accrue
under the Lease Agreement) which Arrow may incur or sustain by reason of (i) any
breach or default under this Section 9.4 on the part of the Company or Horizon
or any of their agents, contractors, servants, employees, visitors, invitees or
licensees, (ii) any production or work by the Company, Horizon or any of their
agents, contractors, servants, employees, visitors, invitees, licensees or
subtenants in, to and at the Plant, and (iii) any act, omission or negligence on
the part of the Company, Horizon, their respective agents, contractors,
servants, employees, visitors, invitees, licensees or subtenants which result in
any personal injury or property damage (x) suffered by any Person and occurring
at or upon the Premises, or (y) suffered by the Company, Horizon or Arrow or any
of their respective agents, contractors, servants, employees, visitors,
invitees, licensees or subtenants and occurring at or upon the Premises.
(e) Arrow shall indemnify, defend, and hold harmless the
Company and Horizon from and against any and all Loss and Expense (as such term
is defined in Section 10.2 hereof) which the Company or Horizon may incur or
sustain by reason of (i) any obligations of Arrow, as tenant, under the Lease,
(ii) any production or work by Arrow or any of its agents, contractors,
servants, employees, visitors, invitees, licensees, visitor, invitee or
subtenants (other than the Company or Horizon and their respective agents,
contractors, servants, employees, visitors, invitees, licensees or subtenants as
subtenant, licensee, visitor, invitee or occupant) in, to, or at the Plant, and
(iii) any act, omission, or negligence on the part of Arrow, its agents,
contractors, servants, employees, visitors, invitees, licensees, or subtenants
which result in any personal injury or property damage (x) suffered by any
Person and occurring at or upon the Premises or (y) suffered by the Company,
Horizon or Arrow or any of their respective agents, contractors, servants,
employees, visitors, invitees, licensees or subtenants and occurring at or upon
the Premises except, in the case of both subclauses (x) and (y) of this clause
(iii), for any such act, omission or negligence to which Section 9.4(d)(iii) is
applicable.
9.5 Indemnification of Pfizer under Stock Purchase Agreement.
Horizon and Arrow acknowledge and agree that any claim for indemnification made
at any time on or after the
<PAGE> 24
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Closing Date against Horizon and/or Arrow pursuant to (i) Section 7.2 of the
Stock Purchase Agreement (a "Pfizer Indemnification Claim"), and/or (ii) Section
6.3(f) of the Stock Purchase Agreement (a "Pfizer Tax Claim") shall, as between
Horizon and Arrow, be subject to the following additional terms and conditions:
(a) Notwithstanding anything contained in the Stock Purchase
Agreement to the contrary, Horizon and Arrow acknowledge and agree that, as
between Horizon and Arrow, (i) Arrow shall be responsible and liable only for
its own acts, omissions or misrepresentations which give rise to a Pfizer
Indemnification Claim and with respect to the Assumed Liabilities hereunder, and
(ii) Horizon and, when joined as party hereto, the Company shall be jointly and
severally responsible and liable only for its or their own acts, omissions or
misrepresentations which give rise to the Pfizer Indemnification Claim and with
respect to all other liabilities or obligations of the Company other than the
Assumed Liabilities. Accordingly, in the event that a Pfizer Indemnification
Claim is asserted against either party hereto in respect of the acts, omissions
or misrepresentations of the other party or with respect to any matter as to
which such other party is responsible hereunder, then such other party agrees
(and, if such other party is Horizon, then jointly and severally with the
Company when joined as a party hereto) to indemnify and hold such first party
harmless from and against any Loss and Expense (as defined in Section 10.2
hereof) incurred or suffered by such first party as a result of such Pfizer
Indemnification Claim. For purposes of this Section 9.5(a), Horizon and the
Company shall be deemed one and the same party.
(b) Notwithstanding anything contained in Section 6.3 of the
Stock Purchase Agreement to the contrary, Horizon and Arrow acknowledge and
agree that, as between Horizon and Arrow, Horizon and, when joined as party
hereto, the Company shall be responsible and liable for all Tax liabilities
referred to in the second sentence of Section 6.3(f) of the Stock Purchase
Agreement, including, without limitation, all income, sales, use and transfer
taxes, and all interest and penalties thereon arising out of the sale and
assignment by the Company of the Purchased Assets hereunder and all such taxes,
interest and penalties accruing at and after the Closing in respect of the
Company's operations, but specifically excluding any such taxes, interest or
penalties which arise, after the effectiveness of the Closing, out of Arrow's
ownership and operation of the Pump Business (such non-excluded taxes, interest
and penalties, the "Company Taxes"). Accordingly, in the event that a Pfizer Tax
Claim is ever asserted against Arrow in respect of any Company Taxes, then
Horizon and, when joined as party hereto, the Company, jointly and severally,
agree to indemnify and hold Arrow harmless from and against any Loss and Expense
(as defined in
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Section 10.2 hereof) incurred or suffered by Arrow as a result of such Pfizer
Tax Claim.
(c) The parties agree to notify each other promptly upon
receipt of a Pfizer Indemnification Claim or Pfizer Tax Claim whereupon the
parties will cooperate in good faith in order to determine which party, in
accordance with this Section 9.5, ultimately shall be responsible for any Loss
and Expense incurred or expected to be incurred as a result of such Pfizer
Indemnification Claim or Pfizer Tax Claim.
9.6 Indemnification of Arrow and Horizon under Stock Purchase
Agreement. Horizon and Arrow acknowledge and agree that any claim for
indemnification made, or proposed to be made, by either of them at any time on
or after the Closing Date against Pfizer pursuant to Section 6.3(f) and/or
Section 7.1 (including, without limitation, any claim under section 7.1 relating
to Section 5.1(e) of the Stock Purchase Agreement) of the Stock Purchase
Agreement (a "Buyer Indemnification Claim") shall, as between Horizon and Arrow,
be subject to the following additional terms and conditions:
(a) If at any time on or after the Closing Date any party
hereto becomes aware of the occurrence of an event which may give rise to a
Buyer Indemnification Claim, such party agrees to use its reasonable best
efforts to notify promptly the other parties hereto of the nature and extent of
such event and the proposed action (if any) which such party proposes take in
respect thereof, and such other parties shall then be afforded the opportunity
to join in any such action, including without limitation to assert a Buyer
Indemnification Claim in respect of any similar or related event.
(b) Each party agrees to maintain detailed and complete
records of all events which, but for any limitations contained in the Stock
Purchase Agreement (including, without limitation, the Basket and Sub-Limit),
would give rise to a Buyer Indemnification Claim of such party, and, upon the
request of another party but subject to any confidentiality restrictions, share
with and disclose to such other party such records.
(c) Horizon and Arrow agree that neither of them shall assert
Buyer Indemnification Claims for which the Cap is applicable to the extent (i)
the aggregate amount of such Buyer Indemnification Claims of Horizon would
exceed $2,676,500, or (ii) the aggregate amount of such Buyer Indemnification
Claims of Arrow would exceed $823,500.
(d) Horizon and Arrow agree to make such arrangements as shall
be appropriate to fairly and equitably allocate their respective Buyer
Indemnification Claims under the Stock Purchase Agreement to ensure that neither
Horizon nor Arrow is required to
<PAGE> 26
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apply a disproportionate amount of their respective Buyer Indemnification Claims
against the Basket, it being understood and agreed that a fair and equitable
allocation of such Buyer Indemnification Claims toward the Basket would result
in $324,997.50 (76.47%) of the Basket being allocated to Buyer Indemnification
Claims to be made by Horizon and $100,002.50 (23.53%) of the Basket being
allocated to Buyer Indemnification Claims to be made by Arrow; provided,
however, that this paragraph shall not be construed as requiring either Horizon
or Arrow to make any payment to the other party if Horizon or Arrow, as the case
may be, shall not have received any indemnification payment from Pfizer for
breach of a representation or warranty under the Stock Purchase Agreement to
which the Basket shall have been applicable.
(e) Nothing in this Section 9.6 shall obligate any party to
assert a Buyer Indemnification Claim against Pfizer, such Buyer Indemnification
Claim to be asserted at the sole and complete discretion of each party.
9.7 Performance of Obligations Under Stock Purchase Agreement.
To the extent, if any, that the Stock Purchase Agreement imposes a joint and
several obligation on Arrow and Horizon that either Arrow or Horizon would be
unable to perform after the Closing Date by reason of the transfer of stock and
assets and other transactions contemplated by this Agreement, the other party
shall use its commercially reasonable efforts to ensure that it performs such
obligations under the Stock Purchase Agreement in such a manner as to ensure
that the party that is unable for such reason to perform does not incur any
liability relating to such obligations. The parties shall use commercially
reasonable efforts to ensure that Horizon and Arrow are afforded such benefits
under the Stock Purchase Agreement and related agreements, instruments and
indentures as may be equitable in view of the transactions contemplated by this
Agreement (it being the intent of the parties that, as more fully provided in
this Agreement, Horizon shall acquire the Port Business and Arrow shall acquire
the Pump Business); provided, however, that, except as otherwise expressly
provided in this Agreement, neither party shall be obligated to pay any monies
in connection with its performance of obligations under this sentence.
9.8 Phone Switch. For so long as Arrow utilizes the Plant and
premises covered by the Lease Agreement, Arrow shall pay, or reimburse the
Company for all amounts paid, after the Closing Date under the Intellipath II
Digital Centrex Service Agreement dated June 24, 1994 between the Company and
New England Telephone and Telegraph Company, as in effect on the date hereof
(the "Switch Agreement") and thereafter during the balance of the existing term
of the Switch Agreement will reimburse the Company for fifty percent (50%) of
such amounts paid thereunder. The Company shall not amend, modify or terminate
the Switch Agreement
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without the prior written consent of Arrow (which will not be unreasonably
withheld, delayed or conditioned).
10. Survival and Indemnification.
10.1 Survival. The representations, warranties, covenants and
agreements of Horizon, Arrow or the Company contained in or made pursuant to
this Agreement and in any certificate furnished pursuant to this Agreement which
have not been fully discharged at Closing, shall survive the execution and
delivery hereof and thereof and shall continue in full force until the first
anniversary of the Closing Date, provided, however, that (i) the representations
and warranties contained in Sections 4.4 and 5.5 shall survive indefinitely
(subject to applicable statutes of limitation), (ii) the covenants and
agreements contained in Sections 9, 10, 11.4 and 11.5 and any other covenants
and agreements which by their terms are to be performed or complied with after
the Closing Date shall continue in full force and effect until fully performed
and discharged; and (iii) Arrow's obligation to pay, perform and discharge the
Assumed Liabilities shall survive until such Assumed Liabilities have been paid,
performed or discharged in full. No claim for indemnification may be asserted
after the expiration of the applicable period specified in the preceding
sentence; provided that any representation or warranty with respect to which a
claim has been asserted in writing prior to the expiration of the period set
forth above shall survive with respect to such claim until the final resolution
thereof.
10.2 Indemnification of Arrow. Without limitation of any
rights of Arrow pursuant to Sections 9.4, 9.5 and 9.6 hereof, Horizon and, when
joined as party hereto, the Company hereby agree, jointly and severally, to
indemnify and hold Arrow harmless from and against any and all damages, claims,
losses, expenses, costs, obligations, liabilities, assessments and penalties,
including, without limiting the generality of the foregoing, liabilities for
reasonable attorneys' fees and expenses (collectively, "Loss and Expense"),
suffered, directly or indirectly, by Arrow by reason of, or arising out of, (i)
any breach of any representation or warranty made by Horizon or the Company in
this Agreement (subject to Section 10.1), (ii) any failure by Horizon or the
Company to perform or fulfill any of their respective covenants or agreements
set forth in this Agreement, (iii) any claim by MiniMed, Inc. or its successors,
assigns or affiliates relating to MiniMed, Inc.'s proposed acquisition jointly
with Horizon, of the capital stock of the Company, and/or (iv) any of the
liabilities or obligations of the Company (including without limitation those
described in Section 1.4 hereof) which are not expressly assumed by Arrow
pursuant to Section 1.3.
<PAGE> 28
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10.3 Indemnification of Horizon and the Company. Without
limitation of any rights of Horizon and the Company pursuant to Sections 9.5 and
9.6 hereof, Arrow hereby agrees to indemnify and hold Horizon and, when joined
as party hereto, the Company harmless from and against any and all Loss and
Expense suffered, directly or indirectly, by Horizon or the Company by reason
of, or arising out of, (i) any breach of any representation or warranty made by
Arrow in this Agreement (subject to Section 10.1), (ii) any failure of Arrow to
perform or fulfill any of its covenants or agreements set forth in this
Agreement, and/or (iii) any failure by Arrow to perform or discharge any Assumed
Liabilities.
10.4 Notice of Claims. If Arrow, Horizon or the Company
believes that it has suffered or incurred any Loss and Expense for which it may
seek indemnification under this Section 10, such party shall notify the other
promptly in writing, and in any event within the applicable time period
specified in Section 10.1, describing such Loss and Expense, the amount thereof,
if known, and the method of computation of such Loss and Expense, all with
reasonable particularity and containing a reference to the provisions of this
Agreement in respect of which such Loss and Expense shall have occurred. If any
action at law or suit in equity is instituted by a third party with respect to
which any of the parties intends to claim any liability or expense as Loss and
Expense under this Section 10, such party shall promptly notify the indemnifying
party of such action or suit. The failure of the indemnified party to notify the
indemnifying party as provided in this Section 10.4 shall not relieve the
indemnifying party from indemnification obligations with respect thereto except
to the extent that the indemnifying party suffers actual loss or material
prejudice as a result of such failure.
10.5 Defense of Third Party Claims. The indemnifying party
under this Section 10 shall have the right to conduct and control, through
counsel of its own choosing, any third party claim, action, or suit, but the
indemnified party may, at its election, participate in the defense of any such
claim, action, or suit at its sole cost and expense; provided, however, that if
(i) the indemnifying party shall fail to defend any such claim, action, or suit
or shall fail to notify the indemnified party of its election to defend, or
elects not to defend, within 30 days of its receipt of notice thereof from the
indemnified party, any such claim, action or suit, or (ii) the indemnifying
party and the indemnified party mutually agree, then the indemnified party may
defend, through counsel of its own choosing, such claim, action or suit and (so
long as it gives the indemnifying party at least 15 days' notice of the terms of
the proposed settlement thereof and permits the indemnifying party to then
undertake the defense thereof) settle such claim, action or suit, and recover
from the indemnifying party the amount of such settlement or of any judgment and
the costs and expenses of such defense. If the
<PAGE> 29
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indemnifying party chooses to defend any such claim, action or suit, the
indemnified party shall cooperate with the indemnifying party and shall make
available to the indemnifying party any books, records or other documents within
its control that are necessary or appropriate for such defense.
10.6 Certain Limitations. Notwithstanding anything in this
Agreement to the contrary, no Loss or Expense shall be recovered by Arrow or
Horizon, as applicable, under Section 10.2 or 10.3 with respect to any matter
which is covered by insurance to the extent proceeds of such insurance are
received by the indemnified party (net of any additional cost incurred by reason
of such recovery).
10.7 Bulk Sales Indemnity. Arrow hereby waives compliance with
the provisions of any applicable bulk sales or transfer laws in connection with
sale of the Purchased Assets contemplated by this Agreement. Horizon and, when
joined as party hereto, the Company agree, jointly and severally, to indemnify
and hold Arrow harmless from and against any and all Loss and Expense, including
without limitation any claims made by creditors and any Loss and Expense arising
out of or relating to any Encumbrance on Purchased Assets arising out of or
relating to the Company's non-compliance with any applicable bulk sales or
transfer laws, arising out of Horizon's and/or the Company's non-compliance with
any applicable bulk sales or transfer laws in connection with the sale of the
Purchased Assets contemplated by this Agreement, except to the extent that any
such Loss and Expense results from or arises out of any failure by Arrow to pay
or perform, when due, any Assumed Liabilities or any other obligations to be
paid or performed by Arrow as provided in this Agreement. The parties agree that
the Section 10.04 and 10.05 hereof shall also be deemed to refer to any Loss and
Expense under this Section 10.07.
10.8 Exclusive Remedies. After the Closing Date, the rights of
indemnification contained in Section 10.2 and Section 10.3, respectively, shall
be deemed to be the exclusive remedy of the parties hereto with respect to a
default or breach by any other party or other claim under or with respect to
this Agreement.
11. Miscellaneous
11.1 Termination of Agreement; Liabilities. (a) This Agreement
may be terminated by Horizon and Arrow at any time prior to the Closing Date:
(i) By the mutual written consent of Horizon and Arrow; or
<PAGE> 30
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(ii) By Horizon if any of the conditions provided in Section
8 hereof have not been met by the time required and have not been waived; or
(iii) By Arrow if any of the conditions provided in Section 7
hereof have not been met by the time required and have not been waived; or
(iv) By Arrow or Horizon if the Closing of the purchase and
sale contemplated by this Agreement has not been fully completed by August 29,
1997.
(b) In the event that this Agreement is terminated
pursuant to Section 11.1(a), neither party hereto shall have any liability to
the other party for costs, expenses, damages, loss of anticipated profits or
otherwise.
11.2 Further Assurances. Subject to the other provisions of
this Agreement, Horizon and, when joined as party hereto, the Company agree that
after the Closing Date each of them shall, from time to time, upon the
reasonable request of Arrow, execute and deliver such other instruments of
conveyance and other similar documents and take such other actions as Arrow may
reasonably require, consistent with the terms of this Agreement, as are
reasonably necessary or desirable to transfer to Arrow title to the Purchased
Assets and to otherwise perform the provisions of this Agreement to be performed
by Horizon and the Company. From and after the Closing Date, upon the reasonable
request of Horizon or the Company, Arrow shall execute, deliver and acknowledge
all such further instruments of conveyance and other similar documents and take
such other actions as Horizon or the Company may reasonably require, consistent
with the terms of this Agreement, as are reasonably necessary or desirable to
transfer to the Company title to the Arrow Shares and to otherwise perform the
provisions of this Agreement to be performed by Arrow.
11.3 Benefit of Agreement. This Agreement shall be binding
upon and inure to the benefit of Arrow, Horizon and, when joined as party
hereto, the Company and their respective successors and assigns and shall not
confer any rights upon any third persons (including without limitation Pfizer
or, before the Closing, the Company).
11.4 Expenses. Except as otherwise provided herein, each
party hereto agrees to pay its expenses incurred in connection with the
transactions contemplated by this Agreement, including, without limitation, the
fees and expenses of its accountants and counsel.
11.5 Covenants Not to Compete; Use of "Infusaid" on Pumps.
(a) Horizon and, when joined as party hereto, the Company
<PAGE> 31
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jointly and severally covenant and agree with Arrow that, (i) until the third
anniversary of the Closing Date, neither Horizon, the Company nor any of their
direct or indirect subsidiaries will manufacture, market, sell or otherwise
distribute, or participate in the ownership, management of operation of any
business which manufactures, markets, sells or otherwise distributes of any
implantable infusion pump products and (ii) from and after the Closing Date,
neither Horizon, the Company nor any of their direct or indirect subsidiaries
will use or permit any Person (other than Arrow) to use the trademark or trade
name "Infusaid" or any logo or variation thereof in connection with the
manufacture, sale, offer for sale, license, or distribution of implantable
infusion pump products.
(b) Arrow covenants and agrees with Horizon and, when joined
as party hereto, the Company that, until the third anniversary of the Closing
Date, neither Arrow nor any of its direct or indirect subsidiaries will market,
sell or otherwise distribute its implantable infusion port products through any
of the distributors listed in Schedule 11.5 hereto.
11.6 Confidentiality. (a) For a period of two (2) years after
the Closing Date, all proprietary information of the Pump Business conveyed by
the Company to Arrow pursuant to this Agreement and all proprietary information
of Arrow's business operations shall be treated by Horizon and the Company as
confidential unless (i) such information is or becomes part of the public
knowledge or literature through no fault of Horizon or the Company; (ii) such
information shall otherwise become available to Horizon or the Company from a
source other than Arrow, said source not being known by Horizon or the Company
to be violative of any obligation of secrecy with respect to such information;
or (iii) Horizon or the Company is legally required to disclose such information
provided that, to the extent practicable, either of them gives Arrow a
reasonable opportunity to seek a protective order. Horizon and the Company shall
use all reasonable efforts to prevent the use of all or any part of such
confidential information in any other connection or the transmission thereof to
third parties unless and until they have first obtained the written consent of
Arrow specifically authorizing such use or transmission.
(b) For a period of two (2) years after the Closing Date, all
proprietary information of the Port Business retained by the Company and all
proprietary information of Horizon's business operations shall be treated by
Arrow as confidential unless (i) such information is or becomes part of the
public knowledge or literature through no fault of Arrow; (ii) such information
shall otherwise become available to Arrow from a source other than Horizon or
the Company, said source not being known by Arrow to be violative of any
obligation of secrecy with respect to such information; or (iii) Arrow is
legally required
<PAGE> 32
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to disclose such information, provided that, to the extent practicable, it gives
Horizon and the Company a reasonable opportunity to seek a protective order.
Arrow shall use all reasonable efforts to prevent the use of all or any part of
such confidential information in any other connection or the transmission
thereof to third parties unless and until it has first obtained the written
consent of Horizon and/or the Company specifically authorizing such use or
transmission.
11.7 Entire Agreement; Amendments. This Agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained herein, and supersedes all prior agreements, arrangements and
understandings of the parties (including, without limitation, the letter
agreements between Horizon and Arrow International, Inc. dated June 17, 1997 and
June 19, 1997), except for the Stock Purchase Agreement. No supplement,
modification or amendment of or to this Agreement shall be binding, unless
executed in writing by the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless executed in writing by the party
granting the waiver.
11.8 Stock Purchase Agreement. The transactions contemplated
hereby shall in no event limit or otherwise affect the respective rights of
Arrow and Horizon under or arising out of the Stock Purchase Agreement, and by
tendering the Arrow Shares to the Company hereunder on the Closing Date Arrow
shall not be deemed to have relinquished any rights or remedies it now has or
hereafter may have under the Stock Purchase Agreement, all of which are retained
by Arrow notwithstanding the consummation of the transactions hereunder.
11.9 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.
11.10 Section and Paragraph Headings. The index, section and
paragraph headings of this Agreement are included for purposes of convenience
only and shall not affect in any way the construction or interpretation of any
of the provisions of this Agreement.
11.11 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been given on the date when delivered personally or sent by facsimile, the
next business day after delivery to a nationally recognized overnight delivery
service, or on the seventh day after mailing if mailed by first class mail,
registered or certified, postage prepaid, and properly
<PAGE> 33
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addressed as follows or to such other address as either party may designate by
notice to the other party:
(a) To Horizon and, after Closing,
the Company at:
Horizon Medical Products, Inc.
4200 Northside Parkway, N.W.
Atlanta, GA 30327
Fax: (404) 264-9919
Attention: President
with a copy to:
Nat G. Slaughter, III, Esq.
Slaughter & Virgin
Suite 1110
400 Colony Square
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Fax No: (404) 872-7879
(b) To Arrow at:
Arrow Interventional, Inc.
c/o Arrow International Inc.
P.O. Box 12888
Reading, PA 19612
2400 Bernville Road
Reading, PA 19605
Fax: (610) 374-5360
Attention: President
with a copy to:
Arrow International Inc.
P.O. Box 12888
Reading, PA 19612
2400 Bernville Road
Reading, PA 19605
Fax: (610) 374-5360
Attention: President
and to:
Richard F. Langan, Jr., Esq.
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022
Fax: (212) 940-3111
<PAGE> 34
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11.12 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED EXCLUSIVELY IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PRINCIPLES.
11.13 Submission to Jurisdiction; Consent to Service of
Process. (a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the State of New York
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby and each party hereby irrevocably agrees that
all claims in respect of such dispute or any suit, action or proceeding related
thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process
being served by any party to this Agreement in any suit, action or proceeding by
the mailing of a copy thereof in accordance with the provisions of Section 11.11
hereof.
11.14 Interpretation. The parties acknowledge and agree that:
(i) each party and its counsel reviewed and negotiated the terms and provisions
of this Agreement and have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (iii) the terms and provisions of this Agreement shall be construed fairly
as to all parties hereto, regardless of which party was generally responsible
for the preparation of this Agreement.
<PAGE> 35
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer as of the
day and year first above written.
HORIZON MEDICAL PRODUCTS, INC.
By:
------------------------------
Name:
Its:
ARROW INTERVENTIONAL, INC.
By:
------------------------------
John H. Broadbent, Jr.
Vice President - Finance
Joining Party effective as
of the Closing Date:
STRATO/INFUSAID, INC.
By:
------------------------------
Name:
Its:
<PAGE> 36
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ARROW INTERNATIONAL, INC. GUARANTY
For good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Arrow International, Inc., a Pennsylvania
corporation ("Arrow"), hereby guarantees to Horizon Medical Products, Inc., a
Georgia corporation ("Horizon"), and Strato/Infusaid, Inc., a Massachusetts
corporation ("Strato"), the complete payment and performance by Arrow
Interventional, Inc., a Delaware corporation ("Buyer"), of Buyer's obligations
under the Asset Purchase and Stock Redemption Agreement dated as of July 15,
1997 among Buyer, Horizon and Strato (the "Agreement"). Arrow hereby waives
notice of, and proof of reliance by Horizon and Strato upon and acceptance of,
its guarantee herein, and of nonperformance by Buyer of any of its obligations
under the Agreement and of any other notices or demands of any kind whatsoever.
Horizon, Strato and Buyer may enter into any amendment, assignment, waiver or
modification of the Agreement, whether or not such amendment, assignment, waiver
or modification would in any way increase or decrease the extent of Arrow's
obligations hereinafter, without notice to or consent of Arrow and without
thereby releasing Arrow hereunder or incurring any liability to Arrow. The
obligations of Arrow under this paragraph shall not be released or affected by
voluntary or involuntary proceedings by or against Buyer in bankruptcy or for
reorganization or other relief under any bankruptcy or insolvency law. Arrow's
guarantee shall continue to be effective or shall be reinstated automatically,
as the case may be, if at any time any payment, or any part thereof, by Buyer is
rescinded or must otherwise be returned by Horizon or Strato upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Buyer as
though any such payment had not been made.
Arrow covenants and agrees that it shall be bound by the
provisions of Section 11.5(b) and Section 11.6 of the Agreement as if Arrow were
the "Arrow" referred to therein.
Arrow represents and warrants to Horizon and Strato that:
(a) Arrow is a corporation duly organized, validly existing
and in good standing under the laws of Pennsylvania, and has the requisite
corporate power and authority to execute and deliver this Guaranty and the
documents, agreements and certificates (collectively, the "Arrow Documents")
which are required to be executed and delivered by Arrow pursuant to this
Guaranty and to perform in all respects its obligations hereunder and
thereunder. Arrow is duly qualified or licensed to do business and in good
standing in each jurisdiction in which the nature of its business or the
character of the assets owned or leased by Arrow makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not
<PAGE> 37
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impair or otherwise adversely affect the transactions contemplated hereunder.
(b) The execution, delivery and performance of this Guaranty
and the Arrow Documents have been duly authorized by all requisite corporate
action on the part of Arrow. This Guaranty has been duly executed and delivered
by Arrow and constitutes, and each of the Arrow Documents when executed and
delivered will constitute, the valid and binding obligation of Arrow,
enforceable in accordance with and subject to their respective terms, except as
limited by bankruptcy, insolvency, reorganization and similar laws affecting the
enforcement of creditors' rights or contractual obligations generally. The
execution, delivery and performance by Arrow of this Guaranty and the Arrow
Documents and the consummation of the transactions contemplated hereby and
thereby will not: (i) violate any provision of the Certificate of Incorporation
or By-laws of Arrow; (ii) violate any provision of any judicial, arbitral or
administrative order, award, judgment or decree applicable to Arrow; (iii)
conflict with, result in a material breach of or constitute a default under any
agreement or instrument to which Arrow is a party or by which it is bound; (iv)
violate, in any material respect, any applicable law, rule, ordinance or
regulation applicable to Arrow; or (v) require Arrow to obtain the consent,
approval or authorization of, or require Arrow to file any certificate, notice,
application, report or other document with, any federal, state or local
governmental authority or agency or other person or entity.
(c) There are no judicial, arbitral or administrative actions,
suits or proceedings or, to the knowledge of Arrow, any investigations pending
against Arrow which would, if adversely determined, prevent, hinder, delay or
otherwise adversely affect the consummation of the transactions contemplated
hereby. Arrow is not a party to or subject to the provisions of any order,
decree or judgment of any court or of any governmental agency which may prevent,
hinder or otherwise adversely affect the consummation of the transactions
contemplated hereby.
This Guaranty shall be governed by and construed in accordance
with the laws of the State of New York without reference to its principles of
conflicts of law.
IN WITNESS WHEREOF, the undersigned has caused the Guaranty to
be executed and delivered as of the date of the foregoing Agreement.
ARROW INTERNATIONAL, INC.
By:
--------------------------------
John H. Broadbent, Jr.
Vice President - Finance
<PAGE> 1
EXHIBIT 10.16
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated October 24,
1995, by and among HORIZON MEDICAL PRODUCTS, INC., a Georgia corporation
("Horizon"); HORIZON ACQUISITION CORP., a Georgia corporation ("Purchaser");
NEOSTAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation ("Seller"); and
JOSEPH D. PIKE ("Pike"), THOMAS F. DARDEN, II ("Darden"), LANCE J. BRONNENKANT
("Bronnenkant"), and WILLIAM W. WELLS, as Trustee of the Wells Family Trust
("Wells") (Pike, Darden, Bronnenkant and Wells, collectively, the
"Shareholders").
RECITALS:
A. WHEREAS, Seller is engaged in the business of manufacturing and
selling various medical device products, including without limitation catheter
and needle products and chronic central venous critical care products and acute
central venous critical care products (the "Business");
B. WHEREAS, Seller conducts its manufacturing operations and the
principal operations of the Business at 100 Ross Road, King of Prussia,
Pennsylvania 19406 (the "Operations Facility") and operates an administrative
facility at 201 North Center Drive, North Brunswick, New Jersey (the
"Administration Facility");
C. WHEREAS, Shareholders are the principal shareholders of Neostar
Holdings, Inc., the sole shareholder of Seller ("Holdings");
D. WHEREAS, Purchaser is a wholly owned subsidiary of Horizon;
E. WHEREAS, Purchaser has agreed that on the terms and conditions set
forth herein, Purchaser will purchase certain assets of Seller, free and clear
of all liens, encumbrances and claims of any kind, and will assume certain
liabilities of Seller.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants herein contained and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. AGREEMENT TO SELL AND AGREEMENT TO PURCHASE.
1.1. Transferred Assets. Subject to the terms and conditions
and in reliance upon the representations, warranties and covenants herein
contained, Purchaser hereby agrees to purchase, and Seller hereby agrees to
sell, at Closing (as hereinafter defined), the following described assets of
Seller and the Business of Seller (collectively, the "Transferred Assets"):
(a) All inventories of Seller (including, without
limitation, raw materials, work in process and finished goods
(collectively, the "Product Inventory")), and all office supplies,
containers and other packaging materials, safety equipment, maintenance
supplies and other similar items of Seller (collectively, the
<PAGE> 2
"Supplies Inventory"; the Product Inventory and Supplies Inventory
together referred to herein as the "Inventory"), the Product Inventory
being described in the computer printout and/or lists delivered by
Seller to Purchaser at the Closing;
(b) All prepaid items, deposits and other similar
assets of Seller (the "Prepaid Expenses"), including without limitation
those items described in the Interim Financial Statements;
(c) All accounts and accounts receivable of Seller
(the "Accounts Receivable") as described in the computer printout
delivered by Seller to Purchaser at the Closing;
(d) All furniture, fixtures, machinery and equipment
of Seller (the "Fixed Assets"), including without limitation those
items located at the Operations Facility or the Administration
Facility;
(e) All right, title and interest of Seller in and
to the Mahurkar License Agreements ("Mahurkar Licenses"), as described
on Schedule 1.1(e);
(f) All right, title and interest of Seller in leases
(including without limitation the lease of the real property and
improvements relating to the Operations Facility (the "Operations
Facility Lease")), licenses, contracts, agreements, employee secrecy or
confidentiality agreements, distribution agreements and all other
contracts, written or oral, to which Seller is a party, as listed on
Schedule 1.1(f) (hereinafter referred to collectively as "Contracts");
(g) All patents, patent applications, copyrights,
copyright applications, trademarks, and trademark registrations and
applications (in each such case, whether registered or to be registered
in the United States or elsewhere) owned or licensed by Seller, and
each process, invention, trade secret, trade name, computer program and
formula, including without limitation items of the type described in
this Section 1.1(g) set forth on Schedule 1.1(g);
(h) All FDA 510(k) filings and other FDA filings for
Seller's products, all product drawings, all product test protocols and
results, all biocompatibility data, all customer lists, all computer
software, all rights in software used, but not owned, pursuant to
license or otherwise (all as listed on Schedule 1.1(h)), sales
brochures, medical records, data bases, all books and records,
correspondence, production records and any and all confidential
information relating to or arising out of the Business;
(i) All right, title and interest of Seller in the
names "Neostar" and "Neostar Medical Technologies"; and
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<PAGE> 3
(j) All other assets of Seller not listed on
Schedules 1.1(a) through 1.1(h) as set forth on Schedule 1.1(i).
1.2. Excluded Assets. The following assets, properties and
records of Seller are excluded from the Transferred Assets: The minute book and
stock records of Seller and all predecessor corporations to Seller and Seller's
rights and interests under any leases for the Administration Facility.
1.3. Further Assurances. From time to time after the Closing,
Seller will execute and deliver to Purchaser such instruments of sale, transfer,
conveyance, assignment and delivery, consents, assurances, powers of attorney
and other similar instruments as may be reasonably requested by Purchaser or its
counsel in order to vest in Purchaser all rights, title and interest of Seller
in and to the Transferred Assets and otherwise in order to carry out the
purposes and intent of this Agreement. Notwithstanding any provision of this
Agreement to the contrary, Seller agrees that prior to the Closing Seller shall
not (i) take any action that would cause a material decrease in the value of the
good will of Seller, including but not limited to Seller's relationships with
each of its customers, or (ii) fail to take any reasonable action of which
Seller becomes aware that would prevent a material decrease in such value.
1.4. Closing. The closing of the transactions herein
contemplated (the "Closing") shall, unless another date, time or place is agreed
to by the parties hereto, take place at the office of Purchaser, Atlanta,
Georgia at 9:30 p.m., local time, on October 24, 1995 (the "Closing Date").
2. LIABILITIES OF SELLER.
2.1. Assumption of Liabilities of Seller. In connection with
the purchase and sale of the Transferred Assets, it is expressly understood and
agreed that Seller shall remain liable for all obligations, responsibilities and
liabilities of Seller, whether incurred or accrued in connection with the
operation of the Business or otherwise, except only those liabilities and
obligations of Seller relating to the Transferred Assets expressly assumed and
agreed to be discharged by Purchaser (collectively, the "Assumed Liabilities")
under the terms of the Assumption Agreement, in the form attached hereto as
Exhibit A, to be executed and delivered at closing. The Assumed Liabilities are
those liabilities that are specifically described in Schedule 2.1.
2.2. Liabilities Not Assumed by Purchaser. Except for the
Assumed Liabilities, Purchaser shall not assume and shall not be liable for any
other expense, obligation, responsibility or liability whatsoever (including any
contingent liability) of Seller or Holdings, including without limitation any
responsibility or liability (a) for federal, state or local income taxes for any
period or for any other federal, state or local taxes of any nature, except as
provided in Section 2.1 above, relating to Seller, Holdings, the Business or the
Transferred Assets; or (b) with respect to any suit, proceeding, arbitration,
claim or counterclaim or any actions or occurrences constituting the basis
therefor, whether or not such suit, proceeding, arbitration, claim or
counterclaim is first asserted before or after the Closing Date, except to the
extent such suit, proceeding, arbitration, claim or
- 3 -
<PAGE> 4
counterclaim involves an Assumed Liability; or (c) for any legal fees,
accounting fees or other costs incurred by Seller or Shareholders in connection
with the transactions described in this Agreement, or (d) for any liabilities
under Seller's or Holding's lease agreement for the Administration Facility; or
(e) with respect to any product defect or liability claim for products that were
manufactured and sold by Holdings or by Seller prior to the Closing; or (f) for
any indebtedness owed by Seller to Holdings or to the Shareholders of Holdings;
or (g) obligations of Seller or Holdings to employees and former employees of
Seller or Holdings, including without limitation the obligations described in
Schedule 4.14 hereto excluding, however, severance pay described in Schedule
4.14 hereto for Kim Kulik and David Weaver.
3. PURCHASE PRICE.
3.1. Purchase Price. Subject to the provisions of this Section
3, the aggregate purchase price ("Purchase Price") for the Transferred Assets
shall be Three Million Nine Hundred Sixty-One Thousand Seventeen Dollars
($3,961,017.00), plus the amount of the Assumed Liabilities, and shall be
allocated among the Transferred Assets in the manner provided on Schedule 3.1.
3.2. Payment of Purchase Price. The Purchase Price shall be
paid as follows:
(a) At the Closing, Purchaser shall pay to Seller One Million
Five Hundred Thousand Dollars ($1,500, 000.00) by bank cashiers check
or wire transfer, in immediately available federal funds, in the manner
designated by Seller; and
(b) A subordinated note in the amount of Two Million Four
Hundred Sixty-One Thousand Seventeen Dollars ($2,461,017.00) (the
"Note") with' installments payable to Seller in the amounts provided
therein. The form of the Note is set forth in Exhibit B to this
Agreement. The Note will be secured by a second lien on the Transferred
Assets (the "Collateral"), which lien will be subordinated to the
indebtedness of Purchaser to Sirrom Capital Corporation ("Sirrom") and
Sirrom's first lien on the Transferred Assets, pursuant to security
agreements in form and content acceptable to Seller and Purchaser.
3.3. Reduction in Indebtedness Under Note and NonCompetition
Agreements.
(a) The indebtedness represented by the Note and the
indebtedness owed under the Non-Competition Agreements will be reduced in the
aggregate amount of Five Hundred Thousand Dollars ($500,000.00), in the manner
provided in Section 3.3(c) below, in the event that all of the following
conditions are not satisfied unless Souerwine is terminated without cause by
Purchaser:
(i) David A. Souerwine ("Souerwine") must become an
employee of Purchaser as of the Closing Date and must execute and
deliver the Employment
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<PAGE> 5
Agreement attached hereto as Exhibit D.
(ii) As an employee of Purchaser, for the term of
his Employment Agreement Souerwine must supervise Purchaser's
manufacturing operations in the Operations Facility until the
manufacturing operations are moved to Purchaser's new manufacturing
facility in Georgia.
(iii) During the term of his Employment Agreement, as
an employee of Purchaser, Souerwine must supervise Purchaser's move of
the manufacturing operations from the Operations Facility to
Purchaser's new manufacturing facility in Georgia.
(iv) After the move of such manufacturing operations
into Purchaser's new manufacturing facility in Georgia, as an employee
of Purchaser provided such move occurs during the term of his
Employment Agreement, Souerwine must staff such manufacturing facility
and must supervise and be responsible for such manufacturing facility's
becoming operational and producing, to Purchaser's reasonable
satisfaction, all products (with the exception of dual lumen fistula
needles which have been previously discontinued by Seller) that Seller
was manufacturing at the Operations Facility during the year prior to
the Closing Date.
(v) Seller will pay to Purchaser the amount of
$14,000 on or prior to the last day of each month after the Closing
through May 1996 or through the last month in which Souerwine is
employed by Purchaser if he ceases to be employed prior to May 1996.
(vi) Purchaser's move of the manufacturing
operations from the Operations Facility to Purchaser's facility in
Georgia is not impaired by action being taken by any of Seller's
present or former shareholders, officers, directors or employees that
materially and adversely affects Purchaser's move.
In the event Souerwine should die or become disabled while employed by
Purchaser and while attempting to satisfy the above conditions, then the
Shareholders may, within sixty (60) days after such death or disability, replace
Souerwine with an individual who would be retained by Purchaser as an employee
or consultant and be given the opportunity under an employment agreement or
consulting agreement to satisfy the above conditions. Such individual must be
acceptable to Purchaser, and his compensation in an amount acceptable to the
Shareholders would be paid by Seller or the Shareholders through May, 1996.
(b) The indebtedness represented by the Note and the
indebtedness under the Non-Competition Agreements will be reduced, in the manner
provided in Section 3.3(c) below, by the following amounts:
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<PAGE> 6
(i) to the extent that any outstanding Accounts
Receivable on the books and records of Seller as of the Closing Date,
other than amounts owed by Horizon to Seller, that is older than sixty
(60) days for any domestic customer of Seller or older than one hundred
twenty days (120) for any non-domestic customer of Seller are not
collected by Purchaser, then the amount of such accounts receivable
that are not collected (net of the allowance for doubtful accounts
shown on the September 30, 1995 balance sheet of Seller) will reduce
the indebtedness under the Note and the indebtedness under the
Non-Competition Agreements.
(ii) to the extent any raw materials or finished
goods inventory of Seller reflected on the September 30, 1995 balance
sheet is obsolete inventory, then the amount of such obsolete inventory
on such balance sheet (net of the inventory reserve shown on such
balance sheet) will reduce the indebtedness under the Note and the
indebtedness under the Non-Competition Agreements.
(iii) to the extent any equipment, furniture and
fixtures or molds of Seller reflected on the September 30, 1995 balance
sheet are obsolete, then the amount of such obsolete items on such
balance sheet (net of accumulated depreciation for such obsolete item)
will reduce the indebtedness under the Note and the indebtedness under
the Non-Competition Agreements.
(c) In the event the indebtedness owed under the Note and the
indebtedness owed under the Non-Competition Agreements are reduced under Section
3.3(a) or Section 3.3(b) above, then the following reductions ("reduction
amount") shall be made:
(i) for each such reduction amount, there shall be
a reduction in the same amount as the reduction amount in the aggregate
of indebtedness owed under the Note and indebtedness owed under all
Non-Competition Agreements, commencing with indebtedness payable under
the Note and under the Non-Competition Agreements in 1997, with the
reduction made in the most immediate payments payable at the time of
the reduction until the entire reduction amount is so applied and used.
For example, for the reduction described in Section 3.3(a) above
(assuming no reduction as of that time under Section 3.3(b)), the
reduction would reduce and be applied against all payments due for the
twelve months during 1997 under the Note (under which $212,235 is
payable during 1997) and under the Non-Competition Agreements (under
which an aggregate of $287,765 is payable during 1997).
As a further example, if there is a reduction of $30,000 under
Section 3.3(b) above and there has been no reduction as of that time
under Section 3.3(a), then the reduction amount would be applied
against the indebtedness payable on January 31, 1997 under the Note and
under the Non-Competition Agreements on the basis of a $12,735
reduction under the Note (such amount being determined by
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<PAGE> 7
$17,686.25/$41,667 X $30,000) and a $17,265 reduction in the aggregate
under the Non-Competition Agreements (such amount being determined by
$23,98l/$41,667 X $30,000).
The $17,265 reduction in the aggregate under the
Non-Competition Agreements under such example, as well as any other
reduction of indebtedness under the Non-Competition Agreements that
does not reduce and eliminate the entire indebtedness payable on a
specific date under all Non-Competition Agreements, will be allocated
among the Shareholders in the following percentages:
<TABLE>
<S> <C>
Pike Non-Competition Agreement - 30.36%
Darden Non-Competition Agreement - 30.36%
Bronnenkant Non-Competition Agreement - 20.15%
Wells Non-Competition Agreement - 19.13%
------------
100.00%
</TABLE>
(ii) in the event that at the time of any reduction
under this Section 3.3(c), no remaining amount is owed to a particular
Shareholder under his Non-Competition Agreement pursuant to the
provisions of such Non-Competition, then the percentages set forth
above for the other remaining Shareholders will be recomputed on a pro
rata basis. In the event that at the time of any reduction under this
Section 3.3(c), (x) no remaining amount is owed to any of the
Shareholders under their Non-Competition Agreement or (y) the remaining
amount owed to the Shareholders in the aggregate under their
Non-Competition Agreements at the time of the reduction is less than
the total reduction amount for the Non-Competition Agreements under
paragraph (i) above, then the entire reduction amount under (x) above
or the remaining unused reduction amount under (y) above shall reduce
the indebtedness under the Note in the manner provided in paragraph (i)
above.
The provisions of this Section 3.3 are intended by the parties to work
in conjunction with, and not contrary to, the offset provisions in Section 8.4
hereof and Schedule 8.4. In the event there are both reductions in indebtedness
under Sections 3.3(a) and/or 3.3(b) and offsets under Section 8.4, such
reductions and offsets will not be duplicative but will reduce and offset
different amounts of indebtedness in the order that the reductions and offsets
are made pursuant to this Section 3.3 and the provisions of Section 8.4 and
Schedule 8.4 hereof and the Note and the Non-Competition Agreements.
3.4. NonCompetition Agreements and Kapany Agreement. Each of
the Shareholders will enter into at the Closing a Non-Competition and Consulting
Agreement ("Non-Competition Agreement") with Purchaser substantially in the form
attached hereto as Exhibit C. As described in Schedule 3.4 hereto, each
Non-Competition Agreement will provide for a schedule of payments to each
Shareholder in the manner provided therein, which indebtedness of Purchaser will
be secured by the Collateral.
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<PAGE> 8
3.5. Operating Covenants. Purchaser and Horizon shall perform
the covenants set forth in Schedule 3.5.
4. REPRESENTATIONS AND WARRANTIES OF SELLER.
In order to induce Purchaser to enter into this Agreement and
to consummate the transactions contemplated hereunder, Seller represents and
warrants to and covenants with Purchaser that:
4.1. Outstanding Securities.
(a) The authorized capital stock of Seller consists solely of
9,000,000 shares of Common Stock, $.01 par value per share, of which 4,500,000
shares (the "Shares") are issued and outstanding. All of the issued and
outstanding Shares are owned of record or beneficially by Holdings. No shares
are held by Seller as treasury shares.
(b) Except as set forth in paragraph 4.1(a) above, there are
no other debt or equity securities of Seller outstanding. Schedule 4.1 contains
a listing of any and all agreements or other obligations to issue or any rights
to convert any obligations into, any shares of capital stock of Seller.
4.2. Organization, Good Standing and Authority. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. Seller has full authority and power to carry on its
business as it is now conducted and to own or lease, and operate, the Business.
Seller is qualified to do business and is in good standing and has all required
and appropriate licenses in each jurisdiction in which its failure to obtain or
maintain such qualification, good standing or licensing would have a material
and adverse effect on the condition (financial or otherwise), assets, properties
or prospects of the Business. Seller has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement and each other agreement herein contemplated
to be executed in connection herewith by Seller have been (or upon execution
will have been) duly executed and delivered by Seller and constitute (or upon
execution will constitute) legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms. This
Agreement and the transactions contemplated herein have been duly approved by
the Board of Directors and the Shareholder of Seller.
4.3. Books and Records of Seller. True and correct copies of
the charter documents, bylaws, and minutes from Seller's minute books have been
delivered to Purchaser. Seller's minute books (through September 30, 1995) are
complete and accurate as to the records of all proceedings and/or actions of its
incorporators, shareholders and directors, and reflect all matters required to
be acted on by the shareholders and directors from its incorporation to the date
of this Agreement.
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<PAGE> 9
4.4. Ownership of Assets. Seller is the lawful owner of or has
the right to use each of the Transferred Assets, and, except as disclosed on
Schedule 4.4 attached hereto, the Transferred Assets are free and clear of all
liens, mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever. At Closing, Seller
will except as disclosed on Schedule 4.4:
(a) with respect to Transferred Assets other than
those listed on Schedules 1.1(e) and 1.1(f) have good title to such
assets, free and clear of all liens, mortgages, pledges, security
interests, restrictions, prior assignments, encumbrances and claims of
any kind or nature whatsoever; and
(b) with respect to the Transferred Assets described
in Sections 1.1(e) and 1.1(f) hereof, have all rights of possession
and/or enforcement to allow Seller to realize the full benefits of such
items in accordance with the terms of any written or oral agreements
underlying such assets.
By instrument dated November 1, 1994, Holdings conveyed all of its
operational assets to Seller, the wholly owned subsidiary of Holdings. Such
transfer and conveyance was duly approved by the Board of Directors and the
Shareholders of Holdings, was a valid conveyance and transfer of such assets and
is binding upon Holdings, Seller and their respective creditors.
4.5. Financial Statements.
(a) Annual Financial Statements. Included with
Schedule 4.5(a) attached hereto are the unaudited balance sheet of
Seller as of December 31, 1994, and the related statements of income
for the fiscal year then ended, as prepared by Seller (collectively,
the "Annual Financial Statements"). Except as disclosed on Schedule
4.5(a), the Annual Financial Statements (i) have been prepared in
accordance with the books and records of Seller, and (ii) fairly
present the financial condition and the results of operations of the
Business and of Seller as of the relevant dates thereof and for the
periods covered therein.
(b) Interim Statements. Included with Schedule 4.5(b)
attached hereto is an unaudited balance sheet and the related statement
of income of Seller as of and for the nine month period ended September
30, 1995 (collectively, the "Interim Financial Statements"). Except as
disclosed on Schedule 4.5(b), such Interim Financial Statements (i)
have been prepared in accordance with the books and records of Seller,
and (ii) fairly present the financial condition and the results of
operations of the Business and of Seller as of the date thereof and for
the period covered therein.
4.6. Absence of Certain Changes. Except as disclosed on
Schedule 4.6 attached hereto or as otherwise provided for or contemplated in
this Agreement, since the date of the Interim
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<PAGE> 10
Financial Statements, there has not been any (i) transaction or occurrence
relating to the Business or the Transferred Assets other than in the ordinary
course of business, (ii) sale or disposition of any Fixed Assets, (iii) sale or
disposition of Inventory other than in the ordinary course of business, or (iv)
event or condition of any character which is reasonably likely to have or has
had a material and adverse effect on the condition (financial or otherwise),
assets, properties or prospects of the Business.
4.7. Real Property and Leaseholds. Seller does not own any
real property. Schedule 4.7 attached hereto contains a list of all real
properties used by Seller in the Business, under which Seller is a lessee,
sublessee or sublessor. A true and complete copy of each such lease or sublease
has been provided to Purchaser. Except as indicated on Schedule 4.7:
(a) No officer, director, shareholder or employee of
Seller, nor any spouse, child or other relative or affiliate thereof,
owns directly or indirectly, in whole or in part, any of the real
properties described on Schedule 4.7 or any interest therein;
(b) Seller is not in default with respect to any term
or condition of any such lease, including, without limitation, the
Operations Facility Lease, nor, to the best knowledge of Seller has any
event occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder, would cause the
acceleration of any obligation of Seller or the creation of a lien or
encumbrance upon any of the Transferred Assets or interfere with
Seller's right to occupy the leasehold;
(c) The Operations Facility Lease is enforceable by
Seller in accordance with its terms;
(d) Seller has not received any notice that any such
building, fixtures or improvements is in violation of any applicable
building code; zoning ordinance, land use or other similar law or
regulation; and
(e) Since the first date of its occupancy of the
Operations Facility, neither Seller nor Holdings has experienced any
material interruption in the delivery of adequate quantities of any
utilities (including, without limitation, electricity, natural gas,
potable water, water for cooling or similar purposes and fuel oil) or
other public services (including, without limitation, sanitary and
industrial sewer service) required in the operation of the Business
during such period.
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<PAGE> 11
4.8. Tangible Personal Property Other Than Inventory. Except
as indicated on Schedule 4.8:
(a) Seller has good title to each item of tangible
personal property which it owns, free and clear of all liens, leases,
encumbrances, claims under bailment and storage agreements, equities,
conditional sales contracts, security interests, charges and
restrictions except for liens, if any, for personal property taxes not
yet due and payable;
(b) Each material item of tangible personal property
included in the Transferred Assets, as of the Closing Date, will be in
good operating condition and repair, ordinary wear and tear excepted;
and
(c) Seller owns or otherwise has the right to use all
of the tangible personal property now used by it in the operation of
the Business or the use of which is necessary for the performance of
any contract or proposal to which Seller is a party.
4.9. Intangible Personal Property. Schedules 1.1(g) and 1.1(h)
and Schedule 1.1(e) hereto include (i) a list and description of all material
intangible personal property owned by Seller or otherwise used in the Business,
including, but not limited to, computer software and programs (except for
personal computer software generally available to the public), software in
process, computer operating systems and applications, United States and foreign
patents, patent applications, trade names, trademarks, trade name and United
States and foreign trademark registrations, copyright registrations and
applications for any of the foregoing, and (ii) a true and complete list of all
licenses or similar agreements or arrangements to which Seller is a party either
as licensee or licensor for each such item of intangible personal property.
Except as indicated on Schedule 4.9:
(a) Seller owns or has the right to use such
intangible personal property, free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims;
(b) No interference or infringement actions or other
judicial or adversary proceedings concerning any of such items of
intangible personal property are pending, and to the best of Seller's
knowledge, no such action or proceeding is threatened;
(c) Seller has the right and authority to use such
items of intangible personal property in connection with the conduct of
the Business in the manner presently conducted, and, to the best of
Seller's knowledge, such use does not conflict with, infringe upon or
violate any rights of any other person, firm or corporation;
- 11 -
<PAGE> 12
(d) There are no outstanding or, to the best of
Seller's knowledge, threatened disputes or other disagreements with
respect to any licenses or similar agreements or arrangements described
on Schedule 1.1(g) and Schedule 1.1(e); and
(e) There is no intangible personal property used in
any material respect to the operations of the Business as presently
conducted and that is not owned by or licensed to Seller.
4.10. Inventory. The finished goods Inventory is good, usable,
merchantable and saleable in the ordinary course of the Business, after
application of the reserve for inventory on the Interim Financial Statements.
4.11. Accounts Receivable. Except as set forth on Schedule
4.11 attached hereto, the Accounts Receivable, other than the amounts owed by
Horizon, (i) arose out of the sale of Inventory by Seller in the ordinary course
of the Business (ii) have been billed or invoiced in the ordinary course of the
Business and in accordance with all applicable laws, regulations and
administrative rulings and procedures, (iii) represent bona fide indebtedness of
the applicable account debtor, not subject to defense, set-off or counterclaim,
and (iv) are collectible in full, net of the reserves set forth in the Interim
Financial Statements.
4.12. Insurance. Schedule 4.12 attached hereto sets forth a
true and correct list of all insurance policies of any nature whatsoever
maintained by Seller on the date of this Agreement and describes the annual or
other premiums payable from time to time thereunder. Complete copies of all such
policies have been otherwise furnished to Purchaser. Except as set forth on
Schedule 4.12, neither Seller nor Holdings has received written notice or other
written communication from any such insurance company within the three (3) years
preceding the date hereof cancelling or materially amending any insurance
policies or materially increasing the annual or other premiums payable under any
of such insurance policies and no such cancellation, amendment or material
increase of premiums is threatened.
4.13. Environmental Matters.
(a) To the best knowledge of Seller and except as set forth on
Schedule 4.13 attached hereto, no toxic, hazardous, explosive or otherwise
dangerous materials, substances, pollutants or wastes (as those terms are used
in the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act of 1976, the Hazardous Materials Transportation Act, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Emergency Planning and Community Right-to-Know Act or in any
other federal, state or local environmental law (collectively "Environmental
Laws")), petroleum products, polychlorinated biphenyls, urea-formaldehyde foam,
or radioactive materials (all of the above being collectively referred to herein
as "Hazardous Materials") have been or are stored, treated, disposed of,
managed, generated, manufactured, produced, released (as defined in CERCLA
Section 101(22)), emitted or discharged on, to, in, under or from the real
estate upon which the Operations Facility is situated.
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<PAGE> 13
(b) Except as set forth on Schedule 4.13, to its best
knowledge, Seller is in compliance in all material respects with all
Environmental Laws and has obtained all environmental licenses, permits,
approvals, registrations and authorizations (federal, state and local) material
to the Business. Except as set forth on Schedule 4.13, all such licenses,
permits, approvals, registrations and authorizations will remain in full force
and effect as of the Closing and, to Seller's knowledge, may be effectively
transferred or assigned to Purchaser on or after the Closing Date without
materially and adversely affecting the operation of the Business by Purchaser
after the Closing.
(c) Except as set forth on Schedule 4.13, no governmental or
private action, suit or proceeding to enforce or impose liability under any
Environmental Laws is pending or, to the best of Seller's knowledge, threatened
against Seller and, to the best of Seller's knowledge, no lien has been created
on the Operations Facility, or the real estate upon which it is situated, under
any Environmental Laws.
4.14. Employment Matters. Except as set forth on Schedule
4.14, (i) there are no pending claims by any employee or former employee against
Seller or Holdings other than for compensation and benefits due in the ordinary
course of employment, (ii) there are no pending claims against Seller or
Holdings arising out of any statute, ordinance or regulation relating to
employment practices or occupational or safety and health standards, (iii) there
are no pending or, to the best of Seller's knowledge, threatened labor disputes,
strikes or work stoppages against Seller, and (iv) to the best of Seller's
knowledge, there are no union organizing activities in process or contemplated
with respect to the Business. Schedule 4.14 identifies all collective bargaining
units which have been certified or recognized by Seller, and Purchaser has been
supplied with all collective bargaining agreements covering the Employees.
Schedule 4.14 also identifies all Employees on leave of absence and all
employees and former employees of Seller and their dependents receiving health
benefits, or eligible to receive health benefits, as required by COBRA. Notice
of the availability of COBRA coverage will have been or will be provided to all
persons entitled thereto, and all persons electing such coverage are being (or
have been, if applicable) provided such coverage.
4.15. Employee Benefit Plans. All plans, programs, agreements,
commitments and arrangements maintained by or on behalf of Seller that provide
benefits or compensation to, or for the benefit of, any employee or former
employee of Seller (the "Plans") have been delivered to Purchaser. Except as set
forth on Schedule 4.15, only employees and former employees of Seller (and
eligible dependents and beneficiaries of such employees and former employees)
participate in the Plans. All of the Plans covered thereby are in compliance in
all respects with ERISA and the Internal Revenue Code of 1986, as amended
("Code"). All of the Plans which are intended to meet the requirements of
Section 401(a) of the Code have been determined by the Internal Revenue Service
to be "qualified" within the meaning of Section 401(a) of the Code, and there
are no facts which would adversely affect the qualified status of any of the
Plans. Except as set forth on Schedule 4.15, (i) there is no accumulated funding
deficiency, within the meaning of Section 412(a) of the Code or Section 302(a)
(2) of ERISA, in connection with the Plans; (ii) no reportable event, as defined
in Section 4043(b) of ERISA, has occurred in connection with the Plans; (iii)
the Plans
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<PAGE> 14
have not, nor has any trustee or administrator of the Plans, engaged in any
prohibited transaction as defined in Sections 406 and 407 of ERISA or Section
4975 of the Code; (iv) Seller is not contributing to, and has not, since January
1, 1974, contributed to, any multi-employer plan, as defined in Section 4001(a)
(3) of ERISA; and (v) Seller has not, since January 1, 1974, terminated a single
employer plan, as defined in Section 4001(a) (15) of ERISA.
4.16. Agreement Not in Breach of Other Instruments. Except as
set forth on Schedule 4.16 attached hereto, the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not violate or result in a breach of any of
the terms and provisions of, or constitute a default (or an event which, with
notice or the passage of time, or both, would constitute a default) under, or
conflict with or result in the termination of, or accelerate the performance
required by any ('i) agreement (including, without limitation, the Operations
Facility Lease), indenture or other instrument to which Seller is a party or by
which Seller is bound, or (ii) Seller's Articles of Incorporation, Bylaws or
similar organizational documents, or (iii) any judgment, decree, order or award
of any court, governmental body or arbitrator by which Seller is bound, or (iv)
any law, rule or regulation applicable to Seller.
4.17. Tax Returns. Except as disclosed on Schedule 4.17:
(a) Within the times and in the manner prescribed by
law, each of Seller and Holdings has filed all federal, state and local
tax returns (including information returns) and all tax returns for
foreign countries, provinces and other governing bodies having
jurisdiction to levy taxes upon Seller and Holdings, and have paid all
taxes shown to be due to any taxing authority with respect to all
periods ending prior to or on the Closing Date; and
(b) All tax returns filed by Seller or by Holdings
through the Closing Date constitute complete and accurate
representations of the tax liabilities of Seller or Holdings, as the
case may be, in all material respects, as appropriate (and any
predecessor or subsidiary entity) for such years and accurately set
forth all items (to the extent required to be included or reflected in
such returns) relevant to its future tax liabilities, including the tax
bases of its properties and assets.
As used in this Section 4.17, the term "taxes" shall include
all federal, state, local, foreign or other income, gross profits, payroll,
workers' compensation, unemployment, withholding, excise, sales, use, property,
ad valorem or other taxes of any kind or nature whatsoever, together with any
penalties or interest applicable thereto.
4.18. Litigation. Except as listed on Schedule 4.18, there is
no action, suit, proceeding or investigation to which Seller or Holdings is a
party (either as a plaintiff or defendant) pending before any court or
governmental agency, authority or body or arbitrator; there is no action, suit,
proceeding or investigation threatened against Seller; and, to the best of
Seller's knowledge,
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<PAGE> 15
there is no basis for any such action, suit, proceeding or investigation.
4.19. Compliance with Law. Seller holds all material licenses
and permits in all applicable jurisdictions necessary or appropriate to conduct
the Business; provided, however, that no representation or warranty is made with
respect to whether any distributor of Seller has obtained any necessary licenses
or permits in the distributor's name or in Seller's name. On the date hereof the
Business is being conducted in material compliance with all applicable laws and
regulations (excluding regulations of the Food and Drug Administration which are
addressed in the next sentence). To the best of its knowledge and to the best of
its ability, Seller has complied with and is complying with the current
applicable regulations of the Food and Drug Administration. Seller is not
prohibited by any order, writ, injunction or decree of any body of competent
jurisdiction from consummating the transactions contemplated by this Agreement
and all other agreements referenced herein, and no such action or proceeding is
pending against Seller which questions the validity of this Agreement or any
such other agreements, any of the transactions contemplated hereby or thereby or
any action which has been taken by any of the parties in connection herewith or
therewith or in connection with any of the transactions contemplated hereby or
thereby.
4.20. Brokerage. Seller has not dealt with, or is not
obligated to make any payment to, any finder, broker, investment banker or
financial advisor in connection with any of the transactions contemplated by
this Agreement or the negotiations looking toward the consummation of such
transactions.
4.21. Contracts. Schedule 1.1(f) hereto sets forth a true and
correct list of each Contract including, without limitation, all distribution
agreements to which Seller is a party. True, complete and correct copies of each
of the Contracts, or where they are oral, true and complete written summaries
thereof, have been delivered to Purchaser by Seller. Except as expressly
described on Schedule 1.1(f) attached hereto:
(a) Seller has fulfilled all material obligations
required pursuant to each Contract to have been performed by Seller;
(b) There has not occurred any default under any of
the Contracts on the part of Seller or, to the best knowledge of
Seller, on the part of any other party thereto, nor to the best of
Seller's knowledge has any event occurred which, with the giving of
notice or the lapse of time, or both, would constitute a default on the
part of Seller under any of the Contracts, nor, to the best of Seller's
knowledge, has any event occurred which, with the giving of notice or
the lapse of time, or both, would constitute a default on the part of
any other party to any of the Contracts; and
(c) No consent of any party to any of the Contracts
is required for the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby
or the assignment of any Contract to Purchaser.
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<PAGE> 16
4.22. No Undisclosed Liabilities. Except as and to the only
extent specifically reflected in the list of Assumed Liabilities in Schedule 2.1
and the specific liabilities not assumed by Purchaser as described in Section
2.2 hereof, Seller has no liabilities or obligations of a material nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due (including, without limitation, any liability for taxes, interest, penalties
or other charges payable with respect to any such liability).
4.23. Distribution Agreements. As of the date hereof and as of
the Closing Date, Seller has not received notice of, and has no knowledge with
respect to, the termination of any distribution agreements to which Seller is a
party.
4.24. Conflict of Interest. Except as disclosed in Schedule
4.24, no officer, director or shareholder of Seller now has or within the last
three (3) years had, either directly or indirectly, (a) an equity or debt
interest in any corporation, partnership, joint venture, association,
organization or other person or entity which furnishes or sells or during such
period furnished or sold services or products to Seller, or purchases or during
such period purchased from Seller any goods or services, or otherwise does or
during such period did business with Seller or (b) a beneficial interest in any
contract, commitment or agreement to which Seller is or was a party or under
which Seller was obligated or bound or to which its properties may be or may
have been subject, other than contracts, commitments or agreements between
Seller and such persons in their capacities as employees, officers or directors
of Seller.
4.25. Subsidiaries. Except as listed in Schedule 4.25, Seller
does not have any wholly or partially owned subsidiaries and no portion of the
Business during the past five years has been conducted through any joint venture
or partnership.
4.26. Other Material Circumstances. To the best of Seller's
knowledge, there is no material fact or circumstance related to the Business,
Transferred Assets or liabilities of Seller which constitutes or would
constitute a serious threat to the viability or survival of Seller.
4.27. Mahurkar Licenses. Schedule 1.1(e) sets forth a true and
correct description of all agreements with Mahurkar to which Seller or Holdings
is a party. True, complete and correct copies of each such agreements have been
delivered to Purchaser by Seller. Except as expressly described on Schedule
1.1(e) attached hereto:
(a) Seller has fulfilled all material obligations
required pursuant to the Mahurkar Licenses to have been performed by
Seller, and there is no reason to believe that Purchaser will not be
able to fulfill, when due, all of its obligations under the Mahurkar
Licenses which remain to be performed after the Closing Date;
(b) There has not occurred any default under the
Mahurkar Licenses on the part of Seller or, to the best of Seller's
knowledge, any other party thereto, nor to the best of Seller's
knowledge has any event occurred which, with the
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<PAGE> 17
giving of notice or the lapse of time, or both, would constitute a
default on the part of Seller or any other party under the Mahurkar
Licenses; and
(c) No consent of any party to the Mahurkar Licenses
is required for the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby
or the assignment of the Mahurkar Licenses to Purchaser.
4.28. Other Information. The information concerning Seller or
Holdings set forth in this Agreement, the Schedules hereto and any document to
be delivered by Seller at the Closing to Purchaser pursuant hereto, taken as a
whole, does not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated herein or therein or
necessary to make the statements and facts contained herein or therein, in light
of the circumstances in which they are made, not false or misleading. Copies of
all documents heretofore or hereafter delivered or made available to Purchaser
pursuant hereto were or will be complete and accurate copies of such documents.
4.29. FDA Matters. Seller has provided to Purchaser true and
complete copies of all reports with respect to defective products or patient
claims that have been filed by Seller or Holdings with the FDA since January 1,
1990. Except as provided in Schedule 4.29, all proposed actions of Seller that
were described in Seller's letter dated March 7, 1995 to the FDA have been
completed or implemented by Seller.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND HORIZON.
In order to induce Seller to enter into this Agreement and to
consummate the transactions contemplated hereunder, Purchaser and Horizon, both
jointly and severally, represent and warrant to and covenant with Seller that:
5.1. Organization, Good Standing, Authority and
Enforceability. Each of Purchaser and Horizon is a corporation duly organized,
validly existing and in good standing under the laws of the State of Georgia.
Purchaser has full authority and power to carry on its business as it is now
conducted, and to own, lease and operate the assets owned, leased or operated by
it. On or before the Closing Date, Purchaser shall be qualified to do business
in the state of Pennsylvania. Each of Purchaser and Horizon has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement and each other agreement herein
contemplated to be executed in connection herewith by Purchaser or Horizon have
been (or upon execution will have been) duly executed and delivered by Purchaser
or Horizon and constitute (or upon execution will constitute) legal, valid and
binding obligations of Purchaser or Horizon, as the case may be, enforceable
against Purchaser or Horizon in accordance with their respective terms.
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<PAGE> 18
5.2. Agreement Not in Breach of Other Instruments. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof will not violate or
result in a breach of any of the terms or provisions of, or constitute a default
(or any event which, with notice or the passage of time, or both, would
constitute a default) under, or conflict with or result in the termination of,
or accelerate the performance required by (i) any agreement, indenture or other
instrument to which Purchaser or Horizon is a party or by which either of them
is bound, (ii) the Articles of Incorporation or Bylaws of Purchaser or Horizon,
(iii) any judgment, decree, order or award of any court, governmental body or
arbitrator by which Purchaser or Horizon is bound, or (iv) any law, rule or
regulation applicable to Purchaser or Horizon.
5.3. Compliance with Laws. All consents, approvals and
authorizations and all other requirements prescribed by any law, rule or
regulation which must be obtained or satisfied by Purchaser and which are
necessary for the execution and delivery by Purchaser of this Agreement and the
documents to be executed and delivered by Purchaser in connection herewith and
in order to permit the consummation of the transactions contemplated by this
Agreement have been obtained and satisfied or shall be obtained and satisfied by
Closing.
5.4. No Legal Bar. Neither Purchaser nor Horizon is prohibited
by any order, writ, injunction or decree of any body of competent jurisdiction
from consummating the transactions contemplated by this Agreement and all other
agreements referenced herein, and no such action or proceeding is pending
against Purchaser or Horizon which questions the validity of this Agreement or
any such other agreements, any of the transactions contemplated hereby or
thereby or any action which has been taken by any of the parties in connection
herewith or therewith or in connection with any of the transactions contemplated
hereby or thereby.
5.5. No Brokerage Fees. No broker or finder has acted for
Purchaser or Horizon in connection with this Agreement or the transactions
contemplated hereby, and no broker 'or finder is entitled to any brokerage or
finder's fees or other commission in respect of such transactions based in any
way on agreements, arrangements or understandings made by or on behalf of
Purchaser.
5.6. Litigation. There is no action, suit, proceeding or
investigation to which Horizon or Purchaser is a party (either as Plaintiff or
Defendant) pending before any court or governmental agency, authority or body or
arbitrator. There is no action, suit, proceeding or investigation threatened
against Horizon or Purchaser and, to the best of Horizon's knowledge, there is
no basis for any such action, suit, proceeding or investigation.
6. CERTAIN UNDERSTANDINGS AND AGREEMENTS OF THE PARTIES.
6.1. Purchaser Access. Between the date hereof and the Closing
Date, (i) authorized representatives of Purchaser shall have reasonable access
to all properties, books, records, Contracts and documents of Seller, (ii)
Seller will furnish to Purchaser all information with respect to the affairs and
the Business of Seller that Purchaser may reasonably request, and (iii)
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<PAGE> 19
Purchaser shall have the right to discuss the affairs and the Business of Seller
with certain employees of Seller; provided, however, that Purchaser shall not
contact any employee or customer of Seller unless such employee or Purchaser
receives the prior authorization of the Chairman of the Board of Seller.
6.2. Seller Access. Seller shall have the right for a period
of the longer of two (2) years following the Closing Date or the applicable
statute of limitations to have reasonable access to such books, records and
accounts, correspondence, minutes, production records, employment records and
other similar information as are transferred to Purchaser pursuant to the terms
of this Agreement for the limited purposes of concluding its involvement in the
Business after the Closing Date and obtaining information reasonably necessary
in connection with any tax matters, FDA matters or regulatory matters.
6.3. Cooperation in Litigation. Each party will fully
cooperate with the other in the defense or prosecution of any litigation or
proceeding already instituted or which may be instituted hereafter against or by
such party relating to or arising out of the conduct of the Business prior to or
after the Closing Date (other than litigation arising out of the transactions
contemplated by this Agreement). Unless and other than to the extent provided
for by Section 8 hereof, the party requesting such cooperation shall pay the
out-of-pocket expenses (including legal fees and disbursements) of the party
providing such cooperation and of its officers, directors, employees and agents
reasonably incurred in connection with providing such cooperation, but shall not
be responsible to reimburse the party providing such cooperation for such
party's time spent in such cooperation or the salaries or costs of fringe
benefits or other similar expenses paid by the party providing such cooperation
to its officers, directors, employees and agents while assisting in the defense
or prosecution of any such litigation or proceeding.
6.4. Confidentiality. All information relating to Seller
obtained prior to the Closing by Purchaser and its authorized representatives
pursuant to Section 6.1 hereof or otherwise in connection with the transactions
contemplated hereby shall be kept confidential by Purchaser prior to the Closing
and shall not be used by it for any purpose other than to evaluate the proposed
purchase of the Business and the Transferred Assets and, if applicable, in
connection with the transactions contemplated hereby; provided, however, that
the foregoing shall not apply to (i) any information generally available to the
public on the date hereof or which becomes generally available to the public
through no fault of Purchaser, but only from and after the date such information
becomes so available, (ii) any information obtained by Purchaser from a third
party having the right to disclose such information, or (iii) any information
Purchaser is required by law to disclose; and provided further that Purchaser
shall have no obligation with respect to, or be restricted in its use of, any
such information after the Closing. In the event no Closing occurs, upon the
request of Seller, Purchaser shall promptly return all such written information,
and all copies thereof, to Seller.
6.5. Conduct of Business. Seller shall conduct the Business
from the date of this Agreement through the Closing in accordance with prior
practice and only in the ordinary course of the Business, and, without limiting
the generality of the foregoing, Seller shall not (except with the
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<PAGE> 20
prior written consent of Purchaser): (i) enter into any material transaction not
in the ordinary course of the Business; (ii) sell or transfer any of its assets,
including, without limitation, any Fixed Assets, except for sales in the
ordinary course of the Business of Inventory or immaterial amounts of other
tangible personal property not required in the Business; (iii) mortgage, pledge
or encumber any of the properties or assets of Seller, except liens for taxes
not yet due and payable, and existing bank indebtedness; (iv) materially amend,
modify, or terminate any material Contract other than in the ordinary course of
the Business; (v) make any increase in, or any commitment to increase, the
benefits or compensation payable to any of its officers, directors,
shareholders, employees or agents; (vi) reduce the amount of its Inventory or
other assets other than in the ordinary course of the Business; (vii) materially
alter the manner of keeping its books, accounts, or records or the accounting
practices therein reflected; (viii) make any changes in its capital or corporate
structures; (ix) delay the payment of any account payable to the extent such
delay may adversely affect Purchaser's ability to conduct business with the
payee thereof; (x) make any material changes in its methods of business
operations; (xi) make, enter into any agreement to make or become obligated to
make, any capital expenditure in excess of Five Thousand Dollars ($5,000); (xii)
make, enter into or renew any agreement for services to be provided to Seller,
or permit the automatic renewal of any such agreement; or (xiii) pay any stock
dividends or make any other distributions to its shareholders. Seller shall make
no distributions of cash to its shareholders except compensation for services
performed and shall make no other distributions of cash not in the ordinary
course of business.
6.6. Preservation of Organization. Prior to the Closing,
Seller shall use its commercially reasonable efforts to preserve the Business,
to keep available to Purchaser the services of Seller's employees, and to
preserve for Purchaser Seller's favorable business relationships with its
suppliers, customers and others with whom business relationships exist.
6.7. Current Information.
(a) Seller will advise Purchaser and Purchaser will
advise Seller in writing immediately, but in any event prior to the Closing of:
(i) the occurrence of any event which renders any of the representations or
warranties set forth herein materially inaccurate or the awareness of either
Purchaser or Seller that any representation or warranty set forth herein was not
materially accurate when made; (ii) any fact that, if existing or known on the
date hereof, would have been required to be set forth or disclosed in or
pursuant to this Agreement; and (iii) the failure of any party hereto to comply
with or accomplish any of the covenants or agreements set forth herein.
(b) Seller shall provide to Purchaser copies of all
operating and financial reports prepared by or for Seller prior to the Closing
Date as soon as such reports become available.
6.8. Covenant Not to Compete. At the Closing, each of the
Shareholders shall enter into a NonCompetition Agreement with Purchaser,
substantially in the form attached hereto as Exhibit C.
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<PAGE> 21
6.9. Employment Agreement and Kapany Agreement. At or prior
to the Closing, Souerwine shall enter into an Employment Agreement with
Purchaser, substantially in the form attached hereto as Exhibit D.
6.10. Use of Neostar Name. After the Closing, Seller will
promptly change its corporate name for the purpose of removing "Neostar" from
its corporate name and will cease all use of the "Neostar" name. A copy of the
Certificate of Amendment filed with the Secretary of State of Delaware for
purposes of changing Seller's name will be promptly furnished to Purchaser.
7. CONDITIONS TO CLOSING.
7.1. Conditions to Obligations of Each Party. The obligations
of Purchaser and Seller to consummate the transactions contemplated hereby shall
be subject to the fulfillment, on or prior to the Closing Date, of the following
conditions:
(a) Compliance with Law. There shall have been
obtained all permits, approvals, consents and authorizations of all
governmental bodies or agencies necessary or appropriate so that
consummation of the transactions contemplated by this Agreement will be
in compliance with applicable laws, and so that Purchaser will be
eligible to operate the Business.
(b) No Action or Proceeding. No claim, action, suit,
investigation or other proceeding brought by any governmental agency or
other third party shall be pending or threatened before any court or
governmental agency which presents a substantial risk of the
restraining or prohibition of the transactions contemplated by this
Agreement or the obtaining of material damages from Purchaser or Seller
or other relief in connection therewith.
7.2. Conditions to Obligations of Purchaser. The obligations
of Purchaser to consummate the transactions contemplated hereby shall be subject
to the fulfillment, at or prior to the Closing, of the following additional
conditions:
(a) Representations and Warranties True. The
representations and warranties of Seller and Holdings contained in this
Agreement or in any other document delivered by Seller pursuant hereto
shall have been true and correct in all material respects as of the
date of this Agreement or when otherwise given and shall be true and
correct in all material respects on the Closing Date.
(b) Performance of Covenants. Each of the obligations
of Seller to be performed by Seller on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed
in all material respects on or before the Closing Date, and at the
Closing Seller shall have delivered to Purchaser certificates to such
effect signed by the Chairman of the Board, President and Secretary of
Seller.
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<PAGE> 22
(c) Authority. All actions required to be taken by,
or on the part of, Seller to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by Seller
and the board of directors and the sole shareholder of Seller.
(d) Opinion of Seller's Counsel. Purchaser shall have
been furnished at the Closing with an opinion of Albrecht, Maguire,
Heffern & Gregg, P.C., legal counsel to Seller, dated the Closing Date,
substantially in the form of Exhibit F hereto.
(e) Additional Closing Documents of Seller. Purchaser
shall have received at the Closing the following documents, dated the
Closing Date: (i) copies, certified by the Secretary of Seller, of
resolutions of the Board of Directors and the shareholder of Seller
authorizing the execution, delivery and performance of this Agreement
and all other agreements, documents and instruments relating hereto and
the consummation of the transactions contemplated hereby; (ii) such
bills of sale and instruments of transfer and assignment as Purchaser
may request in order to transfer and convey to Purchaser good title to
the Transferred Assets; (iii) the NonCompetition Agreements, duly
executed pursuant to Section 6.8 hereof; (iv) the Employment Agreement
duly executed pursuant to Section 6.9 hereof; (v) a good standing
certificate, certificate of existence or certificate of valid
qualification as a foreign corporation, as the case may be, from the
state of Seller's incorporation and each state in which Seller conducts
the Business; (vi) Incumbency Certificate of Seller's officers
executing any documents or instruments delivered to Purchaser
hereunder; and (vii) such further documents and instruments as
Purchaser may reasonably require to assure the full and effective sale,
transfer, conveyance, assignment and delivery to it of the Transferred
Assets to be transferred to Purchaser under this Agreement.
(f) No Damage, Etc.. Between the date of this
Agreement and the Closing Date there shall not have occurred any damage
or destruction of, or loss to, any of the Transferred Assets, whether
or not covered by insurance, which has had or may reasonably be
expected to have a material and adverse effect on the Business or
Transferred Assets or any prospects of Seller, nor shall there have
occurred any other event or condition which has had or which reasonably
may be expected to have a material and adverse effect on the results of
operations, condition (financial or otherwise), assets, properties or
prospects of the Business.
(g) Financing. At or prior to the Closing, Purchaser
has closed financing that will enable Purchaser to pay the Purchase
Price that is required to be paid at Closing.
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Subordination Agreement. At the Closing, Seller has executed
and delivered a subordination agreement with Sirrom with respect to the
indebtedness owed by Purchaser to Sirrom and the security interest granted by
Purchaser in favor of Sirrom with respect to the Transferred Assets.
7.3. Conditions to Obligations of Seller. The obligation of
Seller to consummate the transactions contemplated hereby shall be subject to
the fulfillment, at or prior to the Closing Date, of the following additional
conditions:
(a) Representations and Warranties True. The
representations and warranties of Purchaser and Horizon contained in
this Agreement or in any other document delivered by Purchaser or
Horizon to Seller pursuant hereto shall have been true and correct in
all material respects as of the date of this Agreement or when
otherwise given and shall be true and correct in all material respects
on the Closing Date with the same effect as if made on the Closing
Date, and at the Closing Purchaser and Horizon shall have delivered to
Seller certificates to such effect, signed by the President of
Purchaser and the President of Horizon.
(b) Performance of Covenants. Each of the obligations
of Purchaser or Horizon to be performed on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed
on or before the Closing Date, and at the Closing Purchaser and Horizon
shall have delivered to Seller certificates to such effect signed by
the President of Purchaser and the President of Horizon.
(c) Authority. All actions required to be taken by,
or on the part of, Purchaser to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby shall have been duly and validly taken by the board
of directors of Purchaser.
(d) Opinion of Purchaser's Counsel. The Seller shall
have been furnished with an opinion of Slaughter & Virgin, P.C.,
counsel to Purchaser, dated the Closing Date, substantially in the form
of Exhibit G hereto.
(e) Additional Closing Documents of Purchaser. Seller
shall have received at the Closing the following documents, each dated
the Closing Date: (i) copies, certified by the Secretary of Purchaser,
of resolutions of the board of directors of Purchaser authorizing the
execution and delivery of this Agreement and all other agreements,
documents or instruments relating hereto and the consummation of the
transactions contemplated hereby; (ii) the cash payment of Purchaser
required to be delivered by Purchaser at the Closing pursuant to
Section 3.2; (iii) the Note and the Security Agreement; (iv) the
Non-Competition Agreements; (v) copies of Horizon's loan documents with
Sirrom Capital Corporation; and (iv) such other
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closing documents as Seller may reasonably request.
8. INDEMNIFICATION.
8.1. Indemnification by Seller. Subject to the provisions of
Section 9.2 hereof, Seller and the Shareholders (but, as to the Shareholders,
only to the extent provided in the last sentence of Section 8.4 hereof), jointly
and severally, agree to defend, indemnify and hold Purchaser, its officers,
directors, agents, representatives, subsidiary and parent entities and
affiliates and their successors and assigns, harmless from and against any
claim, liability, expense, loss or other damage ("Claims") (including, without
limitation, reasonable attorneys fees and expenses) in respect of:
(a) any and all Claims, resulting from a
determination that the sale of the Transferred Assets hereunder is
ineffective against any creditor of Seller or Holdings or any taxing
authority or other entity asserting any similar claim against Seller or
Holdings (excluding any such Claim arising out of Purchaser's failure
to pay any Assumed Liability);
(b) any and all Claims resulting from any material
misrepresentation or material breach of a warranty or material
violation of any covenant made by Seller hereunder, or in any Schedule
or other instrument or document furnished or to be furnished by Seller
hereunder, including, without limitation, any documents furnished at
Closing;
(c) any and all Claims relating to (i) liabilities or
obligations of Seller or Holdings that are not on the list of Assumed
Liabilities in Schedule 2.1 or (ii) Seller's conduct of the Business or
otherwise prior to the Closing Date, including, without limitation, any
Claims arising from any act, occurrence, event or failure to act which
occurs prior to or on the Closing Date, including, without limitation,
any Claims arising in connection with any products manufactured and
sold by Holdings or by Seller prior to the Closing Date; and
(d) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident to any
item to which the foregoing indemnity relates.
8.2. Indemnification by Purchaser. Subject to the provisions
of Section 9.2 hereof, Purchaser and Horizon, jointly and severally, agree to
defend, indemnify and hold Seller and its successors and assigns, harmless from
and against any Claim (including, without limitation, reasonable attorneys fees
and expenses) in respect of:
(a) any and all Claims related to the Assumed
Liabilities, and any and all Claims relating to the conduct of the
Business by Purchaser after the Closing Date;
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<PAGE> 25
(b) any and all Claims resulting from any material
misrepresentation or material breach of warranty or material violation
of any covenant made by Purchaser hereunder or in any document
furnished or to be furnished by Purchaser hereunder, including, without
limitation, any documents or instruments furnished at Closing; and
(c) any and all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses incident to any
item to which the foregoing indemnity relates.
8.3. Determination of Loss. Indemnification pursuant to this
Section 8 shall be payable with respect to any Claim described herein as subject
to indemnification upon the happening of the earlier of the following:
(a) Resolution of such Claim by mutual agreement
between Seller and Purchaser; or
(b) The issuance of a final judgment, award, order or
other ruling by an arbitrator pursuant to Section 11.9 hereof.
8.4. Indemnification Payments. All amounts payable by one
party to the other pursuant to the provisions of this Section 8 shall be payable
within ten (10) days after final determination thereof in accordance with the
provisions hereof. In the event Seller fails to pay any amounts to Purchaser
that are finally determined to be owed to Purchaser pursuant to this Section 8
within such ten (10) day period, Purchaser at its sole discretion may set-off
any such amounts against the amounts, if any, owed Seller by Purchaser pursuant
to the Note and owed Shareholders by Purchaser under the Non-Competition
Agreements. Any such offset will be on a pro rata basis against the Note and the
Non-Competition Agreements as described on Schedule 8.4 hereto. Notwithstanding
any provisions of this Section 8 to the contrary, the liability and obligations
of any Shareholder under Section 8 is limited to the rights of Purchaser under
this Section 8.4 to offset claims of Purchaser against a Shareholder under this
Section 8 against amounts owed to the Shareholder under his Non-Competition
Agreement.
8.5. Limitations on Indemnification. Any amounts which any
party hereto may be obligated to pay another party hereto pursuant to Section
8.4 will be reduced by an amount equal to: (i) the tax benefit, if any, realized
as a result of such losses (for purposes of determining the "tax benefit", if
any, the reasonable determination by Purchaser's outside accountants will be
binding and conclusive as to all parties hereto); and (ii) any insurance
recovery with respect to such losses received by the indemnified party. No
amounts shall be payable under this Section 8 for the first $150,000.00 of
claims in the aggregate asserted against the indemnifying party or parties or
after the indemnifying party or parties have paid (by payments or offsets) as
indemnification hereunder the amount of $1,500,000.00 in the aggregate. The
preceding sentence shall not apply to claims under Section 8.2(a) for claims
related to the Assumed Liabilities, and the preceding sentence shall not
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<PAGE> 26
apply to claims under Section 8.1(c) (i) relating to liabilities or obligations
of Seller or Holdings that are not on the list of Assumed Liabilities on
Schedule 2.1 and (i) that are described in subsections (a) through (g) of
Section 2.2 hereof or (ii) that are liabilities that have been incurred and
would be properly recorded as a liability on Seller's balance sheet as of the
Closing.
8.6. Notification. Purchaser or Seller, as the case may be,
will promptly notify the other of the existence or occurrence of any facts or
events which give rise to the assertion of any claim under the provisions of
this Section 8. If such claims are due to the claims of third parties, the
indemnifying party shall promptly and diligently take such actions as may be
reasonably required to defend or settle such claims and shall keep the
indemnified parties advised of the current status thereof. The indemnified party
shall, at the indemnifying party's expense, reasonably cooperate with the
indemnifying party's defense and the indemnifying party shall reasonably
consider the indemnified party's advice.
9. ADDITIONAL COVENANTS AND AGREEMENTS.
9.1. Expenses. Each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the transactions contemplated by
this Agreement including, without limitation, fees, costs and expenses of its
own financial consultants, accountants and legal counsel. Seller shall be
responsible for payment of any sales, use or transfer taxes arising out of the
conveyance of the Transferred Assets along with the filing of any required
return or report.
9.2. Survival of Representations and Warranties. Except as
otherwise provided herein, the representations and warranties contained in
Sections 4 and 5 of this Agreement shall survive the Closing for a period of one
(1) year after the Closing Date; provided, however, that: (i) the
representations and warranties contained in Section 4.17 hereof shall survive
the Closing Date until sixty (60) days after the expiration of the applicable
statutes of limitations for the assessment of taxes; (ii) if any representation
or warranty contained in Section 4 or 5 is wilfully misrepresented, it shall
survive the Closing Date for an unlimited period of time; (iii) the
representations and warranties contained in Section 4.13 hereof shall survive
the Closing Date for a period of five (5) years after the Closing; and (iv) any
specific claim or action of which specific written notice is given to the party
which made such representation or warranty prior to the date on which such
representation or warranty otherwise terminates as provided herein, may continue
to be asserted and shall be indemnified against pursuant to Section 8. Any
indemnification claim asserted under Section 8 hereof with respect to any
representation or warranty that terminates under this Section 9.2 expires on the
date of termination under this Section 9.2 unless the indemnification claim is
asserted as provided in Section 8 prior to such date of termination, but such
expiration will not occur when relevant information concerning such
indemnification claim is withheld by a party to this Agreement from another
party so that such other party did not know that it had an indemnification
claim.
9.3. Public Releases. Purchaser and Seller shall agree with
each other as to the form and substance of any press release related to this
Agreement or the transactions contemplated hereby, and shall consult with each
other as to the form and substance of other public disclosures
- 26 -
<PAGE> 27
related thereto; provided, however, that nothing contained herein shall prohibit
any party hereto from making any disclosure which it deems necessary in light of
applicable laws or regulations, after notice to the other party with the
opportunity to comment to the extent that delay of the disclosure is permitted
under such laws or regulations.
9.4. Other Transactions Prohibited. During the period from the
date of this Agreement to the Closing Date, or termination hereof, Seller shall
not directly or indirectly, initiate, solicit, negotiate with, encourage
discussions with, provide information to, or agree to a transaction with, any
corporation, partnership, person or other entity or group concerning any merger
or any sale of Seller's assets, sale of shares of capital stock (or securities
convertible or exchangeable into or otherwise evidencing, or any agreement or
instrument evidencing, the right to acquire capital stock) or similar
transaction involving Seller (any such transaction being referred to herein as
an "Acquisition Transaction"). Seller shall promptly communicate to Purchaser
the terms of any proposal which Seller may receive in respect of an Acquisition
Transaction and any request by or indication of interest on the part of any
third party with respect to initiation of any Acquisition Transaction or
discussions with respect thereto.
10. TERMINATION; REMEDIES.
10.1. Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to or at Closing by
written notice delivered by Seller to Purchaser or by Purchaser to Seller, as
the case may be, in the following instances:
(a) By Purchaser pursuant to Section 7.1 or Section
7.2 hereof or if there has been a material misrepresentation, a
material breach of warranty or a material failure to comply on the part
of Seller with respect to any of the representations, warranties,
covenants or provisions set forth herein (or delivered in any other
document pursuant hereto), including without limitation, any
misrepresentation, breach or failure to comply that is evidenced in any
Schedule delivered by Seller, or which is discovered in Purchaser's due
diligence investigation of Seller and the Business, and such
misrepresentation, breach or failure has or may reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), assets or properties of the Business in the hands of
Purchaser and has not been cured, if capable of cure, in full within
twenty (20) days of receipt by Seller of notice from Purchaser.
(b) By Seller pursuant to Section 7.1 or Section 7.3
hereof or if there has been a material misrepresentation, a material
breach of warranty or a material failure to comply with any covenant on
the part of Purchaser with respect to the representations, warranties
or covenants set forth herein (or delivered in any other document
pursuant hereto) and such misrepresentation, breach or failure to
comply has not been cured, if capable of cure, within twenty (20) days
of receipt by Purchaser of notice from Seller.
(c) At any time prior to Closing by the mutual
consent in writing of Purchaser and Seller.
10.2. Liability in the Event of Termination; Remedies.
(a) In the event of termination of this Agreement
and the transactions contemplated hereby pursuant to Sections 10.1(a)
or (b) hereof, the non-breaching party may avail itself of all rights,
power and remedies now or hereafter existing at law or in equity or by
statute or otherwise.
(b) In the event of termination of this Agreement
and the transactions contemplated hereby pursuant to Section 10.1(c)
hereof, this Agreement shall, with the exception of Section 6.4, 9.1
and 9.3 hereof, become void and have no further effect, without any
liability on the part of any party hereto.
(c) Section 6.4 hereof shall survive the termination
of this Agreement regardless of the reason for such termination.
11. MISCELLANEOUS.
11.1. Entire Agreement. This Agreement (including all Exhibits
and Schedules hereto) supersedes any and all other
- 27 -
<PAGE> 28
agreements, oral or written, between the parties hereto with respect to the
subject matter hereof, including that certain letter of intent dated July 20,
1995 from Purchaser to Seller, and contains the entire agreement between such
parties with respect to the transactions contemplated hereby.
11.2. Amendments. This Agreement shall not be modified or
amended except by an instrument in writing signed by or on behalf of all of the
parties hereto.
11.3. Successors; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted transferees and assignees.
Neither this Agreement nor any interest herein may directly or indirectly be
transferred or assigned by any party, in whole or in part, without the written
consent of the other parties, except that Purchaser may effect any such
assignment to any wholly owned subsidiary corporation, but any such assignment
shall not relieve Purchaser of its duties and obligations contained in this
Agreement.
11.4. Notices. All notices, requests, demands, and other
communications to be delivered hereunder shall be in writing and shall be
delivered by hand or mailed, by fax (receipt confirmed), by express mail
services, by registered or certified mail, postage prepaid, at or to the
following addresses:
(a) If to Seller or any Shareholder:
Mr. Joseph D. Pike
6311 El Monte Video
P. O. Box 7166
Rancho Santa Fe, CA 92067-7166
with a copy to:
Albrecht, Maguire, Heffern & Gregg, P.C.
2100 Main Place Tower
Buffalo, NY 14202-3783
Attention: Philip J. Szabla
(b) If to Purchaser:
Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
- 28 -
<PAGE> 29
Attention: Marshall B. Hunt
with a copy to:
Slaughter & Virgin, P.C.
400 Colony Square, Suite 1110
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Attention: Nat G. Slaughter, III
or to such other address or to such other person as any party shall have last
designated by written notice to the other parties. Notices, requests, demands,
and other communications so delivered shall be deemed given upon receipt.
11.5. Waiver. If any party expressly waives in writing an
unsatisfied condition, representation, warranty, undertaking, covenant or
agreement (or portion thereof) set forth herein, the waiving party shall
thereafter be barred from recovering, and thereafter shall not seek to recover,
any damages, claims, losses, liabilities or expenses, including, without
limitation, legal or other expenses, from the other parties in respect of the
matter or matters so waived.
11.6. Severability. If any term or provision of this Agreement
or any application thereof shall be invalid or unenforceable, the remainder of
this Agreement and any other application of such term or provision shall not be
affected thereby.
10.6. No Third Party Beneficiary. This Agreement is for the
benefit of, and may be enforced only by, Seller and Purchaser, and their
respective successors and permitted transferees and assignees, and is not for
the benefit of, and may not be enforced by, any third party.
10.7. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with, the laws of the State of Georgia.
10.8. Arbitration.
(a) Any controversy, dispute or claim arising out of,
in connection with, or in relation to the interpretation, performance or breach
of this Agreement, including, without limitation, any claim based on contract,
tort or statute, shall be settled by arbitration. Any arbitration pursuant to
this Agreement shall be conducted in Atlanta, Georgia, before and in accordance
with the then existing Rules for Commercial Arbitration of the American
Arbitration Association, provided that only one arbitrator as selected by the
American Arbitration Association shall conduct any arbitration proceeding. Any
arbitration shall be final and binding. Any judgment upon any interim or final
award or order rendered by the arbitrator may be entered by any federal or state
court
- 29 -
<PAGE> 30
having jurisdiction thereof.
(b) The parties intend that any agreement pursuant
hereto to arbitrate be valid, enforceable and irrevocable. Each party in any
arbitration proceeding commenced hereunder shall bear such party's own costs and
expenses (including expert witness and attorneys' fees) of investigating,
preparing and pursuing such arbitration claim. The parties to any arbitration
shall have the right to discover the relevant books and records of the other
side that are not privileged.
10.9. Reference to Best Knowledge. All references in this
Agreement to the best knowledge of any party hereto shall mean that such party
has made a reasonable investigation and inquiry with respect to the correctness
of the statement being made.
IN WITNESS WHEREOF, the parties hereto have executed this Asset
Purchase Agreement as of the date first hereinabove set forth.
ATTEST: HORIZON ACQUISITION CORP.
/s/ William E. Peterson, Jr. By: /s/ Marshall B. Hunt
- ----------------------------------- --------------------------------
William E. Peterson, Jr., Marshall B. Hunt, CEO
Secretary
ATTEST: HORIZON MEDICAL PRODUCTS, INC.
/s/ Marshall B. Hunt By: /s/ Marshall B. Hunt
- ----------------------------------- --------------------------------
Marshall B. Hunt, Secretary Marshall B. Hunt, CEO
ATTEST: NEOSTAR MEDICAL TECHNOLOGIES,
INC.
/s/ [unreadable] By: /s/ [unreadable]
- ----------------------------------- --------------------------------
, Secretary
Title: Vice President
-----------------------------
- 30 -
<PAGE> 31
SHAREHOLDERS:
/s/ [unreadable] /s/ Joseph D. Pike
- -------------------------------- -----------------------------------
Witness Joseph D. Pike
/s/ [unreadable] /s/ Thomas F. Darden, II
- -------------------------------- -----------------------------------
Witness Thomas F. Darden, II
/s/ [unreadable] /s/ Lance J. Bronnenkant
- -------------------------------- -----------------------------------
Witness Lance J. Bronnenkant
/s/ William W. Wells, Trustee
- -------------------------------- -----------------------------------
Witness William W. Wells, as Trustee
of the William W. Wells
Family Trust
- 31 -
<PAGE> 32
EXHIBIT A
ASSUMPTION AGREEMENT
THIS AGREEMENT, made and entered into as of October __, 1995 by and
between NEOSTAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation ("Seller"),
and HORIZON ACQUISITION CORP., a Georgia corporation ("Purchaser");
WHEREAS, Purchaser and Seller have entered into the Asset Purchase
Agreement dated October __, 1995 ("Asset Purchase Agreement"), pursuant to which
Purchaser is purchasing the Transferred Assets (as defined therein);
WHEREAS, under Section 2.1 of the Asset Purchase Agreement Purchaser
has agreed to assume and pay certain liabilities of Seller, as provided in this
Agreement;
NOW, THEREFORE, in consideration of the agreements set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Subject to the provisions in the Asset Purchase Agreement, Purchaser
hereby assumes and will pay the liabilities of Seller that are described in
Schedule 2.1 attached hereto and incorporated herein by reference. Other than
the liabilities of Seller described in Schedule 2.1, Purchaser does not assume
or agree to pay any other liabilities or obligations of Seller, including
without limitation those liabilities of Seller described in Section 2.2 of the
Asset Purchase Agreement.
2. This Agreement and the Asset Purchase Agreement supersede any and
all other agreements, oral or written, between the parties hereto with respect
to the subject matter hereof and contain the entire agreement between the
parties with respect to the subject matter hereof.
3. This Agreement shall not be modified or amended except by an
instrument in writing signed by the parties hereto.
4. This Agreement and all the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
5. If any term or provision of this Agreement or any application
thereof shall be invalid or unenforceable, the remainder of this Agreement and
any other application of such term or provision shall not be affected thereby.
6. This Agreement is for the benefit of, and may be enforced only by,
Seller and Purchaser and their respective successors and assigns and is not for
the benefit of, and may not be enforced by, any third party.
<PAGE> 33
7. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Assumption
Agreement as of the date first above written.
HORIZON ACQUISITION CORP.
By:
--------------------------------
Marshall B. Hunt, CEO
ATTEST:
- -------------------------------------
William E. Peterson, Jr.,
Secretary
NEOSTAR MEDICAL
TECHNOLOGIES, INC.
By:
--------------------------------
Title:
-----------------------------
ATTEST:
- -------------------------------------
Title:
-------------------------------
- 2 -
<PAGE> 34
EXHIBIT B
$2,461,017 Atlanta, Georgia
October __, 1995
SECURED SUBORDINATED NOTE
FOR VALUE RECEIVED, the undersigned, HORIZON ACQUISITION CORP., a
Georgia corporation (hereinafter referred to as "Maker"), hereby promises to pay
to the order of NEOSTAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to, along with each subsequent holder of this Note, as the
"Holder") at ____________________________ or such other address as the Holder
hereof may designate in writing, the principal sum of TWO MILLION FOUR HUNDRED
SIXTY-ONE THOUSAND SEVENTEEN DOLLARS ($2,461,017.00). No interest shall be
payable on the unpaid principal balance hereof or otherwise under this Note.
Except as provided below upon the occurrence of an "Acceleration
Event", the principal amount of this Note shall be payable in the following
installment payments:
(i) $212,235.00 in twelve (12) consecutive monthly
installments of $17,686.25 per month, payable on the last day of each
month, commencing January 31, 1997 continuing through December 31,
1997;
(ii) $145,240.00 in twelve (12) consecutive monthly
installments of $12,103.33 per month, payable on the last day of each
month, commencing January 31, 1998 and continuing through December 31,
1998;
(iii) $253,200.00 in eighteen (18) consecutive monthly
installments of $14,066.67 per month, payable on the last day of each
month, commencing January 1, 1999 and continuing through June 30, 2000;
(iv) $84,400.00 on July 31, 2000;
(v) $60,753.00 on January 31, 2001;
(vi) $121,506.00 on October 31, 2001;
(vii) $86,841.50 on April 30, 2002;
(viii) $86,841.50 on October 31, 2002;
(ix) $1,160,000.00 on April 30, 2003; and
(x) $250,000.00 on October 31, 2003.
<PAGE> 35
In the event any "Acceleration Event" (as defined below) should occur,
then the "Final Payoff Amount" (as defined below) shall be immediately due and
payable in full on the date on which the Acceleration Event occurs. The Final
Payoff Amount, when paid, shall be full and final payment of all sums due and
payable under this Note. The term "Acceleration Event" shall mean: (i) a sale of
Maker or Horizon Medical Products, Inc. ("Horizon") (through merger, sale of
eighty percent (80%) or more of the outstanding stock of Maker or Horizon or
sale of all or substantially all of the assets of Maker or Horizon; provided,
however, that a sale of Maker to Horizon or a merger of Maker into Horizon shall
not be an Acceleration Event), (ii) a sale of stock of Maker or Horizon to the
public in an initial public offering, or (iii) the failure by Maker to pay any
installment payment payable to Holder pursuant to the provisions in the
preceding paragraph after Maker receives written notice of default from Holder
and fails to pay the amount due within five (5) days after receiving notice of
nonpayment, (iv) the filing of a petition by or against the Maker for relief
under the Bankruptcy Code or under the bankruptcy, insolvency or any similar
statute of the United States or any state thereof that is not dismissed within
thirty (30) days after filing, (v) the making of any general assignment for the
benefit of creditors by the Maker, (vi) the institution by the Maker of any type
of insolvency proceeding or any proceeding for the liquidation or winding up of
its affairs, (vii) the Maker shall apply for or consent to the appointment of a
receiver, trustee or liquidator for the Maker or any of its assets, (viii) the
authorization by the Maker for the dissolution of the Maker; (ix) default shall
occur with respect to any material indebtedness of Maker for borrowed money if
the effect of such default is to accelerate the maturity of such indebtedness or
to permit the holder thereof to cause such indebtedness to become due prior to
its stated maturity, (x) any material indebtedness of Maker for borrowed money
shall not be paid when due subject to any applicable cure period, (xi) any
default by Horizon under the Loan Agreement between Horizon and Sirrom Capital
Corporation ("Sirrom") dated September 25, 1995 as the same may be amended,
supplemented or modified from time to time, or (xii) any default by Horizon
pursuant to the Secured Promissory Note dated September 25, 1995 of Horizon
given to Sirrom which note is guaranteed by the Maker. The term "Final Payoff
Amount" shall mean the remaining outstanding and unpaid amount due and payable
under this Note at any time under the provisions of the preceding paragraph,
with such amount then reduced to its present value as of the date on which the
Acceleration Event occurs using an interest rate of ten percent (10%) in
determining such present value. An illustration of the provisions in this
paragraph is set forth in Schedule A attached hereto and incorporated herein by
reference.
If the Holder should employ attorneys or incur other expenses for the
collection of amounts payable under this Note, the Maker shall pay the
reasonable attorneys fees and such other expenses so incurred by the Holder of
this Note.
Time is of the essence of this Note.
This Note is secured by a Security Agreement dated the date hereof
covering certain Collateral (as defined therein).
- 2 -
<PAGE> 36
This Note is subject to prepayment by the Maker in full or in part at
any time and from time to time without payment of penalty or premium. If Maker
elects to prepay this Note in full, then Maker shall pay the Final Payoff
Amount, calculated as of the date of such prepayment under the above provisions,
as full and final payment of all sums due and payable under this Note.
This Note is executed and delivered in payment of a portion of the
Purchase Price payable under the terms of that certain Asset Purchase Agreement,
dated as of October __, 1995 (the "Purchase Agreement"), by and among the Maker,
as Purchaser, the Holder, as Seller, and other parties. Under the terms of
Section 3.3(a) of the Purchase Agreement, the amount payable under this Note is
subject to an automatic reduction in the amount described in Section 3.3(a) and
Section 3.3(c), the provisions of which are incorporated herein by reference. If
the amount payable under this Note is reduced pursuant to the provisions of
Section 3.3(a) and Section 3.3(b) of the Purchase Agreement, then the reduction
shall be made in the monthly installment payments which commence January 31,
1997 and continue on the last day of each month thereafter until all reductions
are made; provided, however, that if any reduction to the amount owed under this
Note described in the next paragraph below in this Note is made prior to any
reduction under this paragraph, then the reduction under this paragraph shall be
made in the most immediate succeeding payments under this Note (until all such
reductions are made) after such reduction is made under the next paragraph
below. Any such reduction in amount shall not otherwise affect any of the terms
and provisions of this Note.
Under the terms of Section 3.3(b) of the Purchase Agreement, the amount
payable under this Note is subject to an automatic reduction in the amounts
described in Section 3.3(b), the provisions of which are incorporated herein by
reference. If the amount payable under this Note is reduced pursuant to the
provisions of Section 3.3(b) and Section 3.3(c) of the Purchase Agreement, then
the reductions shall be made in the monthly installment payments which commence
January 31, 1997 and continue on the last day of each month thereafter until all
reductions are made; provided, however, that if the reduction to the amount owed
under this Note described in the above paragraph is made prior to any reduction
under this paragraph, then the reductions under this sentence shall be made in
the most immediate succeeding payments under this Note (until all such
reductions are made) after such reduction under the above paragraph.
Pursuant to Section 8.4 of the Purchase Agreement, the amount owed
under this Note is subject to offset in the amounts and manner described in
Section 8.4 and Schedule 8.4 to the Purchase Agreement. Any offset that is
applied against the amount owed under this Note shall be applied against the
payments that are most immediately due and payable under this Note at the time
of the offset, taking into consideration any reductions in the amounts owed
under this Note under the provisions of the two preceding paragraphs of this
Note.
The principal of this Note is payable in lawful money of the United
States of America.
The amount due and payable to Holder under this Note is subordinated to
all indebtedness owed under the Loan Agreement dated September 25, 1995 to
Sirrom Capital Corporation, which indebtedness has been guaranteed by Maker and
is payable by Horizon. Other than such
- 3 -
<PAGE> 37
indebtedness, Maker will attempt to obtain priority for all indebtedness under
this Note with respect to other indebtedness incurred by Maker for borrowed
money from time to time until this Note is paid in full.
Demand, presentment, dishonor, protest and notice of dishonor are
hereby waived by the Maker. The Holder shall not be deemed to waive any of its
rights or remedies under this Note unless such waiver is express, in writing and
signed by the Holder. No delay or omission by the Holder in exercising any of
its rights or remedies shall operate as a waiver of any such right or remedy. An
express waiver of any right or remedy in writing and signed by the Holder on any
one occasion shall not be, nor be construed as, a waiver of any other right or
remedy then existing or existing on any other occasion.
This Note shall be governed by, construed under and interpreted and
enforced in accordance with the laws of the State of Georgia. Whenever possible,
each provision of this Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
The word "Holder" as used herein shall include all transferees,
successor and assigns of the Holder. This Note shall be freely assignable upon
prior written notice to the Maker, and all rights of the Holder hereunder shall
inure to the benefit of its transferees, successors and assigns. All obligations
of the Maker shall bind its legal representatives, successors and assigns.
IN WITNESS WHEREOF, the Maker has caused this Promissory Note to be
executed in its corporate name and its corporate seal to be hereunder affixed,
all by its duly authorized officers, the day and year first written above.
HORIZON ACQUISITION CORP.
By:
-----------------------------------------
Chief Executive Officer
Attest:
-------------------------------------
Secretary
[CORPORATE SEAL]
Address:
Seven North Parkway Square
4200 Northside Parkway, NW
Atlanta, Georgia 30327
- 4 -
<PAGE> 38
EXHIBIT C
NON-COMPETITION AND CONSULTING AGREEMENT
Joseph D. Pike
THIS AGREEMENT (this "Agreement") is made and entered into as of the
___ day of October, 1995 by and between HORIZON ACQUISITION CORP., a Georgia
corporation ("Purchaser"), and JOSEPH D. PIKE, who resides at 6311 El Monte
Video, Rancho Santa Fe, California 92067 ("Principal").
R E C I T A L S
WHEREAS, Principal is a shareholder of Neostar Holdings, Inc., which
owns all of the outstanding stock of Neostar Medical Technologies, Inc., a
Delaware corporation ("Neostar");
WHEREAS, Neostar has, as of this date, sold and conveyed to Purchaser
substantially all of the assets and business of Neostar, which engages in the
business of manufacturing, selling and distributing catheter medical products
(the "Business");
WHEREAS, Purchaser intends to carry on the Business;
WHEREAS, Principal, as a director of Neostar has been engaged in the
Business and Principal has developed certain customer contacts, contracts and
relationships with respect to the Business in the United States;
WHEREAS, Principal has considerable knowledge relating to the Business,
which knowledge has substantially aided Principal in the operation of the
Business on Neostar's behalf;
WHEREAS, Principal and Purchaser desire that Principal will be retained
as an independent consultant as provided herein for the purpose of advising and
assisting Purchaser with the Business; and
WHEREAS, in connection with the sale of the Business to Purchaser, the
parties hereto also have become parties to an Asset Purchase Agreement dated as
of ___________________, 1995 (the "Asset Purchase Agreement"), which
contemplates that the parties will enter into this Agreement which provides
substantial payments to Principal.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in accordance with the Asset Purchase Agreement, the
parties hereto agree as follows:
1. Rights of Purchaser. Covenants contained herein are cumulative to
the rights of Purchaser under the laws of the United States, the State of
California and other states as applicable respecting its right to protect itself
from the competition of Principal.
<PAGE> 39
2. Covenants Not to Compete or Hire.
(a) Covenants. Principal agrees that, for the period
commencing with the Closing Date (as defined in the Asset Purchase Agreement)
and ending on October 31, 2002, he shall not engage in any of the following
activities within the United States: (i) directly or indirectly engage or hold
an interest in any business engaged in the sale and distribution of catheter
products (the "Proscribed Business") or (ii) directly or indirectly have any
interest in, own, manage, operate, control, direct, be connected with as a
stockholder, joint venturer, officer, director, partner, employee or consultant,
or otherwise engage or invest or participate in, any business engaged in the
Proscribed Business, or (iii) hire any person employed or otherwise retained by,
or solicit or encourage any person to leave the employ of, Purchaser. Nothing in
this Section 2(a) shall prevent Principal from owning or holding as a
shareholder less than five percent of the issued and outstanding shares of a
publicly-held corporation.
(b) Injunctive Relief. The parties hereto agree that damages
would be an inadequate remedy for Purchaser in the event of a breach or
threatened breach of this Agreement and thus, in any such event, either with or
without pursuing any potential damage remedies, Purchaser may immediately obtain
and enforce an injunction prohibiting Principal from violating this Agreement
from any court of law or equity.
3. Consulting Services. Principal hereby agrees to provide
consulting services to Purchaser with respect to the Business acquired from
Neostar, and Purchaser hereby retains Principal to provide such services, as may
be specified and agreed to from time to time during the term of this Agreement,
as an independent contractor.
4. Payments.
(a) In consideration for Principal's compliance with the
covenants set forth in Section 2 hereof, Purchaser shall pay to Principal the
amount of Five Hundred Twenty One Thousand One Hundred Seventy Five and 96/100
($521,175.96) which amount shall be payable in the installment payments set
forth in Schedule A hereto, which is incorporated herein by reference.
(b) In consideration for Principal's consulting services
hereunder, Purchaser shall pay to Principal the amount of One Hundred Seventy
Three Thousand Seven Hundred Twenty Five and 32/100 Dollars ($173,725.32) which
amount shall be payable in the installment payments set forth in Schedule A
hereto, which is incorporated herein by reference.
(c) Under the terms of Section 3.3 of the Asset Purchase
Agreement, the amounts payable under Sections 4(a) and 4(b) above are subject to
reduction in the manner and amount provided for in such Section 3.3. Any such
reduction shall be applied as described in such Section 3.3 to the most
immediate installment payments due after such reduction.
- 2 -
<PAGE> 40
(d) Under the terms of Section 8.4 of the Asset Purchase
Agreement and Schedule 8.4 thereto, the amounts payable under Sections 4(a) and
4(b) above are subject to offset. Any such offset shall be applied as described
in Schedule 8.4 to the most immediate installment payments due after such
offset.
(e) The provisions of Section 4(c) and Section 4(d) hereof are
intended by the parties to work in conjunction with, and not contrary to, each
other. In the event there are reductions in indebtedness under Section 4(c) and
offsets to indebtedness under Section 4(d), such reductions and offsets will not
be duplicative but will reduce and offset different amounts of indebtedness in
the order that the reductions and the offsets are made pursuant to Sections 3.3
and 8.4 in and Schedule 8.4 to the Asset Purchase Agreement.
(f) Upon termination of this Agreement under Section 10 below,
the payments under Sections 4(a) and 4(b) above that are due and payable after
such termination shall be abated and forfeited and shall not be payable.
(g) In the event any "Acceleration Event" (as defined below)
should occur, then the "Final Payoff Amount" (as defined below) shall be due and
payable in full on the date on which the Acceleration Event occurs. The Final
Payoff Amount, when paid, shall be full and final payment of all sums due and
payable under this Agreement. The term "Acceleration Event" shall mean (i) a
sale of Purchaser or Horizon Medical Products, Inc. ("Horizon") (through merger,
sale of eighty percent (80%) or more of the outstanding stock of Purchaser or
Horizon or sale of all or substantially all of the assets of Purchaser or
Horizon; provided, however, that a sale of Purchaser to Horizon or a merger of
Purchaser into Horizon shall not be an Acceleration Event), (ii) a sale of stock
of Purchaser or Horizon to the public in an initial public offering, or (iii)
the failure by Purchaser to pay any installment payment payable to Principal
pursuant to the provisions in Sections 4(a) and 4(b) above after Purchaser
receives written notice of default from Principal and fails to pay the amount
due within five (5) days after receiving notice of nonpayment, or (iv) any of
the events described in the paragraphs (i) through (xii) on page 2 of the
Secured Subordinated Note dated October ___, 1995, which paragraphs are
incorporated herein by reference. The term "Final Payoff Amount" shall mean the
remaining outstanding and unpaid amount due and payable under this Agreement at
any time under the provisions of Sections 4(a) and 4(b) above, with such amount
then reduced to its present value as of the date on which the Acceleration Event
occurs using an interest rate of ten percent (10%) in determining such present
value. An illustration of the provisions in this subsection is set forth in
Schedule B attached hereto and incorporated herein by reference.
The amounts under Sections 4(a) and 4(b) above that are unpaid at any
time are subject to prepayment by Purchaser in full or in part at any time and
from time to time without payment of penalty or premium. If Purchaser elects to
prepay such amounts in full, then Purchaser shall pay the Final Payoff Amount,
calculated as of the date of such prepayment under the above provisions, as full
and final payment of all sums due and payable under this Agreement.
- 3 -
<PAGE> 41
5. Severability. Any provision of this Agreement which is deemed
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction and subject to this Section 5, be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions hereof in such jurisdiction or rendering that or any other
provision of this Agreement invalid, illegal or unenforceable in any other
jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable
because its scope is considered excessive, such covenant shall be modified so
that the scope of the covenant is reduced only to the minimum extent necessary
to render the modified covenant valid, legal and enforceable.
6. Complete Agreement. This Agreement and the Asset Purchase
Agreement contain the entire agreement between the parties hereto with respect
to the matters described herein and therein, and supersede all previous oral and
written discussions, agreements or understandings between the parties hereto
regarding such matters.
7. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Georgia.
8. Assignment. This Agreement shall not be assigned by any party
without the prior written consent of the other party, except that this Agreement
may be assigned by Purchaser, without the prior consent of Principal, (a) to any
corporation or other entity or person controlling, controlled by or under common
control with, Purchaser, or (b) to a Purchaser of substantially all of the
assets of the Business from Purchaser.
9. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but both of
which shall constitute one and the same instrument.
10. Termination. This Agreement shall terminate only if it is finally
determined by a court of competent jurisdiction that Principal has violated or
breached his obligations to Purchaser under this Agreement.
11. Independent Contractor. It is expressly understood and agreed
that in performing his obligations under this Agreement Principal shall act
solely as an independent contractor and not as an employee of Purchaser and is
not entitled to any employee benefits from Purchaser. Principal is not and shall
not hold himself out to be an agent of Purchaser for any purpose whatsoever, and
Principal shall not create any obligations for Purchaser or bind or attempt to
bind Purchaser in any manner whatsoever.
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<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
HORIZON ACQUISITION CORP.
By
-----------------------------------------
PRINCIPAL:
-------------------------------------------
Joseph D. Pike
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<PAGE> 43
EXHIBIT D
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this ____ day of October, 1995 by and
among David A. Souerwine ("Employee"), and Horizon Medical Acquisition Corp., a
Georgia corporation ("Purchaser");
WHEREAS, pursuant to the Asset Purchase Agreement dated as of October
____, 1995 (the "Asset Purchase Agreement"), Purchaser has acquired
substantially all of the assets and business of Neostar Medical Technologies,
Inc. ("Neostar"), which had previously employed Employee as an officer of
Neostar;
WHEREAS, all the parties hereto intend and agree that this Agreement
will replace and supersede any agreements or other arrangements with respect to
the employment of Employee by Purchaser;
WHEREAS, Employee will have access to confidential information, trade
secrets and other confidential and proprietary information of Purchaser; and
WHEREAS, this Agreement is executed in connection with and as a
condition precedent of the Asset Purchase Agreement;
NOW, THEREFORE, in consideration of these recitals and mutual covenants
and agreements hereinafter set forth, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment.
1.1. Duties. Purchaser shall employ Employee upon the terms and
conditions set forth in this Agreement. Employee shall have the duties which may
be assigned to Employee from time to time by the Chief Executive Officer or the
President of Purchaser, including without limitation the following:
(a) Employee will supervise Purchaser's manufacturing
operations in the Purchaser's facility at 100 Ross Road, King of
Prussia, Pennsylvania (the "Operations Facility") until the
manufacturing operations are moved to Purchaser's new manufacturing
facility in Georgia.
(b) Employee will supervise Purchaser's move of the
manufacturing operations from the Operations Facility to Purchaser's
new manufacturing facility in Georgia.
<PAGE> 44
(c) After the move of such manufacturing operations into
Purchaser's new manufacturing facility in Georgia, Employee will be
responsible for staffing such manufacturing facility and for
supervising and being responsible for such manufacturing facility's
becoming operational and producing, to Purchaser's reasonable
satisfaction, all products (except for dual lumen fistula needles which
have previously been discontinued by Neostar) that Neostar was
manufacturing at the Operations Facility during the year prior to the
date of this Agreement.
(d) Employee will be responsible for assisting Purchaser in
locating and hiring an executive responsible for the Georgia facility.
1.2. Best Efforts. Employee agrees to devote his best efforts and
substantially his full time and attention to the performance of his duties under
this Agreement and to perform such duties in an efficient, trustworthy and
businesslike manner. Employee agrees that he will not, directly or indirectly,
engage or participate in, or become employed by or render advising or consulting
services or other services in connection with any business activity other than
that of Purchaser, without the prior written consent of Purchaser.
1.3. Duty to Act in the Best Interest of Purchaser. Employee shall not
act in any manner, directly or indirectly, which may damage the business of
Purchaser or which would adversely affect the good will, reputation or business
relations of Purchaser with its customers, the public generally or with any
other of its employees.
2. Term of Employment.
2.1. Term. The term of Employee's employment with Purchaser shall
commence as of October ___, 1995 (the "Effective Date") and shall continue for a
period of one year from the Effective Date. Following such initial term, this
Agreement will be automatically renewed for successive periods of six months
unless any party gives thirty (30) days written notice of his or its intention
not to renew.
2.2. Termination for Cause. Purchaser shall have the right to terminate
Employee's employment hereunder for the following causes (a "Termination for
Cause"):
(a) Conviction of Employee for, or entry of a plea of guilty
or nolo contendere by Employee with respect to any felony or any crime
involving an act of moral turpitude;
(b) Commission by Employee of any fact of fraud or dishonesty
affecting Purchaser;
(c) Conduct which is materially detrimental to the reputation,
good will or business operations of Purchaser;
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<PAGE> 45
(d) Willful neglect or breach by Employee of his duties or
intentional misconduct by Employee in discharging such duties;
(e) Employee's continued absence from his duties without the
consent of the Chief Executive Officer or the President of Purchaser
after receipt of written notification from Purchaser; or
(f) Employee's breach of the restrictive covenants set forth
in Section 5 of this Agreement;
(g) The failure of Purchaser to receive the monthly payments,
when due, under Section 3.3(a) (v) of the Asset Purchase Agreement;
provided, however, that termination of Employee for any act or omission
described in subparagraphs (b) through (g) above shall not constitute a valid
Termination for Cause unless Employee shall have received written notice from
the President or the Chief Executive Officer of Purchaser stating the nature of
the conduct forming the basis for termination and affording Employee ten (10)
days to correct the act or omission described. Unless Employee cures such act or
omission to the satisfaction of Purchaser, such Termination for Cause shall be
effective immediately upon expiration of such ten day period. Upon the
effectiveness of any Termination for Cause by Purchaser, payment of all
compensation to Employee under this Agreement shall cease immediately (except
for any payment of compensation accrued but unpaid through the date of such
Termination for Cause).
2.3. Termination Due to Disability or Death. If Employee is unable to
perform his duties under this Agreement by reason of physical or mental
disability or if Employee should die during the term of this Agreement, this
Agreement shall terminate and all payments to Employee under this Agreement
shall cease immediately (except for any such payments accrued but unpaid through
the date of disability or death).
2.4. Termination Without Cause. On or before June 30, 1996, Purchaser
may terminate Employee's employment without cause by giving Employee written
notice three (3) months prior to the effective date of such termination.
3. Compensation.
3.1. Compensation. Subject to the provisions of this Agreement, during
the term of this Agreement, Purchaser shall pay to Employee compensation of
$14,000 per month until termination or until such compensation terms are
modified by mutual written agreement between Employee and Purchaser.
3.2. Reimbursement of Business Expenses. During the term of this
Agreement, Purchaser will reimburse Employee for all ordinary and necessary
business expenses incurred by him in connection with the performance of his
duties under this Agreement, subject to the policies and
- 3 -
<PAGE> 46
procedures of Purchaser for reimbursement of business expenses and upon
submission by Employee to Purchaser of vouchers itemizing such expenses in a
form satisfactory to Purchaser, properly identifying the nature and business
purpose of any such expenditures.
3.3. Benefits. During the term of this Agreement, Employee will be
entitled to such benefits as may be given from time to time to other
similarly-situated employees of Purchaser as determined from time to time by
Purchaser and will include health coverage for Employee at the sole cost of
Purchaser. Employee will be entitled to twenty (20) days of vacation in each
calendar year (prorated for partial years), provided that any vacation days not
taken in any calendar year shall not be carried over to the next.
4. Property of Purchaser.
Employee hereby grants and assigns to Purchaser (without additional
compensation) his entire right, title and interest under applicable laws in and
to all inventions, patents, patent applications, research, information, customer
lists, all other technical and research data, made, conceived, developed and/or
acquired by him solely or jointly with others during the period of his
employment by Purchaser, but only to the extent the foregoing pertains to the
business of Purchaser.
5. Covenants of Nondisclosure, Nonsolicitation and NonCompetition.
5.1. Nondisclosure. Employee shall not, and Employee shall use his best
efforts to insure that any persons over which Employee has control do not, at
any time during or after termination of Employee's employment relationship with
Purchaser, directly or indirectly, use any Purchaser or Horizon proprietary,
confidential information for any purpose not associated with Purchaser or
Horizon's activities, or disseminate or disclose any such information to any
person or entity not affiliated with Purchaser or Horizon. Such Purchaser or
Horizon proprietary, confidential information includes, without limitation,
sales methods, prospecting methods, customer lists, computer technology,
programs and data, financial information and trade secrets of Purchaser or
Horizon regardless of the form thereof. Employee will take all reasonably
necessary and appropriate steps to insure that the confidentiality of Purchaser
and Horizon proprietary, confidential information shall be maintained. To the
extent that any of such proprietary, confidential information is not a trade
secret, then Employee's obligations hereunder shall continue for a period of two
years after the termination of his employment with Purchaser for any reason.
5.2. Nonsolicitation. For a period of two (2) years after the
termination of Employee's employment with Purchaser for any reason, Employee
will not solicit, service or in any way or to any degree handle any business
similar to that performed by Employee for Purchaser, for any person, firm or
entity which is a customer or actively marketed prospect of Purchaser or Horizon
or which becomes a customer or actively marketed prospect of Purchaser or
Horizon during the term of Employee's employment, where such customer or
prospect has been contacted by Employee during the course of his employment with
Purchaser.
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<PAGE> 47
For a period of two (2) years after the termination of Employee's
employment with Purchaser for any reason, Employee will not solicit, take away,
hire, employ or endeavor to employ any of the employees of Purchaser or Horizon.
5.3. NonCompetition. Employee agrees that, while employed by Purchaser
and for a period of three (3) years after the termination of Employee's
employment with Purchaser for any reason, Employee shall not engage in any of
the following activities within the State of Georgia or within any other state
in which Horizon has a sales representative or distributor as of the date of
this Agreement (such states being described on Schedule A hereto): (i) directly
or indirectly engage or hold an interest in any business engaged in the sale and
distribution of catheter products (the "Prescribed Business") or (ii) directly
or indirectly have any interest in, own, manage, operate, control, direct, be
connected with as a stockholder, joint venturer, officer, director, partner,
employee or consultant or otherwise engage or invest or participate in, any
business engaged in the Prescribed Business. Nothing in this Section 5.3 shall
prevent Employee from owning or holding as a shareholder less than five percent
(5%) of the issued and outstanding shares of a publicly-held corporation.
Employee further agrees that, during his employment with Purchaser, he
shall use his best efforts to preserve the business and the organization of
Purchaser, to keep available to Purchaser the services of its employees and to
preserve for Purchaser its and his favorable business relationships with
suppliers, customers and others with whom Purchaser and Employee have business
relationships.
5.4. Remedies. In view of the services which Employee will perform for
Purchaser, which are special, unique, extraordinary and intellectual in
character, which place him in a position of confidence and trust with respect to
suppliers, customers and employees of Purchaser and Horizon and which provide
him with access to confidential information, trade secrets, know-how and other
confidential and proprietary information of Purchaser and Horizon, in view of
the geographic scope and nature of the business in which Purchaser and Horizon
are engaged and recognizing the value of this Agreement to him, Employee
expressly acknowledges that the restrictive covenants set forth in this
Agreement, including without limitation the geographic scope of such covenants,
are necessary in order to protect and maintain the proprietary interest and
other legitimate business interests of Purchaser and Horizon and that the
enforcement of such restrictive covenants will not prevent him from earning a
livelihood. Employee also acknowledges that the scope of the operations of
Purchaser and Horizon are such that it is reasonable that the restrictions set
forth in this Agreement are not more limited as to geographic area than is set
forth herein. Employee further acknowledges that the remedy at law for any
breach or threatened breach of this Agreement will be inadequate and,
accordingly, that Purchaser and Horizon shall, in addition to all other
available remedies (including without limitation, seeking such damages as they
may have sustained by reason of such breach), be entitled to injunctive and any
other appropriate form of equitable relief.
- 5 -
<PAGE> 48
6. Miscellaneous.
6.1. Assignment and Successors. Purchaser may assign its rights and
obligations under this Agreement to any other corporation or other entity which
controls, is controlled by, or is under common control with, Purchaser, without
Employee's consent. Further, if Purchaser sells all or substantially all of the
assets of Purchaser, the rights and obligations of Purchaser under this
Agreement may be assigned without Employee's consent. In all other
circumstances, the rights and obligations of Purchaser under this Agreement may
be signed with Employee's consent (which shall not be unreasonably withheld) and
shall inure to the benefit of and be binding upon the successors and assigns of
Purchaser. Employee's obligations to provide services hereunder may not be
assigned or assumed by any other person or entity.
6.2. Notices. All notices, requests, demands or other communications
under this Agreement shall be in writing and shall only be deemed to be duly
given if in accordance with the terms of Section 11.4 of the Asset Purchase
Agreement, to Purchaser at Seven North Parkway Square, 4200 Northside Parkway,
N.W., Atlanta, Georgia 30327 and to Employee at his address as shown in
Purchaser's records.
6.3. Severability. If any provision or portion of this Agreement shall
become illegal, invalid or unenforceable in whole or in part for any reason,
such provision shall be ineffective only to the extent of such illegality,
invalidity or unenforceability without invalidating the remainder of such
provision or the remaining provisions of this Agreement. If any court should
deem any covenant herein to be invalid, illegal or unenforceable because its
scope is considered excessive, such covenant shall be modified so that the scope
of the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable.
6.4. Integration, Amendment and Waiver. This Agreement constitutes the
entire agreement among the parties hereto, superseding all prior arrangements
and agreements, and may be modified, amended or waived only by written
instrument signed by all the parties hereto.
6.5. Governing Law. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Georgia
applicable to contracts executed and wholly performed within such state;
provided, however, that the provisions of Section 5 hereunder shall be governed
by the laws of the state in which Employee resides at the time Purchaser or
Horizon enforces such provisions. The term "Horizon" used herein shall mean
Horizon Medical Products, Inc.
6.6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
6.7. Nonwaiver of Rights and Breaches. No failure or delay of any party
herein in the exercise of any right given to such party hereunder shall
constitute a waiver thereof unless the time specified herein for the exercise of
such right has expired, nor shall any single or partial exercise of
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<PAGE> 49
any right preclude other or further exercise thereof or of any other right.
Waiver by a party hereto of any default of any other party shall not be deemed
to be a waiver of any subsequent default or other default by such party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HORIZON ACQUISITION CORP.
By:
------------------------------------
Chief Executive Officer
---------------------------------------
DAVID A. SOUERWINE
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<PAGE> 50
EXHIBIT F
FORM OF OPINIONS OF SELLER'S COUNSEL
1. The Company was duly organized as a corporation, and is existing and
in good standing, under the laws of the State of Delaware.
2. Company has the corporate power to execute and deliver the Asset
Purchase Agreement and the other ["closing documents"], to perform its
obligations thereunder, to own and use the Transferred Assets and to conduct the
Business.
3. Company has duly authorized the execution and delivery of the Asset
Purchase Agreement and the closing documents and all performance by the Company
thereunder and has duly executed and delivered the Asset Purchase Agreement and
the closing documents.
4. The execution and delivery by the Company of the Asset Purchase
Agreement and the closing documents do not, and if the Company were now to
perform its obligations under the Asset Purchase Agreement and the closing
documents such performance would not, result in any:
(a) Violation of the Company's Certificate of Incorporation or
by-laws, as amended;
(b) Violation of any existing federal or Delaware Constitution
or statute to which the Company is subject or violation, to our
knowledge, of any existing order or regulation of any court or
governmental agency to which the Company or the Transferred Assets are
subject;
(c) Breach of or default, to our knowledge, under any material
written agreements to which the Company is a party or by which, to our
knowledge, the Company or its properties are bound;
(d) Violation of any judicial or administrative decree, writ,
judgment or order to which, to our knowledge, the Company or the
Transferred Assets are subject; or
(e) Creation or imposition of a contractual lien or security
interest in, on or against the Transferred Assets under any material
written agreements to which, to our knowledge, the Company is a party
or which, to our knowledge, the Company or the Transferred Assets are
bound.
5. The Asset Purchase Agreement and the closing documents are
enforceable against the Company; provided, however, that the enforceability of
the Asset Purchase Agreement and the closing documents are subject to (i)
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance and similar federal and state laws affecting the rights and remedies
of
<PAGE> 51
creditors generally and (ii) general principles of equity limiting the
availability of equitable remedies (including but not limited to the remedy of
specific performance), whether considered in a proceeding at law or in equity.
6. No consent, approval, authorization or other action by, or filing
with, any governmental authority of the United States or the State of Delaware
is required for Company's execution and delivery of the Asset Purchase Agreement
and the closing documents and the consummation of the sale that is reflected in
the Asset Purchase Agreement and the closing documents.
7. The Company has transferred to Purchaser all of Company's right,
title and interest in and to the Transferred Assets.
Based upon the limitations and qualifications set forth above, we
confirm to you that, to our knowledge, no litigation or other proceeding against
the Company or any of its properties is pending or overtly threatened by written
or oral communication to the Company.
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<PAGE> 52
EXHIBIT G
FORM OF OPINIONS OF PURCHASER'S COUNSEL
1. The Company was duly organized as a corporation, and is existing and
in good standing, under the laws of the State of Georgia.
2. Company has the corporate power to execute and deliver the Asset
Purchase Agreement and the other ["closing documents"], to perform its
obligations thereunder, to own and use the Transferred Assets and to conduct the
Business.
3. Company has duly authorized the execution and delivery of the Asset
Purchase Agreement and the closing documents and all performance by the Company
thereunder and has duly executed and delivered the Asset Purchase Agreement and
the closing documents.
4. The execution and delivery by the Company of the Asset Purchase
Agreement and the closing documents do not, and if the Company were now to
perform its obligations under the Asset Purchase Agreement and the closing
documents such performance would not, result in any:
(a) Violation of the Company's Certificate of Incorporation or
by-laws, as amended;
(b) Violation of any existing federal or Georgia Constitution
or statute to which the Company is subject or violation, to our
knowledge, of any existing order or regulation of any court or
governmental agency to which the Company or the Transferred Assets are
subject;
(c) Breach of or default, to our knowledge, under any material
written agreements to which the Company is a party or by which, to our
knowledge, the Company or its properties are bound; or
(d) Violation of any judicial or administrative decree, writ,
judgment or order to which, to our knowledge, the Company or the
Transferred Assets are subject.
5. The Asset Purchase Agreement and the closing documents are
enforceable against the Company; provided, however, that the enforceability of
the Asset Purchase Agreement and the closing documents are subject to (i)
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance and similar federal and state laws affecting the rights and remedies
of creditors generally and (ii) general principles of equity limiting the
availability of equitable remedies (including but not limited to the remedy of
specific performance), whether considered in a proceeding at law or in equity.
6. No consent, approval, authorization or other action by, or filing
with, any governmental authority of the United States or the State of Georgia is
required for Company's
<PAGE> 53
execution and delivery of the Asset Purchase Agreement and the closing documents
and the consummation of the sale that is reflected in the Asset Purchase
Agreement and the closing documents.
Based upon the limitations and qualifications set forth above, we
confirm to you that, to our knowledge, no litigation or other proceeding against
the Company or any of its properties is pending or overtly threatened by written
or oral communication to the Company.
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<PAGE> 1
EXHIBIT 10.17
Atlanta, Georgia
$2,461,017 October 24, 1995
SECURED SUBORDINATED NOTE
FOR VALUE RECEIVED, the undersigned, HORIZON ACQUISITION CORP., a Georgia
corporation (hereinafter referred to as "Maker"), hereby promises to pay to the
order of NEOSTAR MEDICAL TECHNOLOGIES, INC., a Delaware corporation (hereinafter
referred to, along with each subsequent holder of this Note, as the "Holder") at
_______________________________________________, or such other address as the
Holder hereof may designate in writing, the principal sum of TWO MILLION FOUR
HUNDRED SIXTY-ONE THOUSAND SEVENTEEN DOLLARS ($2,461,017.00). No interest shall
be payable on the unpaid principal balance hereof or otherwise under this Note.
Except as provided below upon the occurrence of an "Acceleration Event",
the principal amount of this Note shall be payable in the following installment
payments:
(i) $212,235.00 in twelve (12) consecutive monthly installments of
$17,686.25 per month, payable on the last day of each month, commencing
January 31, 1997 and continuing through December 31, 1997;
(ii) $145,240.00 in twelve (12) consecutive monthly installments of
$12,103.33 per month, payable on the last day of each month, commencing
January 31, 1998 and continuing through December 31, 1998;
(iii) $253,200.00 in eighteen (18) consecutive monthly installments
of $14,066.67 per month, payable on the last day of each month, commencing
January 1, 1999 and continuing through June 30, 2000;
(iv) $84,400.00 on July 31, 2000;
(v) $60,753.00 on January 31, 2001;
(vi) $121,506.00 on October 31, 2001;
(vii) $86,841.50 on April 30, 2002;
(viii) $86,841.50 on October 31, 2002;
(ix) $1,160,000.00 on April 30, 2003; and
(x) $250,000.00 on October 31, 2003.
"THE PAYMENT OF THE DEBT EVIDENCED HEREBY IS SUBORDINATED TO ALL DEBTS OF
THE MAKER TO SIRROM CAPITAL CORPORATION AS SET FORTH IN A SUBORDINATION
AGREEMENT DATED OCTOBER 24, 1995."
<PAGE> 2
In the event any "Acceleration Event" (as defined below) should occur, then
the "Final Payoff Amount" (as defined below) shall be immediately due and
payable in full on the date on which the Acceleration Event occurs. The Final
Payoff Amount, when paid, shall be full and final payment of all sums due and
payable under this Note. The term "Acceleration Event" shall mean: (i) a sale of
Maker or Horizon Medical Products, Inc. ("Horizon") (through merger, sale of
eighty percent (80%) or more of the outstanding stock of Maker or Horizon or
sale of all or substantially all of the assets of Maker or Horizon; provided,
however, that a sale of Maker to Horizon or a merger of Maker into Horizon shall
not be an Acceleration Event), (ii) a sale of stock of Maker or Horizon to the
public in an initial public offering, or (iii) the failure by Maker to pay any
installment payment payable to Holder pursuant to the provisions in the
preceding paragraph after Maker receives written notice of default from Holder
and fails to pay the amount due within five (5) days after receiving notice of
nonpayment, (iv) the filing of a petition by or against the Maker for relief
under the Bankruptcy Code or under the bankruptcy, insolvency or any similar
statute of the United States or any state thereof that is not dismissed within
thirty (30) days after filing, (v) the making of any general assignment for the
benefit of creditors by the Maker, (vi) the institution by the Maker of any type
of insolvency proceeding or any proceeding for the liquidation or winding up of
its affairs, (vii) the Maker shall apply for or consent to the appointment of a
receiver, trustee or liquidator for the Maker or any of its assets, (viii) the
authorization by the Maker for the dissolution of the Maker; (ix) default shall
occur with respect to any material indebtedness of Maker for borrowed money if
the effect of such default is to accelerate the maturity of such indebtedness or
to permit the holder thereof to cause such indebtedness to become due prior to
its stated maturity, (x) any material indebtedness of Maker for borrowed money
shall not be paid when due subject to any applicable cure period, (xi) any
default by Horizon under the Loan Agreement between Horizon and Sirrom Capital
Corporation ("Sirrom") dated September 25, 1995 as the same may be amended,
supplemented or modified from time to time, or (xii) any default by Horizon
pursuant to the Secured Promissory Note dated September 25, 1995 of Horizon
given to Sirrom which note is guaranteed by the Maker. The term "Final Payoff
Amount" shall mean the remaining outstanding and unpaid amount due and payable
under this Note at any time under the provisions of the preceding paragraph,
with such amount then reduced to its present value as of the date on which the
Acceleration Event occurs using an interest rate of ten percent (10%) in
determining such present value. An illustration of the provisions in this
paragraph is set forth in Schedule A attached hereto and incorporated herein by
reference.
If the Holder should employ attorneys or incur other expenses for the
collection of amounts payable under this Note, the Maker shall pay the
reasonable attorneys fees and such other expenses so incurred by the Holder of
this Note.
- 2 -
<PAGE> 3
Time is of the essence of this Note.
This Note is secured by a Security Agreement dated the date hereof
covering certain Collateral (as defined therein).
This Note is subject to prepayment by the Maker in full or in part at any
time and from time to time without payment of penalty or premium. If Maker
elects to prepay this Note in full, then Maker shall pay the Final Payoff
Amount, calculated as of the date of such prepayment under the above
provisions, as full and final payment of all sums due and payable under this
Note.
This Note is executed and delivered in payment of a portion of the
Purchase Price payable under the terms of that certain Asset Purchase
Agreement, dated as of October 24, 1995 (the "Purchase Agreement"), by and
among the Maker, as Purchaser, the Holder, as Seller, and other parties. Under
the terms of Section 3.3(a) of the Purchase Agreement, the amount payable under
this Note is subject to an automatic reduction in the amount described in
Section 3.3(a) and Section 3.3(c), the provisions of which are incorporated
herein by reference. If the amount payable under this Note is reduced pursuant
to the provisions of Section 3.3(a) and Section 3.3(b) of the Purchase
Agreement, then the reduction shall be made in the monthly installment payments
which commence January 31, 1997 and continue on the last day of each month
thereafter until all reductions are made; provided, however, that if any
reduction to the amount owed under this Note described in the next paragraph
below in this Note is made prior to any reduction under this paragraph, then
the reduction under this paragraph shall be made in the most immediate
succeeding payments under this Note (until all such reductions are made) after
such reduction is made under the next paragraph below. Any such reduction in
amount shall not otherwise affect any of the terms and provisions of this Note.
Under the terms of Section 3.3(b) of the Purchase Agreement, the amount
payable under this Note is subject to an automatic reduction in the amounts
described in Section 3.3(b), the provisions of which are incorporated herein by
reference. If the amount payable under this Note is reduced pursuant to the
provisions of Section 3.3(b) and Section 3.3(c) of the Purchase Agreement, then
the reductions shall be made in the monthly installment payments which commence
January 31, 1997 and continue on the last day of each month thereafter until
all reductions are made; provided, however, that if the reduction to the amount
owed under this Note described in the above paragraph is made prior to any
reduction under this paragraph, then the reductions under this sentence shall
be made in the most immediate succeeding payments under this Note (until all
such reductions are made) after such reduction under the above paragraph.
Pursuant to Section 8.4 of the Purchase Agreement, the amount owed under
this Note is subject to offset in the amounts and manner
- 3 -
<PAGE> 4
described in Section 8.4 and Schedule 8.4 to the Purchase Agreement. Any offset
that is applied against the amount owed under this Note shall be applied
against the payments that are most immediately due and payable under this Note
at the time of the offset, taking into consideration any reductions in the
amounts owed under this Note under the provisions of the two preceding
paragraphs of this Note.
The principal of this Note is payable in lawful money of the United States
of America.
The amount due and payable to Holder under this Note is subordinated to
all indebtedness owed under the Loan Agreement dated September 25, 1995 to
Sirrom Capital Corporation, which indebtedness has been guaranteed by Maker and
is payable by Horizon. Other than such indebtedness, Maker will attempt to
obtain priority for all indebtedness under this Note with respect to other
indebtedness incurred by Maker for borrowed money from time to time until this
Note is paid in full.
Demand, presentment, dishonor, protest and notice of dishonor are hereby
waived by the Maker. The Holder shall not be deemed to waive any of its rights
or remedies under this Note unless such waiver is express, in writing and
signed by the Holder. No delay or omission by the Holder in exercising any of
its rights or remedies shall operate as a waiver of any such right or remedy.
An express waiver of any right or remedy in writing and signed by the Holder on
any one occasion shall not be, nor be construed as, a waiver of any other right
or remedy then existing or existing on any other occasion.
This Note shall be governed by, construed under and interpreted and
enforced in accordance with the laws of the State of Georgia. Whenever
possible, each provision of this Note shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Note
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Note.
The word "Holder" as used herein shall include all transferees, successor
and assigns of the Holder. This Note shall be freely assignable upon prior
written notice to the Maker, and all rights of the Holder hereunder shall inure
to the benefit of its transferees, successors and assigns. All obligations of
the Maker shall bind its legal representatives, successors and assigns.
IN WITNESS WHEREOF, the Maker has caused this Promissory Note to be
executed in its corporate name and its corporate seal to be
- 4 -
<PAGE> 5
hereunder affixed, all by its duly authorized officers, the day and year first
written above.
HORIZON ACQUISITION CORP.
By: /s/ [unreadable]
----------------------------
Chief Executive Officer
Attest: /s/ [unreadable]
------------------------
Secretary
[CORPORATE SEAL]
Address:
Seven North Parkway Square
4200 Northside Parkway, NW
Atlanta, Georgia 30327
- 5 -
<PAGE> 6
SCHEDULE A TO SUBORDINATED NOTE
1. Assume that an Acceleration Event (as defined in the Subordinated Note)
occurs on July 1, 1996 and the Final Payoff Amount becomes payable in full on
July 1, 1996. The Final Payoff Amount on July 1, 1996 will be: $1,449,239.14.
2. Assume that an Acceleration Event occurs on January 1, 2000 and the
Final Payoff Amount becomes payable in full on January 1, 2000. Also, assume
that all monthly payments payable under the Subordinated Note prior to January
1, 2000 have been paid. The Final Payoff Amount on January 1, 2000 will be:
$1,442,695.36.
<PAGE> 7
AMENDMENT TO SECURED SUBORDINATED NOTE
THIS AMENDMENT, entered into as of July 31, 1997, by and between
HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and NEOSTAR HOLDING,
INC., a Delaware corporation and successor in interest through merger to Neostar
Medical Technologies, Inc., a Delaware corporation, ("Neostar");
WHEREAS, HAC has delivered to Neostar that certain Secured Subordinated
Note dated October 24, 1995 in the principal amount of $2,461,017.00 payable by
HAC to Neostar (the "Note");
WHEREAS, Neostar is the holder of the Note;
WHEREAS, HAC is presently unable to make the payments under the Note
according to its terms and as a consequence thereof, HAC and Neostar have agreed
to restructure the 1997 payment schedule in the Note and to make certain other
agreements as hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The payment schedule for the Note, as set forth on the first page of
the Note, is hereby revised, amended, and restated as follows:
Except as provided below upon the occurrence of an "Acceleration
Event", the principal amount of this Note shall be payable in the
following installment payments of principal:
(i) The following payments of principal during
1997: $35,000.00 on July 31, 1997;
$15,000.00 on July 31, 1997; $25,000.00 on
August 31, 1997; $25,000.00 on September 30,
1997; $25,000.00 on October 31, 1997;
$25,000.00 on November 30, 1997; and
$25,000.00 on December 31, 1997;
The payment of the debt evidenced hereby is subordinated to all debts of the
Maker to Sirrom Capital Corporation as set forth in a Subordination Agreement
dated October 24, 1995.
<PAGE> 8
(ii) $145,240.00 in twelve (12) consecutive monthly
installments of principal of $12,103.33 per
month, payable on the last day of each month,
commencing January 31, 1998 and continuing
through December 31, 1998;
(iii) $253,200.00 in eighteen (18) consecutive
monthly installments of principal of
$14,066.67 per month, payable on the last day
of each month, commencing January 31, 1999 and
continuing through June 30, 2000;
(iv) $84,400.00 of principal on July 31, 2000;
(v) $60,753.00 of principal on January 31, 2001;
(vi) $121,506.00 of principal on October 31, 2001;
(vii) $86,841.50 of principal on April 30, 2002;
(viii) $86,841.50 of principal on October 31, 2002;
(ix) $1,160,000.00 of principal on April 30, 2003;
and
(x) $287,235.00 of principal on October 31, 2003.
2. The following provision is hereby added to the Note at the end of
the first paragraph on the first page of the Note:
Notwithstanding the preceding sentence, the amount of $37,235.00
(the "Deferred Amount") that was originally payable under this Note
during 1997 has been deferred and is now payable as part of and is
included in the amount of principal of $287,235.00 due and payable
under this Note on October 31, 2003. Interest at the simple per
annum interest rate of "Prime Rate" plus one percent shall be
accrued, commencing on February 1, 1997, on the outstanding balance
of the Deferred Amount, to be calculated as follows:
-2-
<PAGE> 9
<TABLE>
<CAPTION>
AMOUNT AMOUNT OUTSTANDING
PAYABLE PAYABLE BALANCE OF
DATE UNDER UNDER DEFERRED
ORIGINAL REVISED AMOUNT
PAYMENT PAYMENT
SCHEDULE SCHEDULE
<S> <C> <C> <C>
January 31, 1997 $17,686.25 $ 0.00 $ 17,686.25
February 28, 1997 $17,686.25 $ 0.00 $ 35,372.50
March 31, 1997 $17,686.25 $ 0.00 $ 53,058.75
April 30, 1997 $17,686.25 $ 0.00 $ 70,745.00
May 31, 1997 $17,686.25 $ 0.00 $ 88,431.25
June 30, 1997 $17,686.25 $ 0.00 $106,117.00
July 31, 1997 $ 0.00 $35,000.00 $ 71,117.50
July 31, 1997 $17,686.25 $15,000.00 $ 73,803.75
August 31, 1997 $17,686.25 $25,000.00 $ 66,490.00
September 30, 1997 $17,686.25 $25,000.00 $ 59,176.25
October 31, 1997 $17,686.25 $25,000.00 $ 51,862.50
November 30, 1997 $17,686.25 $25,000.00 $ 44,548.75
December 31, 1997 $17,686.25 $25,000.00 $ 37,235.00
</TABLE>
Such accrued interest shall be payable on December 31, 1997 and in quarterly
payments after December 31, 1997 on each March 31, June 30, September 30, and
December 31 thereafter until the Deferred Amount is paid in full; provided that
in the event an "Acceleration Event" (as defined in this Note) occurs and the
"Final Payoff Amount" (as defined in this Note) is paid, all accrued interest on
the outstanding balance of the Deferred Amount through the date on which the
Final Payoff Amount is paid shall be payable in full on the date of such
payment. In addition, in determining the Final Payoff Amount, the Deferred
Amount shall not be discounted to present value but shall be payable in full.
"Prime Interest" shall mean the prime interest rate as shown daily in The Wall
Street Journal under "Money Rates", which prime rate is presently 8 1/2% and
which prime rate for purposes of this calculation shall change the day after any
-3-
<PAGE> 10
change in the Prime Interest as published in The Wall Street Journal
under "Money Rates" commencing on February 1, 1997 through the date
on which the Deferred Amount is paid in full.
3. Unless expressly amended herein, all other provisions in the Note
are ratified and confirmed in all respects and shall continue in full force and
effect.
4. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit to the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
/s/ [unreadable] By: /s/ [unreadable]
- ---------------------- -------------------------------
Title: Secretary Title: President
--------------- ----------------------------
ATTEST: NEOSTAR HOLDING, INC.
/s/ [unreadable] By: /s/ Joseph D. Pike
- ---------------------- -------------------------------
Title: Secretary Title: President
--------------- ----------------------------
-4-
<PAGE> 1
EXHIBIT 10.18
AGREEMENT
THIS AGREEMENT, entered into as of July 31, 1997, by and among HORIZON
ACQUISITION CORP., a Georgia corporation ("HAC"); HORIZON MEDICAL PRODUCTS,
INC., a Georgia corporation ("HMP"); NEOSTAR HOLDING, INC., a Delaware
corporation and successor in interest through merger to Neostar Medical
Technologies, Inc., a Delaware corporation, ("Neostar"); JOSEPH D. PIKE
("Pike"); THOMAS F. DARDEN, II ("Darden"); WILLIAM W. WELLS, as Trustee of the
Wells Family Trust ("Wells"); and LANCE J. BRONNENKANT ("Bronnenkant" and
together with Pike, Darden, and Wells, the "Shareholders");
WHEREAS, the parties are parties to that certain Asset Purchase
Agreement dated October 24, 1995 ("Asset Purchase Agreement");
WHEREAS, pursuant to the Asset Purchase Agreement, HAC delivered to
Neostar that certain Secured Subordinated Note dated October 24, 1995 in the
principal amount of $2,461,017.00 payable by HAC to Neostar (the "Note"), which
provides for certain payments to Neostar commencing January 31, 1997;
WHEREAS, pursuant to the Asset Purchase Agreement, HAC and Pike entered
into that certain Non-Competition and Consulting Agreement dated October 24,
1995 ("Pike Agreement"), which provides for certain monthly payments by HAC to
Pike commencing January 31, 1997;
WHEREAS, pursuant to the Asset Purchase Agreement, HAC and Darden
entered into that certain Non-Competition and Consulting Agreement dated October
24, 1995 ("Darden Agreement"), which provides for certain monthly payments by
HAC to Darden commencing January 31, 1997;
WHEREAS, pursuant to the Asset Purchase Agreement, HAC and Wells
entered into that certain Non-Competition and Consulting Agreement dated October
24, 1995 ("Wells Agreement"), which provides for certain monthly payments by HAC
to Wells commencing January 31, 1997;
<PAGE> 2
WHEREAS, pursuant to the Asset Purchase Agreement, HAC and Bronnenkant
entered into that certain Non-Competition and Consulting Agreement dated October
24, 1995 ("Bronnenkant Agreement"), which provides for certain monthly payments
by HAC to Bronnenkant commencing January 3l, 1997;
WHEREAS, pursuant to the Asset Purchase Agreement, HAC granted to
Neostar, Pike, Darden, Wells, and Bronnenkant a security interest in and lien on
certain assets of HAC as provided in Security Agreement dated October 24, 1995
("Security Agreement") for the purpose of securing payment by HAC of the Note
and amounts owed under the Pike Agreement, the Darden Agreement, the Wells
Agreement, and the Bronnenkant Agreement;
WHEREAS, the parties have agreed to revise the payment schedules during
1997 under the Note and under the Pike Agreement, the Darden Agreement, the
Wells Agreement, and the Bronnenkant Agreement and have reached certain other
agreements, as provided below due to the inability of HAC to presently make all
the payments due thereunder:
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The Note shall be amended as provided in the Amendment to Secured
Subordinated Note, attached hereto as Exhibit "A" and incorporated herein by
reference.
2. The Pike Agreement shall be amended as provided in the Amendment to
Non- Competition and Consulting Agreement, attached hereto as Exhibit "18" and
incorporated herein by reference.
<PAGE> 3
3. The Darden Agreement shall be amended as provided in the Amendment
to Non-Competition and Consulting Agreement, attached hereto as Exhibit "C" and
incorporated herein by reference.
4. The Wells Agreement shall be amended as provided in the Amendment to
Non-Competition and Consulting Agreement, attached hereto as Exhibit "D" and
incorporated herein by reference.
5. The Bronnenkant Agreement shall be amended as provided in the
Amendment to Non-Competition and Consulting Agreement, attached hereto as
Exhibit "E" and incorporated herein by reference.
6. The Security Agreement shall be amended as provided in the Amendment
to Security Agreement, attached hereto as Exhibit "F" and incorporated herein by
reference.
7. Effective upon the execution and delivery by all applicable parties
of the Amendment to Secured Subordinated Note attached hereto as Exhibit "A",
the Amendment to Non-Competition and Consulting Agreement attached as hereto
Exhibit "B", the Amendment to Non-Competition and Consulting Agreement attached
as hereto Exhibit "C", the Amendment to Non-Competition and Consulting Agreement
attached as hereto Exhibit "D", the Amendment to Non-Competition and Consulting
Agreement attached as hereto Exhibit "E", and the Amendment to Security
Agreement attached hereto as Exhibit "F", HMP and HAC acknowledge and agree
that the conditions described in Section 3.3(a) of the Asset Purchase Agreement
have been satisfied and any adjustments contemplated by Section 3.3(b) have been
made and that the indebtedness owed by HAC under the Note, the Pike Agreement,
the Darden Agreement, the Wells Agreement, and the Bronnenkant Agreement shall
not be reduced by any amount pursuant to the provisions of such Section 3.3(a)
or Section 3.3(b).
<PAGE> 4
8. This Agreement contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Agreement will be-effective
unless made in writing signed by the parties hereto. This Agreement will be
binding on and inure to the benefit to the parties hereto and their respective
successors and assigns. This Agreement may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Agreement and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first set forth above. ATTEST: HORIZON ACQUISITION
CORP.
/s/ [unreadable] By: /s/ [unreadable]
- ----------------------- ------------------------------
Title: Secretary Title: President
----------------- ---------------------------
ATTEST: HORIZON MEDICAL PRODUCTS, INC.
/s/ [unreadable] By: /s/ [unreadable]
- ----------------------- ------------------------------
Title: Asst. Secretary Title: President
----------------- ---------------------------
ATTEST: NEOSTAR HOLDING, INC.
/s/ [unreadable] By: /s/ Joseph D. Pike
- ----------------------- ------------------------------
Title: Secretary Title: President
----------------- ---------------------------
<PAGE> 5
/s/ [unreadable] /s/ Joseph D. Pike
- ----------------------- ---------------------------------
Witness Joseph D. Pike
/s/ [unreadable] /s/ Thomas F. Darden, II
- ----------------------- ---------------------------------
Witness Thomas F. Darden, II
/s/ [unreadable] /s/ William W. Wells, Trustee
- ----------------------- ---------------------------------
Witness William W. Wells, as Trustee of
the Wells Family Trust
/s/ [unreadable] /s/ Lance J. Bronnenkant
- ----------------------- ---------------------------------
Witness Lance J. Bronnenkant
<PAGE> 6
Exhibit "A"
AMENDMENT TO SECURED SUBORDINATED NOTE
THIS AMENDMENT, entered into as of ______________, 1997, by and between
HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and NEOSTAR HOLDING,
INC., a Delaware corporation and successor in interest through merger to Neostar
Medical Technologies, Inc., a Delaware corporation, ("Neostar");
WHEREAS, HAC has delivered to Neostar that certain Secured Subordinated
Note dated October 24, 1995 in the principal amount of $2,461,017.00 payable by
HAC to Neostar (the "Note");
WHEREAS, Neostar is the holder of the Note;
WHEREAS, HAC is presently unable to make the payments under the Note
according to its terms and as a consequence thereof, HAC and Neostar have agreed
to structure the 1997 payment schedule in the Note and to make certain other
agreements as hereinafter provided;
NOW, THEREFORE, in consideration for. the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The payment schedule for the Note, as set forth on the first page of
the Note, is hereby revised, amended, and restated as follows:
Except as provided below upon the occurrence of an "Acceleration
Event", the principal amount of this Note shall be payable in the
following installment payments of principal:
(i) The following payments of principal during 1997:
$35,000.00 on July 31, 1997; $15,000.00 on July
31, 1997; $25,000.00 on August 31, 1997;
$25,000.00 on September 30, 1997; $25,000.00 on
October 31, 1997; $25,000.00 on November 30,
1997; and $25,000.00 on December 31, 1997;
THE PAYMENT OF THE DEBT EVIDENCED HEREBY IS SUBORDINATED TO ALL DEBTS OF THE
MAKER TO SIRROM CAPITAL CORPORATION AS SET FORTH IN A SUBORDINATION AGREEMENT
DATED OCTOBER 24, 1995.
(ii) $145,240.00 in twelve (12) consecutive monthly
installments of principal of $12,103.33 per
month, payable on the last day of each month,
commencing
<PAGE> 7
January 31, 1998 and continuing through December
31, 1998;
(iii) $253,200.00 in eighteen (18) consecutive monthly
installments of principal of $ 14,066.67 per
month, payable on the last day of each month,
commencing January 31, 1999 and continuing
through June 30, 2000;
(iv) $84,400.00 of principal on July 31, 2000;
(v) $60,753.00 of principal on January 31, 2001;
(vi) $121,506.00 of principal on October 31, 2001;
(vii) $86,841.50 of principal on April 30, 2002;
(viii) $86,841.50 of principal on October 31, 2002;
(ix) $1,160,000.00 of principal on April 30, 2003;
and
(x) $287,235.00 of principal on October 31, 2003.
2. The following provision is hereby added to the Note at the end of
the first paragraph on the first page of the Note:
Notwithstanding the preceding sentence, the amount of $37,235.00
(the "Deferred Amount") that was originally payable under this Note
during 1997 has been deferred and is now payable as part of and is
included in the amount of principal of $287,235.00 due and payable
under this Note on October 31, 2003. Interest at the simple per
annum interest rate of "Prime Rate" plus one percent shall be
accrued, commencing on February 1, 1997, on the outstanding balance
of the Deferred Amount, to be calculated as follows:
<PAGE> 8
<TABLE>
<CAPTION>
Amount Amount Outstanding
Payable Payable Balance of
Date Under Under Deferred
Original Revised Amount
Payment Payment
Schedule Schedule
- --------------------- ----------------- ------------ -----------
<S> <C> <C> <C>
January 31, 1997 $ 17,686.25 $ 0.00 $ 17,686.25
February 28, 1997 $ 17,686.25 $ 0.00 $ 35,372.50
March 31, 1997 $ 17,686.25 $ 0.00 $ 53,058.75
April 30, 1997 $ 17,686.25 $ 0.00 $ 70,745.00
May 31, 1997 $ 17,686.25 $ 0.00 $ 88,431.25
June 30, 1997 $ 17,686.25 $ 0.00 $106,117.50
July 31, 1997 $ 0.00 $35,000.00 $ 71,117.50
July 31, 1997 $ 17,686.25 $15,000.00 $ 73,803.75
August 31, 1997 $ 17,686.25 $25,000.00 $ 66,490.00
September 30, 1997 $ 17,686.25 $25,000.00 $ 59,176.25
October 31, 1997 $ 17,686.25 $25,000.00 $ 51,862.50
November 30, 1997 $ 17,686.25 $25,000.00 $ 44,548.75
December 31, 1997 $ 17,686.25 $25,000.00 $ 37,235.00
</TABLE>
Such accrued interest shall be payable on December 31, 1997 and in quarterly
payments after December 31, 1997 on each March 31, June 30, September 30, and
December 31 thereafter until the Deferred Amount is paid in full; provided that
in the event an "Acceleration Event" (as defined ill this Note) occurs and the
"Final Payoff Amount" (as defined in this Note) is paid, all accrued interest on
the outstanding balance of the Deferred Amount through the date on which the
Final Payoff Amount is paid shall be payable in full on the date of such
payment. In addition, in determining the Final Payoff Amount, the Deferred
Amount shall not be discounted to present value but shall be payable in full.
"Prime Interest" shall mean the prime interest rate as shown daily in The Wall
Street Journal under "Money Rates", which prime rate is presently 8 1/2 and
which prime rate for purposes of this calculation shall change the day after any
change in the Prime Interest as published in The Wall Street Journal under
"Money Rates" commencing on February 1, 1997 through the date on which the
Deferred Amount is paid in full.
<PAGE> 9
3. Unless expressly amended herein, all other provisions in the Note
are ratified and confirmed in all respects and shall continue in full force and
effect.
4. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit to the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
By:
- ---------------------- ------------------------------
Title: Title:
---------------- ---------------------------
ATTEST: NEOSTAR HOLDING, INC.
By:
- ---------------------- ------------------------------
Title: Title:
---------------- ---------------------------
<PAGE> 10
EXHIBIT "B"
AMENDMENT TO NON-COMPETITION
AND CONSULTING AGREEMENT
THIS AMENDMENT, entered into as of ______________, 1997, by
and between HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and JOSEPH
D. PIKE ("Pike");
WHEREAS, HAC and Pike have entered into that certain
Non-Competition and Consulting Agreement dated October 24, 1995 ("Pike
Agreement");
WHEREAS, the parties desire to amend the Pike Agreement in the
manner hereinafter provided;
Now, THEREFORE, in consideration for the agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. The payment schedule under the Pike Agreement, as described in
paragraph 4 thereof and in Schedule A thereto, is hereby revised, amended, and
restated as follows:
All of the payments payable to Pike during 1997 under paragraph 4(a)
and Schedule A for non-competition covenants, totaling the sum of
$74,800.44, shall not be payable during 1997, but shall be payable
in full to Pike on October 31, 2002. All of the payments payable to
Pike during 1997 under paragraph 4(b) and Schedule A for consulting
services, totaling the sum of $24,933.48, shall not be payable
during 1997, but shall be payable in full to Pike on October 31,
2002. All of the payments during 1998, 1999, 2000, 2001, and 2002
under Schedule A shall continue to be paid in accordance with
Schedule A. In addition to the amounts now payable to Pike on
October 31, 2002 for non-competition
<PAGE> 11
covenants and for consulting services, the additional
amount of $33,658.39 for non-competition covenants under
paragraph 4(a) and Schedule A and $ 11,219.46 for
consulting services under paragraph 4(b) and Schedule A
shall be payable in full to Pike on October 31, 2002.
The payment of the debt evidenced hereby is subordinated to all debts of the
Maker to Sirrom Capital Corporation as set forth in a Subordination Agreement
dated October 24, 1995.
2. Section 4(c) of the Pike Agreement shall be deleted in
its entirety.
3. The following provision shall be added to the Pike
Agreement as paragraph 4(h):
(h) The cumulative amount of $99,733.92 (the
"Deferred Amount") that was originally payable under
Sections 4(a) and 4(b) and Schedule A hereto during 1997
has been deferred and is now payable in full on October
31, 2002. In addition to all other amounts now payable on
October 31, 2002 under Sections 4(a) and 4(b) and Schedule
A hereto, the additional cumulative amount of $44,878.00
(the "Additional Amount") is now payable in full on October
31, 2002 as provided above. In determining the "Final
Payoff Amount" (as defined in this paragraph 4) in the
event an Acceleration Event (as defined in this paragraph
4) occurs:
(i) The Deferred Amount shall not be
discounted to present value but shall
be payable in full; and
(ii) The Additional Amount shall be reduced
to its prevent value as of the date on
which the Acceleration Event occurs
using an interest rate of eight and
one-half percent (8 1/2%) in
determining such present value.
4. Unless expressly amended herein, all other provisions in the
Pike Agreement are hereby ratified and confirmed in all respects and shall
continue in full force and effect.
5. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
<PAGE> 12
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
By:
- --------------------------- ---------------------------
Title: Title:
--------------------- ------------------------
- --------------------------- ------------------------------
Witness Joseph D. Pike
<PAGE> 13
EXHIBIT "C"
AMENDMENT TO NON-COMPETITION
AND CONSULTING AGREEMENT
THIS AMENDMENT, entered into as of _____________, 1997, by and between
HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and THOMAS F. DARDEN,
II ("Darden");
WHEREAS, HAC and Darden have entered into that certain Non-Competition
and Consulting Agreement dated October 24, 1995 ("Darden Agreement");
WHEREAS, the parties desire to amend the Darden Agreement in the
manner hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The payment schedule under the Darden Agreement, as described in
paragraph 4 thereof and in Schedule A thereto, is hereby revised, amended, and
restated as follows:
All of the payments payable to Darden during 1997 under paragraph
4(a) and Schedule A for non-competition covenants, totaling the sum
of $74,800.44, shall not be payable during 1997, but shall be
payable in full to Darden on October 31, 2002. All of the payments
payable to Darden during 1997 under paragraph 4(b) and Schedule A
for consulting services, totaling the sum of $24,933.48, shall not
be payable during 1997, but shall be payable in full to Darden on
October 31, 2002. All of the payments during 1998, 1999, 2000, 2001,
and 2002 under Schedule A shall continue to be paid in accordance
with Schedule A. In addition to the amounts now payable to Darden on
October 31, 2002 for non-competition covenants and for consulting
services, the additional amount of $33,658.39 for non-competition
covenants under paragraph 4(a) and Schedule A and $11,219.46 for
consulting services under paragraph 4(b) and Schedule A shall be
payable in full to Darden on October 31, 2002.
The payment of the debt evidenced hereby is subordinated to all debts of the
Maker to Sirrom Capital Corporation as set forth in a Subordination Agreement
dated October 24, 1995.
2. Section 4(c) of the Darden Agreement shall be deleted in
its entirety.
<PAGE> 14
3. The following provision shall be added to the Darden
Agreement as paragraph 4(11):
(h) The cumulative amount of $99,733.92 (the
"Deferred Amount") that was originally payable under
Sections 4(a) and 4(b) and Schedule A hereto during 1997
has been deferred and is now payable in full on October
31, 2002. In addition to all other amounts now payable on
October 31, 2002 under Sections 4(a) and 4(b) and Schedule
A hereto, the additional cumulative amount of $44,878.00
(the "Additional Amount") is now payable in full on October
31, 2002 as provided above. In determining the "Final
Payoff Amount" (as defined in this paragraph 4) in the
event an Acceleration Event (as defined in this paragraph
4) occurs:
(i) The Deferred Amount shall not be discounted to its
present value but shall be payable in full; and
(ii) The Additional Amount shall be reduced to its
present value as of the date on which the
Acceleration Event occurs using an interest rate of
eight and one-half percent (8 1/2%) in determining
such present value.
4. Unless expressly amended herein, all other provisions in the
Darden Agreement are hereby ratified and confirmed in all respects and shall
continue in full force and effect.
5. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
By:
- ------------------------------------ --------------------------
Title: Title:
------------------------------ -----------------------
- ------------------------------------ -----------------------------
Witness Thomas F. Darden, II
<PAGE> 16
EXHIBIT "D"
AMENDMENT TO NON-COMPETITION
AND CONSULTING AGREEMENT
THIS AMENDMENT, entered into as of ______________ 1997, by and
between HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and WILLIAM W.
WELLS, as Trustee of the Wells Family Trust ("Wells");
WHEREAS, HAC and Wells have entered into that certain
Non-Competition and Consulting Agreement dated October 24, 1995 ("Wells
Agreement");
WHEREAS, the parties desire to amend the Wells Agreement in the
manner hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The payment schedule under the Wells Agreement, as described in
paragraph 4 thereof and in Schedule A thereto, is hereby revised, amended, and
restated as follows:
All of the payments payable to Wells during 1997 under paragraph
4(a) and Schedule A for non-competition covenants, totaling the
sum of $49,936.92, shall not be payable during 1997, but shall
be payable in full to Wells on October 31, 2002. All of the
payments payable to Wells during 1997 under paragraph 4(b) and
Schedule A for consulting services, totaling the sum of
$16,645.68, shall not be payable during 1997, but shall be
payable in full to Wells on October 31, 2002. All of the
payments during 1998, 1999, 2000, 2001, and 2002 under Schedule
A shall continue to be paid in accordance with Schedule A. In
addition to the amounts now payable to Wells on October 31, 2002
for non-competition covenants and for consulting services, the
additional amount of $22,470.14 for non-competition covenants
under paragraph 4(a) and Schedule A and $7,490.14 for consulting
services under paragraph 4(b) and Schedule A shall be payable in
full to Wells on October 31, 2002.
The payment of the debt evidenced hereby is subordinated to all debts of the
Maker to Sirrom Capital Corporation as set forth in a Subordination Agreement
dated October 24, 1995.
<PAGE> 17
2. Section 4(c) of the Wells Agreement shall be deleted in its
entirety.
3. The following provision shall be added to the Wells
Agreement as paragraph 4(h):
(h) The cumulative amount of $66,582.60 (the
"Deferred Amount") that was originally payable under
Sections 4(a) and 4(b) and Schedule A hereto during 1997
has been deferred and is now payable in full on October
31, 2002. In addition to all other amounts now payable on
October 31, 2002 under Sections 4(a) and 4(b) and Schedule
A hereto, the additional cumulative amount of $29,961.00
(the "Additional Amount") is now payable in full on October
31, 2002 as provided above. In determining the "Final
Payoff Amount" (as defined in this paragraph 4) in the
event an Acceleration Event (as defined in this paragraph
4) occurs:
(i) The Deferred Amount shall not be
discounted to its present value but shall
be payable in full; and
(ii) The Additional Amount shall be reduced to
its present value as of the date on which
the Acceleration Event occurs using an
interest rate of eight and one-half percent
(8 1/2%) in determining such present value.
4. Unless expressly amended herein, all other provisions in the Wells
Agreement are hereby ratified and confirmed in all respects and shall continue
in full force and effect.
5. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
By:
- -------------------------------- --------------------------------
Title: Title:
-------------------------- -----------------------------
- -------------------------------- -----------------------------------
Witness William W. Wells, as Trustee of the
Wells Family Trust
<PAGE> 19
EXHIBIT "E"
AMENDMENT TO NON-COMPETITION
AND CONSULTING AGREEMENT
THIS AMENDMENT, entered into as of ______________, 1997, by and between
HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and LANCE J.
BRONNENKANT ("Bronnenkant");
WHEREAS, HAC and Bronnenkant have entered into that certain
Non-Competition and Consulting Agreement dated October 24, 1995 ("Bronnenkant
Agreement");
WHEREAS, the parties desire to amend the Bronnenkant Agreement in the
manner hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The payment schedule under the Bronnenkant Agreement, as described
in paragraph 4 thereof and in Schedule A thereto, is hereby revised, amended,
and restated as follows:
All of the payments payable to Bronnenkant during 1997 under
paragraph 4(a) and Schedule A for non-competition covenants,
totaling the sum of $16,286.04, shall not be payable during 1997,
but shall be payable in full to Bronnenkant on October 31, 2002. All
of the payments payable to Bronnenkant during 1997 under paragraph
4(b) and Schedule A for consulting services, totaling the sum of
$5,428.56, shall not be payable during 1997, but shall be payable in
full to Bronnenkant on October 31, 2002. All of the payments during
1998, 1999, 2000, 2001, and 2002 under Schedule A shall continue to
be paid in accordance with Schedule A. In addition to the amounts
now payable to Bronnenkant on October 31, 2002 for non-competition
covenants and for consulting services, the additional amount of
$7,331.25 for non-competition covenants under paragraph 4(a) and
Schedule A and $2,443.75 for consulting services
The payment of the debt evidenced hereby is subordinated to all debts of the
Maker to Sirrom Capital Corporation as set forth in a Subordination Agreement
dated October 24, 1995.
<PAGE> 20
under paragraph 4(b) and Schedule A shall be payable in
full to Bronnenkant on October 31, 2002.
2. Section 4(c) of the Bronnenkant Agreement shall be deleted in its entirety.
3. The following provision shall be added to the Bronnenkant Agreement as
paragraph 4(h):
(h) The cumulative amount of $21,714.60 (the
"Deferred Amount") that was originally payable under
Sections 4(a) and 4(b) and Schedule A hereto during 1997
has been deferred and is now payable in full on October
31, 2002. In addition to all other amounts now payable on
October 31, 2002 under Sections 4(a) and 4(b) and Schedule
A hereto, the additional cumulative amount of $9,775.00
(the "Additional Amount") is now payable in full on October
31, 2002 as provided above. In determining the "Final
Payoff Amount" (as defined in this paragraph 4) in the
event an Acceleration Event (as defined in this paragraph
4) occurs:
(i) The Deferred Amount shall not be discounted to its
present value but shall be payable in full; and
(ii) The Additional Amount shall be reduced to its present
value as of the date on which the Acceleration Event
occurs using an interest rate of eight and one-half
percent (8 1/2%) in determining such present value.
4. Unless expressly amended herein, all other provisions in the
Bronnenkant Agreement are hereby ratified and confirmed in all respects and
shall continue in full force and effect.
5. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of
the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
By:
- -------------------------------- ----------------------------
Title: Title:
-------------------------- -------------------------
- -------------------------------- -------------------------------
Witness Lance J. Bronnenkant
<PAGE> 22
EXHIBIT "F"
AMENDMENT TO SECURITY AGREEMENT
THIS AMENDMENT, entered into as of ______________ 1997, by and among
HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"); NEOSTAR HOLDING, INC.,
a Delaware corporation and successor in interest through merger to Neostar
Medical Technologies, Inc., a Delaware corporation, ("Neostar"); JOSEPH D. PIKE
("Pike"); THOMAS F. DARDEN, II ("Darden"); WILLIAM W. WELLS, as Trustee of the
Wells Family Trust ("Wells"); and LANCE J.
BRONNENKANT ("Bronnenkant");
WHEREAS, the parties are parties to that certain Security Agreement
dated October 24, 1995 ("Security Agreement");
WHEREAS, the parties desire to amend the Security Agreement in the
manner hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Section 2 of the Security Agreement is hereby amended by amending
and restating such Section 2 in its entirety as follows:
2. Indebtedness Secured. The Security Interest
granted by Debtor secures payment of any and all
indebtedness and liabilities of Debtor to the Secured Party
pursuant the Purchase Price Note and the Non-Competition
Agreements, as may be amended from time to time by the
parties thereto (the "Indebtedness").
2. Unless expressly amended herein, all other provisions in the
Security Agreement are hereby ratified and confirmed in all respects and shall
continue in full force and effect.
3. The Collateral described in the Security Agreement is located at
HAC's offices at One Horizon Way, Manchester, Georgia 31816.
4. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit to the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement
<PAGE> 23
of this Amendment and all matters related thereto or in connection therewith
will be governed by the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
as of the date first set from above.
ATTEST: HORIZON ACQUISITION CORP.
By:
- ------------------------------ --------------------------------
Title: Title:
------------------------ -----------------------------
ATTEST: NEOSTAR HOLDING, INC.
By:
- ------------------------------ --------------------------------
Title: Title:
------------------------ -----------------------------
- ------------------------------ -----------------------------------
Witness Joseph D. Pike
- ------------------------------ -----------------------------------
Witness Thomas F. Darden, II
- ------------------------------ -----------------------------------
Witness William W. Wells, as Trustee of the
Wells Family Trust
- ------------------------------ -----------------------------------
Witness Lance J. Bronnenkant
<PAGE> 1
EXHIBIT 10.19
AMENDMENT TO SECURITY AGREEMENT
THIS AMENDMENT, entered into as of July 31, 1997, by and among HORIZON
ACQUISITION CORP., a Georgia corporation ("HAC"); NEOSTAR HOLDING, INC., a
Delaware corporation and successor in interest through merger to Neostar Medical
Technologies, Inc., a Delaware corporation, ("Neostar"); JOSEPH D. PIKE
("Pike"); THOMAS F. DARDEN, II ("Darden"); WILLIAM W. WELLS, as Trustee of the
Wells Family Trust ("Wells"); and LANCE J. BRONNENKANT ("Bronnenkant");
WHEREAS, the parties are parties to that certain Security Agreement
dated October 24, 1995 ("Security Agreement");
WHEREAS, the parties desire to amend the Security Agreement in the
manner hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Section 2 of the Security Agreement is hereby amendment by amending
and restating such Section 2 in its entirety as follows:
2. Indebtedness Secured. The Security Interest granted
by Debtor secures payment of any and all indebtedness and
liabilities of Debtor to the Secured Party pursuant to the Purchase
Price Note and the Non-Competition Agreements, as may be amended
from time to time by the parties thereto (the "Indebtedness").
2. Unless expressly amended herein, all other provisions in the
Security Agreement are hereby ratified and confirmed in all respects and shall
continue in full force and effect.
3. The Collateral described in the Security Agreement is located at
HAC's offices at One Horizon Way, Manchester, Georgia 31816.
4. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit to the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
/s/ [unreadable] By: /s/ [unreadable]
- ------------------------ -----------------------------------
Title: Secretary Title: President
------------------ --------------------------------
ATTEST: NEOSTAR HOLDING, INC.
By:/s/ Joseph D. Pike
- ------------------------ -----------------------------------
Title: Title:
------------------ --------------------------------
/s/ Joseph D. Pike
- ------------------------ --------------------------------------
Witness Joseph D. Pike
/s/[unreadable] /s/ Thomas F. Darden, II
- ------------------------ --------------------------------------
Witness Thomas F. Darden, II
/s/ William W. Wells
- ------------------------ --------------------------------------
Witness William W. Wells, as Trustee of the
Wells Family Trust
/s/ [unreadable] /s/ Lance J. Bronnenkant
- ------------------------ --------------------------------------
Witness Lance J. Bronnenkant
<PAGE> 1
EXHIBIT 10.20
[ARROW INTERNATIONAL LOGO]
January 8, 1998 1600 Providence Highway
Walpole, MA 02081
Mr. William Peterson (800) 660-2660
President (508) 660-1122
Horizon Medical Products, Inc. FAX: (508) 660-1819
P.O. Drawer 627
One Horizon Way
Manchester, GA 31816
Dear Bill:
As you know, the commitment of Arrow International, Inc. ("Arrow") to provide
space and services support for the manufacturing operations which Horizon
Medical Products, Inc. ("Horizon") is conducting in our facility located at
1400 Providence Highway, Norwood, Massachusetts (the "Facility") ends on
January 15, 1998. This letter constitutes an agreement under which Arrow will
continue to provide space and support services to Horizon in the Facility for
the period from January 16, 1998 through April 15, 1998. Unless modified by
written amendment to this letter agreement signed by an authorized
representative of both Arrow and Horizon, the following terms shall govern the
continued use of the Facility by Horizon:
1. Horizon shall have the right to use that portion of the Facility (the
"Horizon Space") shown on the drawing attached hereto as Exhibit A for the
period beginning on January 16, 1998 and ending on April 15, 1998. Arrow
shall have the right to continued access to the Facility and to continued
use of those portions of the Facility not designated as the Horizon Space.
2. Horizon shall not have the right to sublease any portion of the Horizon
Space.
3. Horizon shall pay to Arrow, no later than January 22, 1998 (and by the
22nd day of each of the two succeeding months), the sum of $10,000 which
shall constitute rent for the Horizon Space.
4. In addition to the above, Horizon shall pay 70% of the actual monthly
utility charges for the Facility for the period from 1/15/98 through
4/15/98 no later than two weeks from the receipt of copies of the utility
bills from Arrow.
5. Arrow shall have the right to the continued use of that portion of the
Horizon Space currently utilized by Arrow for its present inventory of drug
infusion pumps and related parts, its "curve" room, and its incoming
inspection area.
<PAGE> 2
6. Horizon shall be responsible for all cleaning of the Horizon Space during
the period from January 16, 1998 through April 15, 1998.
7. During the period from January 16, 1998 through April 15, 1998, Horizon
shall be responsible for maintaining and/or repairing any equipment in the
Facility utilized by Horizon and for which such maintenance or repair is
not the responsibility of the Lessor under Arrow's lease agreement for the
Facility.
If the above terms are acceptable to you, please sign and return a copy of this
letter agreement to me prior to January 15, 1998.
Sincerely,
/s/ Bradley J. Enegren
- -------------------------
Bradley J. Enegren
Managing Director
Implantable Drug Delivery Division
Accepted: /s/ [unreadable]
------------------------------
(Title)
President
<PAGE> 3
EXHIBIT A
[PICTURE]
<PAGE> 1
EXHIBIT 10.21
This document will evidence the following agreement between Horizon Medical
Products, Inc. ("Horizon") and ACT Medical, Inc. concerning ACT's development,
manufacture and sale to Horizon of vascular access ports:
1. Representations of Horizon. Horizon represents the following:
a. This agreement has been duly authorized by all necessary corporate
and other action on the part of Horizon.
b. The execution and delivery by Horizon of this agreement, and the
performance by Horizon of its obligations hereunder, do not and will not
infringe or constitute a breach of the charter of by-laws of Horizon or any
other agreement or obligation to which it is a party.
c. The product as specified in the specifications does not and will
not infringe the proprietary or intellectual property rights of any third party.
2. Development. Horizon and ACT will develop and prepare engineering
specifications ("Specifications"), which include drawings, for a "standard"
single titanium vascular access port product ("Product"). From the
specifications, ACT will develop the necessary processes and procedures and
will purchase the necessary fixtures, molds and tooling to manufacture products
for sale to Horizon. The specifications will be finalized and initialed for
approval by Horizon and ACT upon completion. Horizon has delivered to ACT the
current Horizon specifications for the standard vascular access port
(ES-00-0002-Revision D). In the Specifications for the product, the catheter
will have a marking on the catheter.
During the development process, ACT will provide monthly reports to
Horizon concerning the development process. ACT will meet with a representative
of Horizon when requested by Horizon, and travel expenses of ACT employees,
when Horizon expressly requests ACT employees to travel, will be paid by
Horizon.
3. Payment for Development. In consideration for developing the Product
and performing such testing and qualifications as required to confirm that the
ACT
Page 1 of 9 January 13, 1995 Horizon/ACT Agreement
<PAGE> 2
produced product meets the specifications of the existing Horizon 510k or the
then current Horizon specifications as agreed to by ACT, which will enable ACT
to manufacture and sell the Product to Horizon for resale, Horizon will pay to
ACT the amount of $106,500. Such amount will be paid by Horizon as follows:
(a) Consecutive monthly payments beginning in February 1995, payable
first day of each month:
February - $4,000 May - $4,000
March - $4,000 June - $4,000
April - $4,000 July - $4,000
(b) Milestone payments to ACT as follows:
(i) $8,000, payable on April 30, 1995 if all tooling, fixtures
and molds for manufacture of the Product have been purchased, or
completed, or delivered to ACT or applicable vendor by that date, or
payable on such later date upon purchase or completion, or delivery to
ACT or applicable vendor of such tooling, fixtures and molds.
(ii) $10,500, payable on July 31, 1995 if 667 units of saleable
Products have been delivered to Horizon for sale, or payable on such
later date when such units are delivered to Horizon.
(c) The amount of $12.00 will be added to the price of each unit of
Product, including the initial 667 units, delivered to Horizon. This
payment of $12.00 per unit will continue for 667 units per month delivered
in months 7 through 14. The total of all $12 charges will not exceed
$64,000.
(d) If Horizon delays this delivery schedule, the payment to ACT of
$8,000 per month will be made monthly in months 7 through 14.
4. Regulatory Matters. ACT understands that Horizon has a 510k release
from the FDA to market this product. Therefore, ACT will be performing testing
and qualifications as required to confirm that the ACT produced "Product" meets
the Specifications of the existing Horizon 510k or the then current Horizon
specifications as
Page 2 of 9 January 13, 1995 Horizon/ACT Agreement
<PAGE> 3
agreed to by ACT. Any resubmissions or new submissions required to obtain a
510k release or other regulatory approval are not part of this agreement.
At Horizon's request ACT will investigate and analyze all product problems
and complaints arising from use of the Product and will review with Horizon the
results of such investigation and analysis. In the event that the problem is not
related to an ACT manufacturing issue Horizon will compensate ACT for the costs
of this work. Charges will be billed at ACT's standard rates.
5. Manufacture and Sale to Horizon. Act will manufacture and sell
Products to Horizon at the purchase price of $85.00 per unit, plus the $12.00
charge per unit (where applicable) described in paragraph 3 (c) above. Horizon
will place purchase orders from time to time for a minimum of 10,000 units
during the first 24 months after ACT's delivery of the initial 667 units to
Horizon, consisting of 4,000 units in the first 12 months and 6,000 units in the
second 12 months, with purchase orders on a quarterly basis and with a 60 day
lead time. The initial delivery products is for 667 units on July 31, 1995.
6. Term. The term of this agreement is five years, provided Horizon
purchases, in addition to the 10,000 units in the first 24 months after initial
delivery, a minimum of 5,000 units (consisting of all vascular access port
products manufactured by ACT for Horizon) for each of the years three, four, and
five, and the term will expire on December 31, 1999. At the end of three years
after the initial delivery by ACT to Horizon, ACT may renegotiate a price
increase based on actual increases in labor costs, materials or requested design
changes. Horizon may renew the term of this agreement for an additional three
years by (1) giving ACT prior written notice of renewal within 120 days prior to
December 31, 1999 and (2) provided Horizon meets the minimum purchase
requirements of 5,000 units per year consisting of all vascular access port
products manufactured by ACT for Horizon during each year in the initial term
and each year in the renewal term and (3) subject to ACT negotiating a price
increase as described above in this paragraph.
If ACT is unable to manufacture Product that meets the Specifications or if
ACT has committed some other material breach of this agreement, then in any of
such events Horizon may terminate this agreement by written notice to ACT if ACT
does
Page 3 of 9 January 13, 1995 Horizon/ACT Agreement
<PAGE> 4
not cure such breach within sixty (60) days after Horizon's written notice
describing the breach.
If Horizon has committed a material breach of this agreement and does not
cure such breach within sixty (60) days after ACT's written notice describing
the breach, ACT may terminate this agreement by written notice to Horizon. If
Horizon's purchases fall below the minimum quantity of 10,000 during months 1
through 24 after the initial delivery, and 5,000 in subsequent years then ACT
has the right to renegotiate pricing to reflect increased cost of production.
Horizon may terminate this agreement during the term without breach by ACT
by giving ninety (90) days prior written notice to ACT; provided that Horizon
(1) has paid the entire $106,500 described in paragraph 2 above, (2) purchases
all finished goods inventory in ACT's possession when it receives the notice of
termination, and (3) purchases, for an amount equal to ACT's cost, all raw
materials on order (where order cannot be cancelled without cost to ACT), raw
materials on hand, and work in process inventory in ACT's possession when it
receives the notice of termination.
7. Providing Product Information: Ownership. Upon delivery of payment of
the $10,500 to ACT provided for in paragraph 3(b) above, ACT will have available
for review or delivery to Horizon at Horizon's request information describing
the Product and other items developed by ACT specifically for this contract
(including a description of all tooling, fixtures, molds, raw materials and
piece parts used by ACT in manufacturing the product) and for which ACT will be
compensated by payments specified in paragraph 3 above. This will include
Product specifications produced by ACT, quality control information, drawings,
procedures, protocols.
Upon Horizon's payment of the $106,500 to ACT described in paragraph 2
above, legal title and sole ownership to all tooling, fixtures and molds
developed by ACT, and for which ACT has been compensated through the payment
schedule specified in paragraph 3 above, will be transferred and conveyed to
Horizon. ACT will execute appropriate documentation requested by Horizon to
evidence such transfer of title and sole ownership to Horizon, and the title
conveyed by ACT to Horizon will be free of all liens and encumbrances. The
Specifications are and shall remain the sole and exclusive property of Horizon.
During the term of this agreement Horizon will continue to make the molds,
tools, dies, and fixtures freely available to ACT for
Page 4 of 9 January 13, 1995 Horizon/Act Agreement
<PAGE> 5
purposes of manufacturing the Product. ACT will be responsible for normal
maintenance on the molds, tools, dies and fixtures. ACT and Horizon will share
the cost of needed repairs and replacements to the molds, tools, dies and
fixtures on the following basis with discussions between representative of both
parties prior to the expenditure of funds in excess of $500:
<TABLE>
<CAPTION>
Year of Term Horizon's Share ACT's Share
------------ --------------- -----------
<S> <C> <C>
1 20% 80%
2 40% 60%
3 60% 40%
4 80% 20%
5 100% 0%
</TABLE>
Horizon will pay for (at ACT's actual cost) any additional molds, tools,
dies and fixtures required to support Horizon requested changes to the
Specifications.
ACT shall provide to Horizon upon request from time to time the names and
addresses of all vendors and suppliers from whom ACT purchases goods or services
in connection with the manufacture of the Product. Horizon will have the right
to inspect any such vendors from time to time during the term of this agreement.
Upon Horizon's payment of $106,500 under Paragraph 3, and with prior
written notice to ACT, Horizon will have the right to purchase goods and
supplies from such vendors and suppliers utilizing the tooling, fixtures and
molds which are in the possession of such vendors and suppliers and which are
purchased for this agreement, and ACT agrees that it will not interfere with
Horizon's exercise of such rights, and Horizon agrees it will not disrupt flow
of product from such vendors and suppliers.
Upon termination or expiration of this agreement and payment of the
$106,500 to ACT described in paragraph 3 above, at Horizon's request, ACT will
promptly deliver to Horizon all tooling, fixtures and molds used by ACT in the
manufacture of the Product and all information described in the first paragraph
of this paragraph 7. Horizon will pay for costs of transfer of equipment,
materials and information to Horizon.
Page 5 of 9 January 13, 1995 Horizon/ACT Agreement
<PAGE> 6
8. Terms of Payment and Shipping. The terms of payment are net 60 days
from date of invoice for shipments during the 6 months after the initial
delivery of the first 667 units to Horizon and net 45 days for all other
invoices. Products will be shipped and delivered to Horizon FOB Waltham with
Horizon responsible for the expense of shipping and insurance to Horizon. With
each shipment of Products to Horizon, ACT will certify in writing to Horizon
that the Products shipped conform to the Specifications and are free from
defects in materials and workmanship.
9. Product Packaging; Change in Specifications. ACT will be responsible
for shipping all Products in their final packaging as specified in the
Specifications. Each packaged Product shall include the port the required
labeling, patient identification cards, tray and instructions for use. Other
accessories to be included in the package, e.g. introducer and needle, will be
included at an additional charge at ACT's actual cost plus 15%. The
Specifications will designate the introducer to be included.
Horizon will have the right from time to time to request that changes be
made in the Specifications. Implementation of these changes will be subject to
ACT's agreement. The cost for such changes will be negotiated in good faith
between Horizon and ACT and ACT will have no obligation to implement these
changes until agreement on charges has been reached.
10. Horizon's Right to Reject. For a period of 1 year following delivery
to Horizon, Horizon will have the right to reject Products which fail to conform
to the Specifications or which have defects in material or workmanship and to
return such Products to ACT at ACT's expense. In any case Horizon may not reject
any product beyond 60 days past the termination or expiration of this contract.
11. Warranties; Indemnification; Insurance. ACT warrants to Horizon that
on the date of delivery the Products sold to Horizon will conform to the
Specifications and will be free from defects in materials and workmanship and
will be packaged in accordance with the packaging described in the
Specifications.
Horizon agrees to indemnify and hold harmless ACT, its officials, agents,
and employees from any damages (a) arising from or out of or in connection with
any defect in the design of the Product, (b) arising from or out of any
infringement of any proprietary or intellectual property rights of any third
party concerning the product or
Page 6 of 9 January 13, 1995 Horizon/ACT Agreement
<PAGE> 7
(c) any breach by Horizon of any of the representations described above in
paragraph 1.
ACT agrees to defend, indemnify and hold harmless Horizon, its officers,
agents, and employees, from and against any and all claims, losses, damages,
causes of action, suits and liability of every kind, including all expenses of
litigation, court costs and reasonable attorney fees, for injury to or death of
any person or damage to any property, arising from or out of or in connection
with any Product that has defects in materials and workmanship or that does not
conform to the Specifications or any Product that is not packaged in accordance
with the packaging described in the Specifications. The indemnity set forth in
this paragraph shall be available only to the extent such claims, losses,
damages, causes of action, suits, and liabilities have been determined by a
court of competent jurisdiction, subject to no further appeal, to have arisen
out of or in connection with the acts and omissions of ACT set forth above in
this paragraph.
Both Horizon and ACT will continue to maintain the comprehensive general
liability insurance that is presently outstanding for each, including coverage
for Product completed during the term of this agreement. Each party will
include the other as an additional insured under such insurance policy, with
notice provided by the insurance carrier to the other party of any
cancellation, non-renewal or coverage reduction. Either party may request a
certificate of insurance at any time during the term of this agreement
describing such insurance coverage and confirming that it has been named as an
additional insured.
12. Sale of other Port Products. During the term of this agreement, ACT
will not manufacture and sell to others any products using the Specifications,
Horizon's confidential information, or trade secrets developed for this
project. After the expiration or termination of this agreement, ACT will not
use the Specifications to manufacture a vascular access port product for sale
to others.
13. Confidential Information. Information disclosed by one party to the
other party pursuant to this agreement, that is labelled or otherwise
designated as confidential, will be deemed to be confidential. The party that
receives such confidential information will hold all such information in strict
confidence and will use it solely for the purposes for which it is supplied
under this agreement. The receiving
Page 7 of 9 January 13, 1996 Horizon/ACT Agreement
<PAGE> 8
party will not disclose such information other than as provided in this
agreement or for the benefit of any third party. The foregoing restrictions
will not apply to any information which (i) is known to the receiving party
prior to receipt thereof from the disclosing party, (ii) is public knowledge
without disclosure by receiving party hereunder, (iii) is rightfully received
by the receiving party from a third party without restriction on disclosure or
use, or (iv) is independently developed by personnel of the receiving party who
have not had access to or knowledge of the contents of the information
disclosed by the disclosing party; provided that the receiving party can
demonstrate one or more of the events described in this sentence to the
reasonable satisfaction of the disclosing party.
14. Miscellaneous. (a) Neither party will have the right to assign this
agreement, in whole or in part, to any third party without the prior written
consent of a duly authorized officer of the other party. Notwithstanding the
foregoing, either party may freely assign this agreement to any entity acquiring
all or substantially all of the business of that party. This agreement will be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns.
(b) This agreement constitutes the entire agreement and understanding
between the parties in respect to the subject matter of this agreement and
supersedes all prior agreements, understanding, discussions and communications
between the parties respecting such subject matter. No modification of this
agreement will be effective unless made in writing signed by a duly authorized
officer of each party. The provisions of paragraphs 7, 11, 12, 13 and 14c will
survive the termination of this agreement.
(c) All notices required or permitted under this agreement must be made
in writing and delivered in person or by certified or registered mail, postage
prepaid, addressed to the attention of the president of the other party at the
respective address written below, or such other address as may be given by
notice.
Page 8 of 9 January 13, 1996 Horizon/ACT Agreement
<PAGE> 9
Both parties acknowledge that good and valuable consideration has been
received by both parties in connection with this agreement. ACT's and Horizon's
agreement to all of the provisions set forth in this agreement should be
indicated by signature below.
HORIZON MEDICAL PRODUCTS, INC. ACT MEDICAL, INC.
By: /S/ By: /S/ M J Tolhoff
------------------------------- ------------------------------
Title: Chief Executive Officer Title: President
--------------------------- --------------------------
Address: Seven North Parkway Square Address: 100 Beaver Street
4200 Northside Parkway, NW Waltham, MA 02154
Atlanta, GA 30327
Page 9 of 9 January 13, 1995 Horizon/ACT Agreement
<PAGE> 1
EXHIBIT 10.22
Subject: Horizon Plastic Ports: Terms Sheet
Date: March 18, 1997
The following terms outline the agreement between ACT Medical Inc. and
Horizon Medical Products, Inc. covering the development of manufacturing
capability and subsequent manufacture of Horizon's adult size plastic port.
Term:
Five years from the date of ACT's first shipment of at least 100
ports. It is anticipated that ACT will manufacture the Ports for
three years, at which point Horizon will take over manufacture under
the terms specified below, which include Royalties until the end of
the Term. Under any set of circumstances, the Royalty term will
expire five years and six months from the signing of the final
contract.
Commencement date:
The Term of this agreement will commence as of the date ACT completes
engineering and delivers at least 100 ports to Horizon. ACT expects
to deliver such 100 ports within six months of acceptance of these
Terms by Horizon Medical Products, assuming only that the final
contract is signed by that date. ACT will confirm its ability to
deliver in that time after evaluation of the current manufacturing
process.
Non Recurring Engineering:
ACT will develop the capabilities and procedures to manufacture
Horizon plastic ports at ACT's own expense. ACT will obtain required
regulatory approvals in Horizon's name. Horizon will provide ACT with
information, including existing procedures, and assistance as
required. Horizon will also provide ACT with any existing tooling.
ACT will maintain the records and follow the procedures to conform
with ISO 9000 and CE Mark Standards.
Quantity Commitments:
Horizon will order a minimum of 3,500 ports for shipment within each
contract year until Horizon takes over manufacturing. If Horizon
takes less than the committed quantity, through no fault of ACT other
than delays in shipment due to late payment by Horizon, Horizon will
pay ACT 80% of the transfer price times the difference between the
committed quantity and the quantity actually received. To the extent
that deliveries exceed 4,000 in one contract year, such overages may
be applied to the following year's minimum commitment, subject to the
pricing stipulation below.
<PAGE> 2
Transfer Price:
All ports will be invoiced at $75.00. Within 30 days from the end of
the contract year, ACT will issue a credit for $10.00 times the
number of ports shipped in the proceeding contract year to the extent
that such shipments in that year was above 3,500 but under 4,000, if
any. Within 30 days of the end of the contract year, Horizon will
inform ACT how many of the ports shipped in excess of 4,000 in the
prior contract year, if any, are to be credited to the following
year's commitments. ACT will issue a $10.00 credit for any shipments
in excess of 4,000 which Horizon does not apply to the following
year's commitments.
Introducers:
The ports manufactured by ACT will not include introducers. ACT will
provide up to two days of assistance to Horizon in developing
procedures for adding introducers at Horizon's plant. ACT will charge
for this assistance only its out of pocket costs, such as travel.
Additional time, if any, will be billed at ACT's standard billing
rates.
Horizon Manufacture:
At any time after 18 months from the commencement date, and after
Horizon has accepted and paid for cumulative shipments of at least
8,000 ports, Horizon may take over the manufacture of the ports, with
the payment of a Royalty to ACT. If Horizon has taken less than
10,500 ports at the time it takes over manufacture, it will also pay
ACT the amount of $21.00 times the difference between 10,500 and
number of ports actually received from ACT, with such payment to be
paid in equal monthly installments from the time Horizon takes over
manufacture through month 36 of the contract.
Royalty on Horizon Manufacture:
Horizon will pay ACT 40% of the difference between Horizon's product
cost, and $75.00 for each port sold after Horizon takes over
manufacturing for one year. From the end of that one year until the
end of the contract Term the Royalty will be reduced to 25%.
Horizon's costs shall be calculated using generally accepted
accounting principals, except that Horizon's cost for the purposes of
this calculation shall not exceed ACT's cost at the time of transfer
of manufacturing by more than 20% in the first year after Horizon
takes over manufacturing, and 10% for all later periods. Payments for
the Royalty are to be made quarterly, in arrears, within 30 days of
the end of each calendar quarter.
Payment terms:
Horizon will pay all ACT invoices net in 30 days or less. The final
contract will contain wording to allow extension of terms to 45 days
for the first year.
<PAGE> 3
Other ACT Commitments:
- ACT will manufacture the ports by gluing if it is unable to
validate an ultrasonic welding process, at no additional cost to
Horizon.
- On Horizon taking over manufacturing, ACT will transfer to Horizon
all custom tools and molds owned by ACT for the production of the
Horizon ports, at no charge to Horizon, but that does not include
the machines on which the custom tools and molds are used which
will remain the property of ACT or ACT's suppliers.
- At the point at which Horizon takes over manufacture, ACT will
provide up to 15 man days of engineering. ACT will bill Horizon for
this effort in an amount not to exceed $12,000, plus travel costs,
if the full 15 days is necessary. Time over 15 days, if any, will
be charged at the then standard rates.
Other Horizon Commitments:
- Horizon will provide ACT with all its tools, procedures and methods
used in the current manufacture of the ports.
- Until Horizon takes over manufacturing of the ports, Horizon will
release non-cancelable purchase orders for each calendar quarter's
shipments not less than 45 days prior to the beginning of that
quarter.
- When Horizon takes over manufacturing, Horizon will buy ACT's
inventory of related ports and finished ports at ACT's cost,
including ACT's standard overhead charges.
On acceptance of these terms by both parties, ACT will commence development and
prepare a formal contract in accordance with these terms. ACT will not deliver
any production quantities until the contract is signed by both parties.
Terms accepted:
For ACT Medical, Inc.:
by: /s/ unreadable
---------------------
date: 3/19/97
-------------------
For Horizon Medical Products, Inc.:
by: /s/ unreadable
---------------------
date: 3/29/97
-------------------
<PAGE> 4
AMENDMENT TO NON-COMPETITION
AND CONSULTING AGREEMENT
THIS AMENDMENT, entered into as of July 31, 1997, by and between
HORIZON ACQUISITION CORP., a Georgia corporation ("HAC"), and LANCE J.
BRONNENKANT ("Bronnenkant");
WHEREAS, HAC and Bronnenkant have entered into that certain
Non-Competition and Consulting Agreement dated October 24, 1995 ("Bronnenkant
Agreement");
WHEREAS, the parties desire to amend the Bronnenkant Agreement in the
manner hereinafter provided;
NOW, THEREFORE, in consideration for the agreements contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. The payment schedule under the Bronnenkant Agreement, as described
in paragraph 4 thereof and in Schedule A thereto, is hereby revised, amended,
and restated as follows:
All of the payments payable to Bronnenkant during 1997 under
paragraph 4(a) and Schedule A for non-competition covenants,
totaling the sum of $16,286.04, shall not be payable during 1997,
but shall be payable in full to Bronnenkant on October 31, 2002. All
of the payments payable to Bronnenkant during 1997 under paragraph
4(b) and Schedule A for consulting services, totaling the sum of
$5,428.56, shall not be payable during 1997, but shall be payable in
full to Bronnenkant on October 31, 2002. All of the payments during
1998, 1999, 2000, 2001, and 2002 under Schedule A shall continue to
be paid in accordance with Schedule A. In addition to the amounts
now payable to Bronnenkant on October 31, 2002 for non-competition
covenants and for consulting services, the additional amount of
$7,331.25 for non-competition covenants under paragraph 4(a) and
Schedule A and $2,443.75 for consulting services under paragraph
4(b) and Schedule A shall be payable in full to Bronnenkant on
October 31, 2002.
THE PAYMENT OF THE DEBT EVIDENCED HEREBY IS SUBORDINATED TO ALL DEBTS OF THE
MAKER TO SIRROM CAPITAL CORPORATION AS SET FORTH IN A SUBORDINATION AGREEMENT
DATED OCTOBER 24, 1995.
2. Section 4(c) of the Bronnenkant Agreement shall be deleted in its
entirety.
3. The following provision shall be added to the Bronnenkant Agreement
as paragraph 4(h):
<PAGE> 5
(h) The cumulative amount of $21,714.60 (the
"Deferred Amount") that was originally payable under Sections
4(a) and 4(b) and Schedule A hereto during 1997 has been
deferred and is now payable in full on October 31, 2002. In
addition to all other amounts now payable on October 31, 2002
under Sections 4(a) and 4(b) and Schedule A hereto, the
additional cumulative amount of $9,775.00 (the "Additional
Amount") is now payable in full on October 31, 2002 as
provided above. In determining the "Final Payoff Amount" (as
defined in this paragraph 4) in the event an Acceleration
Event (as defined in this paragraph 4) occurs:
(i) The Deferred Amount shall not be discounted to
present value but shall be payable in full; and
(ii) The Additional Amount shall be reduced to
its prevent value as of the date on which
the Acceleration Event occurs using an
interest rate of eight and one-half percent
(8 1/2 %) in determining such present value.
4. Unless expressly amended herein, all other provisions in the
Bronnenkant Agreement are hereby ratified and confirmed in all respects and
shall continue in full force and effect.
5. This Amendment contains the entire agreement and understanding
between the parties respecting the subject matter hereof and supersedes all
prior and collateral agreements and understandings, regardless of form or
nature, between the parties respecting that subject matter. No extension,
amendment, modification, or supplement to this Amendment will be effective
unless made in writing signed by the parties hereto. This Amendment will be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. This Amendment may be executed in multiple counterparts,
each of which will constitute an original, but all of which together will
constitute one and the same agreement. The validity, construction, and
enforcement of this Amendment and all matters related thereto or in connection
therewith will be governed by the laws of the State of Georgia.
-2-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first set forth above.
ATTEST: HORIZON ACQUISITION CORP.
/s/ [unreadable] By: /s/ [unreadable]
- ----------------------- --------------------------------------
Title: Secretary Title: President
----------------- -----------------------------------
/s/ [unreadable] /s/ Lance J. Bronnenkant
- ----------------------- -----------------------------------------
Witness Lance J. Bronnenkant
-3-
<PAGE> 1
EXHIBIT 10.23
January 17, 1997
Via Fax 404/233-0171
and First Class Mail
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
Seven North Parkway Square
4200 Northside Parkway NW
Atlanta, GA 30327
Re: Letter Agreement 2 to Supply Agreement between CarboMedics, Inc. and
Horizon Medical Products, Inc. dated February 17, 1993, as amended
February 17, 1993, and June 21, 1994; Development Agreement between
CarboMedics, Inc. and Horizon Medical Products, Inc. dated February
17, 1993, as amended February 17, 1993, and the Equity Agreement
between CarboMedics, Inc. and Horizon Medical Products, Inc. dated
February 17, 1993, as amended February 17, 1993 (the "Agreements")
Dear Bill:
The terms of this letter will confirm our recent discussions that it is the
intent of both parties to terminate the above-referenced Supply Agreement and to
have Horizon Medical Products, Inc. ("HMP") manufacture its Triumph-1(TM) family
of vascular ports. HMP will buy a sufficient inventory of ports from CarboMedics
to supply its customers while it starts its manufacturing operation. I believe
the following terms and conditions are the best way to accomplish this
transition:
1. The Transfer Date will be the date upon which CMI ceases manufacture of HMP
product and HMP takes possession of and responsibility for the equipment
listed in Attachment A. The transfer of production from CarboMedics'
facility to HMP's will be deemed to occur at that time. After that date,
CarboMedics will have no obligation to supply product to HMP. The Transfer
Date will be agreed upon by both companies within 30 days of signing this
letter, but the Transfer Date will be no later than September 30, 1997.
However, regardless of the Transfer
<PAGE> 2
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 2
Date agreed to by both parties, the Transfer Date will not occur until HMP
has either purchased at least 23,500 ports from CarboMedics or agreed in
writing to pay to CarboMedics, within 90 days, the additional fees
described in items 2 and 8 of this letter agreement.
2. The "Effective Date" for purposes of the Supply Agreement will be January
1, 1995. HMP will purchase 23,500 units from CarboMedics by the Transfer
Date at the prices and under the terms of the current Supply Agreement. If
HMP fails to purchase 23,500 units by the Transfer Date, HMP will pay to
CarboMedics, within 90 days, the sum of $50 times the difference between
23,500 and the number of units actually purchased by the Transfer Date.
3. HMP must decide how much product to purchase from CarboMedics, by catalog
number. Except as specifically modified by the terms of this letter, all
terms and conditions of the O.E.M. Supply Agreement will be applied to the
purchase of these ports.
4. Because CarboMedics will require additional time to order raw materials and
build the additional volume of ports, HMP must provide CarboMedics with
additional lead time on its purchase orders. CarboMedics must receive all
purchase orders for delivery under the terms of the Supply Agreement by
March 31, 1997. If purchase orders are received after this date,
CarboMedics will use reasonable effort to meet those orders. CarboMedics,
at its sole discretion, may reject any purchase orders which exceed the
23,500 unit limit.
5. CarboMedics may immediately cease to include the "Manufactured by
CarboMedics" label with the ports that it manufactures. Furthermore, HMP
may not use CarboMedics' name on any part of any port, instrument, package
or related device which was not manufactured by CarboMedics. HMP may not
use CarboMedics' name in any way.
6. CarboMedics may decline any requests by HMP to make changes in the
specifications. Since the Transfer Date is near, it is the intent of
CarboMedics to not permit any changes in the product specifications.
However, if CarboMedics consents to such requests, the requirements of
Paragraph 6 of the Supply Agreement will remain in full force and effect.
7. CarboMedics will not accept rejected product after October 31, 1997. All
other provisions in Paragraph 10 will remain in full force and effect.
<PAGE> 3
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 3
8. HMP will pay an additional $20 per unit development cost on each of the
23,500 units manufactured by CarboMedics. As is currently the practice,
HMP will be invoiced for this cost as the units are shipped. If HMP does
not purchase the required 23,500 units by the Transfer Date, HMP will pay
to CarboMedics, within 90 days, the sum of $20 times the difference
between 23,500 and the number of units actually purchased by the Transfer
Date. This payment will be in addition to any payments due under the terms
of item 2 of this letter agreement.
9. To compensate CarboMedics for the equipment and fixtures listed in
Attachment A, for providing documentation and training to HMP personnel,
and for the $20 per unit development fee on the first 14,000 units produced
by HMP, HMP owes CarboMedics an additional fee of $680,000. This fee will
be paid as follows: HMP will pay to CarboMedics the amount of $20 for each
port body that is shipped by the molding vendor to HMP between the
Effective Date and June 30, 1998. If the entire fee is not paid by June 30,
1998, HMP will pay to CarboMedics the amount of $40 for each port body
shipped by the molding vendor to HMP between June 30, 1998 and September
30, 1998. If the entire fee is not paid by September 30, 1998, the
remainder will be due in a single payment on September 30, 1998 regardless
of the number of port bodies shipped or the number of ports manufactured.
All such payments will be made by HMP via Federal Express on the date that
the port bodies are shipped to HMP by the molding vendor. The total amount
paid to CarboMedics will be setoff against HMP's outstanding debt and will
equal $680,000.
10. Since CarboMedics cannot control how the equipment and fixtures listed in
Attachment A are installed or used by HMP nor how HMP actually manufactures
the ports, CarboMedics assumes no liability for the equipment and fixtures
transferred or for the training provided.
11. Once this agreement is signed and the Transfer Date agreed to by both
parties, CarboMedics will immediately make available to HMP all
specifications, procedures and documents specific to the Triumph-1(TM)
port. The equipment listed in Attachment A will be moved from CarboMedics'
facility to HMP's facility upon termination of CarboMedics' obligation to
manufacture product. Transportation of the equipment and fixtures from
CarboMedics' facility to HMP's facility and installation of the equipment
and fixtures in HMP's facility are the responsibility of HMP. CarboMedics
will retain ownership of all equipment listed in Attachment A. HMP will
sign all documentation required by CarboMedics to perfect its security
interest in the equipment. Upon receipt of all monies due under the
Agreements, CarboMedics will transfer ownership of
<PAGE> 4
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 4
those items to HMP. However, until all monies due to CarboMedics under the
Agreements are paid by HMP, CarboMedics will retain ownership of all
equipment listed in Attachment A. If all monies are not paid when due, then
CarboMedics will regain possession of all equipment transferred.
12. HMP hereby authorizes CarboMedics to ship within 30 days of the Transfer
Date, all CarboMedics' usable raw materials, work-in-process and finished
goods inventories, except for those materials purchased by CarboMedics from
Dow-Corning. Raw materials will be purchased at the prices paid by
CarboMedics. Finished goods will be purchased at the prices specified in
the Supply Agreement. The prices for units in work-in-process will be based
on the percent complete times the finished goods price. HMP will also pay
for shipping and insurance fees. CarboMedics will invoice HMP on shipment
for all amounts due and payment will be due within 30 days from the date of
the invoice.
13. CarboMedics will provide limited support to assist HMP to establish its own
manufacturing operation. CarboMedics will have no obligation to provide
assistance beyond the terms specified in this agreement, and will not
participate in any process changes initiated by HMP. The support will be
limited exclusively to the following:
a. Interpretation of CarboMedics' written documentation.
b. Introduction to selected outside vendors.
c. Introduction to currently utilized manufacturing, inspection and
documentation systems.
d. A list of the tools and equipment to be transferred to HMP.
e. A suggested infrastructure that HMP should have in place before
beginning to transfer production to its facility. This infrastructure
will include, at a minimum, the technical personnel required (i.e.,
product engineer, supervisor, etc.) and the facilities required (i.e.,
a qualified cleanroom, etc.).
<PAGE> 5
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 5
f. A limited amount of training for HMP personnel. This training will cover
the procedures, etc. used by CarboMedics to manufacture ports, but will not
cover any changes that HMP may want to implement. The training will be
limited to no more than 3 HMP employees and 1 consultant retained by HMP at
the CarboMedics plant in Austin for no more than 4 weeks. The training will
be started no more than 8 weeks prior to the agreed upon Transfer Date and
will be completed by the agreed upon Transfer Date. During this training,
all expenses incurred by HMP personnel and by the consultant retained by
HMP will be the responsibility of HMP.
14. CarboMedics is responsible for providing the limited amount of training
specified in this document. However, CarboMedics is not responsible for
HMP's ability to produce acceptable parts. Once the equipment and fixtures
listed in Attachment A have been transferred from CarboMedics' facility,
then CarboMedics has fully met its obligation.
15. At HMP's request, CarboMedics may but is not required to provide additional
assistance by sending a limited number of personnel to HMP's facility. HMP
will pay a fee of $150 per man-hour, in increments of 8 man-hours, plus all
related travel and living expenses for this assistance. This assistance may
be terminated immediately by either party. Invoices for these fees will be
prepared weekly, and payment will be due within 30 days of the date of the
invoice.
16. If by September 30, 1998, CarboMedics has received all monies owed under
the Agreements, its equity share in HMP (the "Applicable Percentage"
as defined in the above-referenced equity agreement) will be reduced to 6%
and HMP will be granted an option to purchase such equity at a fair market
price. HMP may exercise this option by delivering a written notice to
CarboMedics. The parties agree to negotiate in good faith to determine the
value of the equity and the terms of payment. If the parties fail to reach
agreement within 90 days after HMP's exercise of the option, CarboMedics
will have no continuing obligation to sell its equity share in the
business.
17. For a period of one year after the Transfer Date, neither party will hire
or attempt to hire any current employee, agent or sales representative of
the other unless the consent of the other party's management has been
obtained in writing prior to any offer of employment.
18. The parties agree that all disputes in any way relating to, arising under,
connected with, or incident to this Agreement, and over which the federal
courts have subject matter jurisdiction, shall be litigated, if at all,
exclusively in
<PAGE> 6
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 6
the United States District Court for the Western District of Texas, Austin
Division, and if necessary, the corresponding appellate courts. The parties
further agree that all disputes in any way relating to, arising under,
connected with or incident to this Agreement, and over which the federal
courts do not have subject matter jurisdiction, shall be litigated, if at
all, exclusively in the Courts of the State of Texas, in Travis County,
and, if necessary, the corresponding appellate courts. The parties also
agree that Texas law exclusively shall govern all terms of this Agreement,
including this paragraph. The parties expressly submit themselves to the
personal jurisdiction of the State of Texas.
If you are agreeable to the terms and conditions of this letter, please
indicate your acceptance by signing below and returning one original for my
records. Please call me if you have any questions.
Very truly yours,
/s/ Charles D. Griffin
Charles D. Griffin
Vice President/General Manager
Operations
Read and Agreed:
HORIZON MEDICAL PRODUCTS, INC.
By: /s/ William E. Peterson
---------------------------
Its: President
-------------------------
Date: 1/27/97
------------------------
<PAGE> 7
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 7
ATTACHMENT A
EQUIPMENT AND DOCUMENTATION TRANSFER LIST
When an "X" is placed in the "DOCUMENTATION" column, CarboMedics will
provide applicable process procedures, specifications, or reports describing
the manner in which CarboMedics performs the process.
When an "X" is placed in the "EQUIPMENT" column, CarboMedics will transfer
the specific equipment listed. Some items are located at vendors.
<TABLE>
<CAPTION>
ITEM OR PROCEDURE DOCUMEN-
DESCRIPTION TATION EQUIPMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
CATHETER
Post-Cure X
Curing oven. The same oven is used
for all operations that refer to an X
oven. Only one oven will be
transferred.
End-Tipping Fixture X
POLYMER COMPONENTS
Double Lumen Molds at Vendor. X
Secondary Operations
Drill Cross Holes X
Mill Glue Slot X
Single Lumen Molds at Vendor X
META COMPONENTS
Beadblast Procedure X
Passivation Procedure X
SEPTUM
Single-Shot Mold (Standard) at Vendor X
Single-Shot Mold (Low Profile) at Vendor X
Multi-Shot Mold (16 parts) at Vendor X
</TABLE>
<PAGE> 8
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 8
<TABLE>
<CAPTION>
ITEM OR PROCEDURE DOCUMEN-
DESCRIPTION TATION EQUIPMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
LOCKING SLEEVE
Turn Inner Diameter and End Radius X
STEM
Single Lumen
Swager X X
Swager Tooling X X
Double Lumen
Crimping Fixture X
Beadblasting X
Pressing Fixture X
NEEDLE
Cleaning Procedure X
ASSEMBLY
Titanium Body/Ring Press Fixture X
Stem Press Fixture X
Suture Hole Fill Process X
(See note at
Curing Oven Catheter
section.)
GLUING
Curing Oven (See note at
Catheter
section.)
Gluing Fixtures X
LEAK TESTING
Leak Tester X
</TABLE>
<PAGE> 9
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 9
<TABLE>
<CAPTION>
ITEM OR PROCEDURE DOCUMEN-
DESCRIPTION TATION EQUIPMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
PACKAGING
Inner Tray Mold at Vendor X
Double Inner Tray Mold at Vendor X
Outer Tray Mold at Vendor X
Tyvek Die at Vendor X
Sealer Dies X
STERILIZATION
Box Die at Vendor X
LABELING
Artwork at Vendor X
Labeling Software X
NOTE: HMP must purchase a license
to any third-party software as well
as computer and printing equipment.
</TABLE>
<PAGE> 10
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 10
ATTACHMENT B
ITEMS THAT CARBOMEDICS WILL NOT TRANSFER
Listed below are capabilities, systems, equipment and knowledge that
CarboMedics will not transfer to HMP. This list is not comprehensive, but it
does include items that CarboMedics currently uses in producing the access
ports
1. Receiving Inspection
Material Analysis
-- Chemical Analysis, including an FTIR
-- Residual Stress Testing
Tensile Testing
Durometer Testing
Dimensional Inspection
Pyrogen Testing
2. Double Lumen Polymer Base Secondary Operations
Drill Cross Holes
-- Small Milling Machine or Drill press
Mill Glue Slot
-- Small Milling Machine
3. Metal Parts Sandblast Cabinet
4. Laser Etcher for Marking Parts
5. Catheter and Strain Relief
Extrusion Dies at Vendor
Dow-Corning is the vendor for this tubing. Due to contractual
agreements, CarboMedics cannot transfer these dies.
HMP will have to establish and qualify another source for silicone
tubing.
6. Secondary Operations on Locking Sleeve
A small lathe will be required to turn the inner diameter and end radius.
7. Ultrasonic Cleaner
An ultrasonic cleaner will be required for:
-- Cleaning plastic components
-- Cleaning needles
-- Metal component passivation
<PAGE> 11
Mr. William E. Peterson, Jr.
Horizon Medical Products, Inc.
January 17, 1997
Page 11
8. Packaging
A package sealer will be required for sealing the Tyvek lids on the
product trays.
CarboMedics will transfer the dies that match the trays, but will not
transfer the sealer itself.
9. Labeling
CarboMedics can transfer the software system. However, CarboMedics will not
provide any third-party software, a computer, or any printing equipment.
10. Microbiology
CarboMedics will not provide any equipment, knowledge or capability to
perform routine sterility testing, pyrogen testing, environment monitoring,
or bioburden testing.
11. Cleanroom Furniture and Equipment
CarboMedics will not provide any cleanroom furniture, fixtures or
equipment.
12. General Systems
CarboMedics will not provide any of the following:
-- Operator training records
-- Customer complaint system
-- Metrology and Calibration system
-- Preventative maintenance system
-- Archives
-- Production and material control
-- Supplier qualifications
-- Microbiology
-- Regulatory
-- Receiving Inspection
-- Shipping
13. Materials Purchased from Dow-Corning
Because of contractual limitations, CarboMedics cannot resell any
components or materials which were purchased from Dow-Corning and which
have not been assembled into finished products. These materials include the
septum material, catheters, strain relief sleeves, and adhesive.
<PAGE> 12
February 17, 1993
Mr. Perry Barrs
CarboMedics, Inc.
1300A East Anderson Lane
Austin, TX 78752-1793
Re: Development Agreement dated February 17, 1993 Between CarboMedics,
Inc. ("CMI") and Horizon Medical Products, Inc. ("Horizon") and
O.E.M. Supply Contract Dated February 17, 1993 Between CMI and Horizon
Dear Perry:
CMI and Horizon have entered into the above-referenced agreements for the
purpose of developing, testing and obtaining FDA 510K approval for five models
of a vascular access port product ("VAPs") and for the manufacture of the VAPs
for sale to Horizon.
As an inducement for its entering into the above-referenced agreements,
Horizon shall have the right to request CMI, pursuant to Section 4 of the
Development Agreement, to develop, test and obtain 510K approval for a VAP model
or models that contain CMI's pyrocarbon coatings for sale to Horizon under the
Supply Contract. Upon such request by Horizon, Horizon and CMI will negotiate in
good faith in order to determine (i) whether any additional development costs
will be payable under the Development Agreement to CMI for such development,
testing and regulatory submission and approval and (ii) the price for such VAP
models under Section 3(a) of the Supply Contract. If the parties fail to reach
agreement on such matters, CMI has no obligation to develop such products for
Horizon unless the parties each agree at some subsequent date. The amount of
development costs payable by Horizon for such development, testing and
regulatory submission and the prices to Horizon for such products will be no
greater than CMI charges to any third party for a similar vascular access port
product with pyrocarbon coating.
If CarboMedics is in agreement with the provisions of this letter, then a
duly authorized officer of CarboMedics should execute this letter as indicated
below.
Sincerely yours,
HORIZON MEDICAL PRODUCTS, INC.
/s/ Marshall B. Hunt
Marshall B. Hunt,
Chief Executive Officer
AGREED TO AND APPROVED:
CARBOMEDICS, INC.
By: /s/
-------------------
Title: President
----------------
<PAGE> 13
O.E.M. SUPPLY CONTRACT
THIS AGREEMENT, executed as of February 17th 1993, by and between
CARBOMEDICS, INC., a corporation organized and existing under the laws of the
State of Delaware, with its principal office located at 1300-A East Anderson
Lane, Austin, Texas 78752 ("CMI"), and HORIZON MEDICAL PRODUCTS, INC., a
corporation organized and existing under the laws of the State of Georgia, with
its principal office located at Seven North Parkway Square, 4200 Northside
Parkway, N.W., Atlanta, Georgia 30327 (hereinafter "Horizon").
1. Recitals and Definitions.
(a) Horizon's Business. Horizon is engaged in the business of selling
medical devices. Horizon owns the "510k's" for the VAPs (as defined below).
(b) CMI's Business. CMI is engaged in the business of manufacturing
mechanical components for medical devices particularly such components coated
with its proprietary Pyrolite and Biolite pyrocarbon.
(c) Vascular Access Port. The term "Vascular Access Port" (hereinafter
"VAP" or "VAPs") means and includes the five VAP models developed and
manufactured by CMI for Horizon according to specifications and drawings owned
by Horizon (the "Specifications") and the Introducer (when ordered by Horizon
for a particular VAP). Each packaged VAP shall include the required needles and
syringes, patient identification cards, tray and FDA required instruction
manual. The Specifications are to be prepared, approved by Horizon and attached
to and made a part of this Agreement as Exhibit A.
(d) Effective Date. The term "Effective Date" means the date that the five
VAP models receive FDA approval but in no event sooner than June 1, 1994, unless
agreed to by the parties. The parties agree to be bound by the terms of this
Agreement as of the date executed.
(e) Development Agreement. The term "Development Agreement" means the
Development Agreement of even date herewith between CMI and Horizon.
(f) Introducer. Horizon will designate in the Specifications the type of
Introducer to be packaged with those VAPs purchased by Horizon from CMI where
Horizon's order specifies "with introducer."
2. Purchase of Goods. Horizon agrees to purchase the minimum quantities
for VAPs from CMI during the term of this Agreement as specified in Section 4
below.
3. Price.
(a) Effective as of the date first above written, CMI agrees to supply
VAPs at the prices set forth in Exhibit B. Notwithstanding
<PAGE> 14
the product mix actually purchased, Horizon agrees that it will
purchase from CMI the minimum quantities described in Section 4 below.
(b) Such prices will be adjusted for inflation one year after the
Effective Date using the previous twelve months to measure the adjustment.
Adjusted prices for each year (commencing with the second year after the
Effective Date) will be the prices for the prior calendar year plus such prices
times an inflation factor equal to the following: (i) 12-month average
percentage change in employment costs for private industry workers (excluding
farmers) for the 12 months ending September 30 as indicated on Table 5 of the
Employment Cost Index published by the Bureau of Labor Statistics of the United
States Department of Labor, plus (ii) 25% of the unadjusted percent change of
Intermediate Material Supplies and Components from Table 1 of the Producer Price
Indexes and Percent Charges by State of Processing ("PPI") published by the
United States Department of Labor, plus (iii) 50% of the unadjusted percent
change of Finished Energy Goods from Table 1 of the PPI. If the Employment Cost
Index and the PPI should cease to be published, any comparable category in a
comparable index to be agreed to in good faith by the parties will be used to
calculate the inflation factor.
(c) If the Employment Cost Index and the PPI are not available when the
first purchase order(s) in any calendar year is issued, the prices for VAPs
purchased under such purchase order(s) will be the prices for the prior calendar
year times the 12-month average percentage change in those costs as of the end
of the second calendar quarter. Such prices will be retroactively adjusted to
reflect the calculation set out in Paragraph 3(b) of this Agreement.
(d) Examples of how the price adjustment provisions in paragraphs (b) and
(c) above work are set forth in Exhibit C attached hereto.
4. Minimum Quantity and Schedule. Horizon will purchase from CMI 17,500
units of VAPs during the first eighteen (18) months following the Effective Date
and 22,500 units of VAPs during month nineteen (19) through month thirty (30)
following the Effective Date. Thereafter, Horizon will furnish to CMI in writing
once each year during the term an annual forecast (showing forecasted quarterly
purchases and annual minimum purchases) for the purchase of VAPs by Horizon. If
Horizon does not purchase at least forty thousand (40,000) units of VAPs from
CMI during such initial thirty (30) months after the Effective Date, Horizon
will pay to CMI within sixty (60) days after such thirty-month period the sum of
$50 times the difference between 40,000 and the number of units of VAPs actually
purchased during such thirty month period; provided, however, that such 40,000
minimum unit purchase requirement shall be deemed to have been satisfied where
Horizon orders from CMI
-2-
<PAGE> 15
during such 30 month period under the procedures in Section 5(a) hereof such
40,000 units and CMI is unable to ship during such 30 month period all of the
units ordered in accordance with Horizon's orders.
5. Ordering Procedure.
(a) Purchase Orders. Sales of VAPs will be made pursuant to purchase
orders issued by Horizon to CMI, specifying weekly delivery schedules by model
and quantity, price extension (based on Exhibit A pricing) and method of
shipment. Horizon will use its best efforts to maintain a uniform weekly
delivery schedule in terms of size and quantity of VAPs ordered. However, the
volume of the initial stocking order may exceed the equal weekly volume. On the
Effective Date, Horizon will issue purchase orders for the first 26 weeks of the
term of this Agreement. Thereafter, beginning 13 weeks after the commencement of
the term of this Agreement, subsequent purchase orders will be issued by Horizon
to CMI at thirteen-week intervals, thirteen weeks in advance. Notwithstanding
the foregoing, Horizon will supply CMI with its estimated volumes for the first
three months of the Agreement 60 days prior to the Effective Date.
(b) Limitations on Quantities Ordered. CMI will manufacture and ship VAPs
sufficient to fill Horizon's orders under Section 5(a) hereof. However, if any
thirteen week order for VAPs increases in number of units more than twenty
percent (20%) over the immediately preceding thirteen week order and if CMI can
manufacture and ship VAPs sufficient to fill Horizon's order up to or exceeding
the 20% increase but is unable to obtain sufficient quantities of raw materials
to fill Horizon's order with respect to some or all of the excess of units over
such 20%, then CMI is not required to fill that portion of Horizon's order for
which CMI is unable to obtain sufficient quantities of raw materials but CMI
will fill and complete such order as and when CMI can obtain such raw materials.
(c) Packaging. CMI will ship the VAPs in its final packaging as specified
in the Specifications. The following will appear only on the inner package for
the VAP: "Manufactured by CarboMedics, Inc."
6. Changes. Horizon will have the right, from time to time, to request
that changes be made in the Specifications for the VAPs as Horizon deems
necessary or desirable. All such requests, however, will be made by written
notice. The revised price (if any) and effective date for all such changes, and
the issue of payment for obsolete inventory resulting from a change in the
Specifications, will be negotiated in good faith between Horizon and CMI.
Notwithstanding such change, Horizon will purchase the VAP model or models
without such change that Horizon has ordered. In addition, if any such change
requires CMI to incur more than
-3-
<PAGE> 16
minimal engineering expenses, Horizon will reimburse CMI for such expenses.
7. Transportation Costs. CMI will ship VAPs to Horizon f.o.b. CMI's
facility.
8. Payment. CMI will invoice Horizon on shipment or completion of
services, as applicable, for all amounts due under this Agreement, including
without limitation amounts due under Sections 10(b) and 14. Each invoice is due
and payable in full at CMI's offices, within 60 days after the date of invoice
for invoices dated during the first six months after the initial sale of VAPs to
Horizon after the Effective Date, within 45 days after the date of invoice for
all invoices dated during the three months immediately following such six month
period, and within 30 days after the date of invoice for all invoices after such
three month period. If Horizon is delinquent in payment of any invoice, CMI may
refuse to ship, require cash in advance, letters of credit or other terms,
without limiting CMI's remedies. Horizon will pay service charges of 1.5 percent
per month or the maximum rate allowed by law, whichever is lower, on all
invoiced amounts due but not paid after the date due.
9. Excusable Delay or Failure to Perform. Neither party will be liable
for a delay in performance of or failure to perform an obligation under this
Agreement (except an obligation to make payment promptly when due), if and to
the extent such delay or failure is attributable to any cause beyond the
reasonable control of such party (the "affected party"). Such causes may include
but are not limited to act of God, act of government (including the Food and
Drug Administration), war or related actions, civil insurrection, riot,
sabotage, strike or other labor difficulties, epidemic, fire, flood, windstorm,
failure of suppliers, subcontractors or carriers, inability to obtain required
materials or qualified labor. The affected party will give prompt notice of the
cause to the other party, and will resume performance with reasonable diligence
upon cessation of the cause of the delay or failure. If the affected party's
performance is suspended or delayed because of the operation of this paragraph,
the term of this agreement will be correspondingly extended. If the suspension
or delay is excusable under this Section, Horizon will purchase from CMI all
VAPs that had been ordered by Horizon under Section 5(a) hereof but had not been
shipped by CMI, if such VAPs are shipped by CMI to Horizon within thirty (30)
days after the cessation of the cause of such delay or failure.
10. Horizon's Right to Reject. For a period of one year following
shipment, Horizon will have the right to reject VAPs which fail to conform to
the agreed Specifications or which have defects in materials or workmanship and
return same to CMI at CMI's expense. However, in conjunction with the rejection
of such VAPs, Horizon has the affirmative responsibility of providing CMI with
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<PAGE> 17
a written, comprehensive description of the basis of the rejection by Horizon of
the VAPs being returned and/or a description of the mode in which the VAPs being
returned fail to meet the Specifications. If CMI, in its reasonable opinion and
confirmed by actual test, finds that the VAPs rejected by Horizon do not meet
Specifications or contain defects in materials or workmanship, CMI will at its
option repair or replace the rejected VAP or issue a credit memo to Horizon for
the cost of the VAPs returned as well as all shipment costs to and from Horizon.
For purposes of this Agreement, Horizon is deemed to have accepted all VAPs
which arc not affirmatively rejected by Horizon within 30 days after the VAP
packaging is opened. If, during any 3 month period, the total number of VAPs
returned by Horizon as non-conforming and subsequently determined to be in fact
conforming to Specifications exceeds 5 percent of the total number of VAPs
delivered to Horizon during the same period, Horizon will pay CMI an additional
handling charge of $50.00 per VAP for each in specification VAP in excess of
that 5 percent level (subject to increase by a percentage equal to the average
percent of increase in prices for the VAPs shown or Exhibit B as amended from
time to time) and will pay shipping costs on such VAPs.
11. Warranties. CMI warrants to Horizon that the VAPs sold hereunder will
conform to the Specifications and will be free from defects in materials and
workmanship and will be packaged in accordance with the packaging described in
the Specifications. Except for such warranties, CMI makes no other warranties of
any kind, express or implied, concerning the performance of the VAPs furnished
pursuant to this Agreement. Specifically, CMI MAKES NO WARRANTY OF FITNESS FOR
THE PURPOSE INTENDED AND NO WARRANTY OF MERCHANTABILITY. Except as provided in
Section 12 below, CMI's sole responsibility for such warranties will be, at
CMI's option, to repair, replace or issue credit respecting any defective VAPs
provided any such VAP is returned by Horizon to CMI in the manner provided for
in Section 10 hereof. Except as provided in Section 12 below, this paragraph
concerning warranties states CMI's entire obligation and the sole and exclusive
remedy of Horizon and any third party claiming under Horizon respecting the VAPs
or any defects therein.
12. Limitation of Liability and Indemnity.
(a) Limitation on CMI's Responsibility. Except as provided in paragraph
(c) below, CMI will not be liable or responsible for direct, incidental,
consequential and/or special damages arising out of use or implantation of VAPs
supplied hereunder including, but not limited to, damage to property of Horizon
or of other persons, or for injury to or death of any person.
(b) Horizon's Responsibility. CMI will have no control over the uses to
which the VAPs will be devoted, or over the circumstances of their use, storage,
handling, distribution or
-5-
<PAGE> 18
application. Except for the warranty responsibility described in Section 11
above and the indemnification by CMI provided in paragraph (c) below, Horizon
will assume full responsibility with respect to the use of any VAP or
information furnished by Horizon hereunder, and CMI assumes no liabilities of
any kind with respect to the use by Horizon or any third party of such VAPs or
information.
(c) Indemnification.
CMI agrees, at its own expense, to defend, indemnify and hold harmless
Horizon, its officers, agents and employees from and against any and all claims,
losses, damages, causes of action, suits and liability of every kind, including
all expenses of litigation, court costs and reasonable attorney's fees, for
injury to or death of any person or for damage to any property, arising from or
out of or in connection with the failure of any VAP to conform to the
Specifications or for any VAP that is not free from defects in material or
workmanship.
Horizon agrees, at its own expense, to defend, indemnify, and hold harmless
CMI, its officers, agents and employees from and against any and all claims,
losses, damages, causes of action, suits and liability of every kind, including
all expenses of litigation, court costs and reasonable attorney's fees, for
injury to or death of any person or for damage to any property, arising from or
out of or in connection with Horizon's marketing, sale or distribution of any
VAP or Horizon's participation in the implantation of any VAP or any defect in
the Specifications, including any defect in the Specifications where the
negligence of CMI or its employees or agents caused such defect; provided that
any supplier that furnished materials or products to CMI for the VAPs shall not
be entitled to indemnification under this paragraph.
Horizon further agrees, at its own expense, to defend, indemnify and hold
harmless CMI from and against any and all claims, losses, damages, causes of
action, suits and liability of every kind, including all expenses of litigation,
court costs, and reasonable attorney's fees, based on a claim alleging that the
VAPs or any of the VAPs infringe upon a patent of any third party.
Any party seeking indemnification hereunder shall notify the other party
promptly of any claim or suit involving an indemnification claim under the
provisions of this paragraph. The notifying party shall grant the indemnifying
party a reasonable opportunity to control the defense of each such claim and
related settlement negotiations, and, provided the indemnifying party is taking
reasonable steps to defend or settle a claim, the notifying party agrees not to
settle such matter without the indemnifying party's prior written consent. If
the indemnifying party is taking reasonable steps to defend or settle a claim
and if the
-6-
<PAGE> 19
indemnifying party has obtained the notifying party's prior written consent
(which consent shall not be unreasonably or untimely withheld) to the attorneys
employed by the indemnifying party with respect to such claim, then if the
notifying party retains counsel regarding such claim, the notifying party will
bear the expense of such counsel and will not seek reimbursement under this
paragraph from the indemnifying party for such expense.
(d) General Liability/Product Liability Insurance. As of the Effective
Date, CMI will continue to maintain comprehensive general liability insurance in
the amount of $5,000,000, including coverage for products and completed
operations, written on an occurrence basis, during the term of this Agreement.
The liability insurance so maintained will include Horizon as an additional
insured, with respect to bodily injury or property damage liabilities assumed
under this contract, and contain an endorsement to endeavor to provide Horizon
with at least 30 days prior written notice of any cancellation, non-renewal, or
coverage reduction. This insurance coverage will survive termination of this
Agreement and will, in any event, provide coverage during the period any VAPs
supplied by CMI under the terms of this Agreement remain implanted in any living
patient. Horizon may demand a certificate of insurance at any time during the
period CMI is required to maintain coverage thereafter. In the event CMI fails
to provide Horizon with evidence of the liability insurance required to be
maintained pursuant to the provisions of this paragraph and the failure
continues for 10 days following CMI's receipt of a notice advising CMI of its
failure to provide such evidence, then at any time thereafter during the
pendency of such failure, Horizon will have the option in its sole discretion to
terminate this Agreement or to purchase the insurance at CMI's expense.
(e) General Liability/Product Liability Insurance. As of the Effective
Date, Horizon will continue to maintain comprehensive general liability
insurance in the amount of $1,000,000, including coverage for products and
completed operations, written on an occurrence basis, during the term of this
Agreement. The liability insurance so maintained will include CMI as an
additional insured, with respect to bodily injury or property damage liabilities
assumed under this contract, and contain an endorsement to endeavor to provide
CMI with at least 30 days prior written notice of any cancellation, non-renewal,
or coverage reduction. This insurance coverage will survive termination of this
Agreement and will, in any event, provide coverage during the period any VAPs
supplied by Horizon under the terms of this Agreement remain implanted in any
living patient. CMI may demand a certificate of insurance at any time during the
term of this Agreement and during the period Horizon is required to maintain
coverage thereafter. In the event Horizon fails to provide CMI with evidence of
the liability insurance required to be maintained pursuant to the provisions of
this paragraph and the failure continues for 10 days following Horizon's receipt
of a notice advising Horizon of its failure to
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<PAGE> 20
provide such evidence, then at any time thereafter during the pendency of such
failure, CMI will have the option in its sole discretion to terminate this
Agreement or to purchase the insurance at Horizon's expense.
13. Confidential or Proprietary Information of CMI. Any information to be
disclosed by CMI to Horizon pursuant to this Agreement, and which is deemed by
CMI to constitute confidential or proprietary information must be disclosed in
writing and conspicuously labeled as confidential information or with words of
similar impact. Subject to paragraph 14(d) below, any such confidential
information which is initially disclosed orally must be noted at the outset by
CMI as confidential information, and must be reduced to writing and submitted to
Horizon within 15 business days after the original oral disclosure.
All information, inventions and improvements relating to pyrocarbon or
coatings developed by CMI will be the property of CMI.
Horizon will hold all such information in strict confidence and will use it
solely for the purposes for which it is supplied under this Agreement. Horizon
will not disclose such information to any third party or use same for the
benefit of any third party. The foregoing restrictions will not apply to any
information which
(i) is not disclosed and labeled as provided in the first paragraph of this
Section (except orally disclosed information for the first 15 business days
thereafter, pending the submission of same in writing) or
(ii) known to Horizon prior to receipt thereof from CMI or
(iii) of public knowledge without breach by Horizon of its obligations
hereunder or
(iv) rightfully received by Horizon from a third party without restriction
on disclosure or use or
(v) disclosed by CMI to a third party without restriction on disclosure or
use or
(vi) independently developed by personnel of Horizon who have not had
access to or knowledge of the contents of CMI's disclosure or
(vii) disclosed after receiving the written consent therefor of an
authorized officer of CMI;
provided that in events (ii), (iii), (iv), (v), (vi) and (vii), Horizon can
demonstrate same to the reasonable satisfaction of CMI.
-8-
<PAGE> 21
The restrictions on use and disclosure of information under this Section
will survive the expiration or termination of this Agreement.
13A. Confidential or Proprietary Information of Horizon. Any information to
be disclosed by Horizon to CMI pursuant to this Agreement, and which is deemed
by Horizon to constitute confidential or proprietary information must be
disclosed in writing and conspicuously labelled as confidential information or
with words of similar impact. Subject to paragraph 14(d) below, any such
confidential information which is initially disclosed orally must be noted at
the outset by Horizon as confidential information, and must be reduced in
writing and submitted to CMI within 15 business days after the original oral
disclosure.
CMI will hold all such information in strict confidence and will use it
solely for the purposes for which it is supplied under this Agreement. CMI will
not disclose such information to any third party or use same for the benefit of
any third party. The foregoing restrictions will not apply to any information
which
(i) is not disclosed and labelled as provided in the first paragraph of
this section (except orally disclosed information for the first fifteen
business days thereafter, pending the submission of same in writing) or
(ii) known to CMI prior to receipt thereof from Horizon or
(iii) of public knowledge without breach by CMI of its obligations
hereunder or
(iv) rightfully received by CMI from a third party without restriction on
disclosure or use or
(v) disclosed by Horizon to a third party without restriction on
disclosure or use or
(vi) independently developed by personnel of CMI who have not had access to
or knowledge of the contents of Horizon's disclosure or
(vii) disclosed after receiving the written consent therefor of an
authorized officer of Horizon;
provided that in the events (ii), (iii), (iv), (v), (vi) and (vii), CMI can
demonstrate same to the reasonable satisfaction of Horizon.
The restrictions on use and disclosures of information under this Section
will survive the expiration or termination of this
-9-
<PAGE> 22
Agreement.
14. Termination. This Agreement will become effective on the date first
above written and, unless earlier terminated as provided in this Agreement, will
continue in effect for a term of 10 years from the Effective Date, at the end of
which this Agreement will automatically renew for another additional term of 5
years unless either party gives the other written notice 90 days before
expiration. However, the obligation to purchase the minimum quantities described
in paragraph 4 will not begin until the Effective Date.
(a) CMI may terminate this Agreement immediately if Horizon infringes any
patent of CMI by making or having made any product or using any method covered
by such patent in or in preparation for commercial sale of vascular access
ports. CMI may terminate this Agreement upon 90 days written notice to Horizon
if Horizon fails to make any payment promptly when due or if Horizon is in
default of any of its material obligations under this Agreement, and such
default in either of such cases is not cured within 90 days after Horizon
receives notice. CMI's remedies will not be deemed exclusive, but are in
addition to any and all other remedies available at law or under this Agreement.
(b) Horizon may terminate this Agreement upon 90 days written notice to CMI
if CMI defaults on any of its material obligations hereunder and such default is
not cured within 90 days after CMI receives notice. Horizon's remedies will not
be deemed exclusive, but are in addition to any and all other remedies available
at law or under this Agreement.
(c) If Horizon terminates this Agreement for any reason other than the
default of CMI, Horizon will purchase all VAPs conforming to the Specifications
in CMI's inventory at the time of such termination (both completed inventory and
inventory when completed from work-in-process and raw materials existing at the
time of such notice of termination) but not exceeding the then current orders of
Horizon under the provisions of Section 5(a) hereof. The obligations of this
paragraph 14(c) will be in addition to and not in lieu of CMI's other legal,
contractual and equitable remedies, if any.
(d) Sections 8, 10, 11, 12, 13 and 13A will survive termination or
expiration of this Agreement and remain in effect for the respective periods
specified therein, or, if no period is specified, for a period which is
reasonable in the circumstances.
-10-
<PAGE> 23
15. Quality Assurance.
CMI's Quality Assurance Manual establishes the quality control system to be
employed throughout the performance of this Agreement. A copy of this
manual--with CMI's proprietary information, if any, deleted--will be made
available to Horizon.
16. Assignment. Neither party will have the right to assign this Agreement,
in whole or in part, to any third party without the prior written consent of a
duly authorized officer of the other party, which consent will not be
unreasonably withheld. An attempted assignment without consent will be grounds
for termination of this Agreement by such other party, without thereby affecting
any rights or remedies it may have under this Agreement or at law.
Notwithstanding the foregoing, CMI may freely assign this Agreement to any
company controlling, controlled by or under common control with CMI or
succeeding to the entire business of CMI. Notwithstanding the above, Horizon may
freely assign this Agreement to any entity succeeding to the entire VAP business
of Horizon. This Agreement will be binding upon and inure to the benefit of the
parties and their successors and permitted assigns.
17. General.
(a) Waivers. No waiver of any right or remedy hereunder will be effective
unless based upon a writing signed by the party against whom it is sought to be
enforced.
(b) Notices. All notices required or permitted under this Agreement must be
made in writing and delivered in person or by certified or registered mail,
postage prepaid, addressed to the attention of the President of the other party
at the respective address first written above, or such other address as may be
given by notice.
(c) Severability. If any provision of this Agreement is declared invalid or
unenforceable by a court of competent jurisdiction, such provision will be
severed from this Agreement and the remaining provisions will be unaffected
thereby. The parties will promptly meet and negotiate a substitute provision
meeting as closely as possible the intent of the invalid or unenforceable
provision and, with reasonable precision, avoiding the defects of the original
provision.
(d) Entire Agreement. Except for the Development Agreement and Equity
Agreement of even date herewith, this Agreement constitutes the entire agreement
and understanding between the parties in respect of the subject matter of this
Agreement and supersedes all prior agreements, understandings, discussions and
communications between the parties respecting such subject matter. No
modification of this Agreement will be effective unless made in writing signed
by a duly authorized officer of each party, except
-11-
<PAGE> 24
as otherwise expressly permitted herein. Nothing in this Agreement will limit
the scope of subsequent written agreements, signed by both parties, related to
nondisclosure of confidential information. In the event of a conflict between
this Agreement and the terms and conditions contained in the Specifications or
in Horizon's purchase orders, the terms of this Agreement will control.
(e) Governing Law. This Agreement has been entered into under the laws of
the State of Texas and will be governed by and construed in accordance with
those laws.
(f) Sale of Port Products to Third Parties. CMI will not sell the VAP
products (as described in the Specifications) to any other entity.
Executed by the parties as of the day and year first written above.
HORIZON MEDICAL PRODUCTS, INC.
By: /s/ Marshall B. Hunt
-------------------------------
Typed Name: /s/ Marshall B. Hunt
------------------------
Title: Chief Executive Officer
----------------------------
CARBOMEDICS, INC.
By: /s/ Terry Marlatt
-------------------------------
Typed Name: Terry Marlatt
-----------------------
Title: President
----------------------------
-12-
<PAGE> 25
EXHIBIT A
TO
O.E.M. SUPPLY CONTRACT
The specifications are to be prepared, approved by Horizon Medical
Products, Inc. and set forth below in this Exhibit A.
<PAGE> 26
EXHIBIT B
TO
O.E.M. SUPPLY CONTRACT
<TABLE>
<CAPTION>
Product Introducer Price
------- ---------- -----
<S> <C> <C>
Single Lumen Titanium Without $135
detached
pre-attached
Single Lumen Titanium With $155
detached
pre-attached
Double Lumen Titanium Without $200
detached
pre-attached
Double Lumen Titanium With $220
detached
pre-attached
Pediatric Single Lumen Titanium Without $140
detached
pre-attached
Pediatric Single Lumen Titanium With $160
detached
pre-attached
Single Lumen Polysulphone Without $120
detached
pre-attached
Single Lumen Polysulphone With $140
detached
pre-attached
Double Lumen Polysulphone Without $175
detached
pre-attached
Double Lumen Polysulphone With $195
detached
pre-attached
</TABLE>
<PAGE> 27
Sample Calculation for Determining the Annual Price Adjustment for Vascular
Access Ports (VAPS)
For the purpose of this example, the annual period ends in June 1992.
Assume the price of the VAP was $175 for the period 7/91 through 6/92.
Employment Cost Index for Private Industry Workers, table 5, for the 12 month
period ending 6/92 shows the percent change was 3.7%.
Producer Price Index Values from table 1 are:
25% of the unadjusted percent change of Intermediate Material
Supplies and Components = 25% x 0.9% = 0.225%.
50% of the unadjusted percent change of Finished Energy Goods
= 50% x 3.1% = 1.55%.
The total adjustment would then be 3.7% + .225% + 1.55% = 5.475%. To calculate
the new price, multiply 1.05475 x $175 = $184.58.
This price would be effective beginning 7/92 through 6/93.
EXHIBIT C
to
O.E.M. SUPPLY CONTRACT
<PAGE> 28
Table 5. COMPENSATION (NOT SEASONALLY ADJUSTED): Employment Cost Index for total
compensation, private industry workers, by industry and occupational
group
<TABLE>
<CAPTION>
Percent Changes for
Series Indexes ---------------------------------------------
(June 1989 = 100) 3 Months Ended 12 Months Ended
--------------------- --------------------- ---------------------
Jun. Mar. Jun. Jun. Mar. Jun. Jun. Mar. Jun.
1991 1992 1992 1991 1992 1992 1991 1992 1992
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Private industry workers ................................... 109.8 113.1 113.9 1.2 1.3 0.7 4.4 4.2 3.7
Excluding sales ..................................... 109.8 113.3 114.1 1.1 1.2 .7 4.5 4.3 3.9
White-collar occupations ................................ 110.3 113.4 114.2 1.2 1.1 .7 4.5 4.0 3.5
Excluding sales ..................................... 110.4 113.8 114.6 1.1 1.0 .7 4.7 4.2 3.8
Professional specialty and technical .................. 111.1 115.3 116.4 .9 1.2 1.0 5.0 4.7 4.8
Executive, administrative, and managerial ............. 110.3 112.7 113.1 1.3 .4 .4 4.7 3.5 2.5
Sales ................................................. 109.8 111.6 112.2 1.7 1.8 .5 4.0 3.3 2.2
Administrative support, including clerical ............ 109.9 113.6 114.4 1.2 1.5 .7 4.4 4.6 4.1
Blue-collar occupations ................................. 109.0 112.5 113.4 1.0 1.4 .8 4.1 4.3 4.0
Precision production, craft, and repair ............... 109.2 112.2 113.1 1.1 1.1 .8 4.3 3.9 3.6
Machine operators, assemblers,
and inspectors .................................... 109.4 113.9 114.6 1.0 2.1 .6 4.2 5.2 4.8
Transportation and material moving .................... 107.6 110.4 111.4 1.2 1.3 .9 3.2 3.9 3.5
Handlers, equipment cleaners,
helpers, and laborers .............................. 109.3 112.6 113.4 1.1 1.1 .7 4.4 4.2 3.8
Service occupations ..................................... 109.9 113.5 114.2 1.5 1.0 .6 4.8 4.8 3.9
Production and nonsupervisory
occupations(4) ....................................... 109.6 113.0 113.8 1.1 1.3 .7 4.3 4.2 3.8
Goods-producing industries(1) .............................. 109.8 113.5 114.3 1.2 1.4 .7 4.4 4.6 4.1
Excluding sales occupations ......................... 109.8 113.4 114.1 1.3 1.4 .6 4.5 4.6 3.9
White-collar occupations .............................. 110.1 113.6 114.5 1.2 1.2 .8 4.6 4.4 4.0
Excluding sales ..................................... 110.0 113.2 113.9 1.4 .9 .6 4.6 4.3 3.5
Blue-collar occupations ............................... 109.7 113.4 114.1 1.2 1.6 .6 4.4 4.6 4.0
Service occupations ................................... 109.3 113.8 115.5 1.3 1.5 1.5 4.7 5.5 5.7
Construction ............................................ 108.5 110.6 111.7 1.0 .6 1.0 4.0 3.0 2.9
Manufacturing ........................................... 110.0 114.0 114.7 1.3 1.6 .6 4.5 5.0 4.3
White-collar occupations ............................ 110.2 113.6 114.6 1.3 1.1 .9 4.7 4.4 4.0
Excluding sales ................................... 109.9 113.0 113.8 1.5 .7 .7 4.6 4.3 3.5
Blue-collar occupations ............................. 109.8 114.2 114.8 1.2 2.0 .5 4.4 5.3 4.6
Service occupations ................................. 109.2 113.9 115.4 1.3 1.6 1.3 4.5 5.7 5.7
Durables .............................................. 109.9 114.1 114.8 1.3 1.8 .6 4.6 5.2 4.5
Nondurables ........................................... 110.1 113.8 114.7 1.2 1.3 .8 4.4 4.6 4.2
----- ----- ----- ----- ----- ----- ----- ----- -----
</TABLE>
<PAGE> 29
Table 1. Producer price indexes and percentage changes by stage of processing
(1982 = 100)
<TABLE>
<CAPTION>
Unadjusted
percent
Relative change to Seasonally adjusted
Grouping importance Unadjusted index June 1992 from: percent change from:
----------------------- --------------- -------------------------
Dec. Feb. May June June May Mar. to Apr. to May to
1991(1) 1992(2) 1992(2) 1992(2) 1991 1992 Apr. May June
- ----------------------------------------------------- ------- ------- ------- ------- ------ ------- ------- ------- ------
<S> <C><C> <C> <C> <C> <C> <C> <C> <C> <C>
Finished goods ...................................... 100.000 122.1 123.1 123.7 1.5 0.5 0.2 0.4 0.2
Finished consumer goods ........................... 75.255 120.3 121.6 122.5 1.5 .7 .2 .3 .4
Finished consumer foods ......................... 21.933 123.4 122.9 123.0 -1.8 .1 -.3 -.4 .2
Crude ......................................... 1.301 118.7 98.6 96.0 -26.3 -2.6 -6.8 -10.7 1.9
Processed ..................................... 20.632 123.7 124.7 125.0 .2 .2 .2 .2 .2
Finished consumer goods, excluding foods ........ 53.322 118.8 120.7 122.0 2.9 1.1 .3 .7 .4
Nondurable goods less foods ................... 36.041 114.6 117.4 119.2 3.5 1.5 .5 1.0 .7
Durable goods ................................. 17.281 125.5 125.5 125.4 1.9 -.1 .2 -.1 -.1
Capital equipment ................................. 24.745 128.7 129.0 128.9 1.9 -.1 .2 .5 -.1
Manufacturing industries ........................ 5.935 129.0 129.2 129.1 1.0 -.1 .1 .2 -.1
Nonmanufacturing industries ..................... 18.810 123.5 128.9 128.3 2.2 -.1 .2 .7 -.1
Intermediate materials, supplies, and components .... 100.000 113.5 114.4 115.3 .9 .8 .1 .4 .7
Materials and components for manufacturing ........ 49.257 117.4 117.3 118.0 .2 .2 .1 .2 .3
Materials for food manufacturing ................ 3.349 113.5 114.6 115.3 -.1 .6 0 .2 .4
Materials for nondurable manufacturing .......... 15.250 114.6 115.0 115.6 -.3 .5 .2 .3 .9
Materials for durable manufacturing ............. 11.089 116.6 117.3 117.4 .2 .1 -.2 .2 .4
Components for manufacturing(3) ................. 19.569 121.6 121.7 121.7 .5 0 0 0 0
Materials and components for construction ......... 13.462 125.9 126.9 126.6 1.1 -.2 0 0 0
Processed fuels and lubricants .................... 13.550 80.6 83.6 87.7 3.2 4.9 .6 2.4 3.1
Manufacturing industries ........................ 5.573 83.7 86.6 90.1 2.2 4.0 .6 2.0 2.2
Nonmanufacturing industries ..................... 7.977 78.5 81.6 86.1 3.7 5.5 .6 2.8 3.8
Containers ........................................ 3.563 127.7 127.7 127.6 -.1 -.1 0 0 0
Supplies .......................................... 20.168 122.1 122.6 122.7 1.1 .1 .1 .1 .1
Manufacturing industries ........................ 7.436 125.0 125.6 125.7 1.0 .1 .2 .2 .2
Nonmanufacturing industries ..................... 12.731 120.7 121.1 121.1 1.0 0 0 0 0
Feeds ......................................... 1.343 103.6 103.7 104.4 4.3 .7 -1.1 -.7 .4
Other supplies ................................ 11.388 123.1 123.6 123.5 .7 -.1 .1 0 .1
Crude materials for further processing .............. 100.000 98.6 101.0 101.5 1.7 .5 .5 1.4 1.3
Foodstuffs and feedstuffs ......................... 41.228 106.0 108.2 107.3 -.1 -.8 -1.4 .9 .8
Nonfood materials ................................. 38.772 90.1 92.6 93.9 2.6 1.4 1.3 2.0 1.6
Nonfood materials except fuel(4) ................ 38.295 89.7 95.1 98.3 6.9 3.9 6.9 1.4 5.2
Manufacturing(4) .............................. 34.018 83.7 89.0 92.3 6.7 4.3 4.7 2.9 4.5
Construction .................................. 4.278 155.5 160.5 161.1 9.3 .5 1.3 1.3 .6
Crude fuel(3)(5) ................................ 20.476 82.6 79.7 76.8 -6.9 -3.6 -3.2 .5 -3.6
Manufacturing industries(3) ................... 4.374 82.0 79.5 76.9 -6.3 -3.3 -2.7 .5 -3.3
Nonmanufacturing industries(3) ................ 16.102 83.9 80.7 77.5 -7.0 -3.6 -3.2 .4 -3.6
Special groupings
Finished goods, excluding foods .....................(6) 78.067 121.6 123.0 123.9 2.6 .7 .2 .7 .2
Intermediate materials less foods and feeds .........(7) 95.308 113.6 114.6 115.5 .9 .8 .4 .4 .7
Intermediate foods and feeds ........................(7) 4.692 110.7 111.4 112.2 1.3 .7 -.3 -.1 .4
Crude materials less agricultural products(4)(8) ....(9) 57.096 89.7 92.2 93.5 3.2 1.4 2.0 2.0 1.5
Finished energy goods ...............................(6) 13.831 74.3 77.6 80.8 3.1 4.1 .5 .9 2.3
Finished goods less energy ..........................(6) 86.169 130.6 131.0 131.0 1.3 0 .2 .3 -.1
Finished consumer goods less energy .................(6) 61.424 131.3 131.7 131.7 1.1 0 .2 .2 -.9
Finished goods less foods and energy ................(6) 64.236 133.5 134.2 134.1 2.5 -.1 .4 .6 -.1
Finished consumer goods less foods and energy .......(6) 39.491 136.4 137.3 137.3 3.0 0 .4 .7 -.3
Consumer nondurable goods less foods and energy .....(6) 22.210 144.4 146.1 146.2 3.9 .1 .6 1.1 -.4
Intermediate energy goods ...........................(7) 13.654 80.4 83.4 87.4 3.1 4.8 .5 2.4 3.1
Intermediate materials less energy ..................(7) 86.346 120.7 121.2 121.4 .6 .2 0 .1 .2
Intermediate materials less foods and energy ........(7) 81.654 121.4 121.9 121.9 .4 0 0 .1 .2
Crude energy materials(3)(4) ........................(9) 40.028 75.5 77.4 79.2 2.7 2.3 2.7 2.5 2.3
Crude materials less energy .........................(9) 59.972 110.5 113.2 112.4 .4 -.7 -.9 .8 .5
Crude nonfood materials less energy(5) ..............(9) 18.744 125.2 129.2 128.8 1.6 -.3 .2 .9 .2
------- ------- ------- ------- ------ ------- ------- ------- ------
</TABLE>
- --------------------
(1) Comprehensive relative importance figures are computed once each year
in December.
(2) Data for Feb. 1992 have been revised to reflect the availability of
late reports and corrections by respondents. All data are subject to
revision 4 months after original publication.
(3) Not seasonally adjusted.
(4) Includes crude petroleum.
(5) Excludes crude petroleum.
(6) Percent of total finished goods.
(7) Percent of total intermediate materials.
(8) Formerly titled "Crude materials for further processing, excluding
crude foodstuffs and feedstuffs, plant and animal fibers, oilseeds,
and leaf tobacco."
(9) Percent of total crude materials.
<PAGE> 30
DEVELOPMENT AGREEMENT
THIS AGREEMENT made as of February 17th, 1993 by and between CARBOMEDICS,
INC., a Delaware corporation, having a place of business at 1300 East Anderson
Lane, Austin, Texas 78752 (hereinafter referred to as "CMI"), and HORIZON
MEDICAL PRODUCTS, INC., a Georgia corporation, with a place of business at
Seven North Parkway Square, 4200 Northside Parkway N.W., Atlanta, Georgia 30327
("Horizon").
WHEREAS CMI desires to develop and manufacture a vascular access port (the
"VAP") upon the terms and conditions set forth herein and in the OEM Supply
Contract of even date herewith between CMI and Horizon (the "Supply Contract")
and
WHEREAS Horizon desires to complete testing, design and development and
have the VAP approved and manufactured for commercial production and for sale
by Horizon and
WHEREAS CMI is unwilling to incur the expense of such research and
development without the additional consideration of a long-term supply contract
to manufacture the VAP in commercial quantities,
NOW, THEREFORE, in consideration of the premises and in reliance upon the
mutual covenants and agreements hereinafter set forth, the parties agree as
follows:
1. Purposes of Agreement. The purpose of this Agreement is to establish
a program and schedule to complete the design, testing and FDA approval of five
models of the VAP, so that commercial distribution can begin (hereinafter
referred to as the "Program").
2. Program Schedule. Work on the Program will be scheduled for
completion as set forth in the schedule in Exhibit A attached to and made part
of this Agreement (the "Program Schedule"). CMI will use all reasonable efforts
to meet the deadlines set forth in the Program Schedule but does not guaranty
that such deadlines can be met because the Program Schedule assumes that there
are no unforeseen technical difficulties and that all current assumptions
related to the design of the VAP are proven correct. The Program Schedule does
not allow for redesigns or reiteration of any step. For purposes of this
section 2, the term "unforeseen technical difficulties" will include but not be
limited to difficulties such as failure in any FDA- or CMI-recommended test.
1
<PAGE> 31
3. Development Costs.
3.1 Payments. Horizon will pay CMI for the development work performed
under this Agreement according to the following schedule:
3.1.1 $15,000 upon execution of this Agreement.
3.1.2 $7941.17 per month for 17 months beginning 30 days after execution
of this Agreement.
3.1.3 An additional $20 per VAP for the first 37,500 VAPs sold to Horizon
after the Effective Date of the Supply Agreement.
3.1.4 If, through no fault of CMI, 510K approval is delayed, as defined
herein, then Horizon will pay CMI $25,000 per month for 30 months or until
510K approval is received. For purposes of this paragraph, a delay (and
the obligation to pay CMI) begins on the first day following the end of
the 90-day time period for the FDA to act on answers submitted by CMI in
response to FDA questions. The delay will be suspended until the end of
similar 90-day periods if the FDA submits additional questions. Any
amounts paid under this section 3.1.4 will reduce the number of VAPs
bearing the $20 charge identified in section 3.1.3 so that the total
payments under this Article 3.1 equal $900,000. Notwithstanding the
foregoing, Horizon's obligations to pay CMI under this section 3.1.4 will
not begin until the later of 18 months following the date of execution of
this Agreement or 510K approval is delayed as defined above.
Any amounts due under this Agreement that are outstanding more than 10
days beyond the date due will accrue interest at the highest rate allowed by
law not to exceed twelve percent (12%) per year.
3.2 Progress Reviews. The parties will undertake a joint progress review
as described in the Program Schedule or at such other times as may be mutually
agreed to at CMI's facility.
4. Changes in Specifications. During the term of this Agreement Horizon
will have the right, exercisable at any time or from time to time, to make any
changes(s) in the VAP drawings or specifications (the "Specifications"). If
any such change requires CMI to incur additional expenses, CMI and Horizon will
agree in advance on such additional expenses and Horizon agrees to reimburse
CMI for such expenses.
2
<PAGE> 32
5. Tooling and Fixtures. All tooling and fixtures which are designed and
built using funds provided by Horizon will be the exclusive property of CMI.
6. Confidentiality and Proprietary Rights.
6.1 Confidential Information of CMI. All knowledge and information which
Horizon may acquire from CMI pursuant to the terms of this Agreement respecting
methods, systems, trade secrets and other private matters (hereinafter referred
to as the "Information"), will for all time and for all purposes be regarded as
strictly confidential and held in trust solely for the benefit and use of CMI,
and it is agreed that the use or public disclosure of any such Information by
Horizon would be wrongful and would cause irreparable injury to CMI. In
addition, all CMI's special tooling, fixtures, data, manufacturing techniques,
processes and research and development relating to the manufacture, inspection
and testing of the VAPs will be the sole property of CMI.
6.2 Confidential Information of Horizon. All Horizon's proprietary
information, inventions, improvements, technology, research and development
will be the sole property of Horizon. Horizon will acquire no interest in CMI's
manufacturing processes or other related information as a result of the
execution and performance of this Agreement.
6.3 Procedures for Maintaining Confidentiality. Each party agrees to
maintain the confidentiality of any confidential information of the other party
and to that end agrees as follows:
(a) Not to make any use whatsoever of any confidential information except
for the purpose for which it is supplied, either for itself or any other
person, firm or corporation;
(b) Not to reveal any confidential information to third parties, without
the prior written approval of the other party;
(c) To keep all confidential information strictly secret and confidential
and to that end, without limiting the generality of the foregoing, to
cause all written materials relating to or containing any confidential
information to be plainly marked to indicate the secret and confidential
nature thereof, and to prevent unauthorized use or reproduction thereof;
(d) To maintain such confidential information in controlled files
accessible only to authorized personnel;
3
<PAGE> 33
(e) To limit access to said confidential information to those of its
employees with a need to know such confidential information, which
employees shall first have executed a confidentiality agreement which
requires, among other things, that such employee will maintain the
secrecy of all confidential customer and/or supplier information which
such employee may obtain;
(f) In the event a party receives a request to disclose all or any part
of any confidential information under the terms of a valid and effective
subpoena or order issued by a court of competent jurisdiction, such party
agrees to (i) notify the other party immediately of the existence, terms
and circumstances surrounding such request; (ii) consult with the other
party on the advisability of taking legally available steps to resist or
narrow such request, and (iii) if disclosure of such confidential
information is required, exercise its best efforts to obtain an order or
other reliable assurance that confidential treatment will be accorded to
such portion of the confidential information as must be produced or
disclosed.
6.4 Exceptions. The foregoing restrictions will not apply to any
confidential information which is (i) known prior to receipt thereof from the
other party as evidenced by written records kept in the ordinary course of
business, or (ii) of public knowledge without breach by the party of its
obligations hereunder, or (iii) rightfully received from a third party without
restriction on disclosure or use, or (iv) disclosed by the other party to a
third party without restriction on disclosure or use, or (v) independently
developed by personnel of a party who have not had access to or knowledge of
the contents of the other party's disclosure, or (vi) disclosed after receiving
the written consent therefor of an authorized officer of the other party.
7. Excusable Delay or Failure to Perform. Neither party will be liable
for a delay in performance of or failure to perform an obligation under this
Agreement (except an obligation to make payment promptly when due), if and to
the extent such delay or failure is attributable to any cause beyond the
reasonable control of such party to prevent. Such causes may include, but are
not limited to act of God, act of government (including the Food and Drug
Administration), war or related actions, civil insurrection, riot, sabotage,
strike, epidemic, fire, flood, windstorm, or a failure of suppliers,
subcontractors or carriers, or inability to obtain required materials or
qualified labor, which are reasonably beyond the control of the defaulting
party to prevent. The party affected will give prompt notice of the cause to
the other party, and will resume performance with reasonable diligence upon
cessation of the cause of the delay or failure.
4
<PAGE> 34
The causes enumerated in this section 7 will suspend the obligation of
Horizon listed in section 3.1.4. However, a delay as defined in section 3.1.4
will not suspend that obligation.
8. CMI's Representations and Warranties.
8.1 Performance of Obligations. CMI hereby represents and warrants to
Horizon that CMI will faithfully perform all of the obligations, covenants and
agreements on its part to be performed as set forth in this Agreement.
8.2 Disclaimer of Warranties. The parties acknowledge and agree that VAPs
manufactured under this Agreement will be for development purposes only and not
manufactured in commercial quantities. Therefore CMI makes no warranty of any
kind. CMI EXPRESSLY DISCLAIMS ANY AND ALL REPRESENTATIONS AND WARRANTIES WITH
RESPECT TO THE VAP, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF FITNESS FOR
A PARTICULAR PURPOSE AND MERCHANTABILITY.
9. Horizon's Representations and Warranties. Horizon will faithfully and
fully perform all of the obligations, covenants and agreements on its part to
be performed as set forth in this Agreement.
10. Limitation of Liability and Indemnity.
(a) Limitation on CMI's Responsibility. Except as provided in paragraph
(c) below, CMI will not be liable or responsible for direct, incidental,
consequential and/or special damages arising out of use or implantation of VAPs
supplied hereunder including, but not limited to, damage to property of Horizon
or of other persons, or for injury to or death of any person.
(b) Horizon's Responsibility. CMI will have no control over the uses to
which the VAPs will be devoted, or over the circumstances of their use,
storage, handling, distribution or application. Except for the indemnification
by CMI provided in paragraph (c) below, Horizon will assume full responsibility
with respect to the use of any VAP or information furnished by Horizon
hereunder, and CMI assumes no liabilities of any kind with respect to the use
by Horizon or any third party of such VAPs or information.
(c) Indemnification.
CMI agrees, at its own expense, to defend, indemnify and hold harmless
Horizon, its officers, agents and employees from and against any and all
claims, losses, damages, causes of action, suits and liability of every kind,
including all expenses
5
<PAGE> 35
of litigation, court costs and reasonable attorney's fees, for injury to or
death of any person or for damage to any property, arising from or out of or in
connection with the failure of any VAP to conform to the Specifications or for
any VAP that is not free from defects in material or workmanship.
Horizon agrees, at its own expense, to defend, indemnify, and hold
harmless CMI, its officers, agents and employees from and against any and all
claims, losses, damages, causes of action, suits and liability of every kind,
including all expenses of litigation, court costs and reasonable attorney's
fees, for injury to or death of any person or for damage to any property,
arising from or out of or in connection with Horizon's marketing, sale or
distribution of any VAP or Horizon's participation in the implantation of any
VAP or any defect in the Specifications, including any defect in the
Specifications where the negligence of CMI or its employees or agents caused
such defect; provided further, that any supplier that furnished materials or
products to CMI for the VAPs shall not be entitled to indemnification under
this paragraph.
Any party seeking indemnification hereunder shall notify the other party
promptly of any claim or suit involving an indemnification claim under the
provisions of this paragraph. The notifying party shall grant the indemnifying
party a reasonable opportunity to control the defense of each such claim and
related settlement negotiations, and, provided the indemnifying party is taking
reasonable steps to defend or settle a claim, the notifying party agrees not to
settle such matter without the indemnifying party's prior written consent. If
the indemnifying party is taking reasonable steps to defend or settle a claim
and if the indemnifying party has obtained the notifying party's prior written
consent (which consent shall not be unreasonably or untimely withheld) to the
attorneys employed by the indemnifying party with respect to such claim, then
if the notifying party retains counsel regarding such claim, the notifying
party will bear the expense of such counsel and will not seek reimbursement
under this paragraph from the indemnifying party for such expense.
(d) General Liability/Product Liability Insurance. As of the Effective
Date, CMI will continue to maintain comprehensive general liability insurance,
including coverage for products and completed operations, written on an
occurrence basis, during the term of this Agreement. The liability insurance so
maintained will include Horizon as an additional insured, and contain an
endorsement to provide Horizon with at least 30 days prior written notice of
any cancellation, non-renewal, or coverage reduction. This insurance coverage
will survive termination of this Agreement and will, in any event, provide
coverage during the period any VAPs supplied by CMI under the terms of this
6
<PAGE> 36
Agreement remain implanted in any living patient. Horizon may demand evidence
of coverage at any time during the term of this Agreement and during the period
CMI is required to maintain coverage thereafter. In the event CMI fails to
provide Horizon with evidence of the liability insurance required to be
maintained pursuant to the provisions of this paragraph and the failure
continues for 10 days following CMI's receipt of a notice advising Horizon of
its failure to provide such evidence, then at any time thereafter during the
pendency of such failure, Horizon will have the option in its sole discretion
to terminate this Agreement or to purchase the insurance at CMI's expense.
(e) Product Liability Insurance. Horizon and its successors and assigns
will maintain general liability insurance, written on an occurrence basis,
during the term of this Agreement in the minimum amount of $1 million. The
product liability insurance so maintained will be written by an insurance
carrier acceptable to CMI, include CMI as an additional insured, and contain an
endorsement to provide CMI with at least 30 days prior written notice of any
cancellation, non-renewal, or coverage reduction. This insurance coverage will
survive termination of this Agreement and will, in any event, provide coverage
during the period any VAP supplied by CMI under the terms of this Agreement
remain implanted in any living patient. CMI may demand evidence of coverage at
any time during the term of this Agreement and during the period Horizon is
required to maintain coverage thereafter. In the event Horizon fails to provide
CMI with evidence of the product liability insurance required to be maintained
pursuant to the provisions of this paragraph and the failure continues for 10
business days following Horizon's receipt of a notice advising Horizon of its
failure to provide such evidence, then at any time thereafter during the
pendency of such failure, CMI will have the option in its sole discretion to
purchase the insurance required herein and bill Horizon for the entire cost of
such insurance or to terminate this Agreement.
10.2 Patent Infringement. Horizon will in no manner infringe any patent or
claim to patent held or asserted by CMI.
10.3 Use of Information Developed by CMI. The procedures, methodology,
processes, techniques and the like which may be developed or learned by CMI in
connection with its manufacture of VAPs for Horizon may be incorporated in
CMI's general manufacturing operations.
11. Infringement. Prior to completion of the Program Schedule, CMI will
obtain a patent search with respect to patents issued by the United States
Patent Office in order to determine whether the VAP infringes the claims of any
Letters Patent. CMI will review with Horizon the results of such patent search.
Should any action be commenced against Horizon alleging that the VAP
7
<PAGE> 37
infringes the claims of any Letters Patent, Horizon will have the right but not
the obligation to defend and settle such action. If Horizon fails or refuses to
defend such action, CMI will have the right, but not the obligation to defend
and settle it. Regardless of which party, if either, defends such action, the
other party will cooperate with the defending party in any manner reasonably
requested for such defense and/or settlement, at the defending party's expense.
Should any action be commenced against CMI alleging that any of Horizon's
inventions (which terminology includes, without limitation, discoveries,
designs, methods, processes, products, conceptions, innovations, improvements,
enhancements and the like), whether patentable or not, infringe the claims of
any Letters Patent, Horizon will have the right but not the obligation to
defend and settle such action. CMI will cooperate with Horizon in any manner
reasonably requested for such defense and/or settlement, at Horizon's expense.
12. Term and Termination.
12.1 Term. The term of this Agreement will commence on the date first
written above and will continue in effect until completion of the Program or
termination under the provisions of this Section 12.
12.2 Termination by Horizon. Notwithstanding the foregoing, Horizon will
have the right to terminate this Agreement on 90 days prior written notice to
CMI, subject to the survival of all confidentiality and indemnification
provisions, if CMI defaults in performing any of its obligations under this
Agreement and such default continues for a period of 90 days after such notice.
Upon receipt of such notice, CMI will immediately stop work on the Program and
terminate all outstanding purchase orders for supplies and/or services, and
take all reasonable steps necessary to eliminate or reduce any further costs
allocable to the Program.
12.3 Termination by CMI. If payment to CMI is in arrears for 60 days after
written notice of default to Horizon, or if Horizon defaults in performing any
of the other provisions of this Agreement and such default continues for a
period of 60 days after written notice to Horizon, or if Horizon is adjudicated
bankrupt or becomes insolvent, or enters into a composition with creditors, or
if a receiver is appointed, then CMI will have the right to terminate this
Agreement immediately upon written notice to Horizon, subject to the survival
of all confidentiality and indemnification provisions hereof.
8
<PAGE> 38
12.4 Remedies of CMI. If Horizon terminates this Agreement other than due
to the default of CMI as described in Section 12.2 or if CMI terminates this
Agreement as provided in Section 12.3, then the following will apply:
12.4.1 The Effective Date of the Supply Agreement will be accelerated to
the date of such termination and its provisions will be in full force and
effect.
12.4.2 Except as provided in section 12.4.3 below, all work product,
including regulatory submissions, performed by CMI under this Agreement
and all materials obtained in connection with this Agreement will become
the property of CMI.
12.4.3 Horizon will make all payments to CMI described in Article 3 which
have not been paid at the time of termination on a percentage of
completion basis according to the Project Schedule. Upon receipt of such
payment, CMI will furnish Horizon, and Horizon may freely use, copies of
all designs, drawings, and regulatory submissions for the VAP and all
materials and VAPs for which payment has been received.
12.5 Remedies for Horizon. If CMI terminates this Agreement other than due
to the default of Horizon as described in section 12.3 or if Horizon terminates
this Agreement as provided in section 12.2, then the following will apply:
12.5.1 Horizon will receive from CMI all payments made by Horizon under
Article 3 which have been paid at the time of termination and all work
product, including the 510(K) submission, and VAPs for which payment has
been received will remain the property of Horizon. Horizon will have the
right to pursue any other remedy available to Horizon under law, including
the right to lost profits, not to exceed 30 months profit following the
date of such termination.
13. Relationship of Parties. The relationship between CMI and Horizon as
established by this Agreement is that of independent contractors. As such,
subject to the provisions of this Agreement, CMI and Horizon each will conduct
their respective business at their own initiative, responsibility and expense,
and each will have no authority to incur any obligation on behalf of the other.
13.1 Hiring. The parties agree that during the term of this Agreement and
the term of the Supply Contract, and for a period of one year following
termination or expiration of this Agreement or the Supply Contract (whichever
occurs last), neither party will hire, or attempt to hire, any current
employee, agent
9
<PAGE> 39
or sales representative of the other. This provision will survive the
termination or expiration of this Agreement and of the Supply Contract.
14. Miscellaneous.
14.1 Assignment. Neither party will have the right to assign this
Agreement, in whole or in part, to any third party without the prior written
consent of a duly authorized officer of the other party, which consent will not
be unreasonably withheld. An attempted assignment without consent will be
grounds for termination of this Agreement by such other party, without thereby
affecting any rights or remedies it may have under this Agreement or at law.
Notwithstanding the foregoing, CMI may freely assign this Agreement to any
company controlling, controlled by or under common control with CMI or
succeeding to the entire business of CMI. Notwithstanding the foregoing,
Horizon may freely assign this Agreement to any entity succeeding to the entire
VAP business of Horizon. This Agreement will be binding upon and inure to the
benefit of the parties and their successors and assigns to which such consent,
if necessary, is given.
14.2 Choice of Law. This Agreement has been entered into and will be
deemed made under the laws of the State of Texas and for all purposes will be
governed by, enforced under and construed in accordance with the laws of said
state, without regard to principles of conflicts of law.
14.3 Waiver and Delay. No delay or omission by any party in enforcing any
of the terms or conditions of this Agreement will be construed as a waiver
thereof, and no waiver of any conditions, breach or default will be construed
or determined to be a waiver of any other or subsequent conditions, breach or
default or a bar to the enforcement of such terms and conditions on any future
occasion.
14.4 Notices. All notices required or permitted hereunder, will be
effective upon their receipt and will be given in writing and delivered in
person or by certified or registered mail, postage prepaid, addressed to the
attention of the president of each respective company at the respective address
first above written or such other address as may be given by notice.
14.5 Captions and Headings. All section headings of this Agreement are for
convenience of reference only, and are not to be used for purposes of
interpretation of their respective provisions.
10
<PAGE> 40
14.6 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such a manner as to be effective and valid under the
applicable law, but if such provision is or becomes invalid or unenforceable
under such law, then such provision will be reformed in order to conform to
applicable law. If such reformation is not possible, then such provision will
be ineffective only to the extent of such unenforceability or invalidity, and
the remainder of the Agreement will continue to be binding and in full force
and effect.
14.7 Merger. Except for the Supply Agreement and the Equity Agreement of
even date herewith, this Agreement constitutes the entire understanding of the
parties with respect to its subject matter and supersedes all prior agreements,
understandings, discussions, and communication between the parties respecting
such subject matter. No modification of this Agreement will be effective unless
made in writing and signed by a duly authorized officer of each party.
14.8 Benefit. This Agreement will be binding upon and will inure to the
benefit of the parties, their legal representatives, successors and assigns,
provided that the provisions with respect to assignment and delegation are
fully complied with.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
HORIZON MEDICAL PRODUCTS, INC. CARBOMEDICS, INC.
By:/s/ By:/s/ Terry Marlatt
--------------------------------- ----------------------------------
Title: Chief Executive Officer Terry Marlatt, President
------------------------------
Printed Name:/s/ Marsha B. Hunt
-----------------------
11
<PAGE> 41
Program Schedule
EXHIBIT A
<PAGE> 42
PROGRAM SCHEDULE
<TABLE>
<CAPTION>
Activity Responsibility Duration Starting Condition
-------- --------------- --------- ------------------
in Weeks
--------
<S> <C> <C> <C>
1. Start of project. CMI/HORIZON contract start date sign contract
Single Lumen Metal and Plastic Port
2. Design Port and Packaging CMI 4 Completion of 1
3. Design Labeling and Literature HORIZON 4 Completion of 1
4. Design Review #1 CMI/HORIZON 1 Completion of 2 and 3
5. Prototype and Testing CMI 10 Completion of 4
6. Design Review #2 CMI/HORIZON 1 Completion of 5
7. Regulatory Submission CMI -- Completion of 6
8. Final Design Review - Metal Port CMI/HORIZON 1 Completion of 6 plus 38 weeks
9. Final Design Review - Plastic Port CMI/HORIZON 1 Completion of 6 plus 42 weeks
Double Lumen Metal Plastic Port
10. Design Port and Packaging CMI 4 Completion of 2
11. Design Labeling and Literature HORIZON 4 Completion of 1
12. Design Review #1 CMI/HORIZON 1 Completion of 10 and 11
13. Prototype and Testing CMI 12 Completion of 12
14. Design Review #2 CMI/HORIZON 1 Completion of 13
15. Regulatory Submission CMI -- Completion of 14
16. Final Design Review - Metal Port CMI/HORIZON 1 Completion of 14 plus 40 weeks
17 Final Design Review - Plastic Port CMI/HORIZON 1 Completion of 14 plus 42 weeks
Pediatric Single Lumen Metal Port
18. Design Port and Packaging CMI 4 Completion of 10 plus 4 weeks
19. Design Labeling and Literature HORIZON 4 Completion of 1
20. Design Review #1 CMI/HORIZON 1 Completion of 18 and 19
21. Prototype and Testing CMI 10 Completion of 20
22. Design Review #2 CMI/HORIZON 1 Completion of 21
23. Regulatory Submission CMI -- Completion of 22
24. Final Design Review CMI/HORIZON 1 Completion of 22 plus 38 weeks
</TABLE>
2/11/93 Revision EXHIBIT A Page 1 of 2
<PAGE> 43
2/11/93 Revision EXHIBIT A Page 2 of 2
Design Port and Packaging - During this phase CMI will design and prepare
engineering specifications for the items described in Exhibit B.
Design Labeling and Literature - During this phase Horizon will design all
labeling and literature including but, not limited to, instructions for use,
package and box labels, patient ID card, patient registration card and patient
information booklet. These designs will include camera ready artwork.
Design Review #1 - This will be the first formal design review at which CMI and
Horizon will present their respective design work. This review must be
completed and both parties must approve the designs prior to start of the
prototype and testing phase.
Prototype and Testing - During this phase CMI will fabricate prototypes of
sufficient quantities to complete the testing required for the regulatory
submission.
Design Review #2 - CMI will present a prototype of the product and the results
of testing. Approval of both parties is required prior to regulatory
submission.
Regulatory Submission - CMI is responsible for obtaining FDA 510(k) approval
for each product. The submission will meet all requirements of "Guidance on
510(k) Submissions for Implanted Infusion Ports" dated October 1990 issued from
Center for Devices and Radiological Health Office of Device Evaluation,
Division of Gastroenterology/Urology and General Use Devices. This document is
attached as Exhibit C. Horizon is responsible for providing to CMI all
information related to Labelling/Instructions for Use as defined in Section 2.
a. through 2. h. of Exhibit C a minimum of eight (8) weeks prior to the
scheduled submission date. If the FDA issues any new guidelines, prior to or
during the submission process for FDA 510(k) approval of the VAPs under the
"Guidance on 510(k) Submissions for Implanted Infusion Ports" referred to
above, CMI AND Horizon will negotiate in good faith an agreement relating to
the additional efforts by CMI that will be necessary for obtaining FDA 510(k)
approval for each product and the cost of such efforts. If agreement cannot be
reached by CMI and Horizon, then this Agreement will terminate. Horizon will
pay CMI for work product performed up to the date of such termination as
described in Section 12.4.3. The regulatory submission will be made in the
name of Horizon Medical Products. CMI will be the primary contact with the FDA
up to the point at which the 510(k) approval is granted. After each 510(k) is
granted CMI will only be responsible for providing product as defined in the
Supply agreement and will cease to provide any regulatory services not related
to a component supplier including but, not limited to, product complaints,
product tracking and patient registration.
Final Design Review - This will be the final review of all test data and
regulatory issues. Prior to this review all testing to validate the sterility
shelf life will have been completed. This review must be completed prior to
submittal of purchase orders under the terms of the Supply Agreement.
Depending on FDA actions 510(k) approval may not be obtained by this date.
<PAGE> 44
EXHIBIT B PAGE 1 OF 3
SPECIFICATIONS
<TABLE>
<CAPTION>
====================================================================================================================================
SINGLE LUMEN TITANIUM DOUBLE LUMEN TITANIUM PEDIATRIC
(1000 SERIES) (2000 SERIES) SINGLE LUMEN TITANIUM
(3000 SERIES)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINISHED PRODUCT
- WEIGHT 18 g Max. 40 g Max. TBD g Max.
- INT. VOL. 0.5 ml 0.5 ml each TBD ml
- NEEDLE GRIP Comparable to Competitors Comparable to Competitors Comparable to Competitors
- NEEDLE CLEARANCE Adequate for 20-22 GAUGE Adequate for 20-22 GAUGE Adequate for TBD Gauge
- DURABILITY 2,000 punc. with 22 GAUGE 2,000 punc. with 22 GAUGE 2,000 punc. with 22 GAUGE
- STABILITY 100 psi rating 100 psi rating 100 psi rating
- -----------------------------------------------------------------------------------------------------------------------------------
PORT BODY
- MATERIAL TITANIUM TITANIUM TITANIUM
- DESIGN 2-PIECE 2-PIECE 2-PIECE
- SHAPE 65 DEGREE SIDE ANGLE 65 DEGREE SIDE ANGLE 65 DEGREE SIDE ANGLE
- HEIGHT 12.7 mm 12.7 mm TBD mm
- BASE DIMEN. 30 mm DIA. 30 mm X 50 mm TBD mm DIA.
- LOCATING RIM SMOOTH, ROUNDED SMOOTH, ROUNDED SMOOTH, ROUNDED
- SUTURE HOLES 5-SILICONE FILLED 5-SILICONE FILLED 5-SILICONE FILLED
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTUM SILICONE SILICONE SILICONE
- MATERIAL/DIAMETER 12.7 mm 12.7 mm each TBD mm
- -----------------------------------------------------------------------------------------------------------------------------------
STUD - MATERIAL TITANIUM TITANIUM TITANIUM
- -----------------------------------------------------------------------------------------------------------------------------------
CATHETER
- MATERIAL RADIOPAQUE SILICONE RADIOPAQUE SILICONE RADIOPAQUE SILICONE
- I.D. 1.0 mm; 1.4 mm; 1.6mm 1.2 mm each 1.0 mm
- INTRODUCER SIZE 7.0 Fr; 8.0 Fr; 10.0 Fr 12.0 Fr 7.0 Fr
- LENGTH 76 cmm; 70 cm; 70 cm TBD cm 76 cm
- -----------------------------------------------------------------------------------------------------------------------------------
CONNECTOR POLYSULPHONE TITANIUM POLYSULPHONE
(DETACHED) LOCKING SLEEVE THREADED LOCKING SLEEVE
- MATERIAL/DESIGN
- -----------------------------------------------------------------------------------------------------------------------------------
NEEDLE NON-CORING NON-CORING NON-CORING
NON-SILICONIZED NON-SILICONIZED NON-SILICONIZED
20 GAUGE, 1 INCH, S.S. 20 GAUGE, 1 INCH, S.S. 20 GAUGE, 1 INCH, S.S.
- -----------------------------------------------------------------------------------------------------------------------------------
INTRODUCER KIT INTRODUCER DILATOR\SHEATH; INTRODUCER DILATOR\SHEATH; INTRODUCER DILATOR\SHEATH;
10 CC SYRINGE; "J" TIP GUIDE- 10 CC SYRINGE; "J" TIP GUIDE- 10 CC SYRINGE; "J" TIP GUIDE-
WIRE; INTRODUCER NEEDLE; WIRE; INTRODUCER NEEDLE; WIRE; INTRODUCER NEEDLE;
DOUBLE STERILE POUCH; DOUBLE STERILE POUCH; DOUBLE STERILE POUCH;
TBD YEAR SHELF LIFE TBD YEAR SHELF LIFE TBD YEAR SHELF LIFE
- -----------------------------------------------------------------------------------------------------------------------------------
- - PACKAGING-STERILE DOUBLE; HEAT SEALED; DOUBLE; HEAT SEALED; DOUBLE; HEAT SEALED;
(PORT, CATHETER, TYVEK LIDS; TBD YR. SHELF TYVEK LIDS; TBD YR. SHELF TYVEK LIDS; TBD YR. SHELF
NEEDLE & CONNECTOR) LIFE; 6 in. X 6.5 in. X 1 in. LIFE; 6 in. X 6.5 in. X 1 in. LIFE; 6 in. X 6.5 in. X 1 in.
- - PACKAGING NON-STERILE FOAM CUSHIONED PLASTIC FOAM CUSHIONED PLASTIC FOAM CUSHIONED PLASTIC
w/o INTRODUCER 7 in. X 8.5 in. X 2 in. 7 in. X 8.5 in. X 2 in. 7 in. X 8.5 in. X 2 in.
with INTRODUCER 12 in. X 8.5 in. X 2.5 in. 12 in. X 8.5 in. X 2.5 in. 12 in. X 8.5 in. X 2.5 in.
====================================================================================================================================
<CAPTION>
====================================================================================================================================
SINGLE LUMEN DOUBLE LUMEN
POLYSULPHONE POLYSULPHONE
(4000 SERIES) (5000 SERIES)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINISHED PRODUCT
- WEIGHT N/A N/A
- INT. VOL. 0.5 ml 0.5 ml each
- NEEDLE GRIP Comparable to Competitors Comparable to Competitors
- NEEDLE CLEARANCE Adequate for 20-22 GAUGE Adequate for 20-22 GAUGE
- DURABILITY 2,000 punc. with 22 GAUGE 2,000 punc. with 22 GAUGE
- STABILITY 100 psi rating 100 psi rating
- ------------------------------------------------------------------------------------------------------------------------------------
PORT BODY
- MATERIAL POLYSULPHONE POYSULPHONE
- DESIGN 2-PIECE 2-PIECE
- SHAPE 65 DEGREE SIDE ANGLE 65 DEGREE SIDE ANGLE
- HEIGHT 12.7 mm 12.7 mm
- BASE DIMEN. 30 mm DIA. 30 mm X 50 mm
- LOCATING RIM SMOOTH, ROUNDED SMOOTH, ROUNDED
- SUTURE HOLES 5-NON-FILLED 5-NON-FILLED
- ------------------------------------------------------------------------------------------------------------------------------------
SEPTUM SILICONE SILICONE
- MATERIAL/DIAMETER 12.7 mm 12.7 mm each
- -----------------------------------------------------------------------------------------------------------------------------------
STUD - MATERIAL TITANIUM TITANIUM
- -----------------------------------------------------------------------------------------------------------------------------------
CATHETER
- MATERIAL RADIOPAQUE SILICONE RADIOPAQUE SILICONE
- I.D. 1.4 mm; 1.6 mm 1.0 mm each; 1.2 mm each
- INTRODUCER SIZE 8.0 Fr; 10.0 Fr 10.0 Fr; 12.0 Fr
- LENGTH 70 cm TBD cm
- -----------------------------------------------------------------------------------------------------------------------------------
CONNECTOR POLYSULPHONE POLYSULPHONE
(DETACHED) LOCKING SLEEVE THREADED
- MATERIAL/DESIGN
- -----------------------------------------------------------------------------------------------------------------------------------
NEEDLE NON-CORING NON-CORING
NON-SILICONIZED NON-SILICONIZED
20 GAUGE, 1 INCH, S.S 20 GAUGE, 1 INCH, S.S.
- -----------------------------------------------------------------------------------------------------------------------------------
INTRODUCER KIT INTRODUCER DILATOR\SHEATH; INTRODUCER DILATOR\SHEATH;
10 CC SYRINGE; "J" TIP GUIDE- 10 CC SYRINGE; "J" TIP GUIDE-
WIRE; INTRODUCER NEEDLE; WIRE; INTRODUCER NEEDLE;
DOUBLE STERILE POUCH; DOUBLE STERILE POUCH;
TBD YEAR SHELF LIFE TBD YEAR SHELF LIFE
- ------------------------------------------------------------------------------------------------------------------------------------
- - PACKAGING-STERILE DOUBLE; HEAT SEALED; DOUBLE; HEAT SEALED;
(PORT, CATHETER, TYVEK LIDS; TBD YR. SHELF TYVEK LIDS; TBD YR. SHELF
NEEDLE & CONNECTOR) LIFE; 6 in. X 6.5 in. X 1 in. LIFE; 6 in. X 6.5 in. X 1 in.
- - PACKAGING NON-STERILE FOAM CUSHIONED PLASTIC FOAM CUSHIONED PLASTIC
w/o INTRODUCER 7 in. X 8.5 in. X 2 in. 7 in. X 8.5 in. X 2 in.
with INTRODUCER 12 in. X 8.5 in. X 2.5 in. 12 in. X 8.5 in. X 2.5 in.
====================================================================================================================================
</TABLE>
NOTE: ALL PHYSICAL DIMENSIONS AND PROPERTIES ARE APPROXIMATE
TBD - TO BE DETERMINED BY HMP/CMI DURING DEVELOPMENT PROGRAM
<PAGE> 45
Page 2 of 3
EXHIBIT B
ACCESS PORT PRODUCT OFFERINGS
SINGLE LUMEN TITANIUM
<TABLE>
<CAPTION>
Item # Connection W or W/O Catheter Introducer
Mode Introducer I.D. Size
================================================================================
<S> <C> <C> <C> <C>
1 Detached W/O 1.0 mm 7.0 Fr
2 Detached W/O 1.4 mm 8.0 Fr
3 Detached W/O 1.6 mm 10.0 Fr
4 Detached With 1.0 mm 7.0 Fr
5 Detached With 1.4 mm 8.0 Fr
6 Detached With 1.6 mm 10.0 Fr
7 Pre-attached W/O 1.0 mm 7.0 Fr
8 Pre-attached W/O 1.4 mm 8.0 Fr
9 Pre-attached W/O 1.6 mm 10.0 Fr
10 Pre-attached With 1.0 mm 7.0 Fr
11 Pre-attached With 1.4 mm 8.0 Fr
12 Pre-attached With 1.6 mm 10.0 Fr
</TABLE>
DOUBLE LUMEN TITANIUM
<TABLE>
<CAPTION>
Item # Connection W or W/O Catheter Introducer
Mode Introducer I.D. Size
================================================================================
<S> <C> <C> <C> <C>
13 Detached W/O 1.2 mm each 12.0 Fr
14 Detached With 1.2 mm each 12.0 Fr
15 Pre-Attached W/O 1.2 mm each 12.0 Fr
16 Pre-Attached With 1.2 mm each 12.0 Fr
</TABLE>
PEDIATRIC SINGLE LUMEN TITANIUM
<TABLE>
<CAPTION>
Item # Connection W or W/O Catheter Introducer
Mode Introducer I.D. Size
================================================================================
<S> <C> <C> <C> <C>
17 Detached W/O 1.0 mm 7.0 Fr
18 Detached With 1.0 mm 7.0 Fr
19 Pre-Attached W/O 1.0 mm 7.0 Fr
20 Pre-Attached With 1.0 mm 7.0 Fr
</TABLE>
<PAGE> 46
Page 3 of 3
EXHIBIT B
ACCESS PORT PRODUCT OFFERINGS
SINGLE LUMEN POLYSULPHONE
<TABLE>
<CAPTION>
Item # Connection W or W/O Catheter Introducer
Mode Introducer I.D. Size
================================================================================
<S> <C> <C> <C> <C>
21 Detached W/O 1.4 mm 8.0 Fr
22 Detached W/O 1.6 mm 10.0 Fr
23 Detached With 1.4 mm 8.0 Fr
24 Detached With 1.6 mm 10.0 Fr
25 Pre-attached W/O 1.4 mm 8.0 Fr
26 Pre-attached W/O 1.6 mm 10.0 Fr
27 Pre-attached With 1.4 mm 8.0 Fr
28 Pre-attached With 1.6 mm 10.0 Fr
</TABLE>
DOUBLE LUMEN POLYSULPHONE
<TABLE>
<CAPTION>
Item # Connection W or W/O Catheter Introducer
Mode Introducer I.D. Size
================================================================================
<S> <C> <C> <C> <C>
29 Detached W/O 1.0 mm 10.0 Fr
30 Detached W/O 1.2 mm 12.0 Fr
31 Detached With 1.0 mm 10.0 Fr
32 Detached With 1.2 mm 12.0 Fr
33 Pre-attached W/O 1.0 mm 10.0 Fr
34 Pre-attached W/O 1.2 mm 12.0 Fr
35 Pre-attached With 1.0 mm 10.0 Fr
36 Pre-attached With 1.2 mm 12.0 Fr
</TABLE>
<PAGE> 47
EQUITY AGREEMENT
THIS AGREEMENT, made as of February 17, 1993 by and between CarboMedics,
Inc., a Delaware corporation, having a place of business at 1300 East Anderson
Lane, Austin, TX 78752 (hereinafter referred to as "CMI"), and Horizon Medical
Products, Inc., a Georgia corporation, with a place of business at Seven North
Parkway Square, 4200 Northside Parkway, N.W., Atlanta, GA 30327 ("Horizon");
WHEREAS, Horizon and CMI have entered into the Development Agreement dated
February 17, 1993 ("Development Agreement"), pursuant to which a vascular access
port product (the "VAP") will be designed and developed, tested and submitted to
the Food and Drug Administration for approval;
WHEREAS, Horizon and CMI have entered into the OEM Supply Contract dated
February 17, 1993 ("Supply Contract"), pursuant to which five models of the VAP,
after FDA approval, will be manufactured by CMI for sale to Horizon, and Horizon
will market and sell the VAPs under the Horizon name (the "VAP Business");
WHEREAS, as additional consideration to CMI for entering into the
Development Agreement and the Supply Contract, the parties desire to provide in
this Agreement for a payment to CMI upon a future sale by Horizon of the VAP
Business;
NOW, THEREFORE, in consideration of the premises and in reliance upon the
mutual covenants and agreements hereinafter set forth, the parties agree as
follows:
1. Payment to CMI Upon Sale of VAP Business
If Horizon sells the VAP Business, either alone as a separate transaction
or together with the sale of other Horizon assets and business or in connection
with a Stock Sale (as defined below), then Horizon will pay to CMI an amount
calculated by multiplying the Applicable Percentage times the VAP Business
Purchase Price (as such terms are defined below).
2. VAP Business Purchase Price; Stock Sale.
The term "VAP Business Purchase Price" for purposes of this Agreement shall
mean:
(a) In a sale where Horizon sells only the VAP Business, the purchase
price paid to Horizon for the VAP Business, minus any indebtedness of Horizon
associated with the VAP Business that is paid by Horizon within ten (10) days
after such sale; or
(b) In a sale of the VAP Business together with other assets and/or
business or Horizon, or in a Stock Sale, the accounting firm retained by Horizon
shall calculate that portion of the total
<PAGE> 48
purchase price received by Horizon (or its shareholders in a Stock Sale) that is
reasonably allocable to the VAP Business, using the contribution of the VAP
Business to the fully burdened net profit of Horizon as of the time of such
sale. Such calculation shall be submitted to CMI no later than thirty (30) days
after such sale. If CMI objects to such calculation, CMI may at its expense have
another big six accounting firm calculate that portion of the total purchase
price received by Horizon (or its shareholders in a Stock Sale) that is
reasonably allocable to the VAP Business, using the contribution of the VAP
Business to the fully burdened net profit of Horizon as of the time of such
sale. The VAP Business Purchase Price shall be the amount so calculated by
Horizon's accounting firm (or, if CMI retains another accounting firm to prepare
such calculation, then the average of the two amounts so calculated by Horizon's
accounting firm and CMI's accounting firm), minus any indebtedness of Horizon
associated the VAP Business that is paid by Horizon within ten (10) days after
such sale.
The term "Stock Sale" for purposes of this Agreement shall mean either (x)
a transaction in which shareholders of Horizon (including Roy C. Mallady, Jr.,
Marshall B. Hunt and/or William E. Peterson, Jr.) sell shares of Horizon stock
and as a result of such sale Mallady, Hunt and Peterson cease to be involved in
the day-to-day management of Horizon, or (y) the sale by shareholders of Horizon
of in excess of eighty percent of all shares of Horizon stock outstanding as of
the time of such sale.
3. Applicable Percentage.
The term "Applicable Percentage" for purposes of this Agreement shall mean
the lowest percentage determined under (a) or (b) below:
(a) Ten percent (10%); or
(b) A percentage determined as follows: After Horizon has purchased its
initial 40,000 units of VAPs, starting with 10% and then deducting therefrom (i)
one percentage point (to 9%) for the next 20,000 units of VAPs purchased by
Horizon (with the reduction made when such 20,000 units are purchased by
Horizon), (ii) one percentage point (to 8%) for the next 20,000 units of VAPs
purchased by Horizon (with the reduction made when such 20,000 units are
purchased by Horizon) and (iii) two percentage points (to 6%) for the next
20,000 units of VAPs purchased by Horizon (with the reduction made when such
20,000 units are purchased by Horizon); provided, however, that under clauses
(i) (ii) and (iii) there will not be more than one reduction during each 12
month period, with the initial 12 month period commencing on the day Horizon
sells its initial 40,000 units of VAPs (under the example below each twelve
month period begins on January 1 and ends December 31). Any percentage
determined under this paragraph shall not be less than 6%. For example, as of
December 31, 1995 Horizon
-2-
<PAGE> 49
has sold 40,000 units, and Horizon sells its next 60,000 units as of the
following dates: 20,000 on November 1, 1996, 20,000 on April 1, 1997 and 20,000
on January 1, 1998. The 10% is reduced to 9% on November 1, 1996; the 9% is
reduced to 8% on April 1, 1997 and the 8% is reduced to 6% on January 31, 1998.
4. Payment to CMI.
(a) If the entire purchase price payable to Horizon in a sale of the VAP
Business described in paragraph 1 above is paid in cash or its equivalent at
the closing of the sale, the amount payable to CMI under paragraph 1 shall be
paid within ten (10) days after the VAP Business Purchase Price is determined.
(b) If the purchase price payable to Horizon in a sale of the VAP
Business described in paragraph 1 above is payable in part in cash at the
closing of the sale and in part by one or more promissory note payments
subsequent to the closing, the total amount payable to CMI under paragraph 1
above shall be prorated and paid in installments, with a portion of the total
amount payable to CMI within ten (10) days after the VAP Business Purchase
Price is determined (using a percentage determined by dividing the amount of
cash payable to Horizon at the closing by the total purchase price payable to
Horizon) and with a portion of the total amount payable to CMI within ten (10)
days after Horizon receives each note payment (using a percentage determined by
dividing the amount of principal note payment by the total purchase price
payable to Horizon).
(c) In a sale of the VAP Business described in paragraph 1 above, if the
purchase price for the sale is payable to Horizon (or to its shareholders in a
Stock Sale) in whole or in part in publicly traded securities, CMI shall
receive from Horizon the amount calculated under paragraph 1 in the form of
shares of such publicly traded securities (if the entire purchase price is
payable in such securities) or in the form of cash or its equivalent and shares
of such publicly traded securities, with the number of shares and the amount of
cash determined as follows. A percentage shall be determined by dividing the
value of the securities received by Horizon or its shareholders (using the
closing price for the securities on the date of closing of the sale) by the
total purchase price. Such percentage shall then be multiplied times the amount
determined under paragraph 1 hereof, and the product of that multiplication
shall be divided by the closing price per share for the securities on the date
of the closing of the sale. The result of that division shall be the number of
shares that CMI shall receive. The product of that multiplication shall be
subtracted from the amount determined under paragraph 1 hereof, and the result
of that subtraction shall be the amount of cash that CMI shall receive under
paragraph 1 hereof. For example, Horizon sells the VAP Business alone in a
separate transaction for a purchase price of $10,000,000 with a closing in
January 1995, and the purchaser
-3-
<PAGE> 50
paid the purchase price with $5,000,000 cash and securities with a value of
$5,000,000 and a closing price on the date of closing of $20 per share. CMI
would receive $1,000,000 (10% times $10,000,000) which would be payable in
25,000 shares of such securities ($5,000,000 divided by $10,000,000 = 50%; 50%
times $1,000,000 = $500,000; $500,000 divided by $20) and with $500,000 in cash
(($1,000,000 minus $500,000).
5. No Rights as Shareholder.
Nothing in this Agreement shall give CMI any rights as an owner of shares
of Horizon stock or any rights as a shareholder of Horizon.
6. Termination.
(a) After CMI has been paid the entire amount payable to CMI under
paragraph 1 above with respect to a sale of the VAP Business described therein,
this Agreement shall terminate, and CMI shall not be entitled to receive any
amounts on subsequent sales of the VAP Business by any successor owner of the
VAP Business.
(b) At Horizon's sole option, exercisable by written notice to CMI,
Horizon may terminate this Agreement by payment of the following amounts in one
payment to CMI:
(i) an amount that is a thirty percent annual return on $765,000
(CMI's share of the total development costs of the VAP), calculated by
multiplying the number of months from the Effective Date under the Supply
Contract through the date of payment under this paragraph times 2 1/2%
times $765,000; plus
(ii) if Horizon has not purchased 40,000 units of VAPs from CMI as of
the date of payment under this paragraph, then Horizon shall pay to CMI an
amount equal to $50 times the difference between 40,000 and the number of
units of VAPs actually purchased from CMI as of such date of payment (in
the event of which payment Horizon will have satisfied all obligations to
CMI under paragraph 4 of the Supply Contract); plus
(iii) if Horizon has not paid the total amount required by Section
3.1 of the Development Agreement for development costs as of the date of
payment under this paragraph, then Horizon shall pay to CMI the remaining
unpaid portion under Section 3.1 of the Development Agreement (in the event
of which payment Horizon will have satisfied all obligations to CMI under
Section 3.1 of the Development Agreement).
-4-
<PAGE> 51
7. Assignment.
Neither party will have the right to assign this Agreement, in whole or in
part, to any third party without the prior written consent of a duly authorized
officer of the other party, which consent will not be unreasonably withheld. An
attempted assignment without consent will be grounds for termination of this
Agreement by the other party, without thereby affecting any rights or remedies
it may have under this Agreement or at law. Notwithstanding the foregoing, CMI
may freely assign this Agreement to any company controlling, controlled by or
under common control with CMI or succeeding to the entire business of CMI.
Notwithstanding the above, Horizon may freely assign this Agreement to any
company controlling, controlled by or under common control with Horizon or to
any entity succeeding to the entire VAP business of Horizon. The parties
understand that an event described in the preceding sentence may result in an
obligation to make the payment to CMI provided for in paragraph 1 above. This
Agreement will be binding upon and inure to the benefit of the parties and their
successors and permitted assigns.
8. General.
(a) Exclusions. The following sales or transactions are excluded from
this Agreement and are not considered a sale of the VAP Business under
paragraph 1 above: (1) the sale of Horizon shares by Horizon, (ii) the sale of
Horizon shares by a shareholder of Horizon to an individual who at the time of
such sale is an existing shareholder of Horizon where such a sale is not a
""Stock Sale'' (as defined above), (iii) stock dividends issued by Horizon,
(iv) a recapitalization of Horizon stock, (v) the repurchase of outstanding
shares of Horizon stock by Horizon, and (vi) a transfer of the VAP Business by
Horizon to another corporation, a majority of whose shares are owned by Roy C.
Mallady, Jr. and Marshall B. Hunt.
(b) Waivers. No waiver of any right or remedy hereunder will be
effective unless based upon a writing signed by the party against whom it is
sought to be enforced.
(c) Notices. All notices required or permitted under this Agreement must
be made in writing and delivered in person or by certified or registered mail,
postage prepaid, addressed to the attention of the president of the other party
at the respective address first written above, or such other address as may be
given by notice.
(d) Severability. If any provision of this Agreement is declared invalid
or unenforceable by a court of competent jurisdiction, such provision will be
severed from this Agreement and the remaining provisions will be unaffected
thereby. The parties will promptly meet and negotiate a substitute provision
-5-
<PAGE> 1
EXHIBIT 10.25
HEALTHCARE ALLIANCE, INC.
-------------------------
CONSULTING AND SERVICES AGREEMENT
---------------------------------
THIS AGREEMENT, made and entered into this 1st day of February, 1996, by
and between Healthcare Alliance, Inc. (the "Alliance"), and Horizon Medical
Products Inc. ("Client").
WHEREAS, the Alliance is engaged in the business of providing consulting
and related services to healthcare suppliers in order to foster and expedite the
sales of their products to hospital purchasing groups, physician organizations,
other medical services providers and other healthcare suppliers ("Customer");
and
WHEREAS, Client desires to become an Affiliate Member of the Alliance, and
desires to engage the services of the Alliance upon the terms and conditions
hereinafter set forth,
NOW, THEREFORE in consideration of the premises, covenants, and agreements
herein contained, the parties agree as follows:
1.0 Engagement. Client hereby engages the Alliance and the Alliance
agrees to extend its reasonable best efforts to assist Client in marketing its
products/services by representing Client to customers with the expressed
purpose of negotiating and executing a purchasing agreement on behalf of
Client. It is the intention of the Alliance not to enter into agreements with
clients where significant competitive overlaps exist.
2.0 Compensation. In consideration of performance of the Services, Client
shall make payment to the Alliance for marketing fees in the amount of
thirty-six thousand dollars ($36,000), annually; three thousand dollars
($3,000) payable February 28, 1996 and three thousand dollars ($3,000) every
month thereafter.
2.1 Performance Incentive. A performance incentive of five (5) percent of
the annual sales increase over the sales base that results from the Alliance's
efforts will be paid 60 days following the close of the Agreement year
throughout the terms of any purchasing and/or distribution
agreement/arrangement. The sales base against which this performance incentive
will be measured will be the total sales recorded for the customer for the
preceding twelve months prior to any purchasing agreement. Client agrees to
provide Alliance with customer sales reports on a quarterly basis.
<PAGE> 2
2.2 Equity Incentive. An equity incentive of up to three and three tenths
(3.3%) percent of the Client's stock outstanding owned by Messrs. Hunt, Mallady
and Peterson will be granted the Alliance according to the terms contained in
Exhibit A.
2.3 Payment of Expenses. Expenses related to the performance of services
by the Alliance will be the responsibility of the Alliance. Expenses related to
activities hosted by Client will be the responsibility of Client.
2.4 Personnel. The Services will be provided in accordance with all
applicable laws, rules, regulations, statutes, and ordinances of any
governmental authority applicable thereto. In connection with performing the
Services, the Alliance accepts responsibility for and will furnish all
coordinating management and special projects personnel required to efficiently
perform the Services. These personnel shall be direct agents and employees of
the Alliance. The Alliance will pay all salaries, taxes, insurance, and other
fringe benefits of its personnel performing Services hereunder.
3.0 Term. This Agreement shall commence on or about February 1, 1996, and
terminate on January 31, 1999.
3.1 Automatic Renewal. This Agreement will automatically renew for
another three (3) year term unless the Alliance is notified in writing thirty
(30) days prior to the beginning of the third year.
3.2 Non-cancelable. This Agreement is non-cancelable by Client, during
its term except for breach of a material provision of this Agreement by the
Alliance, or the death/departure of either/both of the Alliance's principals,
R.J. Simmons or J.B. Dougherty. In the event of breach, client shall, by
written notice, give the Alliance sixty (60) days commencing with receipt of
such notice, to correct the alleged breach. In the event the alleged breach is
not so corrected within the sixty (60) day period, Client may thereafter deem
this Agreement immediately terminated.
4.0 Exclusivity and Restrictive Covenants. Client acknowledges that the
Alliance has devoted considerable time and expense in developing the business
that provides services within the scope of the Agreement. The fees to be paid
to the Alliance for services provided is based in part on the assumption that
Client will not employ or engage others to provide services similar to the
services provided by the Alliance during the term of the engagement.
5.0 Relationship of Parties. The parties acknowledge and agree that in
all respects in providing Services hereunder, the Alliance shall be an
independent contractor and shall act as an extension of Client.
6.0 Representations and Warranties of the Alliance. The Alliance
represents and warrants that it is an Equal Opportunity employer and does not
and shall not discriminate against any of its employees or applicants for
employment on the basis of race, color, creed, sex, national origin, physical
condition or age. The Alliance will furnish Client with all information, data
and certificates which may be required by Client in order for it to comply with
governmental non-discrimination requirements.
<PAGE> 3
6.1 Neither the Alliance nor any shareholder, director, officer or
employee of is now or ever has been the subject of any governmental
investigation into the legality or propriety of actions, practices, or
procedures of the Alliance.
6.2 Neither the Alliance nor the Client nor any shareholder, director,
officer or employee of the Alliance or Client, has paid or promised to pay any
remuneration to any employee of Alliance or the Client in consideration of
obtaining this Agreement.
7.0 Confidentiality. The Alliance and client acknowledge that billing
information, written procedures, manuals and methods are confidential and are
the property of the respective party. All files, records and documents relating
to the Alliance and the Client's business, to which the other has access, shall
remain the exclusive property of the respective party and shall not be used
without the written consent of that respective party.
8.0 General. This Agreement supersedes all prior agreements and
understandings between the Alliance and Client and its directors, officers,
shareholders, employees, attorneys, agents or representatives and constitutes
the entire Agreement between the parties. There are no representations,
warranties, or commitments other than those expressed herein.
8.1 No modification or amendment of, or waiver under, this Agreement
shall be valid unless in writing and signed by both parties.
8.2 The validity, construction, interpretation and enforceability of this
Agreement and the capacity of the parties shall be determined and governed by
the laws of the State of Illinois.
8.3 This Agreement may not be assigned or subcontracted by either party
without the prior written consent of the other party.
8.4 If any provision of this Agreement shall be held invalid under
applicable laws, such invalidity shall not affect any other provision of this
Agreement that can be given effect without the invalid provisions, and, to this
end, the provisions hereof are severable.
8.5 Any notice required or permitted to be given to either party in
writing under this Agreement may either be personally delivered or sent by
registered or certified mail, return receipt requested, postage paid, addressed
to each party as follows:
TO ALLIANCE: Healthcare Alliance, Inc.
290 East Deerpath Road -- Suite 290
Lake Forest, Illinois 60045
Attention: Mr. James B. Dougherty
Phone: 708-615-1173
Fax: 708-615-1176
TO CLIENT:
<PAGE> 4
8.6 The Alliance and Client each agree to indemnify and hold the other
harmless from any court costs and reasonable attorney's fees which each may
sustain as a result of, or in connection with, either directly or indirectly,
the other's breach or violation of this Agreement.
8.7 Client represents and warrants to the Alliance that it is not a party
to or bound by, and its Agreement with the Alliance or its disclosure of any
information to the Alliance, will not violate or breach any employment,
retainer, consulting, license, non-competition, non-disclosure, or other
agreement or understanding between Client and any other person, partnership,
corporation, joint venture, association or entity.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HORIZON MEDICAL PRODUCTS, INC. HEALTHCARE ALLIANCE, INC.
By: By: /s/
-------------------------- --------------------------
Title: Title: President
----------------------- -----------------------
Date: Date: 3-19-6
------------------------ ------------------------
<PAGE> 5
EXHIBIT A
CONSULTING AND SERVICES AGREEMENT
BETWEEN HEALTHCARE ALLIANCE, INC. AND
HORIZON MEDICAL PRODUCTS, INC.
EQUITY INCENTIVE SCHEDULE
HMP, INC.
STOCK AWARD GROUP AGREEMENT GOAL
1.1% Outstanding Shares Columbia/HCA
1.1% Outstanding Shares AmHS-Premier-SunHealth
1.1% Outstanding Shares Various other group agreements - as
individual agreements or in
combination as defined and agreed
to by the parties.
Total Shares Available: 3.3%%
The Alliance shall be granted their shares thirty (30) days following the
execution of a purchasing agreement with the customer. In the event that
Healthcare Alliance does not obtain a group contract in the first twelve
months, the amount of stock under the "equity incentive schedule" is reduced
from 1.1% to 0.8%.
In the event that Healthcare Alliance does not obtain a group contract in the
second twelve months, the amount of stock under the "equity incentive schedule"
is reduced from 0.8% to 0.5%.
HORIZON MEDICAL PRODUCTS, INC. HEALTHCARE ALLIANCE, INC.
BY: /s/ BY: /s/
--------------------------- ------------------------
DATE: 3/25/96 DATE: 3-19-96
------------------------- ----------------------
<PAGE> 1
EXHIBIT 10.35
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of the 25th day of
September, 1995, by and between HORIZON MEDICAL PRODUCTS, INC., a Georgia
corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee
corporation ("Lender").
WITNESSETH:
WHEREAS, Lender is making a loan (the "Loan") in the amount of $1,500,000
to Borrower, pursuant to that certain Loan Agreement of even date herewith by
and between Borrower and Lender (the "Loan Agreement"); and
WHEREAS, in connection with the making of the Loan, Lender desires to
obtain from Borrower and Borrower desires to grant to Lender a security interest
in certain collateral more particularly described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Security Interest. Borrower hereby grants to Lender a security
interest in the following described property and any and all proceeds and
products thereof and accessions thereto, whether now or hereafter acquired
(collectively the "Collateral"):
(a) Equipment. All equipment of Borrower of any kind and description,
whether now owned or hereafter acquired and wherever located, together with
all parts, accessories and attachments and all replacements thereof and
additions thereto;
(b) Inventory, Accounts, Contract Rights, Chattel Paper and General
Intangibles. All of Borrower's inventory and any agreements for lease of
same and rentals therefrom, and all of Borrower's accounts, accounts
receivable, contract rights, chattel paper and general intangibles and the
proceeds therefrom, whether now in existence or owned or hereafter arising
or acquired, entered into or created, and wherever located; and whether
held for lease or sale, or furnished or to be furnished under contracts of
service;
(c) Trademarks, Etc. All trademarks and service marks now held or
hereafter acquired by Borrower, both those that are registered with the
United States Patent and Trademark Office and any unregistered marks used
by Borrower in the United States, and trade dress, including logos and
designs, in connection with which any such marks
<PAGE> 2
are used, together with all registrations regarding such marks and the
rights to renewals thereof, and the goodwill of the business of Borrower
symbolized by such marks;
(d) Copyrights. All copyrights now held or hereafter acquired by
Borrower and any applications for U.S. copyrights hereafter made by
Borrower; and
(e) Proprietary Information, Computer Data, Etc. All proprietary
information and trade secrets of Borrower, whether now or hereafter
acquired, with respect to Borrower's business and all of Borrower's
computer programs and the information contained therein and all
intellectual property rights with respect thereto.
2. Secured Indebtedness. The obligations secured hereby shall include (a)
loans to be made concurrently or in connection with this Agreement or the Loan
Agreement as evidenced by one or more promissory notes payable to the order of
Lender that shall be due and payable as set forth in such promissory notes, and
any renewals or extensions thereof, (b) the full and prompt payment and
performance of any and all other indebtednesses and other obligations of
Borrower to Lender, direct or contingent (including but not limited to
obligations incurred as indorser, guarantor or surety), however evidenced or
denominated, and however and whenever incurred, including but not limited to
indebtednesses incurred pursuant to any present or future commitment of Lender
to Borrower and (c) all future advances made by Lender for taxes, levies,
insurance and preservation of the Collateral and all attorney's fees, court
costs and expenses of whatever kind incident to the collection of any of said
indebtedness or other obligations and the enforcement and protection of the
security interest created hereby.
3. Representations, Warranties and Agreements of Borrower. Borrower
represents, warrants and agrees as follows:
(a) Borrower will promptly notify Lender, in writing, of any new place
or places of business if the Collateral is used in business, or of any
change in Borrower's residence if the Collateral is not used in business,
and regardless of use, of any change in the location of the Collateral or
any records pertaining thereto.
(b) Except as set forth on Schedule 3(b) hereto, Borrower is the owner
of the Collateral free and clear of any liens and security interests.
Borrower will defend the Collateral against the claims and demands of all
persons.
(c) Borrower will pay to Lender all amounts secured hereby as and when
the same shall be due and payable, whether at maturity, by acceleration or
otherwise, and will promptly perform all terms of said indebtedness and
this or any other security or loan agreement between Borrower and Lender,
and will promptly discharge all said liabilities.
2
<PAGE> 3
(d) Borrower will at all times keep the Collateral insured against all
insurable hazards in amounts equal to the full cash value of the
Collateral. Such insurance shall be in such companies as may be acceptable
to Lender, with provisions satisfactory to Lender for payment of all losses
thereunder to Lender as its interests may appear. If required by Lender,
Borrower shall deposit the policies with Lender. Any money received by
Lender under said policies may be applied to the payment of any
indebtedness secured hereby, whether or not due and payable, or at Lender's
option may be delivered by Lender to Borrower for the purpose of repairing
or restoring the Collateral. Borrower assigns to Lender all right to
receive proceeds of insurance not exceeding the amounts secured hereby,
directs any insurer to pay all proceeds directly to Lender, and appoints
Lender Borrower's attorney in fact to endorse any draft or check made
payable to Borrower in order to collect the benefits of such insurance. If
Borrower fails to keep the Collateral insured as required by Lender, Lender
shall have the right to obtain such insurance at Borrower's expense and add
the cost thereof to the other amounts secured hereby.
(e) Borrower will pay all costs of filing of financing, continuation
and termination statements with respect to the security interests created
hereby, and Lender is authorized to do all things that it deems necessary
to perfect and continue perfection of the security interests created hereby
and to protect the Collateral.
(f) The address set forth after Borrower's signature on this Agreement
is Borrower's principal place of business and the location of all tangible
Collateral and the place where the records concerning all intangible
Collateral are kept and/or maintained, except for consignment inventory of
Borrower that was placed with the hospital customers of Borrower described
on Schedule 3(f) hereto.
4. Default. Borrower shall be in default upon failure to observe or
perform any of Borrower's agreements herein contained, or upon the occurrence of
a default or Event of Default under the Loan Agreement or any other Loan
Document (as defined in the Loan Agreement) that has not been cured during the
applicable grace period, or if any warranty or statement by Borrower herein or
furnished in connection herewith is false or misleading, or if Lender in good
faith believes its prospect of payment and performance is impaired.
5. Remedies Upon Default. Upon default hereunder, all sums secured hereby
shall immediately become due and payable at Lender's option without notice to
Borrower, and Lender may proceed to enforce payment of same and to exercise any
and all rights and remedies provided by the Uniform Commercial Code (Tennessee)
or other applicable law, as well as all other rights and remedies possessed by
Lender, all of which shall be cumulative. Whenever Borrower is in default
hereunder, and upon demand by Lender, Borrower shall assemble the Collateral and
make it available to Lender at a place reasonably convenient to Lender and
Borrower. Any notice of sale, lease or other intended disposition of the
Collateral by Lender sent to Borrower at the address hereinafter set forth, or
at such other address of Borrower as
3
<PAGE> 4
may be shown on Lender's records, at least five (5) days prior to such action,
shall constitute reasonable notice to Borrower.
Lender may waive any default before or after the same has been declared
without impairing its right to declare a subsequent default hereunder, this
right being a continuing one.
6. Severability. If any provision of this Agreement is held invalid, such
invalidity shall not affect the validity or enforceability of the remaining
provisions of this Agreement.
7. Binding Effect. This Agreement shall inure to the benefit of Lender's
successors and assigns and shall bind Borrower's heirs, representatives,
successors and assigns. If Borrower is composed of more than one person, firm
and/or entity, their obligations hereunder shall be joint and several.
8. Financial Reporting. Borrower has no undisclosed or contingent
liabilities that are not reflected in the financial statements on file with
Lender at the execution of this Agreement. Lender shall have the right, at any
time, by its own auditors, accountants or other agents, to examine or audit any
of the books and records of Borrower, or the Collateral, all of which will be
made available upon request. Such accountants or other representatives of Lender
will be permitted to make any verification of the existence of the Collateral or
accuracy of the records that Lender deems necessary or proper. Any reasonable
expenses incurred by Lender in making such examination, inspection, verification
or audit shall be paid by Lender.
9. Termination Statement. Borrower agrees that, notwithstanding the
payment in full of all indebtedness secured hereby and whether or not there is
any outstanding obligation of Lender to make future advances, Lender shall not
be required to send Borrower a termination statement with respect to any
financing statement filed to perfect Lender's security interest(s) in any of the
Collateral, unless and until Borrower shall have made written demand therefor.
Upon receipt of proper written demand, Lender may at its option, in lieu of
sending a termination statement to Borrower, cause said termination statement to
be filed with the appropriate filing officer(s).
10. Protection of Collateral. Except as provided in Section 7.17 of the
Loan Agreement, Borrower will not permit any liens or security interests other
than those created by this Agreement to attach to any of the Collateral, nor
permit any of the Collateral to be levied upon under any legal process, nor
permit anything to be done that may impair the security intended to be afforded
by this Agreement, nor permit any tangible Collateral to become attached to or
commingled with other goods without the prior written consent of Lender.
11. Special Agreements With Respect to Certain Tangible Collateral.
Borrower additionally agrees and warrants as follows:
(a) Borrower will not permit any of the Collateral to be removed from
the location specified herein, except for temporary periods in the normal
and customary use
4
<PAGE> 5
thereof and consignment inventory placed with Borrower's customers in the
ordinary course of business, without the prior written consent of Lender,
and will permit Lender to inspect the Collateral at any time.
(b) If any of the Collateral is equipment or goods of a type normally
used in more than one state (whether or not actually so used), Borrower
will contemporaneously herewith furnish Lender a list of the states wherein
such equipment or goods are or will be used, and hereafter will notify
Lender in writing (i) of any other states in which such equipment or goods
are so used, and (ii) of any change in the location of Borrower's chief
place of business.
(c) Except in the ordinary course of business, Borrower will not sell,
exchange, lease or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Lender.
(d) Borrower will keep the Collateral in good condition and repair and
will pay and discharge all taxes, levies and other impositions levied
thereon as well as the cost of repairs to or maintenance of same, and will
not permit anything to be done that may impair the value of any of the
Collateral. If Borrower fails to pay such sums, Lender may do so for
Borrower's account and add the amount thereof to the other amounts secured
hereby.
(e) Until default in any of the terms hereof, or the terms of any
indebtedness secured hereby, Borrower shall be entitled to possession of
the Collateral and to use the same in any lawful manner, provided that such
use does not cause excessive wear and tear to the Collateral, cause it to
decline in value at an excessive rate, or violate the terms of any policy
of insurance thereon.
(f) Borrower will not allow the Collateral to be attached to real
estate in such manner as to become a fixture or a part of any real estate.
12. Special Agreements With Respect to Intangible and Certain Tangible
Collateral. Borrower additionally warrants and agrees as follows:
(a) So long as Borrower is not in default hereunder, Borrower shall
have the right to process and sell Borrower's inventory in the regular
course of business. Lender's security interest hereunder shall attach to
all proceeds of all sales or other dispositions of the Collateral. If at
any time any such proceeds shall be represented by any instruments, chattel
paper or documents of title, then such instruments, chattel paper or
documents of title shall be promptly delivered to Lender and subject to the
security interest granted hereby. If at any time any of Borrower's
inventory is represented by any document of title, such document of title
will be delivered promptly to Lender and subject to the security interest
granted hereby.
5
<PAGE> 6
(b) By the execution of this Agreement, Lender shall be obligated to do
or perform any of the acts or things provided in any contracts covered
hereby that are to be done or performed by Borrower, but if there is a
default by Borrower in the payment of any amount due in respect of any
indebtedness secured hereby, then Lender may, at its election, perform some
or all of the obligations provided in said contracts to be performed by
Borrower, and if Lender incurs any liability or expenses by reason thereof,
the same shall be payable by Borrower upon demand and shall also be secured
by this Agreement.
(c) At any time after Borrower is in default hereunder or under the
Loan Agreement, Lender shall have the right to notify the account debtors
obligated on any or all of Borrower's accounts receivable to make payment
thereof directly to Lender, and to take control of all proceeds of any such
accounts receivable. Until such time as Lender elects to exercise such
right by mailing to Borrower written notice thereof, Borrower is
authorized, as agent of the Lender, to collect and enforce said accounts
receivable.
13. Power of Attorney. Borrower hereby constitutes the Lender or its
designee, as Borrower's attorney-in-fact with power, upon the occurrence and
during the continuance of an Event of Default, to endorse Borrower name upon any
notes, acceptances, checks, drafts, money orders, or other evidences of payment
or Collateral that may come into either its or the Lender's possession; to sign
the name of Borrower on any invoice or bill of lading relating to any of the
accounts receivable, drafts against customers, assignments and verifications of
accounts receivable and notices to customers; to send verifications of accounts
receivable; to notify the Post Office authorities to change the address for
delivery of mail addressed to Borrower to such address as the Lender may
designate; to execute any of the documents referred to in Section 3(e) hereof in
order to perfect and/or maintain the security interests and liens granted herein
by Borrower to the Lender; to do all other acts and things necessary to carry
out this Security Agreement. All acts of said attorney or designee are hereby
ratified and approved, and said attorney or designee shall not be liable for any
acts of commission or omission (other than acts of gross negligence or willful
misconduct), nor for any error of judgment or mistake of fact or law; this power
being coupled with an interest is irrevocable until all of the obligations
secured hereby are paid in full and any and all promissory notes executed in
connection therewith are terminated and satisfied.
6
<PAGE> 7
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement, or
have caused this Agreement to be executed as of the date first above written.
BORROWER:
---------
HORIZON MEDICAL PRODUCTS, INC.
By: /s/
----------------------------------------
Title: CEO
-------------------------------------
Addresses: Seven North Parkway Square
4200 Northside Parkway, N.W.
Atlanta, Georgia 30327
Five North Parkway Square
4200 Northside Parkway, NW
Atlanta, GA 30327
LENDER:
-------
SIRROM CAPITAL CORPORATION
By: /s/
----------------------------------------
Title:
-------------------------------------
7
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-46349) of our report dated January 29, 1998, except as to Note 16
as to which the date is March 22, 1998, on our audits of the financial
statements and financial statement schedule of Horizon Medical Products, Inc.
and to the inclusion of our report dated September 15, 1997 except as of and for
the period ended June 30, 1997 for which the date is March 21, 1998, on our
audits of the financial statements of Strato/Infusaid Inc. We also consent to
the reference to our firm under the caption "Experts" and "Selected Financial
Data."
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
March 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HORIZON
MEDICAL PRODUCTS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,893,924
<SECURITIES> 0
<RECEIVABLES> 4,028,270
<ALLOWANCES> 308,239
<INVENTORY> 5,405,861
<CURRENT-ASSETS> 12,956,151
<PP&E> 2,735,645
<DEPRECIATION> 394,137
<TOTAL-ASSETS> 31,576,905
<CURRENT-LIABILITIES> 6,113,585
<BONDS> 36,434,124<F1>
0
0
<COMMON> 9,419
<OTHER-SE> (11,159,174)
<TOTAL-LIABILITY-AND-EQUITY> 31,576,905
<SALES> 15,798,123
<TOTAL-REVENUES> 15,798,123
<CGS> 6,273,418
<TOTAL-COSTS> 12,384,245
<OTHER-EXPENSES> (69,727)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,970,734<F2>
<INCOME-PRETAX> (8,487,129)
<INCOME-TAX> 319,831
<INCOME-CONTINUING> (8,806,960)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,806,960)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> (.93)
<FN>
<F1>INCLUDES 11,000,000 OF PUT WARRANT OBLIGATION AND 1,463,319 OF NON COMPETE
LIABILITIES.
<F2>INCLUDES 8,000,000 OF PUT WARRANT VALUE ACCRETION
</FN>
</TABLE>
